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

by William D. Cohan

  Hopkyns called the Lazard main number. He asked for Corcoran. "Corcoran here," Corcoran said.

  Hopkyns knew instantly upon hearing the real Peter Corcoran's voice that the Bank of Montreal, as Wilkis had said, had a problem, a big problem. Busuttil called Tom Mullarkey, the Lazard general counsel and chief firefighter, to find out what was going on. "No," Mullarkey responded, "Corcoran and Wilkis did not sign that document that you have in front of you." He asked Busuttil to messenger over a copy of the document.

  On January 17, Lazard, through Mullarkey, provided Shearman & Sterling with its official response to the Grambling matter. "Dear Mr. Busuttil," Mullarkey wrote, "I have your letter dated January 16 enclosing a copy of a Consent and Agreement purportedly signed by Lazard Freres & Co. Before you sent the letter to me with its enclosure, I informed you that the Consent and Agreement was spurious. Manifestly, we have no intention of complying with its terms. Thomas F. X. Mullarkey." The Shearman attorneys and others would make much of Mullarkey's use of the word "spurious" instead of a more precise word, such as "a forgery" or "fraudulent," but clearly Mullarkey and Lazard had denied the authenticity of the consent form and would not comply with its terms.

  Hopkyns called Grambling for an explanation. "I don't know what's happening at Lazard," Grambling asserted. "But it sounds like a technical error regarding whose signatures can technically bind the firm. Wilkis and Corcoran must have fouled up. Remember, Ivor, I worked there, so I know how they make these mistakes. Someone's trying to cover his ass. I'll make some calls and get to the bottom of this." Later that night, Grambling gave Hopkyns his explanation: "I just got off the phone with my wife. She read me the mail delivered to our home in Connecticut. E. F. Hutton remitted my Dr Pepper proceeds to my account at Coronado Bank in El Paso, Texas. The transmittal voucher was in today's mail. The stock had been cashed on the fifteenth, just like we expected, but it was sent to the wrong place."

  According to a Wall Street Journal article from March 1987 summarizing the whole Grambling affair: "The truth was that Mr. Grambling didn't own a single share of Dr Pepper. The documents were forged; so were the signatures of Messrs. Corcoran and Wilkis. The Libman balance sheet was made out of whole cloth. The Peter Corcoran that Ivor Hopkyns had phoned in Florida was, in reality, Robert H. Libman doing an impersonation." Grambling and his Florida accomplice, Libman, had systematically set up a nationwide Ponzi scheme designed to defraud banks all across the country. The idea was to keep one step ahead of the old creditors by borrowing money from new ones and using the proceeds to repay the old. In the end, of course, that can go on for only so long. They tried to steal a total of $36.5 million and made off with $13.5 million "without pointing a gun at anybody," as the Journal put it.

  Brian Rosner, then the Manhattan assistant district attorney, who successfully prosecuted Grambling and Libman, explained to the Journal: "It's called robbing Peter to pay Paul, and as long as it works, as long as the money comes in, no one knows he's being victimized.... No one is more complacent than a banker who has been repaid." In May 1987, after a lengthy investigation into Grambling's activities, which revealed that he had been stealing at least since college, the acting state Supreme Court justice Herman Cahn sentenced Grambling to between seven and two-thirds and twenty years in a state prison after he pleaded guilty to thirty-two counts of fraud. He had separately received a four-year sentence from a federal judge in San Diego for attempting to defraud a bank there as part of the overall scheme. The state prison time for Grambling began after the federal prison time was completed. Grambling's prison sentence, at the time, was one of the harshest ever for a white-collar criminal. (Libman received a six-month sentence after pleading guilty more rapidly than Grambling, who attempted to commit even more of these crimes while awaiting sentencing.)

  What has remained less clear in the whole Grambling affair is the role of Wilkis. Shouldn't he have been aware of the implausibility of Grambling having more than $8 million worth of Dr Pepper stock when Forstmann Little had bought and paid for the company nearly a year before? Nobody, no matter how wealthy, leaves $8 million worth of stock lying around for eleven months when it could be turned into badly needed cash. Wilkis also admitted knowing that Grambling had asked their mutual secretary, Sheila, to send him a bunch of Lazard stationery, even though he no longer worked at Lazard. Wouldn't that have been a tip of odd behavior? At one point, as the fraud was being sorted out, Jon Greenblatt, a Shearman & Sterling litigator assigned to the case, told Rosner he thought Wilkis "was Grambling's accomplice" and that would be made clear after Rosner interviewed Greenblatt's clients at the Bank of Montreal. "But it sure looks like Grambling had Wilkis working for him," Greenblatt told Rosner. Lazard hired Martin Flumenbaum, a litigator at Paul, Weiss, to represent it and Wilkis--indicating that Lazard felt Grambling had taken advantage of Wilkis and Lazard did not need separate counsel. In his first discussion with Rosner about the matter, Flumenbaum told him, "Wilkis was duped by Grambling. He can fill in a lot of what you need to know to make your case." According to Swindle, Rosner's 1990 book on the Grambling case, by mid-February 1985, Flumenbaum had successfully negotiated with Rosner "full transactional immunity" for Wilkis. "That means you can't be prosecuted for any crimes derived from what you tell me," Rosner told Wilkis, unless he were to later lie in front of the grand jury, should he be asked to appear.

  With full immunity in hand, Wilkis laid out his version of what had happened between him and Grambling. "In early December, I gave him a call," he began. "Lazard had just finished a big deal that I was involved in, and I wanted to let people know what I had done. I sat down at my desk with my Rolodex, and started calling everyone on my cards--classmates, associates, acquaintances--just to let them know. Grambling was one of the dozens of people I called." When Rosner expressed surprise at this boastful behavior, Wilkis said, "I was just tooting my own horn. That's the way the Street works. Wall Street, I mean. You have to let people know what you've done, and that you're around, so they think of you in their next deal."

  Grambling then called Wilkis on December 19 and told him about the pending RMT deal and how he needed some help with the Canadian bankers. Wilkis explained to Rosner he thought maybe Grambling would be a new client and was worth helping. "And he tells me how he has this problem with bankers," Wilkis told Rosner. "They're Canadians, real slow, dim-witted, he says. And he has to explain to them how, because of a leveraged buyout, his Dr Pepper shares are worth so much in cash. Now, Lazard had done the Dr Pepper deal, so I knew about it. And, we're talking, and I ask, 'How many shares,' and he goes '360,000 or so.' And I think, 'Jesus, when he was here everybody knew he was filthy rich, a Texas oil brat, but here's this guy, he has 360,000 shares of Dr Pepper hanging around'--and I do some quick calculations in my head, that's $8 million we're talking about--'and he hasn't even converted the stock yet.' You see, the stock had been convertible for months, with mid-January 1985 being the cutoff date. And this guy, I'm thinking, he has so much fucking money he doesn't even notice that his stock can be converted to $8 million of cold cash immediately.

  "So, he asks me if I can talk to these dim-witted Canadians. 'You know,' he says, 'they don't understand LBOs and high finance, and if you could just explain to them how the deal worked, and how the money comes out at the end.' And I agree. Why not? If I can help the guy out in such a little manner on such a big deal, why not? So I say 'yes,' and Hopkyns, the Canadian banker, calls that day. I explain the LBO to him, and the cash conversion process."

  "Did you tell Hopkyns that Grambling owned 360,000 shares of Dr Pepper?" Rosner asked.

  "I told him I wasn't Grambling's account officer, and couldn't give details about Grambling's stock," Wilkis replied.

  "Did you disagree with Hopkyns when he referred to Grambling owning 360,000 shares?" the assistant DA said.

  "No," Wilkis responded. "I thought Grambling was a multimillionaire. The rumors, from when he was at Lazard, were that he was worth $50 million. So $8 million of Dr Pepper
stock was just, yeah, it seemed right." Astonishingly, Rosner had granted Wilkis immunity without having checked something as simple as when the Dr Pepper deal had actually closed. The information about Continental Illinois Bank's role was not publicly available, and so Wilkis could not have seen it, and even if he had, the bank's job would have ended, contractually, five months before Wilkis and Grambling claimed. Rosner had been duped by Wilkis.

  Wilkis then recounted for Rosner the calls about signing the consent form and his unwillingness to do it because he had no authorization. He said he didn't think too much more about the whole thing until January 15, when Hopkyns called looking for the Dr Pepper money. He then relayed the "You have a problem" conversation. Wilkis said it didn't take long for the Lazard bankers and lawyers to figure out what Grambling had done. "Christ, I could have killed that shit," Wilkis told Rosner. "All of a sudden my job is on the line. The first reaction of everyone is that I helped him do this."

  Rosner wrote that Wilkis threw his hands in the air at this point. "Of course, I did help him," Wilkis said. "But even saying that makes me feel like a jerk. Credibility is important on the Street. All of a sudden, after so many good deals, my credibility's down the drain. Now Wilkis is the sap who got done in by Grambling." Wilkis explained he called Grambling and "cursed him out" and then Grambling turned on him, saying, "How dare I accuse him of forgery." Wilkis recounted a few more relevant details for Rosner, who then asked him if there was anything else. "No, but, that son-of-a-bitch hurt me," Wilkis said. "Here's a guy born with a silver spoon in his mouth, and I'm just a poor schmuck just trying to make my money the old-fashioned way, and this is what the guy does to me."

  Apparently, though, Wilkis had long before run out of patience trying to make money the old-fashioned way. Since at least November 1979--more than five years before his conversation with Rosner--he had been systematically uncovering inside information about Lazard's merger advisory assignments and revealing it to a ring of bankers led by the now infamous Dennis Levine, as chronicled in James Stewart's Den of Thieves. This revelation makes it even more implausible to the layman that Wilkis could have simply been Grambling's innocent dupe.

  Wilkis met Levine in 1977 at a cocktail party given by the Citicorp chairman, Walter Wriston, for new Citicorp employees. Unlike Levine, who was a gruff, uncultured kid from Bayside, Queens, Wilkis had far more of a classic Lazard background for someone not related to a CEO or French nobility. He grew up in Baltimore, a product of Orthodox Hebrew schooling. He was a graduate of Harvard University and Stanford Business School. Raised an Orthodox Jew, he had taught handicapped children in the Boston public school system after college but also worked at the World Bank and had spent a summer at the Treasury Department, where he researched economic issues. He thought of himself as politically quite liberal. He had married a Cuban-born woman and spoke five other languages fluently: French, German, Italian, Arabic, and Hebrew. By the time he had graduated from business school, which he detested, his wife, Elsa, was pregnant, and his mother was getting divorced. Wilkis needed money. The job offer from Citicorp provided him with a steady income. But he hated Citicorp, too, seeing it as stuffed full of Waspy "corporate types." Only Levine showed an interest in him and would tell him, "You know, we're just nice Jewish boys in a hostile, WASP environment," while trying to get Wilkis to skip out of the office for an afternoon diversion. One evening, while the two were socializing, Levine told Wilkis: "I knew after I was bar mitzvahed that there was an inside track and information was the key." He would often add that his "dream of dreams" was "the euphoria, the omnipotence of reading on September 12 the Wall Street Journal of September 13."

  When the two friends came up for promotion the following year, the focused, hardworking Wilkis was promoted, but Levine was not. Levine left Citicorp soon thereafter for a job at Smith Barney, then an independent brokerage and now, ironically, part of Citigroup. During his first week at Smith Barney, he called Wilkis and told him to buy a stock. "Just buy it," Levine told him. "Don't ask any questions." Wilkis bought several hundred shares, and the stock price subsequently rose dramatically. "See, Bob," his friend said, "I am going to take care of you." Smith Barney shortly thereafter moved Levine to its Paris office, which he did not like because it was far outside the information flow. At around the same time, Smith Barney had hired J. Tomilson Hill III, from First Boston, to set up an M&A business at the firm, in a belated effort to cash in on the growing merger boom. Levine desperately wanted to get into Smith Barney's M&A group and regularly asked Hill if he could join. Eventually, Hill, who now is a wealthy vice chairman at the Blackstone Group and runs its hedge fund business, relented, and Levine moved back to New York and joined the M&A group. Levine and Wilkis celebrated Levine's move at a fancy Manhattan restaurant where they swilled bottles of Chateau Talbot '71. Levine also told Wilkis he had opened a Swiss bank account, at Pictet & Cie, in Geneva, one of the secret accounts he would use to make insider trades.

  Over time, Levine's ruminations about the possibility of profiting from insider trading began to make more and more sense to Wilkis. Soon after Levine left Citicorp for Smith Barney, Wilkis left for Blyth Eastman Dillon, where he worked briefly, before moving again, to Lazard, to work for Frank Zarb in the international department. Levine had been urging Wilkis to get to a place, like Lazard, that was heavily involved in mergers, since that's where the excitement was and the potential greater for insider trading. Wilkis later said he just wanted to be able to put his language skills to work and to find a way to help people in a banking capacity. Levine's idea had been for Wilkis--and other members of the circle--to listen for information about pending mergers Lazard was working on while Levine would do the same at Smith Barney, where he worked before moving to Lehman Brothers and then to Drexel. Other co-conspirators at Lehman Brothers and the law firms Wachtell, Lipton and Skadden, Arps soon joined the circle. "You gotta do it," Levine told Wilkis. "Everybody else is. Insider trading is part of the business. It's no different from working in a department store. You get a discount on clothes you buy. You work at a deli. You take home pastrami every night for free. It's the same thing as information on Wall Street."

  "I'm scared," Wilkis replied.

  "Look," Levine continued. "It's foolproof. And I'd love to give you tips. But you gotta get set up like the big guys. You gotta open a foreign bank account so that it will all be confidential."

  When Wilkis still expressed discomfort, Levine pounced. "I know you want to help your mother and provide for your family. This is the way to do it. Don't be a schmuck. Nobody gets hurt."

  In November 1979, years before the Grambling swindle about which he claimed innocence, Wilkis took the hint. He convinced his wife to take a family vacation to Nassau, in the Bahamas. While there, Wilkis took all of his $40,000 in savings and, following advice carefully given to him by Levine, opened a "Swiss bank account" at Credit Suisse. He was "Mr. Green" and his dummy Bahamian corporation had the name "Rupearl." Since he was isolated from M&A deals in Zarb's group, Wilkis now sought to befriend the Lazard bankers in M&A to find out what they were working on. He passed this information on to Levine, using code names.

  Since Lazard was much more involved in the flow of M&A deals than Smith Barney, Levine naturally wanted to work there to fuel his scheme. He interviewed several times at Lazard, but there was no interest in him, given his gruff manner and his common upbringing. The rebuffs, though, fueled Levine's desire to get back at the firm.

  Swiss bank account in hand, Wilkis finally gave in to Levine's ongoing exhortations for more and better inside information about Lazard's merger activity. One Friday evening in May 1980, around 8:00 p.m., Wilkis allowed Levine into Lazard's offices, and once there he began rifling through the desks, papers, and Rolodexes of the Lazard partners. According to Den of Thieves, Levine even admired Lou Perlmutter's "cache of Cuban cigars." Michel said later he discovered Levine had searched his office as well. Levine found documents--and copied them--about the French oil company
Elf Aquitaine's pending acquisition of Kerr-McGee, another oil company. (The deal did not happen after the French government nixed it.) He also took a chart showing where all the Lazard partners sat so that in the future, when he discovered which partners were working on which deals, he would know the offices to search. Wilkis told Levine about United Technologies' entry into the Bendix fray, making Levine $100,000 after he bought stock before the announcement. Much inside information passed between the two men. In 1984, Wilkis told Levine about Lazard's advice to the Limited in the company's efforts to buy Carter Hawley Hale Stores, a department store chain. The deal did not go through, but Levine still made $200,000.

  Wilkis had also recruited a Lazard junior analyst, Randall Cecola, to help him in his quest. They used to walk home to the Upper West Side together after work. One evening in 1983, after Wilkis had moved into Lazard's M&A group, he and Cecola had dinner together at La Cantina, a now defunct Mexican restaurant on Columbus Avenue. He confided to Cecola the whole scheme; Cecola was an enthusiastic participant. Cecola immediately told Wilkis about a deal he was working on--an improbable hostile bid by Chicago Pacific Corporation for Textron, the Providence-based conglomerate. Wilkis called Levine and told him the news. Levine bought 51,500 Textron shares, and Wilkis bought 30,000. Two weeks later, Chicago Pacific announced its tender offer for Textron, which also ultimately failed. But Levine and Wilkis each made money, $200,000 and $100,000, respectively, during the run-up after the announcement.

  However, the size and timing of their trades were such that they attracted the attention of the SEC, and an investigation commenced. They were each subpoenaed to testify about the Textron deal before the SEC, and Levine appeared on November 14, 1984--one month before Wilkis said he was first asked by Grambling to help him out. The SEC investigation led to the downfall of Levine and Wilkis, among others, and exposed the largest insider trading ring in American history.