The explanation was both self-aggrandizing, making Levine out to be some kind of deductive genius, and utterly preposterous. Moreover, Levine couldn’t provide any corroboration of his visit to Drexel’s reception area. It wasn’t in his calendar, and he claimed that the person he was there to visit had been out. Wang knew Levine was lying. Rarely in his years as an SEC interrogator had he heard a lamer explanation. But why? With nothing to connect Levine to any trading, or to any leaks to people who did trade, and without a witness to contradict Levine’s account, the investigation went nowhere. It was eventually closed without any action.
For Levine, the brush with regulators only seemed to heighten the excitement of the game, and his sense of his own strength.
In at least one respect, Levine’s testimony about how he deduced the Textron bid was correct: he had recently had occasion to visit Drexel Burnham Lambert. The firm, rebuffed by all the “stars” it had earlier targeted to complement Milken, had, perhaps inevitably, begun considering Levine.
Levine had consulted a professional “headhunter” at a recruiting firm earlier in 1984, shortly after the strife-ridden Lehman Brothers was acquired by Shearson/American Express. His résumé began circulating discreetly on Wall Street. Furious about the merger, Levine told Hill that “his dream had always been to be a Lehman partner, and now they’ve taken that away.” “My birthright,” he said, has been “taken from me.”
Shortly after the merger, each department was asked to submit a list of people who should be considered for the rank of “managing director,” the equivalent of partner at the now publicly traded firm. Waters, Hill, Bingham, Peter Solomon, and other top people in the M&A department met to draw up their list, and briefly, very briefly, considered including Levine’s name on it.
The fact that Levine was even considered said more about the internal climate at the firm than about his colleagues’ assessment of Levine’s talents. Shearson Lehman was thought of as a new playing field, and former Lehman partners felt they should cast their net wide in considering possible managing directors. They had also realized that there was an opportunity to elevate many of their ranks; it was obvious Shearson wanted to stop the flow of Lehman talent to other firms.
But no one had changed their assessment of Levine’s weakness in fundamental investment banking skills—not even Solomon, his biggest supporter. Levine was credited with landing some business, but everyone was expected to be a business-getter; Levine’s achievements didn’t stand out particularly. Moreover, his attitude and posturing had alienated many of the younger members of the department. So Levine was quickly discarded as a possibility. Indeed, Sokolow had much better reviews, and was dropped from the list only because of his youth.
Levine was stunned. He complained bitterly to Wilkis, and began badgering Solomon, who tried to reassure him, promising that he’d be reconsidered later in the year. At that time, Shearson Lehman again failed to elevate him to managing director. But the firm did value him, promoting him to senior vice president and giving him a bonus of $500,000 on top of his base pay of $75,000.
By the standards of anything but deal-crazed Wall Street, it was a princely sum, an amount few of Levine’s 33-year-old peers from Queens had even dreamt of. But Levine greeted the news with contempt. A half million dollars, in his eyes, wasn’t nearly enough to support his newfound standard of living.
From the outset, Levine had preached to other members of the ring that their spending, consumption, and lifestyles should be modest, so as not to raise questions about their incomes. But he had begun violating his own strictures almost immediately, first with his withdrawals of “walking-around money,” and later with purchases of ever more extravagant status symbols.
His top-of-the-line BMW had already raised colleagues’ eyebrows, and that was only the beginning. Levine and his wife became regulars at many of Manhattan’s most expensive restaurants. Levine usually paid in cash. He also bought her a diamond necklace. His father, Philip, received a new Jaguar. Levine began frequenting expensive, snobbish art galleries, where he was an easy target for sharp and sophisticated dealers. He bought works by Picasso, Miró, and Rodin.
He also spent $500,000 to acquire the ultimate Manhattan symbol of having “arrived”: a large Park Avenue co-op. The building he chose, on the east side of the wide boulevard, is rich with gothic detailing and occupies almost an entire block. Its interior courtyard is accessible through imposing wrought-iron gates. This embodiment of prewar bourgeois respectability hardly reflected Levine’s own taste, but he wasted little time in remaking the apartment in his image.
Levine hired an architect and interior decorator, and out went the architectural detailing. The apartment was gutted, and sweeping curved walls were installed. Glass blocks separated the dining room from one of the bedrooms. Bleached oak floors were laid. Sybaritic new bathrooms were created, along with a dazzling high-tech kitchen or, rather, two kitchens: Levine had the first one ripped out when it didn’t suit him.
Reich, who lived in an old brownstone on the West Side, was flabbergasted at the transformation and the extensive high-tech gadgetry. Levine obviously loved his new surroundings, despite his frequent, contemptuous references to his “fag” decorator. His favorite detail was a large color television set that, at the push of a bedside button, rose from its hiding place in a custom-made bureau. The renovation cost $500,000, enabling Levine to boast, accurately if indiscreetly, about his “million-dollar” apartment.
Paying for all of this necessitated much more frequent visits to Bank Leu in the Bahamas, trips Levine often described to colleagues as gambling jaunts. His bankers often had to scramble to muster enough $100 bills, the currency Levine insisted upon. During 1984 alone, Levine withdrew $200,000 in March, $200,000 in July, and $90,000 in December. He appears to have spent all of it.
By the time Levine got the bad news that he was being promoted only to senior vice president, he was already prepared to abandon Shearson Lehman. As the deal flow had steadily increased during the year, other firms were becoming almost desperate for investment bankers with even a modicum of experience in M&A, and Levine’s headhunter at Hadley Lockwood found his once-lackluster résumé to be in high demand. Nearly all the top investment banks were at least willing to consider hiring Levine; even Gleacher, now at Morgan Stanley, tried to recruit him.
But almost from the outset, Levine had his eyes on Drexel. He had his first contacts with the firm in March, and, he reported to Wilkis, “They love me.” Drexel, he said, was a “license to print money.” All the firm really needed was “a great banker” like himself to complement the Milken West Coast operation. He envisioned hobnobbing with Sir James Goldsmith and Ronald Perelman, a prelude to the day when Levine himself would step onto the stage as a major corporate raider.
Hadley Lockwood did a custom résumé for Levine specifically targeted at Drexel. It was almost a parody of the emerging values of the times: “Dennis describes himself as a person who truly loves to do two things,” it began, “do deals and make money.”
Drexel, the résumé went on, was “tailor-made” for Levine’s “aggressive” deal skills and “new business-generation capability.” And it made a virtue of Levine’s weak academic record and lack of broadening activities: “Having graduated from schools that do not generally produce investment bankers, Dennis has had great difficulty fighting his way into the major bracket. In the process, he has become something of a workaholic who rarely touches down for an interview except on the shortest of notice, and even then often has to cancel.”
The pitch struck just the right tone for David Kay, Drexel’s head of M&A. Levine reported an immediate affinity for Kay, who, unlike Gleacher or Hill, seemed to have much in common with him. What had often come across to others as a phony heartiness, boastfulness, and self-aggrandizement, seemed to Kay to be the very hallmarks of “star quality”; Kay went so far as to describe Levine as “flawless.” When Kay made some checks on Levine, he was particularly impressed that bot
h Lipton and Flom, the preeminent takeover lawyers, gave Levine enthusiastic recommendations.
Eventually Levine had offers from Morgan Stanley and First Boston, too. But he recognized that competition was almost nonexistent at Drexel, and the potential vast. He negotiated a package that gave him a base salary of $140,000 and a thousand shares of Drexel stock, with a minimum guaranteed bonus his first year of $750,000. He could collect $200,000 of this bonus as an advance when he arrived at Drexel for work. For its efforts in promoting Levine, Hadley Lockwood’s fee (paid by Drexel) was $267,000.
Levine, typically, hadn’t accepted immediately; he had tried to use the Drexel offer as further leverage at Shearson Lehman. He went to see Waters and unveiled the Drexel offer, emphasizing that he’d be a managing director there and would be paid more than a million dollars. “This is a terrific chance,” he said. Waters wasn’t impressed. Indeed, the Shearson Lehman managing directors had recently decided that, in the wake of all the turmoil within the firm, they needed to emphasize collegiality and a commitment to the firm over self-interest. Levine was the antithesis of this. “We’re not going to do that for you, Dennis,” Waters had responded. “Maybe you should take it.”
Levine celebrated his move to Drexel with another extravagant purchase. One sunny weekend morning, Gleacher was enjoying a stroll through Central Park when Levine came rushing up, smiling and seemingly excited to see him. “You’ve got to see my new car,” he said, steering Gleacher back toward Fifth Avenue. There, parked at the curb, was a bright red, low-slung, two-seat Ferrari Testarossa. Levine had paid $105,000 for it. Gleacher wasn’t a car buff, but Levine insisted he get in for a ride. He pressed hard on the accelerator and roared down the avenue, flattening Gleacher into his seat. He gleefully reported to Wilkis that he’d “scared the shit” out of his former boss.
Levine arrived for work at Drexel on February 4, 1985. When Drexel’s Fred Joseph ran into Peter Solomon soon after, Solomon told him he was “furious” that Drexel had “stolen” his protégé. Joseph just smiled, taking Solomon’s obvious anger as a high compliment.
Kay, eager to get Levine on the fast track to stardom, immediately assigned him to what would be Drexel’s first foray into the world of junk bond-backed hostile takeovers, a plan by Drexel client Coastal Corporation to acquire American Natural Resources Co. (ANR), a gas pipeline company. Using one of its “highly confident” letters, Drexel planned a lightning-fast strike with an all-cash tender offer of $60 a share.
On February 14, just 10 days after starting at Drexel, Levine used a pay phone to call Bernhard Meier, the Swiss banker who was now handling the “Mr. Diamond” account at Bank Leu. He told Meier to buy an astounding 145,000 shares of ANR, using almost the entire balance of his account, over $7 million. He cautioned him to spread the buying among several brokers so the size of the trading wouldn’t attract attention.
Levine similarly wasted no time in pursuing his own brand of investment banking, immediately spending much of his time canvassing his Wall Street sources for rumors and tips that might lead to new business, and maintaining his ties to his network of arbitrage sources. He reassured Coastal executives in early strategy sessions that ANR was increasingly vulnerable because more and more of its stock was moving into the hands of arbitrageurs, who weren’t interested in long-term investments in the company and would be eager to sell into a tender offer for fast profits. Levine staked out a role for himself, keeping in constant touch with arbs for any developments that might affect planning.
Ivan Boesky had, heretofore, never taken any calls from Levine, even though Levine had been so anxious to make an impression on the arbitrageur that he had sent him, anonymously, copies of the Elf/Kerr-McGee documents he and Wilkis had stolen from Lazard. Boesky had never heard of Levine before he moved to Drexel. Now Kay and other contacts of Boesky’s at Drexel were touting Levine as the new star who’d beef up Drexel’s M&A capacity. If Levine’s move to Drexel achieved nothing else, it was notable for moving Levine into the small orbit of people with access to Boesky.
On the phone, as he had with many others, Boesky began by parrying and probing with Levine, seeking hints of any bid in the offing, trying to gauge the investment banker’s attitudes about ANR, a stock Boesky had already accumulated. Boesky must have been amazed at the ease with which he was able to get Levine to reveal confidential aspects of the impending bid. Levine was desperate to make a favorable impression on Boesky, recognizing how important access to him could be for his career at Drexel, and he began phoning the arbitrageur at regular and frequent intervals, often 20 times a week. Levine asked for nothing in return for what he knew was valuable information, but Boesky instinctively reciprocated with market information about other traders, gleaned from his own sources, such as John Mulheren.
Boesky’s trading records in ANR suggest that Levine was passing on information to a remarkable degree, since Boesky increased his stake in the company right after nearly every significant—and supposedly confidential—development in Coastal’s strategy. Eventually Boesky had amassed 9.9% of ANR’s shares, requiring a public disclosure of the dates and amounts of his purchases.
With trading so heavy in ANR stock, Coastal rushed out an announcement of its tender offer in early March. After initially struggling to stave off the bid, ANR succumbed two months later and agreed to accept Coastal’s offer. Levine, having bet nearly all his profits, made nearly $1.4 million. Boesky earned over $3 million.
The preannouncement trading had been so massive, so brazen, that all the stock-watch monitors buzzed at the stock exchange and the SEC. The computers, however, were of little help in actually proving there was any insider trading. Investigators made even less progress than they had in the Textron case; this time, they didn’t even get to the point of questioning Levine, a deal participant, before they abandoned the investigation for lack of good leads. Even as he reaped his massive illegal profits and breached his client’s confidences, Levine had proven himself on his first hard-fought, high-profile transaction at Drexel. Kay was impressed with Levine’s ability to gather market intelligence. He was convinced he had the star Drexel needed.
ANR was Levine’s biggest score to date, but it was soon eclipsed. Even as his new post at Drexel put him in close proximity to a potentially far more lucrative deal flow than the one he’d seen at Shearson Lehman, his ring of informants kept him amply supplied with other trading opportunities. The scheme was working as Levine had dreamed it would. In March, “Goldie” leaked word of an impending leveraged buyout of McGraw Edison. In April, Cecola tipped Wilkis that Houston Natural Gas had retained Lazard to handle a merger with Internorth, another pipeline company. Wilkis passed the information on to Levine, who again bought through Meier, indiscreetly characterizing the as-yet-unannounced transaction as a “sure deal.” In May, just after the Coastal merger, Sokolow at Shearson Lehman—now having “recruiting” lunches with Levine, according to Levine’s expense accounts—tipped Levine to R. J. Reynolds’s impending mega-bid for Nabisco Brands.
Levine again wagered almost everything he had, buying 150,000 shares of Nabisco on May 6. Less than a month later, with hectic trading plainly indicating the existence of leaks, an anxious Reynolds announced its bid. Levine’s profit was $2.7 million.
Celebrating with Wilkis over dinner at a Manhattan steakhouse, Palm Too, Levine couldn’t resist telling Wilkis that there was now a new component to the ring. “I tipped the Russian on Nabisco,” Levine confided to a surprised Wilkis. From his remarks about the importance of “the Russian,” Wilkis knew exactly who Levine meant. It made him nervous; involving someone the size of Boesky was vaulting their conspiracy to an entirely new level, one more likely to attract scrutiny.
Levine was reassuring, saying they could ultimately get more out of “the Russian” than vice versa. In any event, since ANR, Levine had curried favor with Boesky by passing on deals generated within his ring. He didn’t know the size of Boesky’s positions, but he knew Boesky had traded actively—a
nd made millions.
The pattern of leaks had become so consistent that Levine and Boesky met to formalize their arrangement. Levine had baited the hook and secured his access to Boesky by initially offering the information for nothing in return; now he wanted profit participation. As he had done with Siegel, Boesky proposed that the two meet at the Harvard Club. There and in subsequent meetings, they plunged into much tougher negotiations than Siegel had engaged in. Rather than some ill-defined promise of a “bonus,” Levine wanted a precise measure for calculating his share.
Despite his high regard for his own negotiating abilities, Levine seems to have gotten a worse deal than Siegel did. Eventually, Levine and Boesky agreed on two separate formulas: Levine was entitled to 5% of Boesky’s profits on a stock if Levine’s tip led to Boesky’s initial purchase. If Boesky already held a position, but Levine’s information proved useful, Levine would receive 1% of Boesky’s profits. And Boesky extracted a tough concession: Any losses he incurred acting on Levine’s tips would be deducted from Levine’s share of the profits.
Once, Levine would have rushed to tell Wilkis everything about his new conquest. Now, however, he shaded the facts to the point of falsehood. “It’s unbelievable,” Levine confided on one of their midday walks, as he told Wilkis about the meeting with Boesky at the Harvard Club, “but Ivan offered me $1 million in cash. Any way I want it. He owns everybody. Gleacher, Wasserstein. But I refused it,” Levine said.
Wilkis was skeptical. “That doesn’t sound like you,” Wilkis said sardonically.
“I’d much rather have the Russian owe me,” Levine shot back, “than own me.”
Den of Thieves Page 17