Trump, page 60
The CCC was unimpressed. Several members were weary of Donald’s repeatedly redrawn but always rosy picture and were alarmed by his most recent and record-setting turnabout—discarding the service agreement two months after proposing it and only days after the commission approved it. Valerie Armstrong suspected, as did others on the commission, that the service agreement was part of a deliberate Trump strategy to damage the company so he could buy it cheaply. In a mid-February statement announcing her intention to vote against the Trump purchase, she chronicled the shifting tactical strikes that had characterized his prolonged assault on the venerable Resorts, noting how he’d predicted disaster if he didn’t get each of his concessions and promised prosperity if he did. From the purchase agreement to the planned closing of the old casino to the service contract to the public offering, said Armstrong, the commission was told each time that “Trump needs more control of the company” to finance and complete the Taj, upping the ante without results.
“While it might be possible to conclude,” she charged, “that the events of the past eight months resulted from happenstance, impulse, fate and/or events beyond Trump’s and Resorts’ control, it is also just as easy, perhaps easier, to conclude that many of the events leading to Mr. Trump’s current merger proposal have been carefully staged, manipulated and orchestrated to drive down the value of the stock in order to force the merger agreement.” David Waters, who’d voted against the service agreement, joined Armstrong in announcing his intention to nix the new public offering, meaning that for the first time Donald was faced with certain defeat on a commission resolution since only two negative votes were necessary to block the deal.
The Atlantic City Press was in editorial convulsions, blasting the “unsavory tinge to much of Donald’s dealing,” including “browbeating, threats and blatant wielding of power.” Trump “seems to think there should be one set of rules for him,” concluded the only hometown paper, “and another for everybody else. It’s almost as if he thinks casino gambling in Atlantic City was intended solely to make him rich.”
Attorney Nick Ribis hurriedly moved to produce another battery of witnesses to try to change the commission’s mind, and an unctuously respectful Trump returned for a second round at the CCC. He resolutely denied that he’d manipulated the stock and contended that he really preferred his old management fee posture to the offering but was forced to switch tactics by a bond market revolt against the service agreement and other factors pushing prices upward. It was David Schulte, though, the savvy financial adviser, who weighed in with the opinion that salvaged Donald. Asked bluntly about the possibility of Trump manipulation, Schulte acknowledged that “it’s not hard against this history to see why that question is on people’s minds,” adding that he’d “worried about it a lot.”
“I think in a way,” he ruminated, “that it pays Mr. Trump more of a compliment than he deserves, because I don’t think he’s that smart. The implicit suggestion is a scheme, a long-term scheme carefully worked out. Maybe. He seems to me to be more impulsive than that.” The hearing room broke out in laughter, and even Trump smiled. The commission capitulated, and Walter Read said to Schulte as he left the stand: “I’m not sure Mr. Trump realizes how helpful you are to his cause, but you are.” Once Donald had his commission vote, he began vaguely hinting in interviews that he might indeed have been that smart—sinking a public company so he could buy it cheap—but there was no way to tell which of his equally self-serving versions was the truth.
On the precipice of a total takeover of his first public company, however, Donald was about to discover just how tricky the corporate marketplace could become. His pursuit of Resorts had already been a yearlong odyssey, but it still had one more surprise turn in the road to take. The final episode would have a Hollywood flavor, and not just because Merv Griffin was cast in a major role. The script could have been written by Mario Puzo or Nick Pileggi.
It starts with the weekend, sinus-clearing visit of Fedele “just-a-poor-boy-from-North-Philly” Scutti to Atlantic City. Used car dealer Scutti stayed at the Showboat, the casino overlooking the Taj Mahal construction site, sometime in January of 1988, just when stories about Donald’s $15-a-share Resorts offer were appearing in the Atlantic City papers.
Scutti, whose only construction experience consisted of used car lots and showrooms, nevertheless thought he had a fairly keen eye for sizing up a job. Although the press was quoting Trump as saying he needed $500 million to finish the Taj, Scutti could tell at a glance that not a cent more than $200 million was necessary. If the Taj was that close to completion, reasoned the paunchy, high school–educated, sometime-investor, Trump’s $15 per share was a steal. At fifty-four, Scutti had moved from his modest Philadelphia roots to owning eight car dealerships in Rochester, New York, a boat company, a real estate development firm, and four coast-to-coast homes. He had enough money to act on his hunch, and, on January 19, he started buying the stock he was convinced had been deliberately undervalued.
By February 24, the glance out his hotel window had cost “Dale” Scutti $5.5 million. He had gone on buying Resorts stock when Trump hiked his offer to $22 and stopped the same day that Donald’s new bid, after a month of testy CCC hearings, was finally approved by the commission. Though the rest of the world believed that Donald’s yearlong dance with Resorts was finally over, Scutti seemed to know otherwise. He had risked a fortune on 320,000 “A” shares, buying 5.6 percent of the company—certain, he said, that Trump would be forced to once again raise his offer.
Scutti was dealing with a lawyer in New York named Morris Orens, sending him fees in chunks of $10,000, then $40,000, and up to $200,000. Orens was advising him on how Trump’s takeover could be blocked, and these huge fees, according to Scutti, were merely the cost of motivating the rumpled and well-connected Orens. Orens was motivated enough to call another client, Ernie Barbella, a market player Orens had already represented in stock deals that had attracted the attention of the SEC, prosecutors, and other regulatory agencies. Orens also spoke with Michael Nigris, who shared an office with Barbella. Though Orens had represented Merv Griffin on Merv’s greatest deal—the $250 million sale of his game shows to Coca-Cola—the lawyer did not call Merv first. He called the men who pulled Merv’s strings, and the two almost instantly became Scutti’s partners in the ambush of Trump’s Resorts deal.
Merv had praised Nigris, his top adviser, to Barron’s in 1988: “In 22 years, he’s been right 100%. I never make mistakes in key positions.” DGE offered a slightly different description, recapitulating a private investigator’s findings: “Nigris has been known by law enforcement to be associated with members of organized crime. Our investigation has focused on a number of close business associates of Nigris who are purported organized crime figures, convicted fraud artists and securities swindlers.” Though Nigris was president of the Griffin Company, he was paid as a consultant and was actually employed by Morgan Capital Management, whose president, Ernie Barbella, signed Nigris’s executive contract with Merv. Barbella and Nigris were so close their desks were side by side in a room that was ten feet by twenty feet.
Old college roommates, friends, and partners for thirty years, Barbella and Nigris had weathered many a legal storm. Barbella, whose first company was a meat brokerage firm called Mid-West Meat, had settled a 1983 U.S. Department of Agriculture complaint charging that he’d made illegal payoffs to supermarket heads. Nigris was Mid-West’s accountant. Then Barbella, who has been identified in court documents as a Gambino crime family associate, orchestrated a fraudulent public offering for Musikahn, a record company bust-out, using a broker named Martin Kern to handle thousands of deceptive stock transfers.* When Nigris, who was also a Musikahn director, first came to Atlantic City to take a look at Resorts for the intrigued Merv, his emissary was Marty Kern, who became the Griffin team’s eyes and ears in New Jersey. Kern, whose name had been mentioned on FBI tapes from Fat Tony Salerno’s East Harlem headquarters, set himself up in Jim Crosby’s old office inside Resorts.
For any number of legal reasons, the promoters of the Scutti and Merv version of the Resorts saga—including Orens—preferred to pretend that Merv was a latecomer to the cabal. Griffin himself later told reporters: “Orens called on March 10 or 11. Nigris went down to Atlantic City, spent a day and a half and eyeballed the place. After five days of concentrated homework, on March 15, I said, ‘Let’s go.’” Merv’s first bid was made two days later, on Saint Patrick’s Day.
Prosecutors discovered, however, that Nigris had actually flown out to Los Angeles in late February to meet with Merv, staying at the Beverly Hilton, the hotel Merv had acquired with Nigris’s help. Nigris left for New York on March 5, with Merv’s blessing, and proceeded to go ahead with the deal. While at the Hilton, his phone records indicate that he called his Morgan Capital office fourteen times, keeping in touch with Barbella, ostensibly about the Resorts game plan.
One reason for the disinformation about the timing of Griffin, Nigris, and Barbella’s interest in Resorts was that Scutti would subsequently present himself, in court papers and public filings, as a simple shareholder, unconnected to any takeover attempt, merely trying to force Trump to make an equitable offer for the stock. But a Trump suit filed in federal court on March 18, the day after Merv’s first bid, named Griffin and Scutti as codefendants. Trump alleged that Scutti’s February 26 SEC filings were “false and misleading” precisely because he “failed to disclose the existence of the individuals with whom Scutti had agreed to act in concert, their backgrounds and identities.” This wording is so peculiar that it suggested that Donald may have known about the shady background of the people who were after his company well before the investigators, who did not begin to uncover the Barbella-Nigris axis until the summer of 1988.
By the time Donald filed these papers, Griffin was moving to take Scutti out of the picture anyway. The “dumb” car dealer, as Scutti liked to call himself, walked away from the deal with what he claimed was a $5 million profit on the sale of his shares to Merv. The Griffin contingent also promised him a $6 million consulting fee if its deal to acquire the company ever closed.
Through March and into April, Merv presented a variety of offers to the Resorts board, and though the early submissions were riddled with loopholes and easily rejected by Trump and the independent directors, the dollar amount involved—always hovering in the midthirties—clearly bettered Donald’s $22 bid. The stock shot into the upper twenties, and then the lower thirties, until it got so high no one was tendering a share to the man who had proposed $22. Everyone was astonished at Griffin’s immediate willingness to pay $14 more per share than Donald, and no one, including Donald, could figure out why he had started so high. Griffin explained that it was to make an impression, to convince everyone he was serious. But the gang around Griffin had another motive: Barbella and an assortment of relatives, swindlers, and hoods were buying up blocks of Resorts stock on tips out of the Griffin strategy sessions—all apparently without Merv’s knowledge. Barbella’s bust-out history was taking on a new relevance. When he later pled guilty to state charges, and several of his associates were indicted for insider trading, it became clear that Griffin had been encouraged to hike the price so that the boys around him could get rich speculating on it. No one cared if the company collapsed under the weight of the debt Merv would have to take on to pay the inflated price.
The Resorts board rejected the first Griffin offer, convinced by Trump that Griffin was unfairly offering the same for the “B” shares as he was for the “A,” a hundred dollars less than Donald had paid for them. Donald claimed—with no small amount of irony—that the company had a fiduciary obligation to see to it that he was paid a respectable price for his holdings.
On March 22, Griffin raised the dollar value of his offer from $225 million to $295 million and told the company it could allocate it anyway it wished, repaying Trump his initial investment and still giving Griffin a majority interest in the “A” shares at a $35 premium. This second offer died as well.
The turnabout came with Griffin’s third move—an innovative request filed in mid-April with the Resorts board. Merv formally asked the board to issue 1.2 million new “B” shares and sell them to him at $36 a share, an action that would have diluted Donald’s hold on the company, put Griffin at the helm, and led to an “A” share sale at the same price. The board—especially independent director Sviridoff—was not about to ignore a matter properly placed before it.
Trump was outraged and threatened lawsuits against the independent directors. Jack Davis ridiculed the proposal, insisting that Griffin couldn’t finance his offers. But Sviridoff demanded a meeting with Nigris and Griffin’s attorneys—a session also attended by Robert Trump, who challenged Merv’s unusual Class “B” purchase response to Jim Crosby’s still troubling two-tier system. Donald pressed for a vote against the dilution attempt, but Sviridoff warned him that it would turn out to be three-to-three, the independents versus Donald, Robert, and Harvey Freeman. Under those circumstances, the Griffin proposal might have legally failed, but Donald would have had a public relations disaster on his hands and would have faced another inevitable onslaught of shareholder suits. Merv had at last forced Donald to the bargaining table.
The showdown between the two was more style than substance. “There’s an East Coast arrogance,” Merv told a reporter. “They think this is la-la land out here. But there is an important financial community that you cannot underestimate in Southern California. They probably think we’re doing this interview in a Jacuzzi.”
“If you call me,” Donald countered, “I’m behind this desk or I’m out walking around a job. I’m not out playing tennis, I’m not out relaxing. I don’t do those things very well, I’m a worker.”
The meeting took place in Trump Tower on April 13. When Merv entered the office, Donald immediately displayed his latest acquisition, putting the upstart Griffin in his place. “He took me over to the window to show me the Plaza Hotel,” Merv recalled. “He had just bought it—and he gave me statistics about the number of rooms. I said, ‘Good, that’s just the right number of rooms to house the lawyers you’ll need for our suit.’ Trump roared.”
Griffin then tweaked Trump about all the nasty ways he’d dismissed his various bids for the company in recent weeks. “The only reason we’re here is that you’re running out of adjectives. We’ve been through ‘moot,’ ‘illusory’ and ‘fruitless.’”
Merv liked to claim that he skillfully put the financial pressure on Donald by raising the subject of Donald’s borrowed hundred million to buy the “B” stock. “I have no debt,” said Merv. “I’m sitting here with very little stress. I could sit here with my lawyers and accountants for two years.”
“You’re asking me about debt service on one hundred million dollars?” responded Trump. “One hundred million dollars is a very small amount for me. Do you understand that?”
In fact, the essence of the deal had been negotiated before either of the principals met. Susan Heilbron, Trump’s in-house counsel, had been quietly talking to a Griffin attorney, John Herford, from Merv’s California-based law firm, Gibson, Dunn. They didn’t have to work hard to establish a rapport—they had once lived together. Heilbron broached the question of a split of the company’s assets with Herford. The plan called for Donald to get his world’s largest casino and Merv, who’d done nightclub acts in Atlantic City as a child performer, to get his piece of nostalgia, the old Resorts casino. The proposal wasn’t so much a calculated division of corporate properties as it was a fulfillment of very different daydreams.
As the deal was packaged in the following weeks, Donald would pay $280 million to buy the Taj. Merv would assume Resorts’ $600 million in existing debt, minus $20 million in liabilities that Donald took on. Merv would get the Resorts’ casino, the eminently salable Paradise Island, and all of the vacant and largely unsalable land in Atlantic City that empire builder Crosby had assembled, Donald would get the Steel Pier behind the Taj and the three helicopters. Donald would be repaid precisely what his “B” shares had cost him and would also get a bonus: Merv agreed to pay him $63 million to cancel the infamous service agreement.
Both sides took turns heralding the deal as a win. First, Merv spent the months between the May contract and the November closing trying to finance it, using Drexel to sell the bonds.* All the press attention during that period about the dealmaker from Wheel of Fortune was designed to mollify a wary bond market. While Merv was winning the early reviews, Donald quietly garnered the one that counted the most to him. The Delaware judge who approved the deal in August surveyed the entire history of Donald’s foray at Resorts and concluded: “It is obvious that Donald Trump has taken good care of himself with little apparent concern for the hapless small shareholder who mistakenly viewed him as a Messiah.” To Donald, that judicial assessment of who won and who lost was about as favorable a notice as a tycoon stock player could get.
Donald fought back during the Merv media celebration as best he could, countering with leaked hints that Merv had worn makeup at the negotiating session with him, suggesting that the grinning showman was all airhead Hollywood. But tooting his own horn too loudly might have drowned out Griffin’s bond sale crooning, so Trump had to bide his time. He began making his case to one savvy business writer from Barron’s on the understanding that no story would appear until the deal was concluded. When it did finally close, Donald was quickly able to turn the press around, using the fine print of the deal to lay claim to a triumph. It wasn’t difficult—the $63 million bonus was a persuasive argument on his behalf, and the suddenly revealed deterioration of the old Resorts casino was a debit on the balance sheet of the unsuspecting Merv, who now had to pay for an expensive face-lift.
