Gore official on defensive for Circus actions

Sara Fritz

Friday, Nov. 26, 1999 | 10:48 a.m.

WASHINGTON -- In 1997 New Mexico businessman Nunzio DeSantis was searching for a business partner to join him in purchasing control of two New Jersey horse tracks.

It didn't look like the kind of deal anyone concerned about their public image would embrace. The track owner was Robert Brennan, a notorious stock manipulator, and the board was filled with his friends. Both tracks were failing. And DeSantis was under scrutiny by the Securities and Exchange Commission.

Tony Coelho didn't blink. A well-connected Democratic political figure and confidante of President Clinton who today is responsible for running the presidential campaign of Al Gore, Coelho signed on.

Two years later, Coelho and his partners were forced out of the company, known as International Thoroughbred Breeders, after being sued, accused of trying to "divert the stock and assets ... to benefit their own financial interests."

Today, the complex details of the ITB debacle are buried in courthouse file drawers in Wilmington, Del. But the controversy is by no means forgotten.

Recently, Coelho was questioned by SEC officials investigating charges of self-dealing against DeSantis and his ITB partners. The inquiry came to light in documents filed at the SEC by the company, which promised to "cooperate fully" with the inquiry.

Why would a high-profile guy such as Coelho choose to join in a deal involving men of less-than-impeccable reputation?

It was a lucrative deal -- a $10,000-a-month consulting contract, a $2,500 fee for each board meeting, a generous car allowance and free travel aboard the firm's rented jet. Still, Coelho, already a multimillionaire who held top positions in more reputable companies at the time, was not desperate for money.

To government watchdogs such as Chuck Lewis, executive director of the Center for Public Integrity, the story of the Coelho-DeSantis partnership represents another turn in a highly controversial political career that has marked Coelho as a man who lacks the ability to make sound ethical judgments.

"There is a dark shadow over everything that Tony Coelho does," Lewis says. "There is a pattern of unbridled arrogance to the point of being self-destructive -- a sense of 'get out of my way, I'm Tony Coelho."'

A decade ago, Coelho, then the third-ranking Democratic leader in the House, was forced to resign from Congress after it was revealed that a California savings and loan executive had given him an opportunity to invest in a lucrative $100,000 junk bond deal with borrowed money he failed to disclose.

After that, Coelho used his political connections to amass great wealth in private business deals. And he continued to advise the Democratic Party, accepting numerous presidential appointments to government boards and commissions. But even his service in these minor government posts has caused controversy.

Coelho's deal with DeSantis is being investigated by the SEC. And the State Department's inspector general is continuing to investigate alleged free-spending and other improprieties by the former congressman when he served as commissioner general of last year's World Exposition in Lisbon, Portugal.

This time, Coelho's activities are creating bad publicity for Gore. And critics are questioning why the vice president selected such a controversial figure to run his campaign.

"It calls into question the vice president's judgment," Lewis says. "Why the vice president would choose him to run the campaign is baffling to me. To me, he is the very last person I would pick. Coelho's never been successful in running anything, and he has been so besmirched by scandal that he couldn't be appointed to any position that would require Senate confirmation."

Gore would not comment for this story. Nor would the vice president's campaign staff respond, when asked, whether Gore took Coelho's controversial past into account before hiring him.

Coelho's lawyer, Stanley Brand, dismissed such criticism as the unfair burden of "a guy who's been picked over for years." He said Lewis and others "are holding Tony to a standard that's unrealistic because he moves between the worlds of business and politics" where the ethical standards are different.

Coelho takes political networking very seriously.

In conversation, Coelho stands nose-to-nose with you. His hands gradually migrate from your arm to your shoulder and then around your neck. Often, he will disarm virtual strangers with an all-too-personal account of his life story.

He shares how, as a young adult, he gave up sex with his girlfriend in order to join the priesthood. How he took refuge in alcohol after being diagnosed with epilepsy. How comedian Bob Hope saved him from depression and started him on the road to an illustrious career as a congressman, big-bucks political fundraiser and business tycoon.

"He is someone who starts off a relationship looking for the good in people and trusting people; this is a guy who started his life wanting to be a priest," observes Coelho friend and former employee David Dryer. "He's an accomplishment-oriented person with a generous spirit and an open heart."

Coelho, 56, is the grandson of Portuguese immigrants and grew up on a farm in the Central Valley of California. With Hope's encouragement, Coelho started his political career as an aide to the Valley's Democratic congressman, Rep. B.F. Sisk. When Sisk retired, Coelho was elected to his seat in 1978 and rose through the ranks to become majority whip in 1987.

Even before he left Congress, Coelho had experience straddling the divide between politics and business. As chairman of the Democratic Congressional Campaign Committee he raised millions of dollars from business leaders, many of whom, until that point, contributed only to Republicans.

His fundraising put him in fast company. He partied often with savings and loan executives whose friendships drew him into the scandal that erupted when their institutions collapsed in the late 1980s. He also counted among his friends notorious junk bond king Michael Milken, whose influence was responsible for the controversial investment that cost Coelho his House seat.

Unlike peers in Congress who turned to lobbying or public policy after leaving the Hill, Coelho set out to be a Wall Street investment banker. Having been cast out of the inner circle in Washington, he seemed determined to demonstrate he did not need the approval of Washington to succeed. Relying on a thick Rolodex of political contacts, he took a small fund at Wertheim Schroder & Co. and grew it to a $4.5 million account over six years.

While Coelho professed happiness in his new life, he grew noticeably restless. He joined the boards of dozens of companies, accepted numerous presidential appointments and lobbied unsuccessfully to become the White House chief of staff.

In August 1998, Coelho filed a report with the Office of Government Ethics listing assets well in excess of $12 million. According to some published reports, his personal holdings are worth as much as $50 million.

He was making enough money to purchase residences in Delaware; Naples, Fla.; Portugal; and Alexandria, Va. But many of Coelho's business were not successful. One failure was ETC, an educational and training subsidiary of Tele-Communications Inc. that he abandoned in October 1997 when it was struggling.

Since leaving Wertheim, Coelho has spread himself so thin by serving on multiple corporate boards that the Teamsters Union cited him in a survey as the nation's "least valuable director."

"Coelho does not seem to enjoy the Midas touch," the Teamsters said.

If an investor had put a total of $100 into the seven companies on which Coelho served as a director on Jan. 31, 1996, the Teamsters said, he would have been left with only $79.80 of that investment a year later -- reflecting a loss of more than 20 percent during a stock market boom.

What others see as Coelho's ethical lapses he views as evidence of personal loyalty.

In the few interviews Coelho has granted since he left Congress, he answers questions about his business dealings by portraying himself as loyal to a fault.

"I commit to relationships; I never walk away from people," he once told the Washington Post.

It was Coelho's brand of loyalty that got him involved in business with DeSantis. He met DeSantis while working for Wertheim Schroder and their friendship led the New Mexico businessman to invite him into the race track deal.

Coelho was not disturbed that a previous firm owned by DeSantis had been cited by the SEC for "knowingly or recklessly" inflating its net income. Nor was he put off by Robert Brennan's reputation for bad-faith dealings.

DeSantis, who could not be reached for this story, wanted Coelho for the ITB deal because at the time the former congressman was serving on the board of the Las Vegas casino company Circus Circus, now known as Mandalay Resort Group. DeSantis wanted to acquire ITB to build a Las Vegas casino, and he saw Coelho as someone with experience who could pass muster with Nevada gaming regulators.

Coelho told his business associates he resigned from the Circus Circus board to avoid a conflict when he teamed up with DeSantis. But records show Coelho did not depart Circus Circus until six months after joining ITB.

While Coelho was on the Circus Circus board, he chaired the compensation panel and developed a generous pension plan for board members. The pension plan came under attack in the Teamsters report, however, and was rescinded by the board shortly before Coelho departed.

Mike Sloan, then general counsel for Circus Circus, said Coelho had less to gain from the pension plan than other, more senior members of the Circus Circus board. "If you were going to be critical, you would have to say he was too accommodating to the other members of the board," Sloan said.

Allegations of self-dealing by DeSantis and Coelho currently under investigation by the SEC were derived from a court suit filed by the Brennan appointees on the board. Among other things, they are accused of enriching themselves with inflated salaries and perks, issuing cut-rate stock to outsiders and depriving ITB of an opportunity to acquire a Canadian race track, which DeSantis bought for himself.

On March 31, the company reported it had paid Coelho $70,000 in consulting fees, $25,000 in directors fees, $3,500 for an auto allowance and $27,765 in expense reimbursements during the previous nine months. During the same period, the company reported a net loss of $5.4 million.

Although DeSantis and Coelho denied these charges, the suit was settled out of court without a trial. Coelho attorney Brand declined to comment on the SEC's investigation into the same charges.

Being the ambassador to Portugal was always one of Coelho's dreams. Portugal is the homeland of his ancestors, and Coelho is proud of his ethnic heritage.

Yet while Coelho was in a position to persuade President Clinton to appoint him to the post, he never got the job. Lewis says Coelho could not be nominated because Senate Republicans would have blocked the appointment with charges of unethical behavior.

Instead, Coelho was forced to settle for a position as commissioner general to the 1998 World Exposition in Lisbon -- a job that carried the rank of ambassador, but did not require Senate confirmation.

Yet, according to the State Department inspector general's office, Coelho and the friends he appointed to help him took advantage of the assignment for their own profit and pleasure.

When Coelho was appointed in June 1996, he was expected to raise private money to fund the U.S. pavilion because Congress had outlawed federal spending for expositions. But when he failed to find enough private donors, the inspector general found, he improperly tapped both the Navy and the National Institute of Environmental Health Services for a total of $6.5 million.

According to the State Deparment, he also hired his niece, Debra Coelho, as a $2,500-a-month assistant in violation of government regulations, he lived in a $18,000-a-month luxury apartment paid for by the government, rented a Mercedes-Benz for himself when U.S.-owned vans were sitting unused and did not "adequately manage and control" the use of donated airline tickets, hotel accommodations and VIP gifts.

Not only did the U.S. pavilion in Lisbon far exceed the $8 million estimated budget, the report said, but Coelho co-mingled the resources of the publicly funded project with a privately funded memorial for Portugese-Americans. He helped to finance the memorial with a $300,000 foreign bank loan that was not properly disclosed and not fully repaid until after the State Department allegations became public.

Brand blames the unfavorable report on resentful government bureaucrats put off by Coelho's free-wheeling style.

"You don't hire Tony Coelho to balance the checkbook," Brand said. "He makes the big decisions."

Coelho took charge of the Gore campaign when the candidate was slipping in the polls to Bill Bradley, the former senator and basketball star. The new campaign manager's assignment was to impose strict discipline on a bloated, lethargic campaign organization.

Former Coelho associates say he is a rigorous manager who has approached the task as if it were a corporate turnaround.

"He was a terrific choice, in an organizational sense," said Dryer, who notes that Coelho relies on a chain-of-command approach and requires everyone down to the lowliest intern to give a written account of their work every week. Coelho reads these reports, writes comments in the margin and returns them.

"The campaign needed strong, experienced leadership; Tony provided that," said Marla Romash, a long-time Gore aide.

In high-profile political campaigns, it is standard procedure to investigate appointees in order to prevent embarrassment caused by unfavorable stories in the news media. Campaign officials have refused to say whether Coelho's business failures were brought to the vice president before he was hired, but there is no evidence the Gore campaign took a hard look at Coelho's past.

Of course, a thorough investigation of Coelho would have taken a long time. In his last publicly available financial disclosure report completed in June 1998, Coelho reported serving as an officer or board member of at least 33 companies or other organizations and received income from more than 85 sources.

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