The last tycoons: the secret history of Lazard Frères & Co (35 page)

Deane said that while the partners at Lazard did not talk about the investigations, they were extremely scared about the potential outcomes. "Because the firm could have been put out of business," he said. "So it was a very scary time at the firm." Deane, whom Felix referred to as his "blood enemy," described how, in his opinion, Felix avoided indictment. "Well, because Felix knew nothing about the inner workings of Andre Meyer and all his friends in Europe," he said, "Felix just appeared as an implementer, not as the brains. The brains of the whole transaction was Andre Meyer.... You see there's a thread to this whole thing. Felix is a very intelligent person. And Felix is smart enough to keep out of the way of these, what I would call criminal activities. The parking activities and all. These were criminal activities. And he did. And when someone asked Felix what he knew about the parking, he said, 'I knew nothing about it.' And that was so." He said Andre and Felix used their connections in Washington to make the whole matter go away, with but a slap on the wrist from the SEC. "But," he said, "we thought that any minute they might come down with some type of an order that would basically put Lazard out of business.... Felix Rohatyn is the greatest escape artist of all time." Patrick Gerschel, Andre's grandson and a partner at Lazard at the time, was no friend of Felix, Deane, or Price. But he, too, remembered clearly that both his grandfather and Felix were targets of the grand jury investigation. Why would Felix deny the matter ever occurred? "Felix would deny that he was walking across the street if he thought he could do it," Gerschel said.

In any event, with the federal grand jury and the SEC both safely tucked away, the only remaining open issue in the matter was how much ITT would have to pay the IRS to settle the tax indemnity it had provided to the Hartford shareholders. In typical ITT style, it was not going to concede an inch without a substantial legal fight. Within weeks of the IRS's change of heart, in March 1974, ITT filed a suit against the IRS and its commissioner, Donald Alexander, seeking a judgment declaring Alexander's revocation invalid. In June 1975, the U.S. District Court in Delaware dismissed the complaint. But in early 1979, both a federal court in Delaware and the U.S. Tax Court thwarted the IRS and reinstated the acquisition's original tax-free status. On behalf of the IRS, the Justice Department appealed these new rulings, and finally, in May 1981, ITT agreed to pay $17.8 million to the IRS in exchange for the IRS agreeing not to pursue tax claims against the former Hartford shareholders. "We are very pleased to have this litigation behind us," Rand Araskog, ITT's new CEO, told the
Times.
"While we have felt that our position that the exchange was not taxable was correct, the legal issues involved are extremely complex and the final outcome in the courts was uncertain." In any event, the settlement was well below the $100 million ITT originally thought the tax indemnity would cost.

Now the final open question was at hand: What effect would the years of litigation, and its attendant publicity, have on Lazard's reputation in general and on Felix's in particular? Felix's highly prized reputation for secrecy, elitism, and unimpeachable advice had been broadly challenged by his role in arranging for and then defending ITT's high-profile acquisition of the Hartford. Despite the deal being his most important client's most important deal, he sought to portray himself as detached from it and uninvolved, especially when the seas started to swell. This is simply implausible, especially for a banker so facile with numbers and insights who prided himself on the depth of his understanding for his clients and their aspirations. Now, of course, it would have been terribly inconvenient for Felix to admit the extent of his involvement. Far better, he and Andre must have decided, to pin the tail on the nervous and thankfully deceased Walter Fried, their administrative partner who, according to Cary Reich's description of him in
Financier,
"was unable to push a paper clip across a desk without clearing it first with Meyer." Mullarkey, who replaced Fried as Lazard's administrative partner after Fried's nervous breakdown, told the SEC that even someone of the "meanest intellect" could see that all the transactions were linked, which is about as close as anyone at Lazard ever came to admitting to the authorities that the deals had a mastermind. "It was brilliantly conceived, just brilliant," Mullarkey would later confide to Reich. "There were a lot of minions involved--myself, Felix and some other people. But the conception of it was Andre's." Mullarkey's recollection of the Hartford deal sounded much like Deane's recollection. Concluded Reich: "It was, unquestionably, one of Andre Meyer's greatest deals."

Andre was quite ill by this time, so if there was to be fallout from the years of negative publicity, the brunt of it would chiefly be felt by Felix, and perhaps to a much lesser degree by Michel David-Weill, who had moved to New York in 1977 to take over the day-to-day operations of the firm in the wake of Andre's incapacity. Michel said much later he was glad not to have been in New York during the ITT tempest and claimed to know nothing about the grand jury investigation. But he also said he was certain that the ITT conflagration was ultimately what killed Andre.

ON SUNDAY, September 9, 1979, Andre--the man his partners referred to without irony as Zeus--died at a hospital in Lausanne, Switzerland, near his beloved mountain home in Crans-sur-Sierre. The
Times
reported he died after contracting pneumonia, but he had been ill with cancer since the death of Pierre David-Weill in January 1975. The
Times
also reported he left behind a fortune, estimated at between $250 million and $500 million, although when the final assessment was made some years later, Andre had left a calculable estate of $89.5 million. Disque Deane explained that he believed Andre had moved out of his estate into trust funds several hundred million dollars before he died. Andre had also asked him on at least one occasion to take what he assumed were priceless paintings--they were wrapped in brown paper--with him on a jet to Paris in order to remove them from his estate and the purview of the Internal Revenue Service.

After his death, forty-one of Andre's paintings, by such masters as Bonnard, Cezanne, Corot, Degas (his 1884 portrait of Mary Cassatt), Pissarro, Picasso (his 1905
Boy with a White Collar
), van Gogh (his 1888
The Bridge at Trinquetaille
), Rembrandt (his 1635 portrait of Petronella Buys), Renoir, and Toulouse-Lautrec, were auctioned off at Sotheby's on October 22, 1980. Unlike those of his partners George Blumenthal and the David-Weills, Andre's collection was not judged by experts to be exceptional.

"It was not so much a sale as a social event," Cary Reich wrote in his biography of Andre. When all the hysteria had concluded, Andre's collection was valued at $16.4 million, some $2 million more than the auction house had anticipated. Not included in the auction was Picasso's
Homme a la Guitare--
itself valued at $1.9 million--which he had bought with his friends David Rockefeller and David Sarnoff and which had been promised to the MOMA. "It was a typical rich man's collection," one art expert sniffed at the time. "He had the names, but he didn't have the best examples of those names. People were stunned that such second-rate pictures brought that kind of money." Concluded Reich: "The prized Andre Meyer collection, in short, had been a glorious triumph of mystique over substance."

Even the so-called Andre Meyer Galleries of European paintings, which opened at the Metropolitan Museum of Art in March 1980 on the second floor of the new Michael C. Rockefeller Wing, were a mirage. While Andre had served on the Met's board (taking Bobbie Lehman's seat) from 1968 until his death and had given $2.6 million to the museum to pay for the cost of the construction of the new wing--with twenty-four thousand square feet of exhibition space--that was to house the museum's huge collection of European art from the nineteenth century and that would bear his name, none of the work exhibited there was from Andre's collection. At the time of Andre's death, Douglas Dillon, the chairman of the Met's board of trustees and a former secretary of the Treasury, said the new Andre Meyer Galleries would "stand as an enduring memorial to an extraordinary patron of the arts and an extraordinary man." The Met's timeless homage to Andre lasted fewer than a dozen years. In 1992, the museum undertook a gut renovation of the Andre Meyer Galleries, and in 1993 the redesigned exhibition space reopened, without the slightest mention of the former Lazard partner. "The Meyer Galleries were as crisp and as modern as the Rockefeller building itself," wrote Paul Goldberger, then the architecture critic at the
Times,
"and they were something of a disaster: with paintings hung on movable partitions set on the diagonal on a wide open floor, they looked more like an art show at the Javits Center than the centerpiece of the greatest museum in North America. Designed to last forever, they looked temporary. Everything in those galleries, from the art on the walls to the visitors trying to find their way through the aisles, seemed forlorn, confused, lost."

A few weeks after Andre's death, his
Times
obituary was entered into the
Congressional Record,
along with numerous paeans to his illustrious career. "Timeliness, style and charm--as well as wisdom and astuteness--were a part of all that he did," the New York senator Jacob Javits said at the time, "and powerful leaders of our country and other free world countries were beneficiaries of these attributes as well as of his sage advice. Andre Meyer was a very dear friend and adviser and the many hours I spent with him over the years were among the most fruitful in my life. His passing is a singular and irreplaceable loss to those who like me were personally close to him and to his wife, Bella"--who died five months later in Paris--"and also to American and international institutions of business, education, culture, and health and to the worlds of international finance and private philanthropy." At Andre's memorial service, held at Temple Emanu-El on Fifth Avenue in New York, Felix delivered one of the most emotional eulogies. "Rohatyn's voice cracked as he recounted how he still instinctively reached for the phone to call his mentor," Reich wrote, and then quoted Felix: "Sometimes I imagine what the conversations would be like, what he would say, but I can't be sure--it's left a terrible void.... Behind that stern, forbidding, and sometimes theatrical facade lay a man who was really yearning for affection. In my youth, he was an Olympian figure: Zeus hurling thunderbolts. Then he was my teacher. He taught me not only to achieve perfection, but to do it in style."

Somehow, the Teflon investment banker was able to achieve just what his mentor had taught him.

CHAPTER
7

THE SUN KING

P
oor Michel." It is hard to fathom these two words together. After all, Michel David-Weill, now seventy-four, unerringly courteous, gracious, and polite, described once as "the living legend of French capitalism," is one of the world's wealthiest men. Thanks in large part to the equity he inherited as a direct descendant of the founders of the Lazard banking empire, the elfin, cigar-chomping Michel had a net worth in 2000 estimated by
Forbes
to be about $2.2 billion and supposedly, through his "mysterious labyrinth of interlocking investments," controlled assets "worth five times as much." At that time, even without the multiplier effect, he was listed as the eleventh-wealthiest person in France and owned one of the world's one hundred best private art collections, with a specialty in French paintings from between the seventeenth and the nineteenth centuries. Indeed, as an expression of his love of art, at the end of 2003 he pledged $10 million for the creation of an English painting gallery at the Louvre. He also has one of the world's finest collections of mortgage-free and seductively exclusive high-end real estate--where he displays his priceless art--including a Fifth Avenue apartment facing Central Park, a Parisian mansion just off the Boulevard Saint-Germain-des-Pres, and massive country homes in Glen Cove, Long Island, and Cap d'Antibes, along the French Riviera. He also used to have a home in Jamaica but sold it. A more recent update of Michel's wealth is difficult to obtain as, somehow, he has succeeded in persuading
Forbes
to leave his name--and fortune--off the latest annual lists of the world's wealthiest. But suffice it to say, the value of his impressive set of assets, all told, is well north of $1 billion. Still, despite his extraordinary wealth, there is about Michel a certain loneliness, even wistfulness, that can evoke among his acolytes the occasional feeling of sympathy for the burden carried by the last male heir in the David-Weill family tree. But for his partners, these feelings of empathy, experienced generally over cigars and lengthy,
intime
conversations on the couches in his large Rockefeller Center office, were fleeting.

During his twenty-five years at the helm of Lazard, Michel used his Gallic wiles to massage his partners' considerable egos. He loved to refer to Lazard as the
"haute banque d'affaires vis-a-vis the world."
He once described what he meant by this: "To me it is a state of mind, not an activity. It is a firm which puts itself at a level parallel with the level at which decisions are made in enterprises. It means that you remain at the decision-making level, that you give advice at that level, that you
think
at that level and that you remain exclusively at that level." This is a rather remarkable insight into why Lazard--for all the implied arrogance--was the envy of other bankers, as no other head of a Wall Street firm described his strategy this way.