Their whole world fell apart when we litigated against them. We sued their kids. We sued their grandkids. We were very, very aggressive. And through it all, I have to say, Tomisue—maybe she just didn't understand what we were doing—but she was so friggin’ nice . . . it was amazing.
—Reed S. Oslan
The partnership of Steve Hilbert and Donald Trump came to an abrupt end in June 2000. Hilbert was forced out of Conseco after the company's stock tanked. It fell from a high of $58 in 1997 to below $5 in 2000. This was largely because of Wall Street's violent reaction to Hilbert's $7.6 billion 1998 acquisition of Green Tree Financial, a mobile home financing company that most analysts viewed as hanging by a thread because of unorthodox accounting methods. It booked its profits at the same time it sold its securities, thus not allowing for incorrect assumptions; for example, there was overly optimistic speculation on how soon some borrowers would pay off their loans.
But it would emerge, according to the Securities and Exchange Commission (SEC), that Conseco also had most unusual accounting practices by which its results were “grossly inflated” and that improper “top side adjustments” were made to the books.
Conseco borrowed more than $1 billion to fund the purchase of failing Green Tree, for which it paid stock; and as Conseco's stock price plummeted, it was reported that Hilbert—and 10 other Conseco executives and board members—had borrowed about $700 million from the company to purchase Conseco stock. More than 100 employees had also been encouraged to participate in this scheme. Hilbert owed $218 million, including interest.
Class action lawsuits were filed. Investigations by the SEC and Federal Bureau of Investigation (FBI) began. Hilbert got the notoriety he'd always wanted.
Trump knew that bad news for Hilbert could be good news for him in that Conseco most likely would need to find cash to placate shareholders and he would have a chance to buy the GM Building outright—and for a cheap price. But he felt genuinely sorry for Hilbert, whose friendship he had come to value.
Why did Hilbert buy Green Tree Financial? Trump couldn't understand it. “They [Conseco] spent billions and billions, and I said, ‘Steve, are you sure you're doing the right thing?’ He said, ‘Donald, it's going to be great.’ He was so convinced. I said, ‘Steve, it's a trailer company; you know, they basically finance trailer homes.’
“I said [to him], ‘Every time I rent trailers for, like, construction sites, by the time the building is built, the trailers are all rotted out.’ I said, ‘Are you sure?’”
Unfortunately, Hilbert was.
Hilbert had felt that Green Tree was the perfect complement to his insurance business because its clients were the same as his clients. They were a “cultural match,” he'd told Fortune magazine in 1999.
The Boston leveraged buyout investor Thomas H. Lee, who had invested $500 million into Conseco—“the worst investment I ever made”—was furious with Hilbert.
Conseco's board of directors insisted Hilbert step down. He was given a severance payment of $75 million. Gary C. Wendt, the former chief executive of General Electric Capital Services, was brought in to try to turn things around.
This isn't quite how Hilbert, who is admittedly a “glass half-full” type of person, remembers things. “I made a horrible decision to leave because I thought that my persona was getting bigger than the company, because I was being thrown under the bus by all the wonderful publications.
“And then Gary Wendt came in. Conseco really didn't unravel until three years after I left.”
■ ■ ■
Steve Hilbert was always a dreamer. The son of a telephone operator and a maintenance worker, he'd grown up in Terre Haute, Indiana, population 60,000. Someone who didn't like Hilbert once described the place as a “little shithole nothing of a town.”
Hilbert dropped out of Indiana State University and answered an ad to sell encyclopedias door-to-door for $600 a month. He made considerably more: $19,000.
By the mid-1970s he was selling insurance for Aetna. He was its best salesman. He saw that there was an opportunity in the market if one could amass insurance businesses and cut overhead. But how to raise the money? No bank would finance him.
His father loaned him $10,000—and he charmed $3 million out of potential customers over an exhausting three years.
In 1979, Conseco was born, and it was publicly listed in 1985. From there it grew at an astonishing rate. Hilbert bought more than 20 insurance companies and ran them from the Indianapolis suburb of Carmel. At his instigation, Conseco acquired numerous other businesses: casinos, golf courses; Hilbert even invested $20 million of Conseco money with the magician David Copperfield in the hope of starting a chain of magic-themed restaurants that never materialized. At one stage, he was listed as the highest-earning CEO in the country, having taken home a total of $277 million between 1992 and 1997.
There were always rumors about “misleading accounting,” but somehow Hilbert survived four attacks from short sellers.
A thin man, Hilbert surrounded himself with superlatives. His 23,000-square-foot mansion, Le Chateau Renaissance, set on 33 acres, was a temple of self-congratulation. Even Donald Trump was awed when he saw it. Indiana is a state where $300,000 is considered a vast annual salary. Locally, Hilbert was viewed as some sort of emperor.
And perhaps he too saw himself that way. In the foyer of his home there were hand-painted murals depicting the courtship of Mark Antony and Cleopatra. In another scene Hilbert was portrayed as an ancient god. Many visitors were taken aback by the overt sexuality of the “mermaid murals” painted on the children's bathroom walls. Lou Harry, the editor of a local magazine, reportedly described them as “reflecting artistic taste not seen since the [Saddam] Hussein palace was overcome by American forces.”
There were a gym, a spa, a hairdressing salon, a discotheque, as well as a separate house for staff, and a replica of the basketball court used by the Indiana Pacers, who came over frequently to practice.
The estate had been commissioned with Hilbert's wife of 16 years, Louann. But in the early 1990s, Louann was replaced in unusual circumstances that have kept the local media busily entertained.
Hilbert, then in his late forties, attended a bachelor party, reportedly for one of his stepsons. At the party a 23-year-old exotic dancer with thick dark hair and what one person called “a phenomenal body” leapt out of a cake and danced. Her name was Tomisue Tomlinson—and Hilbert was smitten.
Two weeks later, Louann Hilbert (now Derrickson) told people that she learned of her husband's new relationship when the local BMW dealer phoned to ask how she liked her new convertible. Louann had no idea what he was talking about. Tomisue had received the new car.
Hilbert married Tomisue in 1994, 10 days after his divorce from Louann was finalized.
Hilbert never knocked his wife's former profession. He told Fortune that he “respected” the fact that Tomisue had made her living as a single mother and had not relied on welfare.
The couple acquired an 18,500-square-foot house in Saint Martin, Le Château des Palmiers, designed by Tomisue, and a place in Colorado. They owned a stable of top racehorses, and all the fillies were named after Tomisue: Tomisue's Delight, Tomisue's Indy, Tomisue's Girl, Tomisue's Gold, and Tomisue's Dancer. The duo was known for entertaining lavishly. Kool and the Gang played at one of their Christmas parties. The local sports teams were frequent guests.
The Hilberts attended their local church regularly, and gave generously to local charities, including the zoo, the theater, the orchestra, a school, and hospitals.
■ ■ ■
As Conseco cratered, the couple's opulent lifestyle came under threat.
There was the ongoing federal investigation into the unusual accounting practices of Hilbert, his CFO, Rollin M. Dick, and Conseco's rotund chief accounting officer, James S. Adams.
The SEC reported that the company had lied about its numbers in ways that inflated its stock. Dick and Adams both had to pay fines of around $100,000 and were barred from holding accounting positions for five years.
Meanwhile, the new Conseco management was trying to claw back anything to stave off bankruptcy. Gary Wendt saved $2 billion—but that left more than $6 billion of debt.
In October 2002 Wendt stepped down (but stayed on as chairman) and was replaced by William “Bill” J. Shea, a Boston banker who was brought in to manage a restructured bankruptcy, giving angry creditors equity participation in exchange for their debt.
Shea needed a special type of executive to trawl through the mess, correct it, and do battle with Conseco's former overlords.
He needed a “firefighter,” a restructuring expert, someone who was tough—and basically uncharmable. He knew the ideal person for the job—he'd worked with him on various deals when he'd run the Bank of Boston.
Charles “Chuck” Cremens was something of a professional nomad, preferring to cherry-pick projects that interested him, rather than hold a lucrative long-term position. He had previously spearheaded the investment group at a Boston REIT, Beacon Properties, and led the real estate group at Aetna.
When he wasn't on the road—which wasn't often—he lived in the low-key coastal town of Chatham, Massachusetts, and when he heard the doings of what he called “East Hampton people,” he would roll his eyes. He was a detail-oriented digger who wouldn't stop until he was done.
Shea summoned Cremens to Indianapolis in December 2001 and asked for a quick piece of advice. Could Cremens please look at the GM Building for four hours as a favor and make some recommendations about the sale? Cremens told him the building would fetch a huge price, much more than Conseco was thinking of asking—over $1 billion in fact. “Will you handle it?” Shea asked the Bostonian. He kept Cremens in the office for the whole afternoon, looking at Conseco's figures.
Somehow—he never quite knew how it happened—the day stretched into years and years. Chuck Cremens found himself at the heart of Conseco, embroiled in three different complex tasks. He had to handle the restructuring of Conseco's financial company, Conseco Finance, and the sale of the GM Building. Subsequently, at the request of Conseco creditors, including the renowned hedge fund manager David Tepper, he went after the directors and officers who had borrowed $700 million of Conseco stock, and tried to retrieve what monies he could.
All these challenges required formidable legal advice. Cremens hired the Chicago firm of Kirkland & Ellis for the restructuring. There, he encountered one Reed S. Oslan, a litigating partner who specialized in disputes. He would hire Oslan to help him with the GM Building sale and the hunt for all that borrowed money. The two men became “best friends.”
“Chuck is a brilliant, brilliant, brilliant man. He's probably the smartest guy I've ever encountered in my life,” says Oslan. “He knows what he knows, and he knows what he doesn't know, and he's got zero ego and he will ask questions until he's blue in the face, and then he will figure shit out. He's so aggressive. Once he commits to a course, he just lives it.”
It would take Oslan and Cremens nearly eight years to sort through Conseco's tangled web. The ordeal would turn them into a modern, drier version of Sherlock Holmes (Cremens) and Dr. Watson (Oslan), and Oslan would find it hard to face normality when it finally ended. “It was like a circus,” he later reflected. “I'd never had a case like this before.”
■ ■ ■
In 2003 Steve Hilbert sued Conseco, arguing that, since he was no longer employed by the company, his contract was invalid and he no longer owed Conseco $218 million in stock loans. Cremens and Oslan sued back immediately, seeking, among other things, foreclosure on his Carmel mansion.
But Cremens and Olsan avoided focusing initially on Hilbert. Oslan would later say that the duo targeted Conseco's executives and board members tactically. They first pursued the “low-hanging fruit.”
With the help of Kroll, the international security firm, they determined where the 11 directors had hidden their loot. Three paid it back right away.
But for the others, retrieving the money was a more difficult task.
Rollin Dick—who had borrowed more than $108 million from Conseco—had transferred some of his assets to the Cook Islands off the coast of Australia, where it was notoriously difficult to trace hidden money. “They have the most extreme asset protection laws in the world,” Oslan says. “We found out about it, we went into court, we got it unraveled, but [Dick] was doing extreme things to try to hide his assets from us.” Ultimately Dick settled. Oslan was amazed that his late first wife, “a really nice woman” who had been oblivious to his wealth, had apparently never even received so much as a watch from her husband.
The Dicks weren't the only couple with secrets. Conseco's COO, Donald F. Gonguaware, owed $39.5 million—much to the astonishment of his wife, Patricia. The discovery caused the couple to retain separate counsel to negotiate with Oslan and Cremens—and to separate as well.
And then there was the bizarre case of Conseco's vice president, Ngaire Cuneo, and her then husband Richard, who were nearly impossible to track down. Every time Cremens and Oslan turned up at the Cuneos’ marital home in New Canaan, Connecticut, no one was home. But one evening they got lucky: they found the couple moving out in the middle of the night. The two had purchased a $10.2 million home in Miami, right next to the houses of tennis star Anna Kournikova and rocker Lenny Kravitz. Oslan knew that Florida is a so-called homestead state—meaning that homes purchased there can be protected by law from creditors.
Immediately Oslan obtained a temporary restraining order and deposed the Cuneos.
It was intriguing, he told the U.S. District Court in the Southern District of Indiana (Indianapolis), that the Cuneos were moving to Miami ostensibly to be closer to Ngaire's mother—not least, as Oslan pointed out, because her mother lived in Port Charles, which is two hours’ drive from Miami.
The Cuneos were forced to relinquish the Miami property.
■ ■ ■
By 2005 most of the executives, including the Cuneos, had settled. Oslan and Cremens had retrieved substantial sums for Conseco's creditors. The duo, however, knew they would never recover everything that was owed to the company. “We couldn't take a hundred percent of what they had because [then] nobody would settle. . . . It's a horse trade,” explains Oslan.
There was still a large amount missing: the 200 million dollars plus owed by Stephen Hilbert, who battled them in court every step of the way. “I give them credit,” Oslan says. “They fought like hell.” Perhaps he used the plural for a reason. Tomisue Hilbert was an effective part of Stephen Hilbert's artillery.
The young Mrs. Hilbert turned up in court dressed immaculately, charming everyone and often accompanied by girlfriends who would accost Oslan and ask him why he was being so mean to their friend. Oslan would reply with a question of his own: why hadn't the Hilberts repaid the money they owed?
Cremens had never met anyone like Tomisue. “I think [Tomisue] thought it was a cocktail party,” he would later say. Neither he nor Oslan could get over how indefatigably charming she was to them. “Did she understand what we were doing?” they wondered.
■ ■ ■
One of Hilbert's tactics was to turn all of his discoverable assets—reported to be worth more than $100 million—over to Tomisue and to declare personal bankruptcy. He only had spending money, he told the Hamilton Circuit Court, because of the generosity of his wife. Oslan cried foul, claiming “fraudulent conveyance.” Tomisue Hilbert rebutted, “It's an appalling thing for them to come after my assets when I was on none of those loans.”
In 2006 Tomisue was declared “joint owner” of a $400 million private equity fund, MH Equity, which was backed by a friend of Stephen Hilbert, Wisconsin billionaire John Menard Jr. Again, Oslan cried foul. He told the court: “They're going to try to make it look like [Tomisue] is a brilliant business person, but it's clear that [Stephen Hilbert] is contributing the lion's share of the work [to MH Equity] and essentially doing it unpaid.” Not true, said Tomisue's lawyer, Linda Pence. “She's a very smart and very active woman at MH Equity.”
Meanwhile, the Hilberts remained at Le Chateau Renaissance in Carmel and kept up their free-spending ways. Cremens and Oslan were particularly struck when they visited the house and saw the lap pool in the master bedroom. “The lap pool [was empty] and was full of clothes,” recalls Oslan. “It must have been 80 feet long.”
■ ■ ■
Finally, on December 7, 2006, both sides settled. The Hamilton County courthouse was packed. The Hilberts agreed that the house and its contents belonged to Conseco, which would eventually auction it for $3 million in 2010. But they held on to their 18,000-square-foot house, Le Château des Palmiers, in Saint Martin—at least for a few years. After the agreement was reached, Tomisue high-fived her friends.
Both sides declared victory. The settlement meant that a scheduled public hearing that would have aired the details of the Hilberts’ finances would not take place.
The couple moved into a house worth $3 million, which, as Oslan noted, is “pretty nice by Indiana standards.”
The Hilberts mailed out Christmas cards with a photograph of their cat, Mr. Whiskers, dressed in a tie and holding a bottle of Wild Turkey. The inscription read: “The Hilbert family will go on. We'll live and love and stand together beyond today, across the years. This family is forever.”
Reed Oslan would later bump into the Hilberts on holiday in Saint Martin. He found them “incredibly charming,” especially the indomitable Tomisue. “She comes up, she gives a hug, [my wife and I] have a drink with them. It was fascinating.”
“Tomisue never sank to their level,” Steve Hilbert later said. “Everyone who meets Tomisue loves her.”
■ ■ ■
In 2008, the Hilberts were back in the news, this time on the front page of the Wall Street Journal. Tomisue's French-born mother, Suzy Germaine Tomlinson, had been found dead in her bathtub, fully clothed, after a night out in Indianapolis. Was foul play involved?
Suzy Tomlinson was 74 years old, and, it would emerge, had a life insurance policy with American International Group (AIG) for $15 million, payable to a company owned by a much younger gay friend of hers, JB Carlson. Yet at the time of her death, Tomlinson had an annual income of only $17,000.
AIG sued for fraud. The Hilberts also sued AIG, claiming they'd been duped: they should have been the beneficiaries of the $15 million insurance policy, not JB Carlson or his company. The case was settled under seal.
An investigation ultimately found that Tomlinson died of “accidental drowning” complicated by “ethanol intoxication.”
■ ■ ■
Just as things seemed to quiet down for the Hilberts, John Menard, the billionaire with whom Tomisue “owned” the private equity fund MH Equity, filed an injunction to remove Steve Hilbert as CEO. Menard claimed that Hilbert's investments had lost 70 percent of their value. Three months later Tomisue countersued, arguing that Menard had filed against her husband only because she'd rebuffed sexual advances from both Menard and his wife Fay. Also embroiled in the debacle was Melania Trump, Donald Trump's wife, who had a marketing contract with New Sunshine LLC, a tanning and skin care company owned by MH Equity. Menard had canceled the contract. Melania Trump sued him for $50 million in damages.
Chuck Cremens and Reed Oslan read the news with bemusement. They had never understood why John Menard, whom Cremens knew as a conservative sort, would have started a private equity fund with the Hilberts.“Why the hell would a billionaire from Wisconsin give Steve Hilbert, who was being sued for fraud by us [and] was under federal investigation, $400 million to invest?” asked Oslan. “Makes zero sense. Nobody would do that.”
■ ■ ■
One friend stayed loyal to Steve Hilbert over the years: Donald Trump. The Hilberts attended Trump's 2005 Palm Beach nuptials with Melania Knauss, and the local papers reported that Tomisue wore “a one-of-a-kind French silk and chiffon dress from Baracci, a Beverly Hills boutique. The pink gown featured hand-sewn Swarovski crystals on the corseted bodice. There also were crystals (Swarovski, naturally) on Tomisue's pink Escada shoes and pink purse, as well. The handbag was from her own fashion line.”
Reports show that in October 2013 Trump bought the Hilberts’ Saint Martin property, Le Château des Palmiers. The purchase was at the request of Hilbert, cash-stricken during his dispute with Menard. The asking price had been $19.7 million.
Perhaps Trump was showing his gratitude. Hilbert believed that Trump always should have owned the GM Building—that Conseco had wrongfully deprived him of it, and that Trump should have sued to get it back. Reed Oslan remembered the testimony Hilbert gave in the dispute with Trump as being “most unhelpful” to Conseco.
Oslan couldn't help but wonder how it had come to this. Why had Trump let the GM Building slip through his fingers? All he had to do was put down a small amount of collateral, “around $50 million,” plus a letter of credit from his bankers guaranteeing he'd repay a loan of $250 million at a time when Conseco was desperate to get rid of the building. Gary Wendt allegedly said he would have sold it for anything. Yet Trump didn't pony up.
“He should've owned it. I mean, he should've bought it. He just blew the bidding process, and then he litigated with us for four years,” Oslan recalled. “It was a waste of time.”