Don't Call it a Cult

by Sarah Berman

  Rex Smith, who was included in that meeting, recalls Raniere speaking in the same mazelike aphorisms that Yusko had trouble deciphering a few months earlier. “It just reminded me of being in college,” he says. “He’s a few years younger than I am, but still, he reminded me of those guys who maybe smoke a little dope, would say something he thought was meaningful, and then just stare at you intently so you would absorb the importance of what they were saying.”

  Despite Raniere’s less-than-conventional speaking style, George Hearst III took the meeting seriously and paid special attention to Clare Bronfman. “My view of George’s interactions with Clare was it was as though he was almost counseling her,” Smith recalls. The Hearsts and Bronfmans were of similar stature in America—morbidly wealthy, and therefore in the public eye. “I think George perceived the problem with Keith, and I think what George was doing with Clare was trying to counsel Clare to save herself from making a terrible mistake. In the way he might hope someone would counsel his own daughter,” Smith says.

  Dennis Yusko had no idea what words were being exchanged in the closed-door meeting, but he kept pushing to hold NXIVM to account until the story was reassigned to an investigative unit. “I was a beat reporter. I didn’t have the investigative chops that other people at the paper had,” Yusko says. After 2006, he returned to the daily grind of police scanner tips and city planning meetings.

  It is clear from the way Yusko talks about his years reporting on NXIVM that the experience changed him. “You have to wake up every day and trust yourself and trust your instincts. You can’t let them rattle your confidence. Once that happens then it begins to affect your reporting, and that’s what I was just trying to tell myself.”

  When asked if he thought it was his job to expose NXIVM, Yusko pushes back on the phrasing. “I just thought it was a great story. I mean, here it is: it’s happening in our backyard, nobody’s doing anything about it, nobody’s writing about it. Isn’t this the purpose of our job? Isn’t that what we’re supposed to do?”

  CHAPTER NINE

  Sunk Costs

  Keith Raniere had a theory for everything.

  Leveraging the widely spread claim that he was a math savant, he told members of his inner circle that he was working on an algorithm that would beat the commodities market and bring in mountains of cash. This plan was in the service of his many other world-changing projects, like the one he shared with Barbara Bouchey: buy land and start a new society based on NXIVM’s core values.

  Raniere first started dabbling in commodities trading early in his relationship with Bouchey, though his past experiments had been decidedly unsuccessful. Between September 2000 and February 2001 he lost as much as $4.5 million on bad commodity bets, $1.6 million of it covered by Bouchey’s life savings.

  Bouchey didn’t exactly consent to covering those losses. Raniere started off asking to open a $50,000 trading account in Bouchey’s name in August 2000, offering to put in $25,000 of his own money to get it started. Bouchey thought the most she could lose was the initial seed money, but as the sole trader on the account, Raniere could dial up the risk. At first he boasted that his methodology was working, showing her charts that suggested the account had grown to $150,000. But the gains, if there were any, were soon lost to larger bets. By September the losses had ballooned to $600,000 and Bouchey became distraught.

  She told Raniere to close the account, but he said that wasn’t possible. Raniere, who claimed his closest followers’ moods and thoughts could injure him, blamed Bouchey’s “negative reaction” for tanking the markets. He said there’d been a fluke in the orange crop and that they’d have to wait until the options expired or the share prices turned around. Such losses always sounded temporary when Raniere talked about them—like a bump in the road on the way to reward and prosperity. Meanwhile, Bouchey received ongoing coaching on her “attachment” to her savings.

  With help from Nancy Salzman, Raniere went on to find more wealthy followers capable of lending money to cover the losses, which continued to mount in 2001. Michael Sutton, the subject of Rick Ross’s failed intervention in 2002, lent $1.3 million. Bouchey said that when she and Sutton tried to collect on their loans years later, Raniere claimed it would cripple the company. NXIVM’s humanitarian mission, he said, should come before personal selfishness.

  * * *

  —

  RANIERE TOOK A several-year hiatus from trading until the Bronfmans became more heavily invested in NXIVM’s projects and finances. The sisters had made the switch to Bouchey as their financial planner in early 2004, and were in the middle of a spending and lending spree. Even before the $20 million novelty check incident, the Bronfmans had financed several loans—one to build the new headquarters, another to develop a winery in New Baltimore, New York.

  Clare and Sara’s loans weren’t typical ones in that they weren’t expected to be paid back. The sisters considered themselves “passive investors” who weren’t focused on returns. One early loan from Clare was arranged to be repaid in coaching sessions with Nancy Salzman, which Clare valued at $2,000 per hour. Other large loans were simply labeled that way so the sisters wouldn’t have to pay taxes on a gift, according to court records.

  “I’ve always relied upon people who were advisers to me,” Clare said of her financial affairs on a witness stand in 2011, during one of the company’s many lawsuits. “I have never been an expert in choosing what investments, but I’ve always relied upon the advice of people who are experts, financial planners, financial experts, experts in different industries.”

  Raniere became the Bronfman sisters’ most revered expert in all areas, and he had a lot of things to say about money and value. He borrowed from Ayn Rand’s philosophy, focusing on creating “value” in the world and contributing to “civilization” via success in the free market. He sometimes claimed that he avoided paying taxes and getting a driver’s license because he didn’t buy into the social contract proposed by the U.S. government—though he seemed content living off others’ wealth when his own projects were unsuccessful in the marketplace.

  Amassing money and power was not unseemly in Raniere’s eyes. In fact, he saw it as his ultimate ethical mission. In a 2015 recording, he talked about these aims. “If we could do one thing in this whole world, it would be educating people as to the nature of authority, power, and morality.” By taking NXIVM courses, he told his listeners, a person learned how to prevent abuse of power—the root of all human suffering.

  Raniere said his courses should be taught at the highest rungs of power, which in turn would inspire other, less powerful people to educate themselves in how to respect “earned authority.” “You educate one common person and you have one out of seven billion educated,” he said. “You educate a person of influence, who wields strong power, you have one person educated, and that inspires many others to be educated, and also the power that they wield is now used in a legitimate fashion, in an earned authority fashion.”

  * * *

  —

  NANCY SALZMAN APPROACHED the Bronfman sisters about paying off Raniere’s trading debts with a loan. Bouchey had been through this herself, and yet she watched the Bronfmans set out on the same rocky waters—this time with a better attitude. The sisters pitched in their first $5 million in March 2004.

  At his peak, Raniere was making ten to twenty-five trading calls per day, according to court records. He was spending hours on the phone with Yuri Plyam, a trading contact who would go on to become a central figure in a failed real estate scheme. Plyam’s lawyers later claimed that he’d made only fifteen dollars per trade.

  Raniere kept losing. “I remember myself and Sara, Clare, and Nancy all having conversations with Keith,” Bouchey recalled in a deposition. “Every time we would send him money Keith would assure us: ‘This is it. This is it; there won’t be any more. It’s going to come back. I promise you it’s going to come back.’ ” If Raniere’s
trading decisions were questioned, he would brush off the concerns. “I only need five million now. I am pretty confident I will be able to give it back to the girls in thirty days,” he would respond.

  All the money was being transferred through a company called First Principles. Bouchey says that she advised the Bronfmans to get a loan agreement in writing, but that those requests to Raniere and Salzman were brushed aside for years. Both sisters continued to sign all the authorizations for transferred funds.

  Clare later testified that she hadn’t discussed Raniere’s trading strategy until after tens of millions of dollars were already gone. “I did speak to him about it at one point, and he told me that his strategy was actually in some ways a hedging strategy,” she said. “It’s sort of like an insurance policy where if it drops below a certain amount, you have a hedged amount so you never lose that much…. It’s a more secure way of doing things. More secure, less risk.”

  Around 2005, Raniere suggested that the Bronfmans would stand to learn from investing in real estate. The girls would sink another $26.43 million in a Los Angeles development before the project failed and the Bronfmans sued the developer, Yuri Plyam.

  Clare testified that Salzman and Bouchey first pitched the L.A. development project to the Bronfmans and introduced them to Plyam and his wife, Natalia. The sisters met the couple in Nancy’s basement and agreed to put in something like $20 to $22 million, with a promised 20 percent return on the investment. “It was to be very nice residential homes, hillside homes,” Clare recalled in 2011. “Hillside, where other people weren’t willing to do the building on. Very good neighborhoods. High-end houses.”

  “The girls knew nothing about real estate and they knew nothing about investing,” Bouchey said in a deposition. “What they trusted was Keith. He had about four years of daily communications with Yuri.”

  Over the next two years the Bronfmans lost millions to both the commodities and real estate ventures, until they were running low on easily available cash. “There was a trust set up for them that they would not receive until their father died,” Bouchey told lawyers in a sworn statement, “but they would receive a certain income per quarter. And, at one point, when the commodities losses were really great, the girls went to their father and asked if they could take $20 million out of this trust and they would pay it back.”

  By 2007 the Bronfmans had spent $65 million of their trust money to cover the losses.

  * * *

  —

  SUSAN WHITE, THE family friend of the Bronfmans, had stopped all involvement with NXIVM but still visited during V-Week to see Sara, Clare, and White’s stepson. In one of her last interactions with Sara, she asked her if Raniere had a gambling problem. “She said, ‘Oh, I’ll get back to you on that,’ ” White recalls. “I never heard from her again.”

  White says she was shunned by the group for questioning Raniere and was later accused of conspiring to destroy NXIVM.

  When the trading scheme went down in flames and the money disappeared, Raniere once again blamed the sisters’ father, Edgar, for manipulating the market to make sure they lost the money. Bouchey remembers Raniere talking about a plot that would somehow “shift the money from these accounts Keith was trading” to Edgar. “Keith felt confident that the father was involved and that was explaining the tremendous losses.” According to Bouchey, the sisters believed him. Raniere has still not been made to fully account for the money.

  Clare told a jury in 2011 that she didn’t share major financial decisions with her father, but that she believed he knew about the commodity trading losses and the real estate scandal before it was reported in national media. “I don’t tell my father about any of my finances and business ventures that I do,” she testified. “I assumed at one point he would find out.”

  During the Bronfman sisters’ lawsuit against Yuri Plyam, Clare also commented on the theory that her father was somehow behind the losses. She claimed it was Plyam’s idea that Edgar interfered with the markets and was trading against Raniere. “Mr. Plyam had brought up the theory that somebody was trading against us and it was seemingly [a] very wealthy, rich, powerful individual in New York and that it could be my father,” she said. “I think Mr. Raniere is more of a scientist than that. I think he believed that there could be a possibility or more likely probability, but probably a low one.”

  * * *

  —

  WHATEVER THE CAUSE, Raniere justified the losses as a valuable lesson in how world markets worked, according to Bouchey’s deposition. “Keith was learning about moving money around. And Keith wanted to have our own country, our own currency and market, our own way of doing things,” said Bouchey. “And he was learning this great body of knowledge about the world that would serve him well.

  “Keith never admitted that his math formula and commodities knowledge was lousy,” Bouchey added. “I never heard him say that once. It was always a plot against him and what he was doing.”

  The millions in losses were largely hidden from the rest of the NXIVM community. “It was set in a very tight, tight, constricted circle because what would the NXIVM community think if they found out that the leader of the mission was irresponsibly gambling millions and millions and millions of dollars and losing it?” Bouchey said. “This would shake the confidence of many people. So we all, you know, were afraid to talk to anybody about this going on because it looked crazy. And it was crazy.”

  Meanwhile, Bouchey was authorizing payments for the Los Angeles development scheme, often in increments of half a million dollars every couple of weeks.

  * * *

  —

  WHEN FRANK PARLATO was first hired by Keith Raniere in 2007, it was to fix NXIVM’s public relations troubles. The company was fighting off bad press, and Parlato was brought on to place positive stories in the media and turn the organization’s reputation around.

  Parlato was staying in one of the apartments owned and maintained by the Bronfmans. He became something of a fixer during his months working for Raniere, finding problems and solving them as he went.

  After Parlato had spent months putting out public relations fires, Nancy Salzman asked him in December 2007 if he could help secure a $5 million construction loan for a real estate deal. The loan was to help finance Sara and Clare Bronfman’s L.A. development, in which the sisters had already invested $26 million.

  “I began to feel uncomfortable with the nature of the deal,” Parlato told me. “It was structured entirely wrong.”

  The scheme aimed to buy empty lots in desirable hillside locations, build luxury mansions, and sell the developed property at a steep profit. Parlato was troubled because all the lots had already been acquired for development, but no buyers had yet been secured. Construction had started (albeit barely), and it appeared the building would be happening on spec, without input from the high-end clients who’d be buying the multimillion-dollar homes. Luxury buyers usually want a say in how their properties are constructed, especially if they’re paying millions, Parlato told me.

  Worse than that, Parlato began to suspect there was some embezzling going on. He claims that as much as $10 million of the Bronfmans’ money was unaccounted for. Plus, the Bronfmans weren’t listed on the ownership. Parlato said he wanted to investigate.

  Parlato was either lent or given (this is still in dispute) a sum of $1 million to get to Los Angeles and figure out what was going on. On his way across the country he says he stopped in Las Vegas to “hire a couple actors” to pose as muscle on the trip. “These are the streets of L.A., and there are two kinds of law: legal law and street law,” Parlato told me. “I wanted to be prepared to address both.”

  After a pause, Parlato assured me that his “muscle” routine was “pure bluff.” He arrived in California in January 2008.

  * * *

  —

  YURI PLYAM WAS on the scrawny side of the tough-guy spectrum, Parlato says. Plyam a
nd his wife, Natalia, had spent the previous two years buying multimillion-dollar properties around Beverly Hills with the intention of building and reselling for a profit. The Bronfmans weren’t closely supervising or holding the Plyams to a particular schedule. Yuri thought Parlato was coming over to help secure a loan.

  In a deposition, the developer described Frank Parlato as a mobster-looking guy with a fedora, a long jacket, and a Sherlock Holmes pipe in his mouth, flanked by an intimidating bodyguard and lawyer. Parlato told him he’d found inconsistencies in the company’s financial projection spreadsheets and that payroll records didn’t match the number of workers at the sites. He’d discovered that the same workers had also been putting in time on a separate property owned by the Plyams. One of the workers, Parlato added, admitted that he was told to rush to one of the sites and look busy ahead of an inspection.

  According to Plyam, Parlato claimed to be representing Edgar Bronfman. At one point he told Plyam, “If you don’t cooperate, it will be World War III.”

  Parlato allegedly strong-armed the developer out of the deal, making himself CEO of the $20 million–plus real estate project. In a panicked email to Raniere on February 1, 2008, Plyam claimed that Parlato had said he and his wife could go to jail if they didn’t sign over the property.

  Parlato admits that he intended to seem intimidating but denies he ever claimed to be working for Edgar Bronfman. He claims that Plyam made the assumption himself that Parlato had been sent by Edgar, and he didn’t try to correct him. “Yuri made up a lot of fanciful things,” he says. “I didn’t say those words to him, but I let him believe whatever he wanted.”