The last tycoons: the secret history of Lazard Frères & Co

by William D. Cohan

  And once again, one would be wrong. After reviewing all of the documents in the case ad nauseam, the SEC decided once more at the end of 1974 to open up a new investigation into whether ITT had violated certain provisions of federal securities laws in conjunction with its acquisition of the Hartford. Once again, the Lazard leadership found itself facing intense scrutiny. Felix would testify twice more, as would an increasingly ailing Andre Meyer.

  The major focus of the SEC's second examination into the ITT-Hartford matter was Mediobanca's subsequent profitable resales of the ITT "N" stock, in 1970 and 1971, to what turned out to be an internecine web of companies one way or another affiliated with Mediobanca, Lazard, or both of them. Then, in two instances, the affiliated entities that bought the stock, at a profit as well, turned around and sold businesses they were investors in to ITT--all at the exact same time. The coincidences were too delicious for the SEC to ignore but proved exceedingly difficult to pin down precisely. Felix, of course, told the SEC that he knew very little, if anything, about the ITT-Mediobanca deal and very little, if anything, about these derivative sales. If any of these questions were irritating to Felix, it was not apparent. He seemed especially gracious with the SEC lawyers--several of whom he had befriended over the years--and they with him.

  FIVE MONTHS LATER, in May 1975, a serendipitous phone call while he was once again working the corridors of power in Washington, D.C., would do far more for the resurrection of Felix's reputation than would his first op-ed piece in the New York Times or a feature about him in Time magazine. That fateful call from Hugh Carey, the New York governor, seeking Felix's help in solving New York City's looming fiscal crisis--a debacle Felix to that point had no inkling about--would transform Felix from a controversial man, reviled by editorial writers, into one of the most famous and highly respected men in the country. He would become the savior of New York City. Felix's adulation among common New Yorkers was such in the mid-1970s that cabdrivers would not let him pay for his fares and cops would volunteer to ferry him in their cruisers to his appointments. He started hanging out at Elaine's, the very social East Side pub, with the likes of Clay Felker and Jimmy Breslin.

  According to Felix, one day in May 1975 he had been at a meeting at the SEC unrelated to its new ITT-Hartford investigation--he was now part of an advisory commission on the National Market System--and afterward paid a social visit to Senator Henry M. "Scoop" Jackson, Felix's ally in his effort to reestablish the Reconstruction Finance Corporation. "I got a call from David Burke, who was the chief of staff to Hugh Carey and who used to be Ted Kennedy's chief of staff," he explained. "He said the governor would like to see you urgently. I said, 'I'm about to take the shuttle back to New York, I'll stop in your office.' I go in there, and Carey is there with Burke, and Burke I had known a little bit. Burke used to also work for Howard Stein at Dreyfus, and is a remarkable, remarkable man. Carey goes over this thing with me, or Burke does, about the financial situation of the city." Carey and Abe Beame, then mayor of New York, had been to see President Ford with an urgent request for the federal government to provide $1 billion--"$1 billion being wildly less than we needed," Felix explained years later--to New York City in order to prevent a bankruptcy in the next thirty days. Ford told the mayor and the governor he would not help. Remember the infamous blaring Daily News headline "Ford to City: Drop Dead"?

  Governor Carey then turned to Robert Strauss, the ultimate Washington insider, to see if he could twist Ford's arm. Felix explained: "Strauss says, 'No, I can't do anything, but I know somebody who's very smart whose name is Felix Rohatyn. Why don't you ask to see him.' I know nothing about this." That's when Carey put in the urgent call to Felix and found him in Scoop Jackson's office. After Burke explained the dire situation, Carey asked Felix, "'What would you think would happen if the city went bankrupt?' I said, 'Well, I think it would be a terrible thing if the city went bankrupt, I mean, I think you have to try to avoid that at all costs, but I can't believe that that can happen.' 'Well,' he said, 'would you be willing to help us and take on the job of spearheading that?' I said, 'No, I can't do that. I don't know anything about city finances, but, you know, if you were to form a small group, a bipartisan group, including Republicans and Democrats, you know, four people, I'd be certainly willing to participate, but I have to clear it with my senior partner. And if you do that, I would urge you to have one of the people that you appoint be Judge Rifkind'"--Lazard's lawyer throughout the various pieces of ITT litigation. "Carey says yes, call Rifkind. I call Andre. I say I really have to see you tomorrow, or whenever it was, and I'd like Judge Rifkind to be there. And I thought, 'Andre will never let me do this'"--prompting the question of why Felix thought Andre would not allow him to step into the city's financial breach. "I had spent almost two years on the New York Stock Exchange, and then, oh, what else, on ITT, and Andre would just say no," Felix explained. "In 1975 Andre was pretty tired by then, and he said, 'How long do you think this will take?' I said, 'I have no idea, but I think we want to try to gear it to create something that would enable the city to finance, and at least to get back to the capital markets, and once that happens, I'm gone. You know, and that should be it. A month, two months, three months, max.'" And that is how Governor Carey created the so-called Crisis Panel, the precursor to the Municipal Assistance Corporation, or MAC, just as Felix had suggested.

  The three other men on the panel were Simon Rifkind, Felix's lawyer and friend; Richard Shinn, the CEO of Metropolitan Life Insurance; and Donald Smiley, the CEO of R. H. Macy & Co. With the thirty-day drumbeat pounding, the four men began a round-the-clock effort to fashion a solution to the impending crisis. "For the last two weeks, life for the four men has been a succession of crises involving bill-drafting sessions until long after midnight, city-hopping trips starting as early as 7:30 a.m. on a helicopter from La Guardia Airport, and hurried conference phone calls to Governor Carey, Mayor Beame and other key officials," the Times reported, breathlessly, in June 1975. There were lots of helicopter trips between Albany and Manhattan, shuttling between meetings with legislative leaders and Mayor Beame at Gracie Mansion. "They may be new to the problem," one state official told the Times. "But they've quickly become comfortable with it. And most important of all, they have no evident political bias and no fear of speaking frankly. Why one of them simply told the legislative leaders: 'You're facing a financial Dunkirk. And you have to deal with it accordingly.'"

  Felix said his involvement with MAC, which is generally credited with constructing a financing mechanism that allowed New York City to avoid bankruptcy, was his single proudest professional achievement. His image was that of the crisis's honest broker, prescribing the tough-love cure to all who would listen. "I didn't tell the Republicans one thing and the Democrats another," he said. "I just told them the unvarnished facts, as brutally as I knew how, but without being brutally rude. I just said, 'Look, the patient has cancer. It isn't my fault. You have the choice of letting him die or taking the cure. The cure will be painful, and it may not work. But the risk of not taking the cure is far greater.'"

  The MAC platform also provided the much-needed salve to begin to repair the wounds that Felix had suffered for more than six years as a result of his work with Geneen on the Hartford acquisition. He was now happily lionized on the streets of New York. And his courtship of the press accelerated, as he intentionally became the MAC official willing to take the time to explain the complicated financial machinations to the often clueless political reporters. After he had devised and sold a $2.3 billion financing plan, in September 1975, that saved New York from default, Felix's friend Mike Burke, then president of Madison Square Garden, sent him a note: "Congratulations, Sisyphus should have learned to roll with Rohatyn. He would have made it."

  Now that Felix was becoming a public figure of international renown, details of his private life began creeping into the press. For the first time came word of his marital problems. Felix had married Jeannette Streit in 1956, and together they had three
sons. She worked, at least for a time in the 1950s, at the United Nations in New York, translating long Spanish and French speeches into English virtually simultaneously with the spoken words. During periods of crises, as in the Middle East in November 1956, the hours were long and demanding. "Plays hob with my domestic life," she told the Washington Post. That Streit ended up working at the UN was probably no accident. Her father, Clarence Streit--a writer--joined the New York Times as a reporter in 1925 and, in 1929, was sent to Geneva as a foreign correspondent to cover the League of Nations. He stayed for ten years, and while there he developed his own plan for a union of fifteen democratic nations, including the United States, that would closely resemble today's European Union. He wrote a book on the eve of World War II, in 1938, Union Now, that detailed his thinking about how the union of nations would work. It "electrified the nation," became a best seller, and was hugely influential on college campuses.

  In the late 1960s--when he was still married to Streit--Felix began a long affair with Helene Gaillet de Barcza, now Helene Gaillet de Neergaard. He had grown apart from his wife even before his public profile soared. "Jeannette was very intelligent, genteel and decent," a friend recalled, "but she was also very introverted." Added Felix: "She was an extraordinarily bright, intelligent, very high-quality person." (Streit declined to be interviewed.) Felix met Gaillet, by then separated from a Hungarian count, at a dinner party he and Jeannette had been invited to in 1967 in Greenwich Village. Gaillet was seated between the host and Felix, without giving him much thought. Toward the end of the evening, as music was played, Felix asked her to dance. He was quite taken with her from the start. At the time, she was said to closely resemble the beautiful French actress Anouk Aimee. Gaillet had emigrated from France to the United States in 1946; supposedly her family of eight was the first to fly commercially as a family across the Atlantic.

  A week later, Felix called Gaillet and asked her out for a drink. She declined. He called the following week, and again Gaillet declined; just over a difficult marriage and with two young children to raise on her own, she had no interest in dating a married man. Felix proceeded to call her every week for the next six weeks until she agreed to go out with him. "At some point six or eight weeks after I originally met him, I said yes," she explained. "Now, don't ask me why I said yes. I suppose his persistence and his charm. He was not a physically very attractive man, but he was extremely charming and, of course, brilliant. But at the time I didn't know he was brilliant. I just knew that, I suppose, his persistence broke down my wish to not go out with a married man. And I went out for a drink with him." After the drink, Felix asked her to dinner. They tended to stay in the Yorkville section of Manhattan, where there were lots of bars and ethnic restaurants. Even though Felix was not particularly well known at this time, he wanted to be discreet, so they would frequent the same three local restaurants of Polish, Hungarian, and German extraction. In each restaurant, they had the same meal every time. After these dinners, Felix would ask to go back to her apartment. But Gaillet said no, until finally her resistance broke down once again and she agreed. They became intimate. "We would meet, and then he would leave right after for the country"--he and his family had a house in Mount Kisco. "But at that time, I did wonder to myself why am I doing this, knowing that he was very, very much married and knowing that it was never going to lead to anything for me. And I wasn't in love with him. He was not in love with me. It was not even a great affair. You know what I'm saying? It was just something that was happening. But in a sense, I enjoyed having an affair with him, because we always had dinner, and that was always the interesting part, the conversation."

  Several months into the affair, Felix decided they should rent a pied-a-terre where they could meet regularly. He paid in advance, in cash, for a year's rental on the small apartment in a brownstone on East Sixty-second Street, between Park and Lexington avenues. They stopped having dinner and would just meet at the pied-a-terre for an hour or two, and then go their separate ways. Gaillet did not have a key to the apartment and, over time, began to notice she was not the only woman to be there with Felix. On occasion, she would see someone else's earrings or lipstick lying around.

  According to Gaillet, one of the other women he was seeing at the same time--a married woman--tried to blackmail Felix, demanding that he buy her a fur coat in exchange for her not telling his wife about their affair. But Gaillet said she didn't much care about these other women. "I didn't have any kind of reason to be possessive about him or him of me," she said. "And we liked what that situation was like." One late afternoon, about a year into the affair, Gaillet and Felix had agreed to meet at the apartment. But Gaillet was uncharacteristically delayed by the fact that her apartment at Madison and Ninety-sixth had been all but destroyed by a fire. Fortunately, neither she nor her children were in the apartment at the time. In all the commotion, she remembered she had agreed to meet Felix (Gaillet pronounces his name with a slight French accent, Fay-leex). She scurried down to East Sixty-second Street and found Felix, who, while sympathetic, was not particularly happy that his evening had been ruined. He offered to help her financially. She accepted from him, right then and there, a check for several thousand dollars, made out to cash, to see her through this very rough patch. "Which I thought was incredibly generous," she said. But at that very moment, he also stopped calling her. The affair was over until, six months later, Felix called her "out of the blue" and asked her to meet him at the pied-a-terre. They resumed the affair "as if we had seen each other the week before."

  Four weeks later, he announced to her: "I am madly in love with you. I have to live with you. I'm going to separate from my wife, and we're going to live together." Gaillet was surprised by this declaration, for she was not particularly in love with Felix since their relationship had become fairly one-dimensional. "I actually fell madly in love with him once we started living together," she said. He told her to find an apartment to rent, and he would move in with her and get a separation from his wife. Gaillet quickly found and rented a sixteen-hundred-square-foot penthouse apartment, with a wraparound terrace and a fireplace, at the Hotel Alrae, at 37 East Sixty-fourth Street (now the luxurious Plaza Athenee). There were round-the-clock doormen and room service available from the Henry IV restaurant.

  At the time Felix and Helene were living at the hotel, newspaper and magazine articles about Felix made no mention of his affair. Rather, he was described as living the life of the somewhat disheveled bachelor in a rundown "residential" hotel. The articles clearly conveyed a sense that Felix did not care about money or particularly how he lived. His accommodations at the Alrae were often described as "less than sumptuous" and "small," and no mention was ever made of his infidelities. He was portrayed as living a modest and cerebral bachelor life, with time spent reading mysteries and histories and chatting with his friends in art, publishing, and political circles--an image that served his purpose in the middle of the excruciatingly difficult negotiations with the New York City unions during the fiscal crisis. His "humble" abode at the Alrae was, according to a 1976 profile of him in the Times,

  stuffed with books, magazines, camping and sports equipment belonging to him and his three sons, and bikes. The wines in the front closet are humble Cotes du Rhone. His car is a four-year-old BMW station wagon, also stuffed with camping gear. Rohatyn's suits are anything but modish. To the disgust of Lazard's senior partner, Andre Meyer, Rohatyn appeared at the Governor's side during a weekend of particularly momentous meetings on the city's fate last fall, wearing a black turtleneck sweater. His trench coat with button-in lining is the only overcoat he owns and his safari hat from Hunting World is the result of a sudden revelation, walking past that 53rd Street store in the rain, that "my head was getting both cold and bald." He travels with a small vinyl flight bag, the kind the airlines give away free or for next to nothing.

  But the Times article was one big head fake. Yes, Felix lived at the Alrae, but not alone. He lived there with Gaillet, and it was p
lenty luxurious, she said, although these facts were never reported. He certainly was not living the life of a bachelor, because she was with him there from the beginning of the affair until its end. Although not as opulent as the Plaza Athenee today, she said, their penthouse apartment was actually quite elegant. The hotel was filled with an international money crowd. "It was a very, very, very subtle, private hotel in the middle of New York," Gaillet explained. They entertained often there the likes of Harold Geneen and other rich and powerful people. (Her children were away at boarding school during this time.) And of course, Felix was becoming fabulously rich at Lazard.