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  •   Business Deals Prepared Coelho for Gore

    Tony Coelho,AP
    Former House Majority Whip Tony Coelho in a 1989 file photo. (AP)
    By John Mintz and Charles R. Babcock
    Washington Post Staff Writer
    Monday, May 17, 1999; Page A1

    Tony Coelho was broke 10 years ago, when he left Congress and his job as House majority whip under an ethical cloud. He told friends his bank account had just enough for one mortgage payment.

    But now, after a lucrative decade in business, he can afford properties across the map: a sprawling home at Bethany Beach in Delaware, a Florida vacation property, an apartment in Portugal, a California vineyard and a new large riverfront condo in Old Town Alexandria.

    His journey culminated with a return to the pinnacle of political power last week, when Vice President Gore appointed Coelho chairman of his presidential campaign. There, he will draw on skills he has demonstrated before: political cunning, a flair for managing organizations and brilliance at selling whatever product he is promoting. In his first job after leaving Congress, he earned high praise for attracting billions of investment dollars to the Wall Street firm that hired him.

    Since then Coelho, 56, has served on an array of corporate boards. Some are well-known companies, such as cable giant Tele-Communications Inc., casino operator Circus Circus Enterprises Inc. and funeral home chain Service Corporation International. Others are more obscure, including a reusable rocket maker, a California water rights concern and AutoLend Group Inc., a bankrupt auto loan firm that wants to get into the business of installing video slot machines at racetracks. Coelho also has put his political skills to use as an advisory board member at the public relations company Fleishman Hillard Inc., where he counsels clients on dealing with Washington.

    As he has amassed what he acknowledges as considerable personal wealth, Coelho also has entangled himself in some less successful undertakings and with some controversial business figures. One of those is Nunzio DeSantis, a former New Mexico pharmacist who built a successful prescription-by-mail firm that was later found by the Securities and Exchange Commission to have inflated its profit while seeking outside investors. The SEC is investigating two other DeSantis companies -- AutoLend and International Thoroughbred Breeders Inc. (ITB) -- on whose boards Coelho has served.

    Coelho said the SEC is probing a dispute growing out of the 1997 purchase by Coelho and DeSantis of controlling shares in ITB, which owned two New Jersey racetracks and an abandoned Las Vegas casino. They bought their piece of the company from stock manipulator Robert Brennan. Brennan associates allege that Coelho and DeSantis diverted company assets for their own enrichment, which Coelho denies.

    "One of my biggest disappointments in the last 30 years was getting into this," Coelho said in an interview Friday. He added that Gore's campaign attorneys are reviewing whether he should withdraw as a director of some of the dozen companies on whose boards he serves.

    In interviews last week about Coelho's business ventures, a number of his friends and critics described him as a man who at times is gullible about the people who approach him with business propositions. They said that because of his loyalty to friends and political allies -- as well as an enthusiasm for profit -- he sometimes has jumped into deals without thoroughly vetting the people involved or their financial plans.

    "Tony has ended up with people who weren't always straight with him," said a Democratic business executive who says he likes Coelho. "He doesn't always do the due diligence [of checking out prospective deals]. If a friend says this is a good guy, he'd believe it. He's almost naive. . . . Someone like Tony, you'd think, would be a little more careful. In this new job for Gore, he has to be very careful."

    In the interview, Coelho disputed such assessments. "I've been called a lot of things, but not naive," he said. "You can say I'm too loyal, and some in the business world aren't loyal."

    Coelho's friends say he is determined not to make the same mistake he made in 1994, when he signed on as "senior adviser" to his party's congressional campaign but spent only a few hours a week in Washington dispensing advice about strategy and "message." Although he confidently predicted Democratic victory, the GOP swept both houses of Congress.

    He will spend all his time on the Gore campaign starting Wednesday and will set aside almost all of his business duties and extensive charitable work on behalf of the disabled.

    Among dozens of loyal former staff members scattered around Washington and the corporate world, Coelho is legendary for 80-hour work weeks and the 3-by-5 file cards he fills with scribbled instructions and gives to aides for immediate action.

    The grandson of Portuguese immigrants and the son of California dairy farmers, Coelho says epilepsy nearly drove him to suicide at age 22 after the Roman Catholic Church rejected his bid for the priesthood because of the disease. Comedian Bob Hope helped talk him out of his depression.

    Soon Coelho was working as an aide on Capitol Hill and then was elected to Congress from California's Central Valley in 1978. In 1981, at the Democrats' nadir following the election of Ronald Reagan, he took over the Democratic Congressional Campaign Committee. In the next six years, he perfected some fund-raising tactics Republicans had used for years: selling access to politicians for campaign cash. He lent a helping hand to contributors from across America -- the oil industry, California wineries, tax shelter promoters and savings and loans, among others.

    While good-government activists denounce Coelho's techniques, he and the generation of Democrats he trained in fund-raising tactics take pride in their accomplishment. "I helped turn back the Reagan Revolution," Coelho said.

    He was elevated to majority whip in 1987. But two years later, he was ensnared in scandal, when it was revealed that Thomas Spiegel, a California savings and loan executive, had cut him in on a $100,000 junk bond investment and had lent him some of the money to do it -- a loan Coelho failed to disclose. Coelho blamed his accountant and told friends he had trusted the man too much with his investments and disclosure responsibilities.

    Coelho abruptly resigned from Congress. Within three months, he says, he had amassed 83 job offers. He chose the investment banking firm Wertheim Schroder & Co. and moved to New York. Coelho admits being flummoxed his first day on the job. "In the office, there was just a desk, a phone, a pad, a pencil and a temporary secretary," he recalled. "I'd just left a place with 40 people under me."

    Placed in charge of a flailing investment fund with $800 million, he drew on labor union contacts from his Democratic fund-raising days, and within six years, he brought in $4.5 billion. "He has done for [Wertheim] what he did for the Democratic Party," Jay Mazur, president of the International Ladies' Garment Workers' Union, said then. "He has raised a lot of money."

    "He joined us without business experience but with enormous people skills, organizational ability and a terrific mind," said Steven Kotler, the firm's chief executive. "His word is golden. . . . He's the most unusual man I've known in 32 years in business."

    Coelho left Wertheim in 1995, after it was acquired by a British company and he didn't feel equipped to tackle the technical financial task he was assigned. Millions of dollars richer, he soon took a job with TCI, whose board he had joined a year earlier because its then-chairman, Robert Magness, wanted advice about Washington, TCI officials said. Coelho was hired to launch a new TCI division engaging in high-tech educational ventures. Magness gave him 20 percent of the stock in that division.

    Some of Coelho's experiments thrived, but many others failed, and TCI superiors lost interest in them, especially after Magness died in 1996.

    "He lost the support of [then-top TCI executives] John Malone and Leo Hindery, and was asked to leave the board," said a TCI official, who asked not to be named. Among other things, the official said, TCI officials questioned his judgment in sizing up people and potential investments. "He paid no attention to financial details and thought the business world operated on who you know and doing favors," said the official. Coelho disputes that TCI officials thought he lacked judgment.

    In 1997 Coelho left TCI, pocketing about $5 million when the firm bought out his contract and sold off parts of the division, friends said. He then turned to brokering his own investment deals, with moderate success.

    "Tony will jump into a deal just because some friend said the guy is okay, and if he likes the pitch and the money," said one friend.

    Some friends cite Coelho's experiences with DeSantis, whom he met when the Albuquerque entrepreneur was doing business with Wertheim. "We developed a good friendship," said Coelho, who in 1996 joined the board of DeSantis's struggling AutoLend.

    But Coelho acknowledges that he didn't know much about DeSantis's background. "I had my attorneys study it, and nothing suggested we shouldn't do it," Coelho said. Asked whether he knew the SEC had filed an official "cease and desist" action against a DeSantis company in 1996 for "knowingly or recklessly" overstating its profit, Coelho replied: "In business, having the SEC look at things is not a negative. They didn't take action against [DeSantis] personally," only against the company.

    In 1997, the two men bought Brennan's 25 percent controlling stake in ITB for $11.6 million. DeSantis became president, Coelho board chairman.

    SEC and New Jersey state officials had forced Brennan out of ITB after a federal judge found in 1996 that he had defrauded investors, and Brennan was ordered to repay $70 million. Coelho said he negotiated the ITB stock deal with Brennan to ensure that he and DeSantis could run ITB without any trace of Brennan. But, Coelho said, ITB board members loyal to Brennan secretly voted changes in the corporate bylaws, allowing the Brennan loyalists to block Coelho and DeSantis from taking control of the firm.

    "We couldn't do things," Coelho said. "It was awful, the hostility and arguments." They fought over hiring a new auditor, delaying the filing of an annual report and prompting the American Stock Exchange to suspend trading in ITB stock.

    The Brennan-era board members sued DeSantis and Coelho, charging that they were using company assets, such as stock options and consulting fees, to enrich themselves. The DeSantis-Coelho forces countersued, and the struggle wore on for a year until the two sides reached a deal last summer.

    "There's no basis to the stuff they're alleging," Coelho said.

    Meanwhile, the Teamsters Union in 1997 labeled Coelho America's "least valuable" corporate director because of the number of boards on which he served, suggesting that he is stretched too thin to protect shareholders' interests -- which Coelho rejects.

    Last year Coelho assumed yet more obligations when he became chairman of ICF Kaiser International Inc., which handles engineering and construction work for the federal government. The firm's former chairman, James Edwards, made a practice of bringing politicos onto the board -- from Republican Fred Malek to former Clinton administration Energy secretary Hazel O'Leary -- and signed up Coelho shortly after he left Congress.

    In recent years, dissident shareholders have attacked the firm for mismanagement, and in 1998 Coelho replaced Edwards as chairman. Edwards, who remains on the firm's board, praises his successor.

    "Tony has tremendous energy and a very effective way of operating," Edwards said. "He's a living oxymoron: an organized Democrat."

    Staff researcher Alice Crites contributed to this report.

    © Copyright 1999 The Washington Post Company

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