By John Solomon and Matthew Mosk
Washington Post Staff Writers
Sunday, May 13, 2007
On Dec. 7, 2001, nearly three months after the terrorist attack that had made him a national hero and a little over three weeks before he would leave office, New York Mayor Rudolph W. Giuliani took the first official step toward making himself rich.
The letter he dispatched to the city Conflicts of Interest Board that day asked permission to begin forming a consulting firm with three members of his outgoing administration. The company, Giuliani said, would provide "management consulting service to governments and business" and would seek out partners for a "wide-range of possible business, management and financial services" projects.
Over the next five years, Giuliani Partners earned more than $100 million, according to a knowledgeable source, who spoke on the condition of anonymity because the firm's financial information is private. And that success helped transform the Republican considered the front-runner for his party's 2008 presidential nomination from a moderately well-off public servant into a globe-trotting consultant whose net worth is estimated to be in the tens of millions of dollars.
In crafting its image, the firm took care to burnish its most valuable asset: the worldwide reputation Giuliani had earned for his composure and leadership in the days after the terrorist attack on the World Trade Center. "No client is ever approved or worked on without a full discussion with Rudy," said the firm's senior managing partner, Michael D. Hess, former corporation counsel for the city of New York.
Not surprisingly, a firm that markets Giuliani and is run by Giuliani has taken on the characteristics of the politician, who even by New York standards was known for his self-confidence and sometimes defiant insistence on doing things his way.
Famously loyal, Giuliani chose as his partners longtime associates, including a former police commissioner later convicted of corruption, a former FBI executive who admitted taking artifacts from Ground Zero and a former Roman Catholic priest accused of covering up sexual abuse in the church.
Giuliani, grounded in the intricately connected world of New York politics, has been more than adept at making the system work for his clients. They have included a pharmaceutical company that, with Giuliani's help, resolved a lengthy Drug Enforcement Administration investigation with only a fine; a confessed drug smuggler who hired Giuliani to ensure his security company could do business with the federal government; and the horse racing industry, eager to recover public confidence after a betting scandal.
Clients of Giuliani Partners are required to sign confidentiality agreements, so they do not comment about the work they receive or how much they are paying for it. Though now running for president, Giuliani refuses to identify his clients, disclose his compensation or reveal any details about Giuliani Partners. He also declined to be interviewed about the firm.
Because of this secrecy -- a request to visit his wood-paneled offices overlooking Times Square was turned down -- a complete picture of the firm and its business is difficult to obtain. This report is based on a review of corporate, government and court records, along with scores of interviews with clients and government officials who have interacted with Giuliani Partners.
Hess, the one official authorized to speak for the firm, said Giuliani Partners does not want its clients to exploit Giuliani's name and does not engage in lobbying. He said the company carefully chooses whom it hires and represents.
"We're cautious in the right sense of that term, in terms of who we work for. We always want to make sure it is a company that is doing the right thing, that we're proud to represent," he said.
For many clients, hiring Giuliani delivered the political equivalent of a Good Housekeeping seal. Start-up companies or clients enmeshed in controversy gained instant credibility as well as the potential to access a vast Rolodex of contacts Giuliani and his partners have amassed over the years.
"His name brings inherent value," said John Mason, chairman of BioOne Solutions, a Florida decontamination company that merged with Giuliani Partners. "If someone has a need in our area, it's unlikely they wouldn't take his call."Creating the Corporation
Giuliani left office on Dec. 31, 2001, with relatively modest means. His final ethics report to the city listed gross assets of between $1.16 million and $1.83 million in 2001; most of that wealth was two Manhattan apartments and some retirement mutual funds. The lone source of income he listed besides his $195,000 mayoral income was $20,000 to $60,000 a year from renting one of the apartments.
His initial letter to the city's Conflicts of Interest Board asked permission to begin forming the firm in his final days as mayor with three aides he planned to take with him -- the lawyer Hess, chief counsel Dennison Young Jr. and chief of staff Anthony V. Carbonetti. Two others -- Police Commissioner Bernard B. Kerik and Fire Commissioner Thomas Von Essen -- were not mentioned but later joined the firm as senior vice presidents.
The firm opened for business in January 2002, its core values described on its Web site as "integrity, optimism, courage, preparedness, communication and accountability." From an initial group of about a dozen principals and support staffers, it has since quadrupled in size.
Giuliani, the chairman and chief executive, had little private-sector experience but early on entered into a strategic alliance with the accounting firm Ernst & Young, long a city contractor under his administration. The affiliation brought instant business know-how along with a stable of potential blue-chip clients.
In "Leadership," the best-selling book he wrote in 2002, Giuliani devoted a chapter called "Surround Yourself With Great People" to describe the people he picked to help run the firm. The core of the group comprised close political associates and City Hall advisers -- not seasoned businesspeople. And some had problems in their pasts.
Kerik took the lead building the Giuliani Partners security arm. But even before Giuliani left the mayor's office, city investigators had warned him that Kerik might have ties to organized-crime figures, a warning Giuliani recently testified that he did not recall. Kerik abruptly left the firm in early 2005, after his nomination to be homeland security secretary -- supported by Giuliani -- collapsed. That was a year before he pleaded guilty to a misdemeanor charge that he accepted free work on his apartment from a contracting firm accused of having ties to organized crime.
To replace Kerik, Giuliani turned to a respected former FBI executive, Pasquale J. D'Amuro, who had risen through the ranks as one of the bureau's savviest antiterrorism agents to become its third-ranking official. In 2004, a Justice Department inquiry into the controversial removal of souvenirs from the World Trade Center site disclosed that D'Amuro had asked a subordinate to gather half a dozen items from Ground Zero as mementos just weeks after the attacks, and D'Amuro later acknowledged that he kept one piece of granite that he received in June 2003. The FBI took no action against D'Amuro, and he donated his memento to the New York FBI office before retiring.
In 2003, Giuliani also brought into the firm Alan Placa, an old friend who resigned as vice chancellor of the Diocese of Rockville Centre on Long Island a week after being confronted by Newsday with allegations that former parishioners had been abused. The newspaper published portions of a 2003 Suffolk County grand jury report in which accusers said he used his position to stifle complaints of abuse by clergy. The firm would not make Placa available to comment, but the Long Island newspaper has reported that Placa denied the allegations, was not charged with a crime, and is going through a process within the church to clear his name. Placa has been described by the firm as a "consultant."
Over the years, Giuliani Partners formed several subsidiaries or strategic alliances. They included an investment bank called Giuliani Capital Advisors that counseled companies on bankruptcies and investments in the security marketplace. It was sold for an undisclosed amount as Giuliani was preparing his run for president.
The firm also created several security divisions over the years. The first, Giuliani-Kerik, advised companies on matters as diverse as making buildings more secure and marketing security products. In 2005, after Kerik left, it was renamed Giuliani Security & Safety. Giuliani Partners also created an overseas security arm called Giuliani Security & Safety Asia, which has done business in Japan similar to what the firm's U.S. entities do, and an overseas consulting unit called Giuliani Compliance Japan.
Right from the start, Hess said, Giuliani proved to be as "hands-on" as chief executive as he was as mayor. Giuliani demanded daily briefings at the firm that were "reminiscent of the staff meetings that we had in City Hall," Hess recalled.Consultants or Advocates?
When Hess describes the work of Giuliani Partners, he says it is impossible to pinpoint a single specialty. But he did say, emphatically, that the firm has not tried to use Giuliani's political connections to influence federal officials.
"We don't do lobbying. And therefore that is not something where we are running to talk to a regulator or an agency," Hess said. "In terms of people he has known in the government -- whether city, state or federal -- we just don't do that."
In May 2002, Purdue Pharma, a Connecticut-based drug company, hired the firm at a time when two federal agencies -- the DEA and the Food and Drug Administration -- had begun investigating a wave of overdose deaths attributed to the firm's powerful and lucrative painkiller, OxyContin. The agencies were looking into the pain product's illicit use as a recreational drug and were probing lax security at the company's manufacturing plants in New Jersey and North Carolina.
In a news release, Purdue announced that Kerik would conduct a security review at Purdue's Totowa, N.J., manufacturing plant, while others in Giuliani's firm started designing an early-warning network to spot prescription drug abuse, develop national standards for prescription monitoring and try to increase public awareness.
Behind the scenes, Giuliani began reaching out to old friends in a position to influence the path of the investigation. Government officials said that the former mayor contacted then-DEA Administrator Asa Hutchinson, whom he had befriended two decades earlier, and that he also dialed up Karen Tandy, who headed a Justice Department task force and later took Hutchinson's place as DEA chief. In short order, Giuliani arranged a meeting in the conference room of Hutchinson's office to discuss the DEA's plans to keep the drug from being misused.
"The main thing I remember was his commitment to help the company develop safeguards," Hutchinson said. "He was going to bring his expertise to see where security needed to be improved and to provide confidence in the handling of a very dangerous drug."
Cynthia R. Ryan, who was serving as Hutchinson's counsel at the time, described Giuliani as "advocating for a client."
Laura M. Nagel, who then headed the DEA's office of diversion control, was not happy. "My reaction was that they went around me," she said of Purdue. "They went and got Rudy. I think they thought they were buying access and insight into how to manage things politically."
A week before the first anniversary of the Sept. 11 attacks, the former mayor joined Hutchinson and then-Attorney General John D. Ashcroft for the opening of a traveling DEA exhibit on drug trafficking and terrorism. Giuliani, who as a prosecutor and mayor had emphasized his record fighting crime, also spoke at a luncheon that day that raised about $20,000 for the DEA Museum Foundation. Bill Alden, the foundation president, said he did not learn until later that Giuliani was working for Purdue Pharma.
Ryan, the former DEA lawyer, said Giuliani's fundraiser "had no impact on the path of the case."
After the fundraiser, Nagel said she was summoned to accompany Hutchinson to a second meeting with the former mayor, this one in Giuliani's 24th-floor offices in New York. Hutchinson said the meeting was for the DEA's benefit.
"Giuliani and his team went through the details of his plan" to keep OxyContin out of the wrong hands, he recalled. "We were receivers of the information."
In June 2004, the government settled the case by requiring the Purdue Pharma affiliate that ran the Totowa plant to pay a $2 million civil penalty. The drugmaker did not have to admit wrongdoing or take its product off the shelf.
James W. Heins, Purdue Pharma's senior director of public affairs, said that "today our recordkeeping at all of our manufacturing facilities fully comply with applicable state and federal regulations." As for Giuliani Partners' work, he said, "we can say that we are pleased."
Nagel, who led the investigation, said Purdue got off too easily. "I would not have been happy unless we put them in shackles in front of the courthouse," she said.
Last week, Purdue settled another federal investigation when the company and three current and former executives pleaded guilty to falsely marketing OxyContin in a way that played down its addictive properties. People involved in the case said Giuliani met with government lawyers more than half a dozen times and negotiated a settlement that the sides agreed to in principle.Controversial Clientele
Though Giuliani personally approves clients, not all come with unblemished backgrounds. In December 2002, Giuliani Partners agreed to a lucrative contract to represent Florida-based security startup Seisint Inc., created by a close friend, Hank Asher. Seisint's data-mining product -- code-named Matrix -- caught the attention of federal and state authorities after Sept. 11 because the firm said that by searching through billions of public records, it could identify potential terrorists.
But Asher harbored a secret: In the early 1980s, he had smuggled kilos of cocaine from Colombia into Florida aboard his private jet. Asher was never charged with a crime but disclosed his past to federal agents later in life when he helped an effort to rid a Florida community of drug smugglers.
In documents introduced in a 2004 lawsuit, dissident Seisint shareholder Gerald Brauser alleged that Giuliani was hired to use his "influence with the federal government to enable Mr. Asher to take an active role in Seisint as a chief executive officer despite the allegations about his drug dealing." Giuliani and his firm were aware of the problems in Asher's past before taking the job, sources familiar with the situation said, speaking on the condition of anonymity because the work was covered by a confidentiality agreement.
The Bush administration committed $12 million in grants for Matrix, and more than half a dozen states joined. In the summer of 2003, newspapers disclosed Asher was collaborating with federal and state officials on Matrix despite his drug-running past, and he resigned from the company. Giuliani would later give a public defense of Asher, without mentioning he had been paid by Asher's company.
"I have a great admiration for what he's doing," Giuliani told a Florida newspaper in January 2004. "People do a lot of things in life. It's a question of what you can do to make up for it, and Hank has done a lot."
Matrix also faced mounting criticism from privacy advocates over its data mining. The Bush administration ended its funding in 2005, and most states dropped from the project in the face of lawsuits and bad publicity.
The turn of events prompted some Seisint investors to reexamine the contract Giuliani had negotiated. What they found startled them: Giuliani Partners was to receive $2 million a year in consulting fees, a commission on sales of Seisint products, and 800,000 warrants to buy company stock, according to the minutes of the December 2002 Seisint board meeting in which the contract was approved. Knowledgeable sources said Giuliani's firm got most of that compensation, with the warrants proving particularly valuable because Seisint was sold to data giant LexisNexis for $775 million. Brauser sued Seisint's board, alleging Giuliani was not worth the money. "The Board of Directors allowed the corporation to waste corporate assets by allowing the company to enter into a contract for which the company received no benefit," Brauser alleged.
When LexisNexis bought the company, Brauser's lawsuit was dismissed by agreement of both sides. Asher and Seisint officials declined to be interviewed. LexisNexis, the current parent company, distanced itself from the Giuliani contract, saying it was terminated shortly after Asher was jettisoned from the company.
Whether clients of Giuliani Partners hired the firm for its work or for its name has been an issue more than once, even in the case of the National Thoroughbred Racing Association, which Hess cited as one of the firm's successes.
In that instance, the industry group hired Giuliani's firm three weeks after an insider had rigged wagers on the Breeders' Cup and held all six winning tickets in the Pick Six, creating a $3 million payday. "Giuliani had a huge name," recalled Frank Angst, a senior writer at Thoroughbred Times. "People trusted that he would help the industry get its act together."
Angst said it soon became clear the association's intention for Giuliani's firm was less about finding security upgrades than it was about recovering horse wagering's reputation. Nine months after being retained, Giuliani Partners helped the racing association produce a lengthy report on the security issues facing the industry, making three major recommendations for protecting the wagering infrastructure. The industry group, however, has yet to fully adopt any of the recommendations, according to Angst. An association spokesman declined to comment and would not disclose how much Giuliani Partners was paid.
In 2002, Giuliani Partners landed a $4.3 million contract from a Mexican civic organization to advise authorities in Mexico City on how to tackle the city's vexing crime problems. Giuliani touted the deal during a splashy nighttime tour through the city's most dangerous neighborhoods, and his firm delivered a 146-point plan that the city's public security secretary, Marcelo Ebrard, trumpeted as an antidote to the city's entrenched crime.
Ebrard, now the city's mayor, said in a recent local television interview that many recommendations were implemented; the city put panic buttons on public buses and put surveillance cameras in high-crime areas. But other prominent figures disagreed. Jorge Castañeda, former foreign minister of Mexico, called the contract a "$4 million publicity stunt." Jorge Montaño, former Mexican ambassador to the United States, said the "people who paid Mr. Giuliani and his associates really made a great mistake. With all honesty, nothing that they suggested was successful."
The problem, Montaño said, was that Giuliani expected ideas that worked in New York to work elsewhere. "His recommendations were not based on the Mexican reality," Montaño said.