The Financial Crisis: Five Years Later

Where Is Dick Fuld Now? Finding Lehman Brothers' Last CEO


Fuld outside his office in Midtown Manhattan

Photograph by Theodore Parisienne for Bloomberg Businessweek

Fuld outside his office in Midtown Manhattan

Aug. 29, 2013: Dick Fuld in exile

“Hi, I’m Dick Fuld, the most hated man in America.” It was just after the crisis, and Fuld was making a rare social appearance at a party in the Sun Valley, Idaho, mansion of Jim Johnson, the former head of Fannie Mae. The self-mocking introduction, described by a guest, was Fuld’s armor—his way of broaching, and deflecting, the first thought that leaps to mind whenever someone hears his name: Dick Fuld was the chief executive officer who, on Sept. 15, 2008, led Lehman Brothers into the largest bankruptcy in U.S. history, setting a torch to the global financial system.

The party was a reminder of Fuld’s old life, packed with familiar faces from the highest levels of business and government, including former Countrywide CEO Angelo Mozilo. Fuld owns a $19 million compound in Sun Valley, but he couldn’t escape his new status as a pariah. One guest at the party recalls President Obama’s then-national security adviser, Tom Donilon, who owns a home nearby, showing up, spotting Fuld and Mozilo, turning white as a sheet, and slipping back out the door. (Johnson, Donilon, and Mozilo all declined to comment. Through a friend, Fuld said he wasn’t able to talk to reporters.)

Five years after the fall, Lehman Brothers no longer evokes the intense public anger it did in the weeks after the crash, when Fuld was hauled before Congress and made to answer for the firm’s demise. “If you haven’t discovered your role,” Republican Representative John Mica of Florida told him, “you’re the villain.” Most of the company’s top executives found lucrative jobs elsewhere on Wall Street. Many went to work for Barclays (BCS), which bought much of Lehman’s U.S. banking business out of bankruptcy. Lehman’s president, Bart McDade, and a top trader, Alex Kirk, founded investment firm River Birch Capital. George Walker, who ran Neuberger Berman, Lehman’s wealth management division, has continued to do so, thriving since the firm became independent. “I certainly don’t think there’s any Lehman hangover on the individuals themselves,” says Robert Wolf, the former chairman and CEO of UBS Americas (UBS).

Fuld is an exception. After the bankruptcy, he stayed on to help Alvarez & Marsal, the advisory firm in charge of sorting out the mess. Then he struck out on his own. In 2009 he founded Matrix Advisors, a consulting firm for mergers and acquisitions. In a regulatory filing, Fuld reported that he works more than 60 hours a week there. He renewed his securities license through a small broker-dealer, Legend Securities, run by a friend, and even underwent a medical exam for his student pilot’s certificate. Famously driven, Fuld gave every sign that he meant to put the Lehman nightmare behind him.

According to associates of Fuld’s, he pitched deals to Steve Schwarzman at Blackstone Group (BX) and Henry Kravis at Kohlberg Kravis Roberts (KKR), as well as top executives at BlackRock (BLK); tried with a buyer to arrange the purchase of OnStar from General Motors (GM); sought to interest investors in a consulting firm he hoped to launch; and did advisory work at IBM (IBM) for his friend Samuel Palmisano, then chairman and CEO. He’s also given free advice to Spring Hill Capital Partners, a merchant bank founded after the collapse by a former Lehman managing director. Yet in interviews with Lehman veterans, Wall Street colleagues, securities lawyers, and assorted friends and enemies, no one could name a significant Fuld success in the last five years—and most were curious to hear what he’d been doing.

Fuld is occasionally spotted dining at banker hot spots in Midtown Manhattan, such as San Pietro and the Four Seasons. Each spring he faithfully attends the Party in the Garden at the Museum of Modern Art, where his wife, Kathleen, once served as vice chairman of the board. But the way in which these encounters are invariably described—with slight disbelief, as if someone had spotted a unicorn—underscores how far removed Fuld is from his former glory. It isn’t that he’s pitied or despised, a former colleague explains. His name simply doesn’t come up.

Those still in contact with him say Fuld holds no illusion of a public redemption. “I will never heal from this,” he told the staff of Spring Hill at a lunch a few weeks after the bankruptcy. Lehman’s fall was particularly painful, friends say, because Fuld sees himself as having adhered to a code of honor1 during the 15 years he was building Lehman from an unwanted American Express (AXP) castoff into a major Wall Street player. He famously demanded loyalty of everyone around him and demonstrated his own by keeping much of his wealth tied up in the firm—he even bought Lehman shares on margin, says a friend. That money vanished in the crash. Friends say Fuld, whose net worth once exceeded $1 billion, may have lost that much. Meanwhile, the legal morass he left in his wake is closing in on him—and threatens to wipe out whatever dignity and wealth he may have left.

For all that he’s tried, Fuld can’t seem to escape the reach of the past. Although many of his peers also made disastrous decisions, no one on Wall Street has paid a steeper price in reputation and personal fortune. This owes partly to Fuld’s hubris, brutish manner, and aggressiveness—which earned him the nickname “the Gorilla”—but also, his handful of defenders insist, to circumstances and twists of fate beyond his control. As Brad Hintz, a former Lehman chief financial officer, says, “He’s the great Greek tragedy of the crisis.”

Wall Street may have turned its back on Fuld, but there’s one place where he remains a subject of vital interest. Management theorists have seized on his tenure at Lehman as an illustration of how executives can go awry. The latest issue of the Journal of Management Inquiry contains a long study by British academic Mark Stein titled When Does Narcissistic Leadership Become Problematic? Dick Fuld at Lehman Brothers.

Management scholars consider narcissism a common affliction among business executives and distinguish between “constructive” (good) and “reactive” (bad) varieties. Stein, a professor at the University of Leicester’s School of Management, argues that Fuld exhibited both forms. “It’s a weird thing,” he says. “Narcissists can be incredibly helpful and also incredibly destructive.”

Initially, says Stein, Fuld was a positive influence because “in his slightly militaristic and brutal way,” he imbued Lehman with a sense of purpose and direction after it was spun off from American Express in 1994 and its survival was in doubt. Ex-colleagues describe Fuld’s “Goldman envy”—his obsession with building Lehman into a firm that rivaled Goldman Sachs (GS). He nearly got there.

When the credit crisis struck, however, Fuld’s narcissism became ruinous. “It was clear that Lehman was overleveraged,” Stein says. “Many people inside and outside the firm understood that it had to be sold to survive.” But Fuld’s identity was wrapped up in Lehman, and he wouldn’t countenance the affront to his dignity that a sale would have represented. “As long as I am alive, this firm will never be sold,” he said in late 2007, the Wall Street Journal reported. “And if it is sold after I die, I will reach back from the grave and prevent it.”

When the markets began to wobble in late 2007, former Lehman executives say, Fuld thought the firm would have no trouble surviving, since the crisis initially struck the credit markets. Lehman didn’t have a robust investment banking business, nor had it amassed toxic collateralized-debt obligations, as rivals such as Merrill Lynch (BAC) had done. But it did have a $40 billion, highly illiquid, proprietary real estate business that proved impossible to unwind once the damage spread. “Only in the first quarter of 2008 did they actually begin to shed assets in a fight to stay alive,” Hintz says. Fuld’s refusal to consider selling until too late ultimately doomed his firm.

Fuld’s professional nightmare has also become a legal one. He’s been named as a defendant in more than 50 lawsuits, including those brought by New Jersey, the Washington State Investment Board, the California Public Employees’ Retirement System, and a class action by Lehman shareholders. Some have been settled; others are still being litigated, including suits by a group of California cities and municipalities and the Retirement Housing Foundation, a charity affiliated with the United Church of Christ, which lost tens of millions of dollars.

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Last October the U.S. District Court for the Southern District of New York dismissed a number of shareholder claims against Lehman’s top management. But it allowed a suit specifically against Fuld that accuses him of fraudulently conveying ownership of a $13.75 million Florida mansion to his wife in the days immediately after Lehman’s collapse—an attempt, the plaintiffs allege, to shield the home from future creditors. His next deposition is scheduled for Oct. 2, when he’ll be asked why he sold his nine-bedroom, 12½-bathroom beachfront mansion to his wife for $10.

Lehman’s $250 million insurance policy has covered many of Fuld’s legal bills and those of other senior managers. But Erin Callan, the former CFO of Lehman, has said that by early last year the fund was fully depleted by settlements and attorneys’ fees. That means Fuld would have to pay his own legal bills and any judgments rendered against him. This isn’t unprecedented. The directors of Enron and Worldcom, the second- and third-largest bankruptcies after Lehman’s, wound up paying millions out of their own pockets.

Perhaps as a result, Fuld has been winding down a lifestyle that a friend confides was costing him $5 million a year. He sold his 6,000-square-foot apartment at 640 Park Ave. for $25.9 million. His wife, an avid art collector, stepped down from the MoMA board and enlisted Christie’s to sell 16 rare drawings that netted at least $20 million. According to a 2010 Fortune article by Bloomberg Businessweek contributor William Cohan, Fuld reneged on a $50 million pledge to Middlebury College, where he was once a trustee. He never got his pilot’s license—buying a plane might have been too much of a splurge. Property records show Fuld and his wife still own a large home in Greenwich, Conn., as well as the Sun Valley compound, and, for now, the Florida beachfront mansion. Until the lawsuits are settled, however, he can’t be certain he’ll hold on to them.

Three fake Fulds: Dick gets onscreen treatmentPhotographs by Macall B. Polay/HBO/Everett Collection (Too Big Too Fail); Dana Edelson/NBC/NBCU Photo Bank/Getty Images (SNL)Three fake Fulds: Dick gets onscreen treatment

One thing that hasn’t diminished is Fuld’s conviction that Henry Paulson is the true villain of the Lehman story, and that the former U.S. Treasury secretary’s refusal to bail out the firm was driven by Paulson’s loathing for a former rival. (Before he joined George W. Bush’s administration, Paulson had been CEO of Goldman Sachs.) To his friends, Fuld insists Lehman, like every Wall Street firm, merely had a liquidity problem but was not bankrupt. Its assets would have regained their value, and the firm its solvency, he says, had it been able to access the Troubled Asset Relief Program funds or been allowed to become a bank holding company, as Morgan Stanley (MS) and Goldman Sachs were in the days after Lehman’s collapse. (Lehman sought this status in July 2008 and was denied.) What really tortures him, friends say, is his belief that it all came down to chance.

“Some have faulted Dick for having run an incredibly leveraged firm, for not having enough capital,” says Steven Rattner, the chairman of Willett Advisors, who worked with Fuld at Lehman in the 1980s and weathered his own scandal in 2010 after New York’s attorney general accused him of participating in a “pay to play” arrangement with a state pension fund. (Rattner paid a multimillion-dollar settlement without admitting wrongdoing.) [Rattner's firm, Quadrangle, handles the personal and philanthropic finances of Michael Bloomberg, the founder and majority owner of Bloomberg LP.] “But he was also unlucky, because if Lehman had been first and Bear Stearns second, they would have saved Lehman, and [Bear CEO] Jimmy Cayne would have become the poster boy of the crisis.”

“He’s the great Greek tragedy of the crisis”

Other friends of Fuld almost exonerate him. “You can’t look at Lehman in isolation,” says Lehman’s former chief legal officer, Tom Russo, now general counsel for American International Group (AIG). “You have to look at it in the context of Bear, Fannie, and Freddie, and all the other TARP recipients. Lehman was simply in the wrong place at the wrong time—because everyone got bailed out, except Lehman.” Of his longtime friend and confidant, Russo says, “Dick became the focal point for a much broader problem of too much leverage—not just by banks, but by homeowners and the government, too. He was no more at fault than the heads of any of those other companies or, for that matter, the regulators who were charged with monitoring leverage.”

One associate marveled that Stan O’Neal was named to the Alcoa (AA) board after his dismissal from Merrill Lynch, yet Fuld is considered too toxic for polite company. Several ex-colleagues point out that Fuld’s desire to refashion himself as an investment adviser is hampered by his lack of any significant experience in arranging mergers and acquisitions; he began his career trading bonds. But his real problem is that he’s forever associated with the Lehman bankruptcy, and anyone who hires him, or even speaks up for him, risks having this connection rub off on them. Fuld has become Wall Street’s Hester Prynne, forever branded with a scarlet B.

Fuld has never stopped trying to claw his way back to respectability, even though the opportunities haven’t materialized. Last year he lost his securities license when Legend Securities couldn’t show regulators evidence of his work, as Fox Business Network’s (FOXA) Charlie Gasparino reported. Rules forbid brokers from “parking” their license at firms where they don’t generate business.

So Fuld has retreated to a place that is comfortable with long shots and where his name still carries totemic power: the world of lightly regulated over-the-counter stocks. He and his wife are major investors in a Phoenix-based chemical company, GlyEco (GLYE), that recycles ethylene glycol, a chemical compound used in antifreeze and polyester fibers.

“Dick and his wife are shareholders, and his business, Matrix Advisors, has done work for us,” confirms Janet Lorenz, a spokeswoman and the wife of GlyEco President John Lorenz. She wasn’t sure how Fuld had come to be involved but praised his connections. “The man obviously has vast experience in the business community and really a lot of insight in developing companies into large international entities. That’s really what his role has been with us.”

As of now, GlyEco is tiny, with first-quarter sales of $1.2 million and $2.2 million in cash on hand. It’s recently run into trouble. In April its auditors raised “substantial doubts” about its ability to remain a “going concern.” On July 24, GlyEco notified the Securities and Exchange Commission that it had dismissed the auditor and hired a new one.

GlyEco’s lineage shows that its founders’ original ambition was not chemical recycling. It grew out of a holding company for a San Francisco strip club called Boys Toys, which traded under the ticker symbol GRLZ. The owner, Ralph Amato, had sought to build an adult Internet-and-club empire but went bankrupt. This came after a hostile takeover attempt from a rival strip club magnate, whom Amato once called “the Howard Hughes of porn.” In late 2008, GRLZ changed its symbol, eventually settling on the more presentable GLYE. Amato, who didn’t respond to interview requests, is GlyEco’s largest shareholder and remains a consultant for the company, filings show.

Nonetheless, there was Fuld on May 30, in a dark suit and crisp shirt, front and center at the Marcum MicroCap Conference at the Grand Hyatt Hotel in Manhattan, where GlyEco was among the companies promoting “investment opportunities.” A little more than five years after negotiating Lehman’s mammoth $22 billion joint acquisition of apartment developer Archstone-Smith, Fuld was pushing a penny stock.

His old friends and associates wonder why he does it. Some speculate that the legal bills are taking a toll and he needs the money. Others describe how hard it can be to walk away from the game: Financiers, like retired professional athletes, often discover they miss the action and long to get back in. “When something like that happens,” says Rattner, “you can do one of two things: Go off and become a beer distributor and build another life for yourself. Or do your utmost to come back in what you’ve always done. Dick is trying to come back.”

Fuld may simply be motivated by an old-fashioned sense of propriety, however belated. When he finally left Lehman Brothers in 2009, he received no severance package. Nor did he file a claim against the Lehman estate to recover deferred compensation, as have other executives, including the man he once chose as his successor, Joe Gregory, who’s seeking $233 million. Instead, five years after the fall, Fuld seems to be seeking solace and some small measure of dignity by quietly carrying on.

Green_190
Green is senior national correspondent for Bloomberg Businessweek in Washington. Follow him on Twitter @JoshuaGreen.

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