The last tycoons: the secret history of Lazard Frères & Co (25 page)

In hindsight, Felix's belief that the divestiture of a large insurance company could potentially bring down the whole economy seems phantasmagoric. He said Geneen deputized him to prepare a presentation to use with the Justice Department. "I was thought qualified in these areas as an economic and financial specialist," he explained. He recounted his meetings with Kleindienst and McLaren, backing up the versions of these two men. "Every meeting was on the record," he said. "No meeting or telephone conversation was held in a covert or surreptitious manner. There was no hint of favor offered or sought."

He failed to grasp, it seems, the perquisites ITT received by virtue of the very access itself, let alone the benefits of the resulting settlement that avoided the much-feared Supreme Court test. Jack Anderson, on the other hand, fully grasped the significance. "The suggestion that discussions with Rohatyn about the case could not possibly count as negotiations, since he was not a lawyer, must have amused investment bankers everywhere," he wrote in his 1973 recollection,
The Anderson Papers.

For Rohatyn was the boss of many lawyers, including the ones who were negotiating with McLaren; he had behind him a prodigious career of putting corporations together and taking them apart; Geneen's purpose in dispatching him to Washington obviously was to raise the ITT argument to a more potent level than mere lawyers had been able to do. When Rohatyn was not educating Kleindienst, moreover, he was closeted with Mitchell, helping the Administration to prevent the collapse of Wall Street firms that had used their customers' money and couldn't pay up. So far as impact on the negotiations was concerned, it would have been better for the public weal if Kleindienst had negotiated with one hundred ITT lawyers rather than one Rohatyn.

Felix also volunteered his thoughts about how he had come to be mentioned in Anderson's second column on the unfolding Dita Beard scandal. He said he had been at Kennedy Airport awaiting an outbound flight and "talking with my children on the telephone," who told him that Hume had called from Washington "asking urgently that I speak with him." Even though he did not know Hume, he returned his call from the airport. For those people who know Felix and have tried to get him on the phone and who never get a return call, this must have come as quite a revelation. In any event, he testified that Hume read him the Dita Beard memo and asked him if the ITT contribution figured into the settlement discussions. "Let me say now that I do not know Mrs. Beard and, in fact, had never heard her name before talking with Mr. Hume," he explained. "Moreover, I never knew of an ITT commitment of the San Diego Convention Bureau until December 1971"--despite being an ITT board member--"when I read about it in the public press. This was six months after the antitrust settlement had been reached. Therefore, it was literally impossible for me to have participated in any conversation regarding the commitment."

Throughout the first day of the hearings, other senators pushed Felix, McLaren, and Kleindienst on the circumstances surrounding ITT's antitrust settlement and the implications of the Dita Beard memo, but the troika held firm in their incredulity about any connection. Still, a clear impression had been left that Felix had asked for and received extraordinary access to the top government officials charged with deciding to pursue, or not, a historic antitrust case against his biggest client. What's more, Felix's intervention worked, even though he told Senator Bayh that he felt "my influence and persuasiveness was obviously wasted" when he went back to see Kleindienst in his office to complain about the harshness of the settlement proposal after the June 17 telephone conversation. Felix moments later recanted his false modesty.

"Is it a fair assessment of your value to ITT to say your influence was wasted when the one divestiture that was going to do the most damage to the company, Hartford, was not successful?" Bayh wondered.

"I would hope I did play a good part, Senator, because I think it was the right thing to do," Felix replied.

"So you cannot say your influence went to waste?" Bayh replied.

"No, sir, I amend that statement," Felix said.

From there, not surprisingly, the senators wanted to hear from Dita Beard, especially after Kleindienst testified that the implications of her memo were "categorically false" and McLaren said about it, "I think those are terribly serious charges and I implore the committee to bring her in here and make her say under oath what she said in there." Kleindienst later testified that the Beard memo was "nothing but a memorandum written by a poor soul, a rather sick woman." Several Democratic senators agreed they would not approve Kleindienst's appointment as attorney general until Beard had testified. But she had disappeared. When she resurfaced a few days into the hearings, the FBI reported that she was in a Denver hospital with a serious heart ailment after none other than G. Gordon Liddy, an ex-FBI agent working for Nixon's reelection campaign who had previously organized the arrest of Timothy Leary in Millbrook, New York, had whisked her out of town after Anderson's first two columns appeared. (She did eventually testify, from her hospital bed surrounded by senators, without conveying much of substance.) The remainder of the hearings had a theater of the absurd quality, whose folly is far less amusing when one considers that not one but two attorneys general--Mitchell and Kleindienst--perjured themselves in their testimony. Kleindienst was eventually confirmed, but not before the prelude to the Watergate tragedy had been played.

Indeed, at the White House, there was growing concern about the tenor of the Kleindienst hearings. Two of Nixon's closest advisers, Chuck Colson and John Dean, from the outset had questioned the wisdom of Kleindienst's insistence on the hearings. Now there was word that the SEC was beginning its own investigation into possible insider trading charges against some ITT executives, who may have sold ITT stock in and around the announcement of the merger with the Hartford (and later reached settlements with the SEC). As part of that investigation, the SEC had begun to demand of ITT all relevant documents, a subject of much controversy in the wake of the reports of document shredding in Dita Beard's ITT office as she was whisked out of town. The task fell to Colson to investigate the contents of the increasingly worrisome trove of ITT memos that had been produced. Ehrlichman and Fred Fielding, an assistant to John Dean, also reviewed all of the ITT documents, including thirteen "politically sensitive" ones that ITT's lawyers had delivered to Ehrlichman at the White House on March 6. On March 30, Colson authored a confidential memorandum of his own to Haldeman, Nixon's chief of staff, about what he had discovered. The memo is nothing short of astounding; it would have been explosive had it come to light at the time it was written.

Colson warned his boss, "The most serious risk for us is being ignored...there is the possibility of serious additional exposure by the continuation of this controversy. Kleindienst is not the target; the President is...but the battle over Kleindienst elevates the visibility of the ITT matter and, indeed, guarantees that the case will stay alive. Neither Kleindienst, Mitchell nor [Robert] Mardian [a Justice Department official] know of the potential dangers. I have deliberately not told Kleindienst or Mitchell since both may be recalled as witnesses and Mardian does not understand the problem." Colson proceeded to describe the contents of a handful of, to that point, supersecret memos that directly contradicted the testimony Mitchell, Geneen, and Erwin Griswold, the solicitor general, had given in the previous weeks to the Senate Judiciary Committee. Kleindienst repeatedly perjured himself in his testimony. Colson revealed to Haldeman his discovery of letters that voided Griswold's testimony that he had made the decision not to appeal the Grinnell case to the Supreme Court. These letters credited John Connally, then Treasury secretary, and Pete Peterson, then commerce secretary, with directly intervening in the decision. (Felix became the trustee of Peterson's blind trust, created when he joined the Nixon administration, on May 25, 1971, in the middle of Felix's and ITT's intense lobbying of the government for a settlement of the antitrust lawsuits; Peterson is, of course, now the uber-respected chairman of the Blackstone Group, one of the world's biggest private-equity firms.)

There was also a memo to Spiro Agnew, the vice president, from Ned Gerrity, at ITT, addressed "Dear Ted," that outlined Mitchell's agreement to talk to McLaren after Geneen had his meeting with Mitchell to talk only about antitrust policy, not the ITT cases. Both Mitchell and Geneen testified they only spoke about antitrust policy in their thirty-five-minute meeting in August 1970. "It would carry some weight in that the memo [from Gerrity] was written contemporaneously with the meeting," Colson wrote. "The memo further states that Ehrlichman assured Geneen that the President had 'instructed' the Justice Department with respect to the bigness policy. (It is, of course, appropriate for the President to instruct the Justice Department on policy, but in the context of these hearings, that revelation would lay this case on the President's doorstep.)" Colson revealed another internal ITT memo "which is not in the hands of the SEC" that "suggests that Kleindienst is the man to pressure McLaren, implying that the Vice President would implement this action. We believe that all copies of this have been destroyed."

Colson also reminded Haldeman of a memo from Herb Klein, Nixon's communications director, to Haldeman dated June 30, 1971--one month before Justice reached its settlement with ITT--outlining ITT's $400,000 contribution to the San Diego convention. Mitchell was copied on the memo. "This memo put the AG on constructive notice at least of the ITT commitment at that time and before the settlement, facts which he has denied under oath. We don't know whether we have recovered all the copies. If known, this would be considerably more damaging than the Reinecke statement," where Ed Reinecke, the California lieutenant governor, recanted statements he made that he had spoken to Mitchell about the ITT contribution.

In the Justice Department files, Colson found a number of incriminating documents, among them an April 1969 memo "from Kleindienst and McLaren to Ehrlichman responding to an Ehrlichman request with respect to the rationale for bringing the case against ITT in the first place." A year later, Ehrlichman wrote a memo to McLaren explaining that he had discussed with Mitchell his meeting with Geneen. Mitchell could give McLaren "more specific guidance," Ehrlichman wrote. Five months later, Ehrlichman wrote to Mitchell again complaining about McLaren's pursuit of ITT and reminding Mitchell of an "understanding" with Geneen.

Finally, on May 5, 1971, came the piece de resistance: another memo from Ehrlichman to Mitchell "alluding to discussions between the President and the AG as to the 'agreed upon ends' of the ITT case and asking the AG whether Ehrlichman should work directly with McLaren or through Mitchell." Colson also wrote about a memo sent to Nixon on the same topic at about the same time. "We know we have control of all copies of this," he said, "but we don't have control of the original Ehrlichman memo to the AG. This memo would once again contradict Mitchell's testimony and, more importantly, directly involve the President."

Colson knew that his discovery of these memos--indeed their very existence--meant trouble, big trouble. He had locked away in a safe most of the dangerous memos, but not all copies of all of them could be located. So, that same day, in the early afternoon, Colson and Haldeman spent an hour with Nixon in the Oval Office. Thanks to Nixon's penchant for recording conversations in his office, even a small portion of the taped transcript of their meeting reveals Colson's extraordinary concern about how explosive it would be for Nixon politically if the hidden memos were discovered and released publicly, the depth of which was quickly conveyed to the president.

COLSON:...merely to say to you that, that I've looked at every shred of paper and...

PRESIDENT: You've seen it all?

COLSON: I've seen it all.

PRESIDENT: And it isn't good.

COLSON: It scares the living daylights out of me.

Colson then told Nixon he had found the explosive May 5, 1971, memo, where Nixon and Mitchell spoke about the "agreed upon ends" of the ITT antitrust cases.

COLSON: The most dangerous, the most dangerous one we don't know how many copies were made of which is, which is our problem. And we have all of our copies [
noise
] in a safe, uh, but we don't know what happened to it in the Justice Department and we can't find all the copies at Justice. And that's a May 5, 1971 memo from Ehrlichman to the Attorney General in which he talks about the sessions between you and the Attorney General on this case and on...

PRESIDENT: That's right.

COLSON:...these quite agreed upon ends in the resolution of the ITT litigation. Well that memo, if that came out in that Committee would, would be pretty tough right now, uh, because that would lay it right into here. And we think we've got control of it, but the point Bob makes this morning, and I've discussed some [of] these memos, is very valid that with or without these hearings if these goddamned things leak out now they're gonna be just as big an explosion.

HALDEMAN: Well, if someone's got a copy of that memo, it's gonna be used.

COLSON: Whether there's hearings or not.

HALDEMAN: Whether there's hearings or not, whether Kleindienst stays here or goes...

PRESIDENT: Yeah.

HALDEMAN:...off to the moon.

Colson's March 30 memorandum to Haldeman, the one-hour conversation between them and Nixon the same day, and more than thirty years of historical perspective combine, in retrospect, to make the final ten days of the Kleindienst hearings more or less irrelevant. Kleindienst and Mitchell lied throughout, to protect the discovery of the fact that Nixon had ordered the Justice Department to go easy on ITT.