Den of Thieves

by James B. Stewart

  Siegel met Pedowitz the next morning and gave him a detailed account of the exchange, mentioning that Bill had referred several times to a letter he’d sent him, seeking a face-to-face meeting. “Have you checked your mail in Connecticut?” Pedowitz asked.

  Siegel realized that neither he nor Jane Day had been out to the Connecticut house for more than two weeks. When he drove out to the house, the letter was conspicuous in the heap of unopened mail. Siegel put on plastic gloves to protect any fingerprints; then, with trembling hands, he opened the envelope and hastily scanned the short letter. It said, briefly and enigmatically, “I know,” and asked for money. If he wasn’t paid off, Bill said, he’d turn Siegel in to the Internal Revenue Service. Siegel carefully placed the envelope and letter in a larger envelope, sealed it, and drove back to New York.

  When Pedowitz saw the evidence, he was suspicious. He wondered out loud whether the letter and phone calls might not be an elaborate government attempt to entrap Siegel in a bribery scheme. It seemed unlikely, but in the wake of the Levine crackdown and government references to a continuing investigation, anything seemed possible. Still, Pedowitz suggested that Siegel wait and see if anything else happened.

  The next week, Siegel got a call from Boesky, who suddenly seemed anxious to set up a meeting. Siegel said no and hung up, but was shaken by the call. Then, on November 10, special IRS agents showed up unannounced at Siegel’s office. Siegel was out of town, but when he heard of this development, he called Pedowitz. This time Pedowitz said he thought he’d better contact the U.S. attorney’s office.

  “Go ahead,” Siegel told him. “I want this thing cleared up.”

  That afternoon, Siegel heard from Pedowitz again. “You should come in first thing in the morning,” Pedowitz said, sounding grave, offering no details.

  “The U.S. attorney knows all about the letter,” Pedowitz told Siegel the next morning. “They know all about you and Boesky.” He didn’t need to continue. Siegel’s defenses were shattered. He put his head in his hands and began to weep.

  “I did this,” he said between sobs. “I’m guilty. I’m sorry. I want to do the right thing.”

  Pedowitz said he’d already spoken to his partners and they’d concluded that Wachtell, Lipton couldn’t represent Siegel; the firm had represented too many clients in deals that might figure in any charges against him. But Pedowitz offered to help Siegel find another criminal lawyer. “Some lawyers fight, others work with the government,” Pedowitz said. “Which kind would you prefer?” Siegel said he didn’t want to make any decision until he’d spoken to his wife.

  He took a cab back to his apartment. He knew he couldn’t go any further without telling his wife, but it was the encounter he dreaded most. He was terrified that she might leave him. As the cab maneuvered slowly through midmorning traffic, Siegel fantasized about suicide: Instead of going up to the apartment, he would get the family’s van out of its parking garage, leave the city, and drive east on Interstate 95 until he got to the Mianus River bridge. Then he’d drive off the edge. The prospect of death seemed abstractly inviting, but he blanched at the thought of a painful crash followed by drowning.

  When he arrived at the apartment, the children’s nanny told him that his wife had gone out to do some early Christmas shopping. Siegel paced the rooms. Everything, he knew, would soon be gone. His wife’s 36th birthday was just two weeks away, and he was about to ruin it. Then he heard the front door open and went into the foyer. Jane Day, laden with packages, was surprised to see her husband at home, but began excitedly telling him about her purchases and her plans for the upcoming holidays. Siegel forced himself to cut her off.

  “There’s something I’ve got to tell you,” he said as he led her into the living room. He closed the double wood-paneled doors as she took off her coat and sat down on the sofa. Siegel sat down next to her and took her hand. He took a deep breath and began: “You remember the letter I was so upset about, the one that arrived in Connecticut? There was something to it. I made a terrible mistake. I don’t know how you’ll ever be able to forgive me.”

  Jane Day immediately broke into sobs, realizing from her husband’s tone and demeanor that something terrible was happening to them. Siegel pressed forward, quickly summarizing his insider-trading scheme with Boesky. He felt ill with anguish. Jane Day continued to sob, and Siegel saw with horror how he was hurting her. It was the worst experience of his life.

  “What you did was horrible,” his wife choked out. Her biggest problem, she said, was that she felt betrayed: that he’d kept this terrible secret from her. She said he had shattered her trust in him.

  Yet even as she said this, she recognized her husband’s suffering and despair and her own shock quickly yielded to fears that he might commit suicide. She gave him the crucial support he needed to go on. “You’ve been a good father and husband,” she acknowledged, before dissolving again in tears.

  At about 1 P.M., Siegel returned to the Wachtell, Lipton offices and met again with Pedowitz. “I don’t want to fight,” Siegel told him. “I want to get this over with, and make amends.” Siegel ended up retaining Jed Rakoff, former head of the securities fraud unit in the U.S. attorney’s office, and then a partner in Mudge Rose Guthrie Alexander & Ferdon. Rakoff came up from Mudge Rose’s downtown offices and met with Siegel and Pedowitz. By the time he arrived, Siegel had received a subpoena from the SEC. The U.S. attorney’s office, after the call from Pedowitz, had alerted the SEC that Siegel was at Wachtell, Lipton, so the subpoena was delivered there.

  Rakoff was struck that, though obviously distraught, Siegel didn’t try to minimize or deny his guilt. He quickly briefed Rakoff on the arrangement with Boesky, including the most damaging aspects, such as the cash payoffs. And the arrangement with Boesky wasn’t all he’d done wrong, Siegel said. He told Rakoff briefly about his relationship with Freeman.

  Siegel was particularly worried about his colleagues at Drexel, and his relationship to the firm. Under the circumstances, he couldn’t keep working as though nothing had happened. He felt he had to talk to Joseph right away. Rakoff, on the other hand, wanted to preserve as much flexibility for Siegel as possible. He knew that Siegel might be valuable as an undercover operative. But Siegel was insistent that he would not go undercover at Drexel. None of his own wrongdoing had occurred there, he insisted, and he knew of no criminal activity at Drexel. So it wasn’t fair to attempt to trap his Drexel colleagues. Rakoff agreed that Siegel could talk to Joseph, tell him about the subpoena, and ask for a “medical” leave while he dealt with the questions in the subpoena. Then he should meet again that evening with Rakoff and his partner, Audrey Strauss, at Mudge Rose’s offices.

  As Siegel was leaving Wachtell, Lipton’s offices, he asked to see Lipton, who had now returned from Texas. Alone, he went into the senior partner’s spacious office, which Siegel had visited so often during his investment banking career. Face to face with the man who’d done so much to launch and advance his career, Siegel again broke down. “I’m sorry,” he stammered repeatedly. Perhaps Lipton had lived through this nightmarish scene too many times: there had been Florentino and Reich, two of his own partners; now it was Siegel, someone who was almost like a son to him. Lipton offered Siegel no comfort, no reassurance. To Siegel, he seemed as cold and remote as stone.

  After leaving Wachtell, Lipton, Siegel and Rakoff went to Rakoff’s office. Late that afternoon Pedowitz called and began to read to Rakoff and Siegel the ticker report of Boesky’s plea agreement and SEC settlement. Suddenly the confusing sequence of events began to make sense. “You have no idea of the magnitude of this,” Siegel told Rakoff and Strauss. “It’s all going to come tumbling down.”

  Siegel finally reached his own office at Drexel late that afternoon, and went straight to Joseph’s office. Joseph had come down from the strategy session after hearing the Boesky news. He thought Siegel looked terrible, as if he’d had some terrible shock.

  “I want to take a leave of absence,” Siegel said. �
�I’ve gotten a subpoena.” Siegel was taken aback by Joseph’s response. He laughed! “Join the club,” Joseph said cheerfully. “Ackerman’s got one, so does Milken. Everybody got one.” Siegel, already dazed, was dumbfounded. What was going on? What did all of these people have to do with him? Absorbed in his own problems, he didn’t stop to think that Boesky might have implicated others besides himself.

  Joseph interrupted his reverie. “Have you done anything wrong? Anything at all?”

  Siegel looked at Joseph, tears welling up in the eyes. “Absolutely not,” he said. He’d been instructed to lie, if necessary, to camouflage his cooperation.

  “Is it an SEC subpoena or a grand jury subpoena?” Joseph asked. Siegel said it came from the SEC. That seemed to alleviate most of Joseph’s concern. “Don’t worry,” Joseph said. “Just keep working. There’s no reason to take a leave. The firm will back you a hundred percent.”

  While Siegel was meeting with Joseph, Rakoff had called Carberry. “I understand you want to serve a subpoena on Martin Siegel,” Rakoff said. “I’ll accept service. I’m Siegel’s lawyer.” He added that he’d like to chat with Carberry about the case, and Carberry suggested the next morning.

  Rakoff knew then that he and Siegel would have to move fast. He’d been Carberry’s boss as head of the securities fraud unit, and knew him as a no-nonsense guy who liked to hit potential white-collar defendants fast and hard. Rakoff warned Siegel that if he were going to cut a deal, he’d have to do it quickly, even though it meant accepting the possibility of both criminal and civil penalties, possible disruption of his marriage and family life, even potential bankruptcy. Rakoff also offered to evaluate Siegel’s defenses in the event he chose to fight.

  “I want to plead, and I want to make amends,” Siegel insisted. “I’m not prepared to fight unless you tell me to.”

  Siegel and Jane Day came down to Rakoff’s office the next morning, Saturday, November 15. Siegel felt much better than he had the day before. He had confided further in Jane Day the previous night, and he thought he had a commitment from her to support him, whatever happened. He felt a load had been lifted from him. He’d put his trust in the government. He’d do the right thing. He’d be punished, but then everything would be okay. He thought the government seemed a little like his parents; now the government would take care of him.

  At one point, Audrey Strauss, Rakoff’s partner on the case, cautioned him. “Marty, yesterday you were too down,” she said. “Today you’re too up.”

  Rakoff and Strauss briefed the Siegels further on the implications of a guilty plea, trying to reassure them, saying that things always look bleaker than they are, that the situation wasn’t hopeless. Then Rakoff went over to see Carberry, who wasted no time getting to the point.

  “We’ve got him,” he said bluntly of Siegel. “We’ve got three witnesses: Ivan Boesky, the courier who dropped off the cash, and a witness to the transfer. We think Siegel can be of some help to us. We know about Freeman,” he added, startling Rakoff with the one name he recognized immediately from Siegel’s confession. Rakoff wondered if Carberry was bluffing.

  “Assuming for the sake of argument that that’s the case,” Carberry continued, “I’m prepared to offer four felony counts.”

  Rakoff, trying to show no reaction, probed for more deal terms. What judge would be available? In Manhattan federal court, the same judge who accepts guilty pleas stays with a case through sentencing; Rakoff hoped that Siegel’s plea could be timed so as to secure a lenient sentencing judge. Carberry said the government would try to be flexible, but Siegel would have to enter his plea when the government told him to. Would Carberry want Siegel to wear a wire? Yes, Carberry said.

  Rakoff took the offer back to Siegel, who told him to cut a deal. Rakoff in turn gave Carberry an informal proffer, promising that Siegel could indeed provide incriminating evidence on the head of arbitrage at another major Wall Street firm, though he didn’t mention Freeman by name. In return, Carberry offered to drop two of the felony counts. Rakoff said they had a deal, contingent on negotiating an SEC settlement.

  With the criminal agreement in hand, Rakoff called Lynch at the SEC. Still smarting from all the bad publicity over the Boesky affair, the SEC was eager to parade Siegel as evidence of the value of Boesky’s cooperation. It wasn’t about to risk further criticism that it was too soft on Wall Street criminals. Rakoff asked what the SEC wanted.

  “It’s simple,” Lynch replied. “We want everything except his two houses.” (“Jesus,” Siegel said later when Rakoff conveyed the news. “I only took $700,000” from Boesky.) Rakoff argued strenuously that the SEC was being unreasonable, that at the very least Siegel should be able to keep his earnings from Drexel, none of which were tainted by any wrongdoing. Sturc, handling most of the negotiations for the SEC, finally agreed, but Shad and the commission vetoed the agreement. They insisted on confiscating practically everything Siegel had. They knew they had Siegel over a barrel, and they were determined to overcome the earlier bad publicity. They’d allow Siegel to keep his pension plan contributions and the two houses, and that was it. Siegel would even have to forgo $10 million in stock and guaranteed bonus owed him by Drexel, which the agency wouldn’t allow Drexel to pay him.

  Rakoff thought he could fight the draconian terms, but Siegel told him he didn’t want to. Now that it had come to this, Siegel was amazed at how little he cared about the money. When he’d been earning a six-figure income, money had seemed so important—but it had never been enough to confer the elusive sense of security he craved. Now he was ruined no matter how much money he had. So what did it matter if he had none at all?

  He also thought the severe penalty would help assuage his guilt in the eyes of the public. If this was the price for making amends, so be it. If he had any lingering doubts, it was because his former Wall Street colleagues would view his plea bargain and SEC deal as a “bad trade.” For a skilled dealmaker, that was embarrassing.

  Though final details weren’t worked out until mid-December, the SEC deal was largely in place within a week, and the plea bargain was quickly finalized. Now Siegel began life as a cooperating witness, as Boesky had done before him.

  Late one evening during Thanksgiving week, Rakoff and Siegel slipped into a rear entrance of the massive federal post office located across the street from the World Trade Center in downtown Manhattan. The site and time—10 P.M.—had been chosen to preserve secrecy. Siegel was taken to the postal inspectors’ offices, where he met Carberry for the first time.

  Carberry’s appearance confirmed his reputation as a “Columbo” type: Siegel couldn’t help but notice ketchup stains on the shirt stretched over his considerable girth. Siegel also met Doonan, who he learned would be his “handler” during the undercover phase of his cooperation, and Robert Paschall. Siegel looked carefully at Doonan, who struck him as a tough Irishman. Something about Doonan seemed vaguely familiar, yet he was sure he’d never met him.

  Carberry was impressed by Siegel, the first investment banker he’d met whom he considered “top-tier.” Levine and Wilkis certainly weren’t. Boesky was an arb. Siegel, by contrast, was good-looking, poised, charming, even when distraught.

  “They want to look in your eyes to see if they can believe you,” Rakoff had told him. “Answer their questions and tell the truth.” Siegel took the prosecutors through all his deals with Boesky and Freeman. He tried to be as precise as possible, even though he was working from memory and would have liked to have reviewed some of his diary entries and trading records for precise details. Siegel talked that evening for about an hour and a half; a series of similar meetings followed. Some of the deals, especially with Freeman, were complicated: Unocal, for example, with its complex proration calculations, or the long saga of Storer.

  Siegel made no attempt to suggest that his behavior had fallen into “gray” areas or that everyone on Wall Street did it. He made no excuses. Levine and Boesky had shown some remorse, but their primary sorrow seemed to be th
at they’d been caught. Siegel, the prosecutors thought, believed that what he had done was wrong and wanted to make amends.

  SEC lawyers didn’t attend any of the sessions. The chill between the U.S. attorney’s office and the SEC was obvious to Siegel. The U.S. attorney’s office was still smarting from the SEC’s bad publicity. Siegel was told to reveal nothing to SEC lawyers, especially anything about Goldman, Sachs, for fear of leaks.

  “Don’t talk to them,” Doonan told Siegel at one point. “They’ll just screw things up.”

  Finally, in January 1987, the SEC said it had to have access to Siegel to corroborate some of Boesky’s claims, and a meeting was arranged at a room at the Gramercy Park Hotel with Leo Wang and another SEC lawyer. But Siegel was allowed by the U.S. attorney’s office to discuss only the Boesky aspects of his wrongdoing. Freeman’s name wasn’t mentioned.

  When Siegel had agreed to cooperate, Rakoff had pressed him to face the fact that the life he had known in New York would soon be over. He had to accept the likelihood that every aspect of his present and former life would be subject to intense scrutiny. Rakoff wanted Siegel to see a psychiatrist or psychologist at the time he agreed to plead. But that was impossible; Goldman, Sachs might subpoena the therapist. Patient communications aren’t necessarily protected from disclosure in federal courts.

  Rakoff and Strauss urged Siegel to move his family out of the storm center as soon as possible, so that they would have time to adjust by the time Siegel’s guilty plea became public. This was especially hard for Jane Day to accept; she loved the Connecticut house she and Siegel had designed, and the thought of leaving all her friends, pulling the children out of their schools, was devastating. Having agreed to stand by Siegel, however, she accepted the need to plan a new life somewhere else. They settled on Florida, a state whose homestead laws protect a defendant’s home from seizure by creditors. Siegel put the Connecticut house and New York cooperative on the market, and spent several weekends touring various Florida cities, starting in Tampa, working his way down the West Coast and then up the East Coast, ending in Jacksonville. En route, Siegel had another suicidal impulse. Driving on 1-95, he thought how easy it would be simply to shift the wheel and head into oncoming traffic. The thought of causing an accident, of hurting innocent victims, stopped him.