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The Fall of the House of Steinberg

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Laura later recanted the cocaine charge. "I tried to lash back and made a mess," she says now, adding that the marriage dissolved in part because of her exuberant husband's taste for the high life. "He would give a toast and come back two days later," she sighs. "We started to have problems." Although Steinberg had Laura arrested for trespassing during their estrangement, she says she remains "madly in love" with him.

In 1983, after a brief courtship, Steinberg married Gayfryd. Like Laura, Gayfryd also converted to Judaism, as did her son, whom Steinberg adopted. A savvy, twice-divorced Louisiana businesswoman who once ran her own steel-pipe business, Gayfryd was no stranger to high living or to scandal: She and her second husband, an oil executive, had lived in the biggest house in New Orleans, but it was ultimately seized by the IRS when he was indicted for tax evasion. (Norman Johnson served 14 months in prison and later committed suicide.)

The second time she met Saul, at a dinner party in Steinberg's home, she once recalled: "You know, I thought, This is a very attractive guy. I was looking for someone to be bad with that night, and this seemed to be it." Social lore has it that Gayfryd changed the place settings before the meal so she could sit next to Saul; she has told friends it was Saul who engineered their placement.

Almost immediately, Gayfryd began working to propel herself and Saul into the upper echelons of Manhattan society. The new Mrs. Steinberg, who bore her husband a daughter, quickly befriended socialites like Anne Bass, Blaine Trump, and Libbet Johnson, and set about becoming one of the most successful fund-raisers in the city, sitting on the board of the New York Public Library.

"She's an amazing organizer," says Susan Burden, one of the Steinbergs' closest friends. "She could run anything -- the biggest company, the most successful fund-raising event. . . . She has more follow-through than anyone I've ever seen in my life." Gayfryd also focused on less glitzy causes like the I Have a Dream Foundation, "adopting" a class of 103 Bronx fifth-graders and paying for the college education of all forty who graduated from high school. "She really worked on that," says Burden. "She went up to the school once a week and had brown-bag lunches."

"Nobody wanted anybody to know how ill Saul was," says a confidant. "It was bad for business."

When she wasn't staging charity events, Gayfryd was refurbishing 740 Park with mid-eighteenth-century British antiques. John Hobbs, the antiques dealer, remembers Gayfryd's spending hours at his shop; when she was ready to purchase, says Hobbs, she would summon her husband to write a check. "They bought what nouveau riche would buy," sniffs Hobbs, now the boyfriend and business partner of Laura Steinberg. "All that gilt furniture, which had been regilded. They only bought two or three really outstanding pieces."

Not content with simply remaking the apartment, Gayfryd also put Saul on a strict exercise regimen. During their frequent excursions to Canyon Ranch, the couple was usually accompanied by two instructors; one hired to lead them on hikes, another to carry Saul's backpack.

Attuned to the more austere social mores of the early nineties, the Steinbergs labored to shed their reputation as superficial socialites. Their dinner guests began to include not only top financiers and well-known Republicans but also writers like Allen Ginsberg, Jerzy Kosinski, and Carl Bernstein. When Norman Mailer suggested that the Steinbergs become involved in pen, the writers organization, they happily acceded. As long as Saul raised funds and wrote checks to the organization, no one seemed to mind their involvement.

But when Gayfryd was appointed president of Friends of pen, she provoked an uprising in New York's literary circles. In the summer of 1990, Ken Auletta, a pen board member, complained to New York that the Steinbergs were "wealthy people gaining respectability on the backs of writers" and that Saul was a "sleazy character." A flurry of apologies from people like Larry McMurtry and Frances FitzGerald ensued, but by September, Gayfryd had resigned.

The Steinbergs' friends insist that the relentless press coverage of the couple's social habits obscured the down-to-earth reality of their lives. Even on evenings when the Steinbergs had social obligations, Burden says, they would often sit down to family dinner at 6:30. Sometimes Saul, an American-history buff, would select a book for the family to read and discuss. Gayfryd even devised a game called "Reading for Cash" in which she paid her children a bonus for every book they finished themselves. Of Mice and Men garnered the young Steinbergs $20, Shogun earned them $30. "Saul did a very good job of raising his children," says a close friend of Laura Steinberg. "He didn't spoil them. They took the Jitney, not a limo, to the Hamptons."

The pen debacle wasn't the only setback for the Steinbergs. For Saul, the downfall of Michael Milken served as a clear warning. Following Milken's confession to securities-law violations and the collapse of Drexel Burnham Lambert, the junk-bond market all but dried up. And so after years of controversy and high-stakes corporate gambles, Saul decided it was time for a break. "My motto for the nineties is that money is for lending, not spending!" he proclaimed at the start of the new decade. He would turn his attention to insurance.

In 1995, Steinberg set out on a dog-and-pony show to tout his new Reliance focus. At the time, Reliance stock was trading in the $5-to-$6 range. But just before the July 4 weekend, Steinberg suffered his stroke. While he recovered in New York Hospital, the family struggled to keep his condition a secret. Once out of the hospital, he continued working from home. "The food is good, the paintings are nice, and there's lots of time to think about big issues," he told the Wall Street Journal six months later.

While Saul remained officially in charge, it was Bobby who took over managing much of the company -- despite what Wall Street observers describe as an intellectual and business-savvy disparity between them. "Bobby Steinberg was not in the same league as his brother," says one insurance honcho.

Nevertheless, during the mid-nineties Reliance's stock consistently drifted upward, until by March 1998 it was at an all-time high of close to $20. At the end of that year, the company reported net earnings of $326 million, $97 million more than the year before. "Wall Street was very skeptical," recalls Brandywine portfolio manager Stephen Smith, "but two to three years into it, it really looked like they did an excellent job." Says an insurance analyst: "Reliance was perceived to be in a recovery phase."

Steinberg was recovering as well. With a combination of determination and the-best-that-money-could-buy medical care, his health and stamina slowly improved. Gayfryd "was amazing, totally amazing, a total saint," exults Burden. "I've seen other women in this situation," says their friend, Khalil Rizk, "and they become angry and critical. She just took it with such grace. She really brought him back."

By the end of 1999, the perception that Reliance was on the upswing was shattered by a severe downturn in the insurance industry. For Reliance, the problem of downward pricing pressure was magnified by the company's enormous annual interest expense of $62 million. Reliance's disastrous involvement in Unicover, an insurance fronting company, ended up costing them $170 million more, before taxes. In November, Saul fired Bobby in an attempt to regain the confidence of the marketplace, replacing him with Robert Miller, a well-known turnaround specialist. The brothers have been estranged ever since.

Following Bobby's ouster, Reliance installed new management and began shopping itself to investors. Why no deal was done then is the subject of much speculation in insurance circles. "Saul was looking for a ridiculous price, given the value of the franchise," says an insurance executive. In February, Reliance sold its surety business -- widely perceived to be its crown jewel -- to Travelers Property Casualty for $580 million. Soon after, the company announced the results of its annus horribilis: a loss of $311 million.

"All of a sudden, you realize that the reason they grew the business so well was because they underpriced it," explains portfolio manager Smith. "I looked at the financials and said, 'Saul has built himself a business that doesn't make any money.' "

On April 14, Steinberg and several Reliance executives were ushered into a windowless conference room on the third floor of a Wall Street office building, headquarters of the New York State Insurance Department. Steinberg reported in person. Regulators were concerned about the company's financial condition and wanted to protect policyholders. Steinberg confidently insisted that his new management was going to turn the company around, and said that he was also considering a sale. As for the regulators' concern that Steinberg would reinstate Reliance's dividends prematurely for his own benefit, Steinberg assured them it wouldn't happen; he had no plan to restore the dividend until 2002.

The new team never had a chance to get the ailing company in order. By the last week of May, unable to refinance Reliance's debt, Steinberg announced his intention to sell both his company and his belongings. On Wednesday the twenty-fourth, his art collection went on display at Richard Feigen's new gallery on East 69th Street, where a few hundred people grazed on Terra Chips, gave the once-over to Saul's paintings, and chatted about his personal life. Is he getting divorced? someone asked. Why is he selling?

The next day, at precisely 1 p.m., as 30 Sotheby's workmen began disassembling the exhibition of Steinberg furniture to prepare for Friday's sale, Gayfryd was just eleven blocks away, lunching with designer Arnold Scaasi at a back-corner table in Amaranth, as sure a sign as any that Reliance was not going under. Sources at Sotheby's claim she was especially reluctant to sell her silver and porcelain. Perhaps in a burst of optimism, Gayfryd even withdrew one lot from the sale -- lot 17, two Chelsea Strawberry Leaf sauceboats, circa 1755, estimated at $4,000 to $6,000.

At 7:40 on Friday morning, just two and a half hours before the start of the auction, the news of Reliance's prospective sale ran across the tape. As 25 people quietly worked the phones, occasionally shouting numbers into the room, a fatigued yet hopeful mood prevailed, giving the auction a bit of the feel of a TV telethon. Just after a George II black-japanned tilt-tripod table that had once been "The Property of a Lady" sold for $16,000, the auctioneer had an announcement to make. "New York State law does not permit the sale of bedding," he awkwardly read from his notes, and so lot 253, a George III bedstead, sold for $42,500, not including mattress. In an hour, it was all over.

In the aftermath of the sale, the Steinbergs went to Quogue for a quiet Memorial Day weekend with five of their children. Saul took a long walk on Dune Road with his family and talked about the strange path his life had taken. "I think they felt their father could use some love and support," says a source close to Steinberg.

Saul and Gayfryd will spend the summer on Long Island, "pooping out," as an art dealer close to them puts it, or in New York, where they are looking for a townhouse in which to live with their daughter, their maid, and their remaining objects. "Gayfryd -- she loves a project," enthuses a close friend. "She can create a wonderful environment out of nothing."


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