The Devil's Casino (13 page)

You think you would have liked Chris Pettit—but by the end you would not have liked him. He became someone else.

—John Cecil

B
y the start of 1996, both Lehman’s equities and investment banking units were still doing poorly compared to fixed income, which was a weakness that Lehman needed to fix. Their respective heads, Paul Williams and Mel Shaftel, were considered overmatched by almost everyone save Chris Pettit, who repeatedly defended them. He used to say to Tom Tucker, “Listen, managing bankers is like herding cats” (in other words, impossible) and “Mel is the only person I consider objective and reliable. I really can’t think of anyone better for the job.”

Fuld wanted to hire Joe Perella, from the now-defunct Wasserstein Perella boutique mergers and acquisitions (M&A) firm, to run banking. Though Perella had interviewed with the firm and seemed very interested, Pettit was none too keen on him. “He will show up at 10 in the morning and leave by three,” Pettit complained to other senior executives. His frosty attitude had been clear to Perella during their interview.

Perella opted to join Morgan Stanley instead. Fuld would call him regularly, like a jilted lover, and ask, “Are you happy?”

“What the hell does it matter what hours Joe Perella works? ” complained Mike Odrich, Fuld’s bright chief of staff at the time. “He’s the best M&A banker out there. We should have done everything to get him.”

Deep down, Pettit must have known his heads of banking and equities were weak. He moved Tucker over to supervise Williams and help him fix equities. After several months, Tucker told Pettit: “Chris, he can’t do it.”

Williams’s deputy, Leo Corbett, even went to Tucker and Pettit and said, “You have to fire Paul. He ‘s just not up to the job.”

But Pettit was very close to both Shaftel and Williams, who spent so much time at Pettit’s house that many people, neighbors in particular, thought he and Chris were blood relatives.

Pettit held out against firing the duo even when the rest of the operating committee disagreed with him. “Show me better candidates,” he kept saying.

When Joe Gregory started calling for Pettit’s pals to be fired, an ugly confrontation was inevitable. Gregory told Fuld that if Pettit wouldn’t fire Shaftel and Williams, then Fuld should fire Pettit—for the good of the firm, of course.

Gregory realized that the only way to convince Fuld—who was rarely willing to make the tough decisions—that he had the clout to win a fight with Pettit was to show him that Lessing and Tucker—Pettit’s two best friends and very influential men in the firm—would back him.

Lessing obliged. Tucker simply told Fuld he thought Chris was making some wrong decisions and left it at that. He had no idea that a coup was afoot, and that he’d just cast the deciding vote.

Gregory then gave Fuld a plan: remove Pettit from the position of head of the operating committee, then create a smaller executive committee, and thereby limit Pettit’s power. He knew Pettit would resist this shake-up.

Odrich warned Fuld not to have a showdown with Pettit until he had the Lehman board members on his side. Odrich knew Pettit would never think to court the board. He’d long ago ceded that ground to Fuld, and focused on managing his troops.

The board back then included Fuld, Michael Ainslie (president and
CEO
of Sotheby’s), John Akers (former president of
IBM
), Roger Berlind (a theater producer), Thomas Cruikshank (
CEO
of Halliburton), Hideichiro Kobayashi (a general manager at Nippon Life Insurance), Henry Kaufman (the former chief economist at Salomon Brothers and the only person on the board with a background in finance), John Macomber (a real estate expert), Dina Merrill (an actress, daughter of the co-founder of E.F. Hutton), and Masataka Shimasaki (another Nippon Life head). They were all friendly with Fuld—and they’d never even met Pettit. The board endorsed his plan.

Even though he had made Fuld sign a $10 million severance deal, Pettit never saw the coup coming. It never occurred to him that his old friends would betray him. Why? Because he would never have done it to them.

As Mel Shaftel says: “Though he chewed Joe out, especially during the Mexican thing, it was like you’d chew out a child. He would
never
have fired Joe. Joe was ‘family’ to him.”

On February 18, 1996, Lara Pettit organized a surprise 50th birthday dinner for her father in a private room at Gramercy Tavern, a swank American tavern in New York City’s historic Flatiron building. She invited Fuld, Gregory, Lessing, and all the other members of the executive committee, and most of them came.

When Lara and her father opened the door of the private dining room for the big surprise, her father blanched. “Please stay,” he begged his daughter.

“No, no. Have a good time,” she said gaily.

The next day she went to the restaurant to pay the check, expecting it to be huge.

It wasn’t. Judging by the receipt, the party had started at seven o’clock and was over by eight.

She asked her father what had happened.

He told her, “Oh we just had drinks—we didn’t want you to pay for more than that.”

The Ponderosa Boys had all carpooled together for decades, and now they couldn’t even stand to be in the same room together.

Once Dick Fuld knew he had the support of Tom Tucker and Steve Lessing—”Chris’s guys”—he knew that he had control of Lehman Brothers. He didn’t want to fire Chris Pettit, but he did want to hobble him.

“It took a remarkable amount of push from me and Steve Lessing to get Dick emboldened enough,” Gregory wrote later for the unpublished Lehman “Modern History.” “He needed to believe that we, whom he viewed as Chris loyalists, would in fact be there for him.”

Lessing and Gregory were in Singapore on March 15, 1996, on business when the plan to “force Chris into a box,” as Gregory put it, was initiated. Fuld was going to tell Pettit he had decided to fire Williams and Shaftel, and that unless Pettit agreed, he ‘d have to strip Pettit of his directorship of the operating committee.

He would also tell Pettit the firm would henceforth be led by a small group known as the frontline committee, of which Pettit would be part—but not its head.

To the end, Fuld needed to be propped up for his confrontation with Pettit. According to Gregory, before calling Pettit into his office, Fuld asked Gregory and Lessing on the phone in Singapore, “How am I going to do this again?”

When Fuld summoned Pettit to his office and told him he needed to fire Williams and Shaftel, Pettit refused. In that case, Fuld said, he needed to ask Pettit to step down from running the operating committee. He laid out his plans for a small committee of six, and Pettit again refused.

So Fuld demoted him to “head of client relationships.”

What happened next is known only by the two men who were in that room. All that anybody else knows is that there were raised voices and that Pettit then marched out of Fuld ‘s office. Dave Steinmetz, Pettit’s chief of staff, recalls seeing Fuld come out of his office right after he’d confronted Pettit. Steinmetz told colleagues Fuld was ashen-faced. Had he—completely unintentionally—done something irreparable with Pettit? Had he pushed him out?

For the better part of a week, Pettit tried to fight back, but once he realized that Tucker, Lessing, and Gregory were behind Fuld, he knew it was over. That Friday, he called Dan Pollack, the lawyer all senior Lehman executives used when they needed to fight over severance. He told Pollack he had to leave Lehman and there’d be a battle on his way out.

“Chris almost ate Dick but we didn’t let that happen, because Chris was not a good guy,” Gregory later wrote in his journals.

Pettit kept the news that he planned to leave to himself for as long as he could. His daughter, Lara, heard he’d changed job titles and went to seek him out. She found him in a new office on the 19th floor, which was known as the “dead zone.” She was shocked at how small it was.

In the middle of their conversation, she saw her father weep for the first time. “He threw something across his office. And he started to cry, and he said, ‘I have pride, I have pride. ‘ It was horrible.”

Tom Tucker announced he was leaving Lehman right after Pettit’s demotion. He returned all but $1 million of his 1995 bonus, distributing it among his staff. He had always been interested in helping underprivileged children, and that’s now what he set his sights on. He was dismayed about what was happening at Lehman.

“I wondered what we’d all become. All that money, that success . . . . Were we that brilliant, really? I was deeply troubled by what had happened to us.”

He went to see Pettit in his office before it was public that Pettit was leaving. Tucker told his old friend that he couldn’t bear to stay with Lehman any longer. He’d seen more than enough of Wall Street to last him a lifetime. Weeping, he told Pettit he wanted out.

He says Pettit was cold and defiant. “He looked at me crying like I was pathetic.” Pettit said that he wouldn’t come to Tucker’s farewell party, because he was upset at the way Tucker—who was close with Mary Anne—had treated him and his kids in regards to his affair with Dillman. Pettit claimed that Tucker hadn’t been a good friend, after all.

They had come so far from their days at Finnegan’s, and the night when they made their pact that money would never change them.

Tucker recalls that the last thing Pettit said to him that day was: “In the end, the guy who coped best with money was you, wasn’t it?”

Two weeks later, at Tucker’s farewell party, in the partners’ dining room at 200 Vesey Street, Steve Carlson passed Tucker a note that read, in part: “You are the heart and soul of Lehman Brothers.”

Carlson felt that of all the firm’s leaders—Fuld, Pettit, Hill, the Ponderosa Boys—Tucker was the only one, in the end, who really
had
meant to “do the right thing.”

Pettit kept his word and didn’t attend that farewell; neither did Lara. Her father had told her: “Out of respect for me, you will not go.”

Pollack began the negotiations over Pettit’s severance package, which he calculated was worth $40 million. Fuld wasn’t eager to see that much money walking out of Lehman. It took eight months to sort out the mess.

Meanwhile, Shaftel was demoted and moved upstairs to the “dead zone” office next to Pettit ‘s. “Bankers never die, they just change titles,” he joked several years later. Pettit told him to hire Pollack, too. They weren’t going down without one last fight.

Pettit had time to kill while Pollack fought with Bob Genirs over his severance. He put in some token hours at the office, and that summer he took Martha and Lara to Africa for a long vacation.

While in Africa, deep in the jungle, he was startled to receive a call on his cell phone. It was Jim Vinci, calling from a pay phone outside a ranger’s station in the Adirondacks.

Vinci told him he had just been fired.

“That’s not supposed to happen,” said Pettit. But he was powerless to stop it.

Soon after, he got a call from his sister-in-law, who said that his brother, Rusty, had taken a turn for the worse. Could Chris come back and see if he could search for some miracle treatment?

Pettit cut his trip short and flew back to New York. He missed the planned highlight of the sojourn: He’d never seen a real gorilla in the wild.

Rusty died not long after Pettit got home.

When Pettit returned, he was able to watch the ascension of the man who had played a large part in forcing him out: Joe Gregory.

Fuld moved Gregory out of fixed income by the end of the year and asked him to head up equities following a presentation by Paul Williams to the new frontline committee that was considered “disastrous.” Williams was fired. Gregory would be taking over for him at the start of 1997.

In less than a year, Gregory had changed from Pettit’s acolyte to his Brutus. One person involved with the ousting says, “It’s like the old lion and the young lions. Joe Gregory sees a weakness in Chris Pettit, something that he can grab hold of. He goes to Dick, and they push Chris out. He’s killed a guy who was his boss, his mentor, his buddy. That speaks to Joe Gregory’s character. It doesn’t speak to Chris Pettit’s at all.”

Gregory was now a formidable force in the firm. Everyone knew that they were part of that “one firm” only as long as they followed the directives of Joe Gregory. His new nickname was “Joe the Wedge.” Cross him, even on the smallest thing, and you were dead.

Bob Genirs, the chief administrative officer (
CAO
), on the verge of retiring, recalls walking into Fuld’s office and seeing his
CEO
sitting there with John Cecil on one side and Tom Russo, Lehman’s legal counsel, on the other. They were looking over Pettit’s severance deal one last time. Russo and Cecil had both been hired by Pettit, and Genirs says he was suddenly infuriated.

It was an unusually generous agreement and allowed Pettit access to stock that wasn’t fully vested. Genirs, who had drafted it, says he felt he’d done well by both Lehman and Pettit. But Cecil and Russo, according to Genirs, were trying to convince Fuld to scale it back.

“I had to say, right in front of Cecil and Russo—’Dick, these two guys want your position. And I’m telling you that’s what’s generating all of these comments,’ ” Genirs recalls.

“I said, ‘So Dick, you’ re either going to believe what I’ m saying, and go and sign this piece of paper, or you’ re going to believe these guys.’ And he believed me, and he signed.”

(Cecil says he doesn’t remember this scene, though he does recall disputes over Pettit’s severance package because of the fear that if Pettit gained access to stock that had not fully vested, others would want it too.) Genirs recalls, that Fuld phoned him at home that night. “Genirs, you’ve done a lot of things for me over the years. But how you got Pettit out, and what you did here, is beyond whatever I could do to thank you. This is the greatest thing you ever did for Lehman Brothers.”

On November 26, 1996, Chris Pettit finally walked out of Lehman Brothers, the firm he could rightfully claim to have built into a behemoth with his brains and his indomitable spirit. He would not speak to Dick Fuld, Tom Tucker, Joe Gregory, or Steve Lessing—his old friends—ever again.