Target: Spitzer

Photo: Adam Rountree/Getty

Ken Langone is one of the most powerful and well-connected men on Wall Street and among the richest people in America, but you wouldn’t know it from the look of his office. Sure, it’s on Park Avenue, with a fine corner view for him, but the décor is otherwise nondescript, a series of glass-enclosed rooms with nary a Twombly in sight. He’s head of a small investment firm, but he spends most of his time raising money for various charities. His assistant, Pam Goldman, sits near him, and they shout back and forth at each other like they’re in a trading pit.

Lately, the 70-year-old Langone has been doing a lot of shouting. Since the fall of 2003, when he left the board of the New York Stock Exchange in the midst of the Dick Grasso pay controversy, he’s been under siege from Eliot Spitzer, the state attorney general and gubernatorial front-runner, who has made corporate prosecution a cause célèbre and contends that Langone secretly helped his friend Grasso to a lot more money than he deserved.

The usual course of action for a man in Langone’s circumstances is to lie low and let his high-priced lawyers do their job. If he really wanted the case to disappear fast, he could probably settle for far less than the $18 million Spitzer is seeking. The money itself would make an imperceptible dent in his net worth, and what’s a couple days of bad press for a man who owns several homes? He could just get out of town. But that would not be Langone’s style. Gesticulating with his big hands, he looks at me and says pointedly, “One way or another, Spitzer is going to pay for what he’s done to me and the havoc he’s caused in the New York business climate.”

A lot of people say things like that when they’re angry, but most of them are not billionaires. Spitzer’s charges struck a moral chord in Langone. He did not review his actions, search his soul, or try to sort out what he could have done differently to avoid this fate. He believes instinctively, fervently, that he did nothing wrong in rewarding Grasso so lavishly, and it makes him spitting mad to be singled out by Spitzer as another white-collar swindler. So rather than merely defend himself against Spitzer’s civil charges, Langone is launching a counteroffensive that could cost tens of millions. His plan, he says, is “to make sure everyone knows that Eliot Spitzer isn’t fit to be governor of New York State or any other office, for that matter.”

Raised on Long Island, the son of a plumber, Langone arrived on Wall Street in 1962, just in time to ride one of the longest bull markets in modern history. By the end of the decade, the investment banker had amassed a small fortune, much of it for taking Ross Perot’s EDS public.

Like many in the business, though, Langone got smacked around by the seventies bear market. EDS’s stock tanked, and along with it went much of Langone’s wealth. Fortunately, he had enough left over that when his friends Bernie Marcus and Arthur Blank proposed starting a nationwide chain of hardware stores in the late seventies, he could pull together $100,000 to invest in the long-shot venture. That company was called the Home Depot, and after a rocky start, Langone’s investment ballooned into a sum big enough to win him a spot on the Forbes 400. In its 2005 edition, the magazine estimates his net worth at $1.1 billion. “I don’t really know and I don’t care what I’m worth,” he says. “I learned playing poker that you never count your winnings, because that’s when you start to lose.” He and his wife of 49 years live in Sands Point, on Long Island, where she recently threw him an extravagant party for his 70th birthday. Among the 300 guests were Mayor Bloomberg, Perot, hedge-fund wiz Stanley Druckenmiller, and Morgan Stanley chief John Mack.

Langone’s current troubles can be traced to December 2002. Back then, Grasso was still regarded as a hero, the guy who reopened the stock exchange just days after 9/11. In fact, Grasso and Spitzer were allies. Grasso helped the attorney general line up Wall Street executives and get them to sign off on the $1.4 billion settlement over the research-analyst inquiry, one of Spitzer’s first and greatest political achievements.

But Wall Street was not exactly thrilled to be bowing down to Spitzer, and some were resentful of Grasso’s playing the white knight. Whispers circulated about his outsize compensation package. In 2002, he cleared $12 million; the year before that, $30 million. He deferred much of the money into a retirement fund that had swelled to about $140 million. As head of the compensation committee of the NYSE board, Langone was among the key people who approved Grasso’s pay.

Ken Langone, outside his office on Park Avenue.Photo: Michael Edwards

James Cayne, a stock-exchange board member and the CEO of Bear Stearns, was one of Grasso’s biggest supporters, but during his recent deposition with Spitzer, he conceded that he was “shocked” when he first discovered the size of the package in late 2002. Cayne told me that he called Langone to make sure the number was accurate, asking, “Where’s the decimal point?”

Langone told Cayne that he has no problem paying CEOs extraordinarily well, if their performance merits it. Langone sits on the boards of four companies, including the Home Depot, where chief executive Robert Nardelli is one of the highest-paid executives in corporate America. Based on Grasso’s record, Langone says he deserved treatment similar to a CEO of a public company. To me, he rattled off a series of statistics to prove this point, including what he believes is the most compelling: During Grasso’s tenure as NYSE chairman, the number of companies that paid fees to have their stocks listed and traded on the exchange grew dramatically. Cayne and the NYSE board ended up agreeing with Langone’s argument.

Langone’s choice to topple Spitzer is Thomas Suozzi, a rising star in the Democratic Party.

But when the news broke in spring 2003 about Grasso’s pay, few were willing to defend it publicly. In June, Langone left the compensation committee; before long, the SEC launched an investigation, the press jumped all over the story, and board members started backing away from Grasso. On September 17, he was ousted, and the following spring Spitzer filed suit in civil court seeking the return of the money. He cited Langone, as well, for deceiving fellow NYSE board members about the compensation, zeroing in on an $18 million chunk of it that Spitzer alleges was slipped in without the board’s full understanding. The many depositions taken over the past eighteen months have left Spitzer’s case full of holes, Langone’s supporters say. But the trial looms, and is now expected to start next summer, right in the thick of the governor’s race.

Langone hasn’t lost his thirst for deal-making. He remains an active investor, recently mounting a failed takeover of the New York Stock Exchange. “There’s a little Don Quixote in him,” says Terrence Cassidy, a friend for 30 years who now runs NWH Inc., a data-processing company. “He can be unbelievably impractical. But he also doesn’t have a private agenda, and when he thinks he’s doing something that is right, there’s no stopping him.”

When I spoke to Langone last week, he was preparing to give a speech, sponsored by the Cato Institute, titled “Justice or Political Ambition: The Case of Eliot Spitzer.” This was to be his opening salvo in what he refers to as “a holy war.” He planned to paint Spitzer as an enemy of business, accusing him of violating civil liberties and destroying thousands of jobs, all for headlines.

To follow up the speech, Langone says, he’s toying with two ideas. One is to create a political-action group and carpet-bomb Spitzer with issue ads that attack his record as attorney general. His media strategist, Jim McCarthy, says they’ve already drawn up one set of mock ads that highlight Spitzer’s investigation of insurance broker Marsh & McLennan, which left 5,500 employees jobless in the aftermath. The notion is to present them as the innocent victims of Spitzer’s vainglorious crusade.

Langone, however, says he’s leaning toward another plan—financing a candidate to face Spitzer in a Democratic primary. His choice: Nassau County Executive Tom Suozzi, a rising star in the state’s Democratic Party. This represents quite a break for Langone, a longtime Republican who has raised tens of millions of dollars for the likes of Rudy Giuliani, Bob Dole, and the senior George Bush. In the past, he’s also supported Bill Weld, the former governor of Massachusetts, who has since moved to New York and is mounting a Republican challenge to Spitzer. But Langone doesn’t seem to respect Weld, saying “he’s not appropriate for this job” and citing the fact that Weld “walked out as governor with three years left on his term” to become ambassador to Mexico. (Weld’s appointment ended up being blocked by the Senate.) A spokesman for Weld had no comment, other than to say that there were actually seventeen months remaining in his term when he left.

As a resident of Nassau County, Langone claims to be impressed with Suozzi’s record of saving the county from the brink of bankruptcy. More important, Langone thinks Suozzi can win. In recent weeks, Langone has been telling friends that he can raise $30 million for Suozzi if he chooses to take a stab at Spitzer, with much of the money coming from Wall Street executives who have been the target of the A.G.’s regulatory crackdown. “This man is going to be great, if he runs,” Langone says. “He’s smart, he’s ethical, and he’s got a great record.”

Langone contributed to Suozzi’s recent reelection, and in an interview on NY1 last month, Suozzi said that he thought Spitzer was “overreaching” in the Langone-Grasso case based on recent depositions. Independent political consultant Hank Sheinkopf says if Suozzi runs and accepts money from Langone, “it could make a good television commercial for Eliot because it goes to his strengths—that he took on Wall Street for average people.” He adds that Suozzi may be in the position where he might “have to talk away Langone’s contributions, and that’s not insignificant.”

Suozzi hasn’t committed to run; his campaign manager, Kim Devlin, will say only that “right now Tom is still enjoying his great reelection victory, and setting forth his agenda for the next couple of years.” But aides say he has taken preliminary steps, and he is in regular consultation with Langone. The two are becoming so close that just as I begin quizzing Langone about Suozzi’s chances, he receives a call from the man himself. They chat for about five minutes, discussing some conversation Langone had with his deep-pocketed friends about Suozzi, before Langone tells him, “The bottom line is we’re going to do everything we have to do to get you elected in a way that we can all be proud that we did it.”

That might be more than $30 million can buy. As Spitzer’s staff never tires of pointing out, Suozzi, for all his political gifts, is a nobody outside Nassau County, and polls show Spitzer beating him by a comfortable margin.

According to Langone, Spitzer has tried to call a truce. Spitzer comes from a real-estate family, and their circles overlap a bit. Last year, they ran into each other at a black-tie event, where Spitzer remarked that “we have mutual friends who say in another life you and I would be friends.” Langone replied, “Not likely,” and then walked away. At another point, Spitzer was so angry at what Langone was saying behind his back that he told former GE chief executive Jack Welch that he wanted to “put a spike through Langone’s heart.”

Early on in this case, Spitzer’s rhetoric had a hard edge. In the New York Post, he called the Grasso pay package “grotesque,” said that both Langone and Grasso “violated the law,” and that he has nothing but “disdain” for the way they both acted. Spitzer declined to comment for this story, but his spokesman, Darren Dopp, says the attorney general remains committed to seeing the case through. But in recent months, it’s clear that Spitzer has toned it down—an indication that he may be feeling less confident about his chances after taking depositions from NYSE board members.

At the Cato Institute speech, Langone says, he will try to show that his problems with Spitzer aren’t purely personal—that there’s a broader argument to be made about how out-of-control prosecution hurts business. “Why would any businessman ever want to come to New York State if this guy becomes governor?” he asks. Spitzer’s staff says the attorney general is ready to debate Langone on this point by point. “There isn’t an industry that we’re involved in that hasn’t emerged stronger,” says Dopp. “The investment banks have come roaring back; the mutual funds are seeing better inflows of customer money.” And Marsh & McLennan’s recent earnings have been strong, too, he says.

Dopp adds that “Mr. Langone is free to express his opinion, and he seems to enjoy doing it.” That’s something anyone who knows Langone would readily admit. Several weeks ago, when Grasso suggested in a brief interview that he might want to settle, Langone went nuclear, telling his good friend that he wouldn’t speak to him if he did that. Grasso, who declined to comment for this story, later said he had no plans to settle the case, but he has told people that he thinks the mess has “added ten years to Kenny’s life.”

When he walks into San Pietro, Wall Street’s version of the high-school cafeteria, Langone says, he is constantly being stopped and told to keep fighting the good fight. “My view is that Spitzer will delay the trial until after the election,” he says. “He doesn’t have the guts to confront me in court.”

Target: Spitzer