What Comes Around

What Comes Around

The year 2008 is often referred to by many in the markets as the ultimate ”annus horribilis”. That is a bit hard for me to reconcile because where my personal “annus horribilis” was rightfully 2007 based on the the disastrous episode with the Bear Stearns Asset Management hedge funds that hit the wall of the CDO (collateralized debt obligations) and sub-prime mortgage crisis, that was also the joyous year (earlier in the year) when Kim and I were married. By the time 2008 had rolled around I was busy strategically advising a new investment management group at an attractive compensation rate and I almost didn’t blink as the collapse of Bear Stearns took place during a holiday weekend in the Napa Valley, even though it turned out to be the most expensive weekend of my life with the losses taking some eight figures off my net worth. When the world financial system ground to a halt in September with Lehman, Merrill Lynch and AIG heading down and even stalwarts like Morgan Stanley and Goldman Sachs momentarily teetering, I got busy sorting out a new course for myself. That is when I got a call from a colleague from Israel who had taken over a large public global real estate development company. He called because he said he needed a replacement for the head of the large and then, suddenly, highly distressed American subsidiary. I’m not sure his conscious reason for the call was to enlist me for the position, but rather to seek my help in finding a good person for the post. Before the conversation had ended, we had agreed that I should be considered for the job. After a quick trip to Tel Aviv to meet the majority owner of the conglomerate, I was offered the opportunity to salvage the teetering company, which held 22 trophy properties, worth some $3 billion on paper, all of which had been overpaid for at the peak of the market and done so with excessive leverage.

Let me be clear, I had never been a real estate financier, much less a real estate developer. I had never done a real estate restructuring in my thirty plus years of banking. The one, as it turned out, critical experience I had was from twenty years prior when I had been given control over $4 billion of Latin American sovereign debt and told to find a creative way to reclaim its value. I had learned on that assignment that the deeper the distress, the greater role that creativity plays versus experience in finding a good resolution. At least that played to what I thought was my strength. In both the LDC crisis and the current instance there was a prior perpetrator of the problems that lingered and had to be considered. From my experience, that is almost always the case and it is rare that one has a clean slate on which to execute the necessary turnaround. One has to seek whatever value there is from the knowledge and experience at hand, but most often the ill will and causes for the distress overwhelm the value of any continuity. So, I did what I had always done and put my head down and ran straight into the situation.

In this case, the prior CEO of the company was a mid-twenties Israeli man who I was explicitly told by the global CEO, was not to be trusted. My first encounter with him was that he requested that I not go into the office on my designated first day, but rather, consider traveling with him to Miami, where he needed to give a deposition. The idea was that he could brief me on the portfolio, we could get to know one another, and I could visit some of our most important non-NYC properties. Needless to say, I was not inclined to be “managed” by him, given the circumstances, but I went along. He had us booked on a late-night Sunday flight from LaGuardia to Ft. Lauderdale, the city of my birth some fifty-five years before. He sat in the front of the plane and had me relegated to a middle seat in the back. The gesture was obvious and puerile and it agreed with the impression I had when we met at LaGuardia where he conspicuously checked the time on his $80,000 diamond-encrusted watch, which he noted was a wedding gift from the majority owner of the global company (who also was a noted diamond merchant).

As he and I rode in the rental car to Miami at 2am, he told me he had bought one of the Penthouse condos in the 72-story building our company was constructing on Biscayne Bay. In the morning, as he was presumably giving his deposition, I took a tour of the building under construction with the construction manager. When I asked which condo on the top floor the ex-CEO owned, he looked at me curiously and said that no one from the company owned any of the condos and, indeed, none were sold yet. There it was, within twelve hours of meeting him I has been subjected to submission antics and told a blatant and knowingly discoverable lie. As I sit here today I find myself comparing that modus operandi to that of our dear President, Donald Trump, who has come to think that he is above the rule and laws of mere mortals and can lie with impunity without regard to consequences. Strangely enough, this young man had recently been married at non other than Mar-a-Lago.

From that point onward, it took only several weeks, operating from a small conference room in the modern offices decorated in what I called “Tel Aviv White”, while that young man with the expensive watch stayed in his large and commanding corner office. In that short span I uncovered such malfeasance and unprofessionalism that I confronted him and demanded his departure. He was so taken aback and insistent that he would be reinstated by the majority owner, with whom he wanted a meeting by flying to his lair in Moscow. Naturally, that was all to no affect as the die had been cast and he had been set adrift long ago, but was delusional enough to be unaware. I was asked to conduct a thorough investigation of his antics and its cost to the company over the prior three years and to say that I found a treasure trove of incrimination would be an understatement. Despite the evidence, the Israeli management chose to let it all go as part of the breakage of the past few years (that is my kindest interpretation of the decision to demure).

This all comes to mind because I was sent an article about this now less-than-young man and the $100 million civil action commenced against him by his prior employer and relation (he had married into that family). I shook my head in the thought that some leopards never change their spots and that perhaps on this turn, the justice which had been denied in my case might find its true course. And today, I received a call from the gentleman initiating the legal action against him. It seems he and I have some common acquaintances who knew of my history with the man. We discussed the similarity of the acts which had been committed against each of our companies. He told me that he would be going for the jugular as the man had defrauded his family company and denigrated his very family. All I could think when the call was over was that what goes around usually does, indeed, come around. Justice is most always served in the end.