"Does ITT have money?" Haldeman wondered.
"Oh God, yes," Nixon replied. "That's part of this ball game.... But it should be later. It should not be right now.... Nothing done until the deal is over."
On June 16, Felix received a call directly from Kleindienst's office, asking him to return the call the next morning. It was the rare occasion where Felix, the man whose partners would visibly shudder at the very thought of a call from him, was now put in the position of having to jump as high as Kleindienst said. At precisely 9:30 the next morning, Felix, alone in his Lazard office, called Kleindienst. The deputy attorney general got on the squawk box with McLaren at his side and read the government's new proposal--which he called a "negotiating memorandum"--one that appears to have taken into account Nixon's still-secret directive regarding ITT. Kleindienst told Felix "more or less on a take-it or leave-it basis" that McLaren had recommended that ITT could now keep the Hartford if it agreed to divest Avis, Canteen, Grinnell, and Levitt, if it agreed to accept injunctive provisions regarding future acquisitions beyond a certain size, and if it refrained from engaging in reciprocity. In a memo dated the same day as the call with Felix, McLaren had written Kleindienst with his recommendation that he had "come to the reluctant conclusion" that forcing ITT to divest the Hartford would be a mistake. "I say reluctant," he continued, "because ITT's management consummated the Hartford acquisition knowing it violated our antitrust policy; knowing we intended to sue; and, in effect, representing to the court that he needn't issue a preliminary injunction because ITT would hold Hartford separate and thus minimize any divestiture problem if violation were found."
The new proposal, except for the inclusion of the then-struggling Avis, was pretty much exactly what ITT's lawyer Ephraim Jacobs had proposed to McLaren eight months before. Felix concluded the ten-minute call with the Justice Department and called Geneen "within twelve seconds." Both expressed "disappointment and displeasure" with the proposal--with some crocodile tears thrown in for good measure--that now required as many as four divestitures of companies that were never the subject of antitrust suits. But Felix later testified he thought it was a "concrete proposal" that "could be discussed, negotiated and improved upon."
Felix attempted to reach Kleindienst on June 18 to clarify "why all of a sudden we were being faced with four companies" to divest. But he was not able to reach him. On June 29, Felix met again with Kleindienst privately to express disappointment, especially over the demand to divest all of Grinnell, and, according to Kleindienst, "to complain about the rather rigid attitude McLaren was taking with respect to these settlement negotiations, to complain about the rather punitive nature of the settlement negotiations, and the posture of the Government, and that he felt, in his opinion, they were unreasonable." Kleindienst said he told Felix, "I would not inject myself into those settlement negotiations, that that was a problem between the attorneys for ITT and Mr. McLaren and his staff, and that I would do nothing about it." It was another busy day in Washington for Felix. In addition to meeting with Kleindienst, he met with Peter Flanigan, the business liaison at the White House, to talk about matters related to Felix's role in attempting to avert a meltdown among dysfunctional Wall Street firms. But it turned out--according to Flanigan--that Felix also used the meeting to complain some more about the proposed antitrust settlement. "Mr. Rohatyn indicated his belief that the proposal was so tough as to be unacceptable to the company and that the company intended to continue to fight the suits in court," Flanigan said. Flanigan passed Felix's thoughts on to Kleindienst "a couple of days later," and "as I recall his response, it was to the effect that Mr. McLaren had worked out the proposal, and was handling the matter."
On July 2, another federal judge ruled against Justice yet again, and in favor of ITT, allowing it to keep Canteen. A furious series of negotiations between the lawyers for both sides continued for the next twenty-eight days. On Saturday, July 31, the two sides signed a settlement agreement whereby ITT would be able to keep the Hartford as long as it completely divested, within two years, Canteen and the Fire Protection Division of Grinnell and, within three years, Avis and its subsidiaries, Levitt and most of its subsidiaries, and two small life insurance companies. Together, the companies to be divested had revenues in excess of $1 billion; to that time, this was by far the largest agreed-upon, government-ordered divestiture in corporate history. There was also an agreement regarding Justice's concern about reciprocity and an agreement prohibiting ITT from acquiring any company, for a period of ten years, with $100 million or more of assets without permission of Justice or the Court, or a company in the fire protection business or another insurance company. Geneen called the settlement "in the best long-term interests of our stockholders" and said that ITT would choose to keep the Hartford and to sell Avis, Levitt, and the two small insurance companies. Both Kleindienst and McLaren thought the settlement was a victory for the government, especially given the previous losses on both Grinnell and Canteen.
While those watching the developments closely had no idea that Nixon had personally intervened, questions began to be raised almost immediately about what had really transpired to get McLaren and Kleindienst to change course so radically and to agree to a settlement that allowed ITT to keep the Hartford.
Then, on August 23, Justice filed the antitrust settlement documents in court, beginning a mandatory thirty-day public review period. Reuben Robertson, a brilliant young lawyer who had been working with Ralph Nader from the start to block the ITT-Hartford merger, wrote McLaren on September 21 objecting to the antitrust settlement: "We wish to object most strongly to the veil of secrecy that has been drawn over the Antitrust Division since announcement of the decree, which has made full evaluation of the settlement...a virtual impossibility." At the end of his cover letter to McLaren, Robertson, seemingly out of the blue, asked whether there was any connection between the settlement and a financial contribution ITT had made to the Republicans to support having the 1972 Republican National Convention in San Diego.
Although Robertson's question seemed a bit odd, in fact it was most perceptive. Some two months before the settlement--around the same time as Nixon and Haldeman's conversation about ITT having plenty of money--Harold Geneen pledged some $400,000 to help hold the Republican National Convention in San Diego. Robertson and Nader had also watched--aghast--as ITT used its cash and its influence to win the approval of William Cotter, the Connecticut insurance commissioner, for the Hartford acquisition: all it took in that instance was for ITT to agree to build two of its Sheraton hotels in downtown Hartford at the very moment the city was struggling--after a failed bond offering--to get its Civic Center project off the ground and Cotter had decided to run for a seat in the U.S. Congress (which he won).
The protests of the media and Nader's Raiders notwithstanding, by the end of September 1971 the U.S. District Court in Hartford had approved the consent decree, as agreed among the parties. Finally, the Hartford deal was a fait accompli.
In early December 1971, Nixon succeeded in getting rid of the "son-of-a-bitch" McLaren by appointing him to be a federal district judge in the Northern District of Illinois, in Chicago. This was a most unusual appointment indeed. Confirmation of federal judges can often take months, following extensive background checks, intense lobbying efforts, support from in-state politicians, and the requisite political wrangling. Not in McLaren's case. This time the confirmation process took four hours and had been signed off on by none other than Lawrence Walsh at the ABA. Walsh, of course, was the Davis Polk lawyer and Kleindienst buddy who had written Kleindienst at Geneen's request in the ITT antitrust matters. Not even Adlai Stevenson III, an Illinois senator, was aware of the appointment. The highly regarded investigative journalist I. F. Stone understood what happened perfectly: "McLaren came in like a lion as Assistant Attorney General in charge of the antitrust division and has gone out--a judge."
Robertson also relayed his concern about the potential tie between the ITT contribution to San Die
go and the antitrust settlement to someone he thought for sure would care: Larry O'Brien, the chairman of the Democratic National Committee. O'Brien took Robertson's bait and wrote Attorney General John Mitchell on December 13 asking him to explain whether there had been any connection. "Eight days after the selection of San Diego was announced by the Republican National Committee, the Department of Justice and ITT announced agreement of an out-of-court settlement of the three pending ITT merger cases (involving Hartford Fire Insurance Co., the Grinnell Corp., and Canteen Corp.). As national chairman of the Democratic Party, I call on you today in your dual roles of chief law enforcement officer of the United States and chief political adviser to the President"--this a jab, of course--"to make public the full record of your decision to settle with ITT as well as ITT's involvement in financing your party's convention next year.... At a period in our political history when the American people are seriously questioning the fairness and responsiveness of the political process to all the people, I earnestly hope that you, General, will see the urgency of making the record in San Diego-ITT case absolutely clear."
Failing to mention the directive from Nixon, Kleindienst answered the letter for Mitchell, who was still ducking his role in the matter. "The settlement between the Department of Justice and ITT was handled and negotiated exclusively by Assistant Attorney General Richard W. McLaren," Kleindienst wrote O'Brien. This would prove to be a fateful statement by Kleindienst.
While the tempest of the link between the ITT contribution and the antitrust settlement brewed, the biggest bombshell of all came on three successive days beginning on February 29, 1972, when the columnist Jack Anderson, no friend of the Nixon administration, revealed in his column that Nixon and his confidants may actually have directed Kleindienst to settle the ITT antitrust suits in exchange for ITT's rather large--at the time--contribution to the Republican National Committee to help San Diego win the 1972 Republican convention, just in fact what O'Brien, Robertson, and Nader had been suggesting. Anderson wrote that he had "evidence that the settlement of the Nixon Administration's biggest antitrust case was privately arranged between Attorney General John Mitchell and the top lobbyist for the company involved. We have this on the word of the lobbyist herself, crusty, capable Dita Beard of the International Telephone and Telegraph Co. She acknowledged the secret deal after we obtained a highly incriminating memo, written by her, from I.T.T.'s files. The memo"--received by Anderson a week before--"which was intended to be destroyed after it was read, not only indicates that the anti-trust case had been fixed but that the fix was a payoff for I.T.T.'s pledge of up to $400,000 for the upcoming Republican convention in San Diego."
Anderson discovered that Kleindienst had lied to O'Brien about his involvement in the settlement of the antitrust cases. Anderson's associate Brit Hume (today a Fox News anchor) confronted Felix by phone--about his private meetings with Kleindienst on the settlement--at Kennedy Airport, when he was about to board a plane for London. "I was supposed to make the case on the economic side of it," Felix told Hume. At least Felix had the good sense not to lie to protect the future attorney general of the United States. "That was again totally stupid [of me]," Felix explained more than thirty years later of his decision to take Hume's call. "Totally stupid. But I was in a hurry. I was waiting to get on the plane and so I took this call. And the guy said to me, 'Do you know about this memo?' And I said, 'Read it to me.' And I said, 'It's complete bullshit.' The notion that this would have been true is, I think, not credible, but that if it were, that Dita Beard would be the intermediary is totally unthinkable."
Anderson wasn't through, though. He then published the Beard memo itself, which was written five weeks before ITT settled with Justice. Anderson, of course, did not know of the April 1971 order from Nixon to Kleindienst to leave ITT alone, nor did he mention Nixon's antipathy toward McLaren. The extent of Nixon's involvement would be revealed much later, after the Watergate scandal forced Nixon to release his secret tapes. But Beard's memo implied there was a high correlation between the Justice Department's settlement with ITT and ITT's donation to the Republican National Convention. The memo implicated Nixon, Mitchell (who supposedly had recused himself), Haldeman, and a couple of California politicians. She also implicated her boss, Geneen. Beard claimed to have negotiated the settlement with Mitchell in a private conversation at the Kentucky governor's mansion after the 1971 Kentucky Derby.
With Anderson's columns, the special treatment government afforded rich, powerful corporations and their representatives--long assumed--burst through the dams of secrecy and flooded the media. Felix's one-on-one clandestine, off-the-record meetings with Kleindienst--and the future attorney general's initial denial of them--brought Felix and Lazard to the forefront of the ITT scandal and onto the front pages of the New York Times and the Washington Post.
The histrionics were a major public relations disaster for all involved, Felix most certainly included. To this point, in truth, Felix's extraordinary prowess as a corporate adviser had been sub rosa, which was just where he, Andre, and Lazard wanted it to be. Lazard's Avis coup had brought the firm some renown, as had Felix's ongoing involvement with ITT, as ITT's chief investment banker. But these accomplishments were little known beyond Manhattan, if they were even acknowledged there. The Celler commission had proven a revelation, but, as they say, if a tree falls in the forest and no one is there to hear it...Even the roles of Felix and his partners in the ITT-Hartford merger--prior to Anderson's cluster bomb--had been understated and barely revealed. ITT's "sale" of the Hartford shares to Mediobanca was discussed only in the barest terms in a paragraph in the public filing related to the Hartford tender offer, with no mention of Lazard's role in unearthing Mediobanca or their mutually beneficial fee arrangement. Buried deep in the public disclosure was the fact that Lazard would receive a fee for its "services" in connection with the Hartford acquisition, with no amount stated. Indeed, the SEC would later question Lazard and ITT about the adequacy of that disclosure.
There was rich irony, too, in that Felix had been an ardent supporter and adviser to the liberal Maine senator Edmund Muskie in the 1972 Democratic primaries, and now Anderson's columns put him in the unlikely position of having to defend big business against Nixon's antitrust department--that alone must have caused the liberal Felix much angst. (To cover Lazard's bases, Andre gave $90,000 to Nixon's 1972 reelection campaign, making him one of the top ninety-five contributors to Nixon.) Indeed, Kleindienst himself cited Felix's ties to the liberal Muskie as evidence that the Justice Department was a bipartisan "open institution ready to consider any citizen's grievance." The private, elusive, enigmatic Lazard was about to have a historic and most unwelcome coming-out party.
The day after Anderson's first column appeared catching Kleindienst in his lie, Kleindienst asked to reopen his confirmation hearings before the Senate Judiciary Committee. A few weeks earlier, he had been nominated to replace Mitchell as attorney general, after Mitchell announced he was going to run CREEP, Nixon's 1972 reelection campaign. Kleindienst's request was most extraordinary. After all, on February 24, after two days of testimony, the Senate Judiciary Committee had voted 13-0 (with two abstentions) to approve his nomination to be the new attorney general. Kleindienst would have been confirmed by the full Senate in a nanosecond. But he persisted in order to attempt to clear his name, and quite the opposite occurred. The most unnecessary hearings became highly partisan and lasted twenty-two days throughout March and April 1972. And Felix was front and center. Literally.
When the hearing opened, at Kleindienst's side were both McLaren and Felix, "the two persons with whom I had any dealings in connection with these matters," Kleindienst said. Kleindienst "categorically and specifically" denied both influencing the outcome of the ITT settlement and seeking a donation from the company in return for a favorable outcome on the antitrust cases. "I set in motion a series of events by which Mr. McLaren became persuaded that he ought to come off his position" requiring ITT to sell the Hartfor
d, he explained. He said his meetings with Felix were merely a courtesy to help facilitate the discussions that changed McLaren's thinking.
Fatefully, he made no mention of his discussion with Nixon nearly a year before. And when asked by Senator Ted Kennedy, Democrat from Massachusetts, whether the White House had contacted him about the ITT lawsuits and settlement, he perjured himself. "No, sir," he told Kennedy. When Senator Birch Bayh, Democrat of Indiana, asked Kleindienst the same thing, he said he did not "recollect" talking to anybody at the White House about settling the ITT case--a simple lie. For his part, Judge McLaren backed up his boss's account of the events and added: "In conclusion, I want to emphasize that the decision to enter into settlement negotiations with ITT was my own personal decision; I was not pressured to reach this decision. Furthermore, the plan of settlement was devised, and the final terms were negotiated, by me with the advice of other members of the Antitrust Division, and by no one else."
Felix then took the microphone and repeated, now for the senators and the public, his considered view of the dire consequences posed by the potential divestiture of the Hartford, and not only for his number-one client, ITT.
In hindsight, Felix's belief that the divestiture of a large insurance company could potentially bring down the whole economy seems phantasmagoric. He said Geneen deputized him to prepare a presentation to use with the Justice Department. "I was thought qualified in these areas as an economic and financial specialist," he explained. He recounted his meetings with Kleindienst and McLaren, backing up the versions of these two men. "Every meeting was on the record," he said. "No meeting or telephone conversation was held in a covert or surreptitious manner. There was no hint of favor offered or sought."
He failed to grasp, it seems, the perquisites ITT received by virtue of the very access itself, let alone the benefits of the resulting settlement that avoided the much-feared Supreme Court test. Jack Anderson, on the other hand, fully grasped the significance. "The suggestion that discussions with Rohatyn about the case could not possibly count as negotiations, since he was not a lawyer, must have amused investment bankers everywhere," he wrote in his 1973 recollection, The Anderson Papers.
The last tycoons: the secret history of Lazard Frères & Co Page 17