The Devil's Casino (33 page)

To my horror, not only did I have to go back and reinterview those people the machine had simply failed to pick up (it got spotty around tape 80), but I also had to learn how to work a digital recorder—and I bungled that, too, on occasion.

Had the former U.S. Treasury Secretary Hank Paulson not recorded our conversation himself, his insightful and refreshing candor would not have made it into these pages. So I thank him not just for his time and his honesty, but also for handing over the recording.

I must also thank certain members of his team, who wish to remain anonymous and who gave me many hours of their precious time. For one particular senior member of the Federal Reserve, who showed astonishing patience and good humor as we redid one very long conversation, I am most sincerely grateful. The same goes for certain people inside Britain’s Financial Services Authority.

Also to the many men and women of the former Lehman Brothers, and also of Barclays Capital (BarCap), who underwent a second and sometimes a third grilling. The only upside of my sorry incompetence was this: I think that by the end, I had got the story down correctly. And I noticed that almost without exception, the stories remained unchanged as they were retold—although the value for me was that they became more detailed, and more emotional.

This gave me faith that the narrators were telling the truth—albeit as they saw it—and that though I had not meant to reinterview people, the reinterviews became the heart of this book.

It was in the reinterviews where people, perhaps relaxed, really opened up. While retelling their stories, they let their feelings rip.

This was the point when I knew that this book would be different, that inside of Lehman there was a soul—many souls, in fact—and that there was a reason people thought of the firm as a person, that they dreamed “she” was alive even after “she” was dead.

It would be my job to explain that soul: to explain the
real
story of what and who Lehman was and why Lehman died. It would be my job to take readers inside the boardrooms and offices of the executive floor and onto the trading floor and show how in the end, as Heraclitus said, character really is destiny.

Because of all the lawsuits facing the Lehman board and executive committee over the bankruptcy, as well as the dispute between Barclays and Lehman, some people were forced to speak off the record.

Others are on the record in places, off in others; but if someone spoke off the record, I always verified what they said by speaking to at least one more source. Thus, if I narrate a conversation that took place in an office, on the trading floor, or on the golf course near Dick Fuld’s house in Sun Valley, it may be that I was told about the conversation by someone who was there, listening in. The speakers may have verified this, but don’t want attribution.

Where I’ve taken facts already reported, they are, when possible, endnoted and sourced. But again, I tried to check every reported fact with the players themselves. (I had working with me a team of five outstanding fact-checkers.) Sometimes there was a conflict, and here I did what every journalist does: I went with my gut in the telling of the narrative but noted the conflict on the page, in the text.

When something as momentous as the biggest bankruptcy in U.S. history occurs, people are inevitably not going to agree. And I expect that Joe Gregory will not agree with the general perception of him as characterized in this book: as the Lehman president who did not manage risk, and was preoccupied with things other than running the business. As even his friends admitted, he does not see himself the way others do.

However, the way Gregory is characterized is the way that
every
person—of the
hundreds
who were interviewed about him—saw him. The only exception might be Lehman’s general counsel, Tom Russo. But even Russo grew uncomfortable on the subject, saying: “Well, I guess I have heard all the things you are talking about, but I didn’t see Joe that way myself.”

As a reporter, one’s duty is to put all the pieces together—this means as many voices and as many perspectives as possible—until you arrive at a kind of kaleidoscopic picture that gives you a sense of the accurate whole.

There are only two major sources I regret not interviewing for this book. I wish I could have interviewed Chris Pettit. In fact, I wish I had
known
Chris Pettit. His story, his charisma, his noble character, his terrible ending—all of it is a tragedy worthy of a powerful motion picture. But even the best reporter cannot interview the dead—although, as you will have read in the Epilogue, I had a go!

The other is Joe Gregory.

The second half of this book is really Gregory’s story, inasmuch as the first half belongs to Pettit.

I talked to Gregory only briefly on the phone—he picked up by mistake when his assistant was out—and in that conversation he insisted he was never fired, and he blamed short sellers for what had happened to Lehman. He told me he wanted to talk for the book but that one of his lawyers was stopping him.

Yet I already had the real, undiluted Joe Gregory. I had his diaries: his own words, not written for a journalist, but for himself. So, I felt this was better than interviewing Gregory himself. I knew from my interviews with all the people who had worked with him that he was seen as a smooth interviewee full of self-justification, and that he would never see himself the way anyone else did. That is the story of his life as told by those who worked with him and arguably his downfall.

His lawyers knew I had his journals. Apparently, albeit astonishingly, he does not have a copy of them and could not remember what he had written. I was asked to send him a copy. Like any good journalist, I did not do so. I did not want to give him any chance to deduce the source from whom I’d obtained them (though I did wonder why he had not kept a copy electronically, since they were written in 2003).

Over the phone I told an associate of his lawyer, Steven Witzel, of Fried Frank Harris Shriver & Jacobson
LLP
, broadly what he’d written and offered him the opportunity to embroider on any of his own commentary and to answer any of the criticisms about him.

Witzel eventually declined on Gregory’s behalf, saying he was sticking with his policy of “not speaking to the press,” but to remember that some of his remarks—and others—might be out of context.

Dick Fuld also could not speak to me for this book because of the lawsuits. However, as I point out in the Epilogue, he and I did meet briefly (along with Kathy Fuld), and he was very charming and very apologetic that he could not be more helpful. His lawyer, Patricia Hynes of Allen & Overy, forbade him not just from talking but also from helping with fact-checking.

But behind her back, Fuld was very helpful. Just because Lehman had died, loyalty to Fuld did not. And I thank the people who spoke to me for him—off the record—and checked facts with him for me, in the hope that this would be a truthful and accurate portrayal of the man and what happened to him. Though all the stories about him were run past people very close to him, and who were there with him when events described occurred, I do not know that he personally corroborated every single incident. I just know that the people with him in the room did.

Another person to whom it would have been helpful to talk was Martha Dillman. She told me she did not want to revisit her memories, though she asked Lara Pettit to tell me that the night Chris Pettit died there were three fatal accidents on the lake in Maine. I duly noted this in the text.

In December 2009, just as the John Wiley & Sons team and I were finalizing the manuscript for this book and we were wrapping up the fact-checking, I received 20 e-mails from former senior Lehman executives who knew this ship was finally leaving the docks, readying for the presses. They were excited. They knew that all the dead bodies had been uncovered and quite a yarn was about to be told.

One person wrote to me: “This book could be quite explosive (good for you!) and while I want to be honest, I want to be sure it’s done honorably.” He was one of those who wanted the truth out there, but to do so he wanted to make sure he was on the record in some places and not in others.

I hope that I have told the “explosive”—but more important, the “true”—story of Lehman. And I hope that, simultaneously, I protected my sources, and that we all kept our honor.

That, after all, is what we as writers are supposed to do.

Page 5
The stock price rose
Andy Serwer, “Lehman Brothers: A Super-Hot Machine,”
Fortune
, April 11, 2006.

Page 6
I wake up every single night
Richard Fuld, congressional testimony, October 6, 2008.

Page 6
This was before he learned that Gregory
U.S. Bankruptcy Court, Southern District of New York, nysb.uscourts.gov (Gregory filed on August 5, 2009).

Page 12
The star-studded, 500-guest event
Richard Johnson, Paula Froelich, Bill Hoffman, and Corynne Steindler, “$3M Party Fit for Buyout King,”
New York Post
, February 14, 2007.

Page 12
Just months earlier
Andrew Ross Sorkin, “JP Morgan Pays $2 a Share for Bear Stearns,”
New York Times
, March 17, 2008.

Page 14
Also gathered were a large number
Heidi N. Moore, “Lehman Brothers: How Neuberger Berman Employees Made Millions,”
Wall Street Journal
‘s Deal Journal Blog, http://blogs.wsj.com/deals/2008/08/28/lehman-the-history-of-neuberger-berman-payouts/, August 28, 2008.

Page 14
Glucksman was offered $15.6 million
Ken Auletta,
Greed and Glory on Wall Street: The Fall of the House of Lehman
(New York: Random House, 1986), 220.

Page 15
The firm was founded in 1850
Ibid., 27.

Page 15
With the post-Civil War expansion
Ibid., 27-30.

Page 15
He decorated the walls
Ibid., 32.

Page 15
Bobbie was not much of an investment banker
Ibid., 32.

Page 15
They were principals
Ibid., 15.

Page 15
Shearson taking over Lehman
Bryan Burrough and John Helyar,
Barbarians at the Gate: The Fall of
RJR
Nabisco
(New York: Harper & Row, 1990; HarperBusiness, 2008), 156.

Page 16
Since Lehman, in their hands
www.boston.com/business/specials/lehman/ .

Page 16
In 2007, Fuld was named
“The Best CEOs,”
Institutional Investor
, January 2007.

Page 18
During one such inspection
Andrew Ross Sorkin,
Too Big to Fail: The Inside Story of How Wall Street Fought to Save the Financial System—and Themselves
(New York: Viking Penguin, 2009), 18.

Page 19
An ex-Naval officer
Ken Auletta,
Greed and Glory on Wall Street: The Fall of the House of Lehman
(New York: Random House, 1986), 45.

Page 21
The team had lost
Ibid., 18.

Page 32
There was a barber in-house
Ken Auletta,
Greed and Glory on Wall Street: The Fall of the House of Lehman
(New York: Random House, 1986), 123.

Page 37
On July 13, 1983
Ken Auletta,
Greed and Glory on Wall Street: The Fall of the House of Lehman
(New York: Random House, 1986), 20.

Page 38
Unfortunately for Glucksman
Robert J. Cole, “Shearson to Pay $360 Million to Acquire Lehman Brothers,”
New York Times
, April 11, 1984.

Page 38
Peterson made $6 million
Ken Auletta,
Greed and Glory on Wall Street: The Fall of the House of Lehman
(New York: Random House, 1986), 220.

Page 47
came to be marked
Bryan Burrough and John Helyar,
Barbarians at the Gate: The Fall of
RJR
Nabisco
(New York: Harper & Row, 1990; HarperBusiness, 2008), 156.

Page 58
Further muddling things
“Shearson Sets Shares at $34,” Reuters, May 7, 1987.

Page 58
The high-yield bond market
Floyd Norris, “Shearson Reversal: Bearishness over Securities Business Led American Express to Alter Plans,”
New York Times
, March 5, 1990.

Page 69
To fund the spin-off
American Express Annual Report, 36.

Page 70
By September, Lehman
“Lehman Brothers to Begin Stock Buyback Program,”
New York Times
, September 9, 1994.

Page 71
Less than a year after Lehman went public
“Lehman Debt Is Downgraded by Moody’s,”
New York Times
, March 22, 1995.

Page 90
Fuld would call him regularly
Kenneth Gilpin, “Perella, a Merger Specialist, Is Hired by Morgan Stanley,”
New York Times
, November 16, 1993.

Page 107
Cecil earned more than
“Lehman’s Chief Got a 34% Raise,”
New York Times
, February 19, 1997.

Page 109
So complete has Fuld’s makeover
Andy Serwer, “The Improbable Power Broker,”
Fortune
, April 13, 2006.

Page 111
In 1997, the
New York Times Devin Leonard, “How Lehman Got Its Real Estate Fix,”
New York Times
, May 2, 2009.

Page 112
Cecil knew that Lehman
Peter Coy and Suzanne Woolley, “Failed Wizards of Wall Street,”
BusinessWeek
, September 21, 1998.

Page 112
Lehman’s stock price fell 60 percent
Joseph Kahn, “Lehman Brothers Holdings Posts 23.4% Earnings Drop,”
New York Times
, September 24, 1998.