By the mid-1980s, newspaper business pages regularly mentioned Wall Street rumors involving a new breed of financier—some with cartoon villain names like Carl Icahn or T. Boone Pickens—who came to be known as corporate raiders. Rumors that they were buying shares in a company could cause a sharp rise in its stock price and lead the company’s executives to take costly measures to block the takeover threat. Another man, Michael Milken, became synonymous with new financial devices, junk bonds and dark pools of money, that could raise enough capital to make it conceivable for the raiders to buy a majority of the shares of a large public corporation. Sometimes they targeted companies with assets more valuable than the total value of the outstanding stock shares, and a raider would pulverize his quarry into cash, selling off the assets and laying off workers across the country. Sometimes the raiders sold as the stocks rose. Other times, they weren’t there at all, just boogeymen under the bed. Whatever the case, the fear and excitement created by the mere possibility of a well-financed hostile takeover still drove up a stock’s price.
The filmmaker Oliver Stone developed a movie, Wall Street, that became a cultural touchstone of the era. His lead actor, Michael Douglas, playing a raider named Gordon Gekko, with hair greased back and suspenders pulled tight, uttered the phrase that defined the stock market’s place in the life of the country at that point: “Greed, for lack of a better word, is good.”
As much as Icahn, Pickens, and Gekko, Dan Dorfman was built for the moment. Dorfman had worked his way up from copyboy at fashion publications to writing the Heard on the Street column for The Wall Street Journal in the late 1960s and early 1970s. He lost that job after being caught buying a new investment product through a source.
In 1976, as Dorfman worked to rebuild his reputation, he connected with a young developer working on his first project. Donald Trump was upset because he had heard that a prominent businessman, Preston Robert Tisch, had privately questioned the merits of the proposed tax abatement for the Grand Hyatt. In an article for New York magazine, Dorfman elevated the twenty-nine-year-old Trump’s gossipy complaint into “a serious rift…that could have negative implications for the economic health of the city.”
“It’s a damned outrage,” he quoted Trump saying.
A decade later, with the corporate raiders in full bloom, Dorfman had become the reporter who, above all others, possessed the power to move stock prices. He wrote a regular column on the stock market for USA Today that was syndicated to newspapers across the country. He prided himself on breaking stories with every column, beating his competition to the punch. If Dorfman had one rule for himself, it was “Do not come in second.” Born with a personage well suited for newspaper work—with squirrel-tail eyebrows, the body of a lawn gnome, and a nasally voice spitting rapid-fire Brooklynese—Dorfman became an unlikely television expert, regularly dishing broad market advice and highlighting individual stocks on national networks. His pronouncements in print and on television so predictably drove stock prices that the Chicago Stock Exchange created a “Dorfman rule” that briefly suspended small-order computerized trading of any stock he mentioned.
Trump’s anger with his former partners at Harrah’s, meanwhile, had not been quite mollified, even after he bought them out. And so, a decade after Dorfman first wrote about Donald Trump, their paths crossed again.
In early September 1986, Dorfman pushed his column out a day earlier than normal due to the urgency of its news: Donald Trump had acquired 2.5 percent of the outstanding stock in Harrah’s parent company, Holiday Corporation, “and may seek control of the company.” Dorfman wrote that Trump controlled real estate worth $3 billion, a fantastical exaggeration that made Trump’s takeover of Holiday seem plausible. He wrote that Trump was unavailable, but an unnamed source communicated a thinly veiled threat. “The Holiday stake is an investment for Donald that’s unlikely to remain just an investment for long.”
“The source said Trump, an avowed empire builder who is estimated to have a personal net worth of more than $1 billion, believes that Holiday’s management is ‘sleepy’ and that he could turn Holiday Corp. into a far more productive and profitable operation.”
This was a new world for Trump. As recently as one year before he had told New Jersey casino regulators that he held no stocks in public companies. Though it was not known at the time, Trump had his own generous supplier of cash. To buy his stocks, he dealt directly with Alan “Ace” Greenberg, the chief executive of Wall Street investment bank Bear Stearns. Greenberg, serving as Trump’s personal stockbroker, opened two margin accounts for Trump, allowing stock to be purchased while only requiring him to put up half the money. For the other half, Trump still did not reach into his own bank account. He borrowed that money also, using his credit lines at three banks.
Within a month, Trump had bought $69 million of Holiday stock without putting in any of his own money. That amounted to about 4.4 percent of all outstanding shares. Taking a majority of shares in Holiday would have required far more—something on the order of $750 million—but the coverage of Donald Trump as being worth billions of dollars created the impression that he could afford such a play, that he might just be in league with the Icahns and Pickens of the era.
Mike Rose, the chairman and chief executive of Holiday, thought he had been done with Donald Trump when he let Trump takeover the Plaza casino. Now here he was again, causing trouble for Holiday.
One day that week, Trump called Rose at Holiday headquarters in Memphis. He told Rose he had bought the stock only as an investment. Rose was inclined to believe him. He did not think Trump had the ability to run a large public company, and probably not the interest. But Rose knew that the increased value of the company’s real estate assets made it attractive for someone, even if that someone was not named Trump, to wage a hostile takeover. He met with investment bankers at Goldman Sachs and Michael Milken’s firm, Drexel Burnham. He quickly came to believe that he had no choice other than to weigh down his profitable company with $2.4 billion in junk bonds, enough debt to make a takeover unlikely and appease shareholders with a $65-per-share dividend. The challenge had been averted, but the balance sheet was now broken. Spending money to upgrade Harrah’s Marina casino to better compete with Trump’s casino across the street would be out of the question for the near future. Not quite four weeks after the original Dorfman column, The Wall Street Journal reported that Trump appeared to be still interested in a takeover, and the market continued to respond. Holiday’s shares had risen from $63.25 the day Dorfman’s column first appeared to $71.50. An earlier Journal article had quoted a Drexel Burnham analyst throwing water on the idea of a Trump takeover. This one quoted an anonymous trader saying he was still buying on the news of Trump’s possible takeover. “At the very best, he’ll make a bid for perhaps in the $75-to-$80 range. At the very least, he’ll force the company to reorganize.”
Trump sold his stocks that November, about ninety days after he started buying with borrowed money. Casino regulators with access to his financial records would later report that after covering $6 million in commission and interest to Bear Stearns, he had pocketed $12.6 million.
As Trump sold his shares in Holiday, analysts noted that trading accelerated in shares of another company that owned casinos in Atlantic City and Nevada, Bally Manufacturing. Because controlling companies that own casinos required a license from that state, the universe of potential buyers was small. Trump already had a license in New Jersey and had applied for one in Nevada while buying Holiday’s stock. Suspicion spread on Wall Street that Trump was making a run on that company, possibly with the aim of taking it over. Bally executives had no clue who had bought up two million shares in one day.
Trump did not make any public comments on the rumors for one week, while he continued to buy shares. When he finally did speak, he said only that he saw the company as a “good place to park my money.” As it turned out, it was mostly not Trump’s money that got parked. Using the profits from his Holiday play and tens of millions more advanced to him by Bear Stearns and banks, Ace Greenberg executed more than $61 million in Bally trades stock for Trump. Within a week after the rumors broke, the stock’s price had risen from $17 a share to $21.65. By then, Trump controlled just under 10 percent of the outstanding Bally stock.
Paul Bible had seen enough. A lawyer finishing up his term as chairman of the Nevada Gaming Commission, Bible worried that Trump was playing games with Bally as he had seemed to have done with Holiday, and doing so in ways that could cripple the companies for years to come. He took what was for him, a lawyer who could never tear himself away from the laid-back life in Reno and Lake Tahoe, an unusually bold step. He called a reporter for the Reno Gazette Journal, the paper he had delivered as a boy, and raised the possibility that Donald Trump, a bigshot from New York City, was a greenmailer. “Greenmailer” is a term for a suit-and-tie version of a blackmailer, someone who buys a large chunk of a company’s stock and holds it hostage, implicitly or explicitly threatening a hostile takeover, until the company’s executives pay a ransom to ward off the attack, buying back the stock at inflated prices. Bible told the reporter that Trump had hobbled Holiday with a bluff and now looked to be heading in the same direction with Bally.
“It appears what Donald Trump is doing is using his resources and his New Jersey gaming license to extort greenmail from these two companies,” Bible told the reporter. “And I’m concerned that if he does get bought out of Bally, he will look to another company to do the same.” He went on to say that the companies would be forced to spend money “to pay off the greenmailer” instead of strengthening their companies. “If he is making his investment as a legitimate investor, or is legitimately interested in Bally, then that’s fine. But if the only purpose in the investment is to become a greenmailer, then he’s got a serious problem in getting a license.”
Trump took Bible’s accusations seriously enough to plan a quick trip to Nevada. A little more than a week later, he visited Bally’s casinos in Las Vegas and Reno, met with the governor, and spoke with reporters from the Reno Gazette Journal. He played good-Trump, bad-Trump on the tour. He charmed Governor Richard Bryan, who said he found Trump to be “a very personable gentleman—very bright and very articulate.” And he laid Bally’s managers and Paul Bible out in filth. He said that Bally’s top executives were paid too much and were fighting him to protect their undeserved large salaries, and that their casinos looked shabby. All of which sounded like someone threatening to take over the company and fire its leadership. And he went after Bible’s ethics. He pointed out that Bible’s father, retired U.S. senator Alan Bible, had once sat on the Holiday board of directors and that Paul Bible’s former law firm once represented Bally. Trump did not mention that Paul Bible had left the law firm three years earlier and his father had left his position on the Bally board two years prior to that. He invoked his favorite anonymous “some people” to elevate his complaint beyond himself. “I was very surprised—some people were shocked—that a person in the regulatory business and without any knowledge as to the facts can make a statement as to greenmailing.
“Greenmailing—the term sounds so bad,” he said. “I didn’t greenmail anybody. I bought the stock in Holiday Inn, and I sold it to the public.”
Bally responded as if Trump were a greenmailer, and he went along. In late February, the company agreed to buy most of Trump’s shares for $24 each, and the rest at $33 a share, and pay him an additional $6.2 million not to buy any of its voting stock or try to influence its management for the next decade. In another ninety days using borrowed money and his high public profile, Trump stood to gain at least $21 million, after paying Bear Stearns’ expenses.
He would later say in sworn testimony that neither he nor anyone working for him did any “great studies” of the Bally company. “I just felt instinctively—when I do research on things, they never work out very well. I just felt instinctively that it was a low price.”
The federal government eventually sued Trump, charging that he had failed to comply with federal regulations requiring him to notify the federal Department of Justice and Federal Trade Commission of his plans to make such large stock buys and then let a sixty-day waiting period expire before buying the stock. The regulation allowed only a maximum fine of $10,000 for each day out of compliance, and prosecutors alleged that Trump was in violation of the act on 149 days in late 1986 and early 1987. Trump split the difference in a settlement, agreeing to pay a fine of $750,000. He said he had acted under the guidance of the “most respected lawyers in the business” and Bear Stearns. “I assume Bear Stearns will reimburse me for this expense.” He also eventually agreed to pay $2.25 million to Bally shareholders to settle their lawsuit. But given the numbers involved, the fine and the settlement could be seen only as a slap on the wrist.
Two weeks after Trump closed out the Bally payoff, The Wall Street Journal cited unnamed sources saying that he had been buying shares in United Airlines, once again through Bear Stearns. One source was familiar enough with his thinking to tell the reporter that it was “pure investment.” The rumor sent the stock price soaring.
Some analysts already suspected Trump was not serious about taking over a large company. “In real estate he’s very successful,” one told The New York Times. “On Wall Street he’s now considered not a buyer of companies, but a guy who’s looking to make a buck for himself.” But United’s stock kept rising.
Trump personally called Richard Ferris, the chief executive of United Airlines, at his office in Chicago. He just wanted to let Ferris know that he thought the company’s stock was a good investment, though he did not tell Ferris whether he had bought any stock in the company. And Trump gave Ferris no hint whether he would wage a takeover attempt. But he almost immediately began making public statements that sounded, in his unique way, like someone interested in taking over the company. He said the company’s new name—Allegis—would be “better suited to the next world-class disease.” To fend off an earlier takeover attempt, the company had acquired part of Pan American World Airways, Hertz, and Hilton International, and now Trump said, “I totally disagree with the integration of the company.”
“I totally disagree with the way the company is being run,” he added.
The suspicion that Trump might wage a hostile takeover led United’s airline pilots’ union to make a $4.5 billion offer to take the company private. United rejected the offer because it would saddle the company with too much debt. The perception of Trump as endlessly wealthy and able to obtain limitless loans fueled speculation that he might be able to pull together a better deal and know how to run a corporation with operating revenues approaching $10 billion a year and seventy-six thousand employees in businesses with which he had no experience.
It would be hard to reconcile that scenario with the realities on the twenty-sixth floor of Trump Tower, where about ten executives, most with few, if any, employees reporting to them, met with Trump for every significant decision. He still personally signed every check, sometimes hundreds a week. His burgeoning interest in buying stocks with borrowed money was being handled by a new hire, Susan Heilbron, a Yale Law School graduate whom Trump had bumped into during her years working for the Koch administration and the New York State urban development agency. Slender and elegant in fashionably tailored suits, Heilbron frequently glided in and out of Trump’s office at will, as he met with consultants and employees trying to sort out his plans for the West Side rail yards and other projects, to pass him a yellow sticky note on which she had written the recent price fluctuations of a few stocks.
Wall Street investors who believed Trump might take over a large transportation conglomerate did not see the small staff or the yellow sticky notes. They saw the Donald Trump in the media, the one Forbes said that year was worth at least $850 million and had just manipulated the stock of two other large companies on rumors he might take them over. As Bear Stearns bought $67.5 million in stock for Trump, again without requiring him to put up much, if any, of his own money, the stock rose in response to his involvement. After two months of driving up the stock price by sounding like he might buy a majority of the shares, he quietly sold. He announced he was out the next day.
The Wall Street Journal reported that available details suggested his gain was “more than $55 million.” The New York Times, citing “a source close to the New York developer,” said he profited by “about $80 million.” As Trump walked toward Tavern on the Green in Central Park for a dinner one night that May, a reporter asked him whether that $80 million figure was correct. “I don’t comment on what I make,” he answered, and then coyly wiggled his hand to indicate the figure was about right. He added that he “was very well compensated” for a few weeks’ work.
The actual figure was just under $11 million, and that was the total before he covered the interest on the money he borrowed from Bear Stearns to buy the stocks. Figures about his gains on every deal were inflated, and to great effect. All served as signposts of his wealth, the key factor creating the impression that he was a takeover threat to any company.
Forbes reported that Trump’s profits totaled $125 million from his runs on Holiday, Bally, and United, and later included that figure to compute Trump’s net worth as more than $1 billion. Casino regulators, with access to his financial records, eventually reported that Trump’s gain on those three stocks was actually $33 million before covering expenses on the loans from Bear Stearns. The information we would later obtain from his tax returns showed that he declared $25.4 million that year in short-term capital gains, generally the tax category for such profits.
That July, Dan Dorfman of USA Today reported that Trump was rumored to be acquiring stock in Golden Nugget, another company that owned casinos, and was considering a takeover. Dorfman told readers that Trump had a “net worth of more than $1 billion.” Dorfman wrote that Trump, reached by telephone in Monte Carlo, had declined to elaborate. But “a source close to Trump” told Dorfman: “It’s an investment for now, but let’s see what happens,” the second part being a phrase that Trump has probably uttered more times that his own mother’s name. Dorfman warned, however, that “risk looms for stock players who ride Trump’s coattails. Reason: He might unload his block if the stock runs up,” as he had done before. He mentioned that Nevada casino regulators were upset with Trump’s earlier greenmailing and might reject the license he would need there to complete a takeover. Dorfman, the reporter who first took Trump’s takeover moves seriously, was onto him.
Even with those caveats in the public record, the stock still rose on the rumor. This time, Trump sold five days after Dorfman’s column ran, for a gain of $103,788.
Aside from the cigarette habit that killed him, James Crosby might have resembled the sort of executive Donald Trump was trying to become. Crosby, a dedicated playboy, took over leadership of a paint manufacturer that his father and other investors had bought in 1958 and shifted it into real estate, hotels, and casinos, with an occasional attempt to take over an airline. Renamed Resorts International, Crosby’s company had owned Paradise Island Casino in the Bahamas for almost thirty years and had opened the first casino on the Atlantic City boardwalk in the 1970s. When Crosby died at age fifty-eight in 1986, Resorts was working on what the Crosby family saw as a temple to his legacy, the largest casino in Atlantic City, to be called the Taj Mahal.
Though Resorts was a public corporation, the Crosby family controlled nearly all the voting shares, and they wanted to see the Taj Mahal finished. I. G. “Jack” Davis, who had served as company president under Crosby, set out to find someone with the wherewithal and the construction expertise to finish the job. He soon contacted Donald Trump, who, by reputation at least, met both standards. Before the first anniversary of Crosby’s death, Trump and the Crosby family had agreed he would pay $135 a share for the Crosbys’ voting stock and offer the same price to holders of all other outstanding shares of the super-voting stock. The total would come to $101.6 million for Trump to control the company, though not own it outright.
Trump again borrowed the funds, and this time he offered his interest in the Grand Hyatt as collateral, in violation of the partnership agreement with the Hyatt company. This put Hyatt’s investment at risk as well, but the company would not be aware of what he had done for several years to come.
The purchase, friendly as it was with Davis and the Crosby family, fell in the category of a further debt-fueled acquisition by Trump. But news reports framed it as the latest evidence that Trump had become a corporate raider. Ace Greenberg, who was collecting multimillion-dollar fees for Bear Stearns with most Trump stock purchases, fueled the image of his client as armed and on the hunt. “He has an appetite like a Rocky Mountain vulture,” Greenberg told The Wall Street Journal. “He’d like to own the world” and has access to “hundreds of millions, including what Bear Stearns can get him.” While the page-one article was framed around “Mr. Trump’s rise as a raider,” it mentioned his penchant for causing a stock price to rise by threatening a takeover and then selling to pocket the easy money.
The Crosbys eased Trump’s path because of his expertise in construction. Trump vowed he would finish the casino within one year: “The most immediate problem is to bring in the Taj Mahal as quickly and efficiently as possible.”
By the time Trump took over in July 1987, Resorts’ budget for the Taj Mahal had swelled to more than $500 million. Yet Trump soon said he had been shocked to learn after the deal that he would need to raise $550 million to complete the project. “I only just came into the Taj Mahal,” he said that fall. He expected to raise the money through junk bonds, a process that would delay construction and greatly increase costs.
How could it be that before taking on $100 million in debt of his own and responsibility to shareholders, and believing completion of the Taj Mahal was central to the company’s survival, he did not closely scrutinize how much construction would cost? He had access to financial and construction records. But he was shocked by the figures he saw after he closed the deal.
By then, Trump’s lack of due diligence in major transactions, his belief that his instinct triumphed over in-depth analysis by anyone else, had become a defining characteristic. It was what stood out to Holiday executives when they partnered with him on the Plaza casino. It was what determined the fate of the USFL. It was why his plan to nearly triple the size of the previously approved project at the West Side rail yards had stalled and become increasingly costly.
When Trump took over at Resorts, he kept Davis on as president, and the two became friendly. Trump insisted on a services agreement that would pay him about $108 million over the first five years for managing construction of the Taj Mahal and other oversight tasks at Resorts. Shareholders resisted adding an expensive layer of management to a still failing company, and casino regulators worried that siphoning off so much money would put completion of the casino even more in doubt.
During a hearing near the state capital of Trenton, Greenberg showed up to convince the regulators that Trump would be essential to borrowing money for the project. “Without a Mr. Trump, there will be no Taj Mahal, no financing, and perhaps no Resorts International,” Greenberg told the panel. Greenberg believed lenders would not blink at Trump’s $108 million contract. “That’s the price that this entertainer-impresario wants for his services. I think he’s worth it.”
Trump’s takeover bluffs that year benefited from one of the greatest stock bubbles in history. By late August, the Dow Jones Industrial Average had risen 44 percent in seven months.
Some analysts noted signs of doom, and Trump joined that chorus. On August 24, Dan Dorfman reported in his USA Today column that Trump had pulled most of his money out of the stock market because he thought a major correction was coming. “It’s not a question of will it happen, but only when it’ll happen,” Trump told Dorfman. “If you look at our economy, the crazy dollar and world events, such as the Mideast problems, there’s no justification for the market being this high.”
Trump and the other naysayers were right. On October 19, 1987, the market plunged 22 percent in a few hours, the largest single-day percentage drop since the Great Depression.
At The Wall Street Journal’s newsroom in lower Manhattan, the events led to an all-hands-on-deck call for news related to the crash. Reporters phoned every possible source of information. Randall Smith, who cowrote the Heard on the Street column for the Journal, felt the pressure. The Dorfman column quoting Trump had stuck in his head, so he left a message for Trump. But he did not expect the call to be returned. They had a history. Trump had stopped speaking to him four years earlier, when Smith wrote an article describing Trump as “no stranger to hyperbole” in selling his apartments.
Then Smith’s phone rang. It was Trump, eager to talk. “I sold all my stock over the last month,” he said. On a tight deadline, Smith printed Trump’s claims. He cited “one market source” who said Trump made $175 million during the market rise. The story got picked up by news organizations across the country. Smith remembers how Norman Pearlstine, the Journal’s editor, singled out his story as a bright spot in the day’s coverage.
Not long after the story ran, it dawned on Smith that Trump had not sold the stock in Resorts International that he had bought for more than $100 million. He was also certain that Trump still owned millions of dollars of stock in Alexander’s, a department store chain with real estate that interested Trump. Both were true. Trump had indeed still been in the market and saw his shares tumble by millions on Black Monday. Decades later, Smith still regretted giving voice to Trump’s phony claims, but he sees it as an unfortunate outcome of the “crank out the stories” ethos of the day.
Trump had also told Smith that the worst was yet to come: “I think the market is going to go down further,” he said, because “there are just too many things wrong with the country.” That time he was wrong. Within two days, the market had gained back more than half of its losses. And Donald did not heed his own advice. He bought a big block of stock in the Hilton Hotel company, again with borrowed money. He sold it four weeks later for a gain of $632,130 before interest.
The agreement to take over Resorts and Ace Greenberg’s comments calling him a hungry vulture had momentarily restored his legitimacy as a corporate raider. In the next year, he would temporarily buy, pump, and sell stocks in Federated Department Stores, MCA, and Gillette. His gains on those three stocks would approach $18 million before expenses, even as analysts once again started noting that he had never completed a hostile takeover. Trump’s ability to execute a consequential bluff was perhaps unsurpassed. But his ability to bring a consequential project to a profitable conclusion seemed to be failing him.