(C) Common Dreams
This story was originally published by Common Dreams and is unaltered.
. . . . . . . . . .
The Influencer [1]
['Condé Nast', 'Connie Bruck']
Date: 2010-05-10
Terry McAuliffe, who was then the chairman of the D.N.C., says that Saban had first voiced his commitment at a party held at the Clintons’ Washington home in June of 2001, after McAuliffe made a presentation about the deplorable financial state of the Democratic Party. “Haim said, ‘I’ll commit up to ten million.’ ” It was not until January, 2002, that they met in a hotel room and negotiated the final amount. “He said four, I said I want the whole ten, then he got to six, then I said, ‘O.K., cut me a check for seven million in five days, and we got a deal.’ ” McAuliffe says that D.N.C. lawyers were not involved in any tax-benefit planning. “All I can tell you is there is no lawyer at the D.N.C. who would have that conversation,” he said. “That would be a felony.”
In March, 2002, Democratic Party officials disclosed that Saban, who had been named chairman of the Party’s capital-expenditure campaign, had written a check for seven million dollars to the “DNC Building Fund.” He had become the Party’s largest single donor. In an interview in the New York Times on March 21st, Saban explained how he had arrived at the figure: “We have two numbers in the Jewish belief that are lucky numbers—one is 18, and the other is 7. I thought 18 was kind of too high, so I went with 7.” He added, “I just felt compelled to do what I can.”
When the Fox Family deal closed, Saban instantly became one and a half billion dollars richer. His life had changed radically, but some things remained the same. When he became a partner in Fox Kids, a deal in which the Allen & Co. banker Stan Shuman had represented him, Saban insisted that Murdoch should pay part of Shuman’s fee, much to Murdoch’s displeasure. Allen & Co. eventually accepted one per cent of the merged entity’s stock, in lieu of a cash fee. (Saban denies that there was any disagreement with Fox.) Now, with the Disney deal, he didn’t want to pay twelve million dollars in fees and other costs that his investment bankers at Morgan Stanley said he owed. They sued; Saban settled on the eve of trial, and says he paid them eleven million dollars.
“With me, salad has always been a salad-dressing delivery system.” Copy link to cartoon CopyLink Shop Shop
Even a closer associate was left feeling shortchanged. Shuki Levy, Saban’s decades-long partner, had received a payout on the Fox Family deal, as had other insiders who owned shares in Saban’s privately held company. But Levy, who had never had a written contract, felt that he was owed more, and demanded what he thought was his rightful share. Saban paid Levy an additional eleven million dollars. “I owed him, contractually and morally, nothing,” Saban said, adding that he paid him “out of compassion.” The two no longer speak.
But the biggest bill by far that Saban didn’t want to pay was the government’s. In late December, 2000, after Saban had exercised his right to sell his share of Fox Family, Matt Krane said that he received a call from him. “He said, ‘Let me ask a question. What are we doing on taxes on the sale?’
“I said, ‘We’re going to pay the capital-gains tax, like we always discussed.’
“ ‘What is it?’
“ ‘Like, twenty-seven per cent state and federal, combined.’
“ ‘Are you fucking kidding me? Are you fucking crazy?’ He was shouting, ‘I’m not paying that!’ ”
Saban denies Krane’s account of their conversation. “This is a man where we went through seven audits, and all came in ‘No change.’ So I looked at him as a genius of the century. And he always took the lead in setting up structures that were absolutely legal and tax-efficient. And all I asked him to do was this time, too, please do the same.”
Krane said that he had previously solved every problem Saban had presented, carrying out “very aggressive” tax planning, but he had always tried to design transactions ahead of time to avoid taxes. Here the only recourse was a tax shelter.
As Krane began to explore the tax-shelter world, he learned that major accounting and investment-banking firms—including K.P.M.G., Goldman Sachs, Merrill Lynch, and many others—were involved in creating tax-shelter products. He selected one that was developed by the Quellos Group, a financial boutique based in Seattle; he integrated this shelter with a tax plan of his own, and, with the combination, made it possible for Saban to pay no taxes on his $1.5-billion gain.
Krane’s life, meanwhile, had started to unravel. In 2000, he had reorganized Saban’s business structure, a mammoth task that required intense focus, and he began taking drugs to prolong his concentration. Over the years, Saban had retained many lawyers from major firms, paying them the customary high fees. But Krane—who had been entrusted with Saban’s most sensitive information—charged him a low hourly rate (at most, he says, two hundred and seventy-five dollars), and occasionally received a bonus. Krane says he was convinced that Saban would not pay him a market rate for the tax plan, so he decided to negotiate his fee with Quellos, without Saban’s knowledge. Saban agreed to pay Quellos fifty-four million dollars, and Quellos secretly paid Krane thirty-six million dollars. Krane arranged for the money to be wired to an Austrian bank account. He did not pay taxes on it—something he describes today as “crazy and stupid.”
By mid-2002, Krane had developed an addiction, and in early 2003 he stopped advising Saban. In January, 2005, Krane said, Charles Wilk, the Quellos executive with whom he had worked, called to tell him that during questioning by Saban’s lawyers, who were responding to a tax investigation, he had divulged the fact that Krane had received money. Several months later, Krane said, Saban left a message on his answering machine, saying, “ ‘Please call me. I don’t have a problem, you have a problem.’ ”
“I thought there was a remote chance he would go to extremes,” Krane said. He never returned the call. “I shut my gate.”
After years of relying on Krane’s knowledge of byzantine tax law, Saban began to cast himself as the victim of an unscrupulous adviser. The Senate Permanent Subcommittee on Investigations, which had published a report on tax evasion by the super-rich, through offshore tax havens, found that Quellos’s plan was based on fake securities transactions, to generate fake losses, which would offset real taxable capital gains. In August, 2006, Saban, who said that he would be paying back taxes, interest, and penalties, testified before the subcommittee. He invoked Krane repeatedly. In his prepared statement, he said that he had “consulted my trusted tax and legal adviser, whose advice I have followed for fifteen years.” He also said, “I am neither a lawyer nor an accountant. In fact, my formal education ended when I finished high school.”
Senator Carl Levin pointed out that Saban had been informed that he could pay “in the ballpark of fifty million” to obtain a capital loss to offset his gain of one and a half billion dollars. “Now, you are a businessman,” Levin continued. “Did that not raise alarm bells in your head?”
“It did,” Saban replied, “which is why I asked my adviser, who has been by my side for fifteen years, is this completely kosher—i.e., legal? And would a reputable law firm say so? And the man who was with me for fifteen years assured me that this is the case.” In his interview with subcommittee investigators a couple of weeks earlier, Saban had said, “You have before you a very disappointed person, who feels misled, lied to, cheated.”
In 2006, the U.S. Attorney’s Office in Seattle opened an investigation of Quellos. Krane’s house was searched; investigators found a false passport and a copy of a false-passport application, and, in July, 2008, Krane was arrested and charged with aggravated identity theft, and with making false statements in a passport application. Last June, the Quellos executives Jeffrey Greenstein and Charles Wilk were indicted in Seattle for tax fraud. (They pleaded not guilty.) Krane was indicted for money laundering and, later, for tax evasion. He spent nearly a year and a half in jail in Los Angeles. Krane finally obtained release on bail last December, when he agreed to plead guilty to one count of tax evasion and false-passport application, and to coöperate with the government. The money-laundering charge and the identity-theft charge will be dropped upon sentencing.
In November, 2008, Saban sued Krane in Austria to recover the thirty-six million dollars, which both Saban and the government have characterized as a “kickback.” Mel Woods, who is now retired, but occasionally does consulting for Saban, castigated Krane for arranging to receive the thirty-six million dollars secretly. But, he went on, “Matt and Haim and I were a team. Matt would never have put Haim in a plan he thought was bad. You never know with a tax plan.” Woods had been an accountant at Arthur Young early in his career. At the time Krane selected the Quellos shelter, Woods said, “there were a lot of plans around—like K.P.M.G., others—that turned out to be bad.
“I love Matt Krane,” Woods went on. “He’s wicked smart, funny, and the best tax guy I’ve ever known.” As for the way his life had disintegrated, even before he went to jail, “Matt was never too tethered to the ground.”
Last July, in a response to Saban’s suit over the thirty-six million dollars, Krane sued Saban in Los Angeles Superior Court, with a complaint that read, in part, “Despite being one of the richest men in the world, Haim Saban, believing he is above the law, has spent decades trying to avoid paying taxes on the many billions of dollars in income he has received, evidencing little restraint in his conduct other than seeking a convenient scapegoat.” (William Schwartz, one of Saban’s lawyers, says, “Matt Krane was a lawyer and adviser whom Mr. Saban trusted completely and on whom he relied in matters of great importance. Mr. Krane exploited their relationship to defraud Mr. Saban of tens of millions of dollars. Mr. Saban feels deeply saddened and betrayed by that breach of trust.”)
Last fall, when I met with Krane at the Metropolitan Detention Center in downtown Los Angeles, he told me, “I have this fantasy that, if I could only see Haim and talk to him directly, I would say, ‘Haim! Whatever I did, I learned from you.’ And he would look at me, and then he’d say, ‘Oh. I understand.’ ”
In the fall of 2001, fortune in hand, Saban established a private investment fund, Saban Capital Group, and set out to become a serious player in the media business—Part 3 of his formula for political power-brokering. Jonathan Nelson, the C.E.O. of Providence Equity Partners, a major private-equity firm, met Saban in 2003, when they invested together in ProSiebenSat.1, a group of four German television networks. Nelson told me that one of his partners said, “You’ll either love Haim or you won’t.” Along with several other investors, Nelson and Saban acquired ProSiebenSat.1, and sold the company profitably four years later. “ProSieben was nine time zones away from Haim’s office, and he was into the details there on endless conference calls with management,” Nelson said. “He works harder than any thirty-year-old I know.” Not everyone was so impressed. A financial adviser who took part in discussions on how to neutralize a potentially destructive party in the deal recalled, “Haim’s strategy was ‘I’m gonna make their lives miserable until they beg me to take them out of this deal.’ But that’s not a strategy.”
Nelson and Saban teamed up again in their acquisition of Univision, in 2007. As Saban and his partners were assessing a bid, Saban enlisted Lindsay Gardner, who was an executive at News Corp. at the time, and whom Saban had worked with at Fox Family, to assist in the evaluation of Univision. At one point, Gardner recalled, Saban asked him to participate in a conference call with Univision executives; Gardner protested that he couldn’t, because the executives knew him and would view him as having a conflict. Saban suggested that they not give Gardner’s name. “ ‘But they’ll recognize my voice,’ I told Haim,” Gardner said. “And he said, ‘Then put a napkin over the phone, talk through a napkin.’ ” Gardner declined. (Saban says that he doesn’t recall its happening this way.)
Ultimately, the Saban group purchased Univision for a high price, assuming ten billion dollars of debt, near the height of the market. Since then, Univision, like most media companies, has seen its advertising revenues plunge. It also became engaged in a high-stakes legal battle with the Mexican media giant Televisa over the rights to telenovelas, the serialized programs popular with Hispanic audiences in the U.S. In January, 2009, after a forty-hour negotiation led by Saban on the Univision side, a settlement was reached in which Televisa would continue to supply Univision through 2017. And last summer Univision achieved another coup, getting cable- and satellite-TV operators to pay monthly retransmission fees to carry its programming; Saban says that he led those negotiations, too.
Saban has made a point of cultivating celebrity. At Univision’s Upfront event in 2008, the singer Shakira, onstage, declared, “I want to give a big thank-you to Haim Saban!” His business associates were impressed. Shakira told me that she was introduced to Saban several years ago, and they became friends. He joined the board of the Barefoot Foundation, which she started, to focus on universal access to high-quality education for children. “He’s a great guy!” Shakira said. “Many people know him through his accomplishments, but not everybody knows this other part in him—his social awareness, his commitment to the underprivileged, how compassionate he is, and, really, how passionate he is.” She continued, “He calls me Hermanita. It is ‘Little Sister.’ ”
“This is my last day. My parents found a more expensive school on the East Side.” Copy link to cartoon CopyLink Shop Shop
In targeting media properties, Saban frankly acknowledges his political agenda. He has tried repeatedly to buy the Los Angeles Times, because, he said, “I thought it was time that it turn from a pro-Palestinian paper into a balanced paper.” He went on, “During the period of the second intifada, Jews were being killed every day over there, and this paper was publishing images of a Palestinian woman sitting with her dead child, and, on the Israeli side, a destroyed house. I got sick of it.” Saban said he tried to buy the paper in 2007 but lost to Sam Zell, who purchased the Tribune Company, including the L.A. Times. In early 2008, he says that he tried to buy the paper from Zell but that Zell wanted more than he was willing to pay. After the Tribune Company went into bankruptcy, in 2009, Saban said he informed the creditors of his interest. “They’re not going to do anything until they get out of bankruptcy. So am I still interested in the L.A. Times? I am, yeah, I am,” he said. Saban also said that he asked the New York investor Steven Rattner to let the Sulzbergers know that he would like to buy the New York Times, but Rattner told him they weren’t interested. “What’s it worth now, the whole thing—a billion dollars?” Saban said dismissively. “But it’s a family legacy or something, I don’t know.” If the Sulzbergers were to change their minds, he said, “I would be jumping all over it.”
As Saban has said, “I’m a one-issue guy, and my issue is Israel.” When Bill Clinton was President and Ehud Barak was Israel’s Prime Minister, Saban, who was close to both men, says that occasionally he provided a back channel for communications. In July of 2000, shortly before the start of the Camp David negotiations, Israel’s planned two-hundred-and-fifty-million-dollar sale of an airborne radar system to China—furiously opposed by many at the Pentagon and in Congress—threatened to derail congressional support for a peace deal. Saban said, “I just called Ehud and told him, ‘In the middle of this peace thing, it’s impossible for Israel to do things that are perceived in the U.S. as against the interests of the U.S. I understand the financial aspect, I understand that it may not be really a security concern for the U.S.—it doesn’t matter. There’s a much bigger picture here, and you really should seriously consider.’ ” Barak suspended the sale. “How much impact my call had, I have no idea,” Saban added. During Camp David, he continued, “I was involved, but only on the periphery. If Barak could not say some things to Clinton to his face, he would ask me to convey a message, and vice versa.” At one point during the negotiations, Clinton, accompanied by his national-security adviser, Sandy Berger, had to go to Japan. “When they came back, I spoke to Sandy Berger, and gave him my two cents about dealing with issues. ‘Is that really super-important?’ ‘Well, why can’t Arafat give up on that?’ ” He laughed. “The usual!”
Immediately after the Fox Family-Disney deal closed, in 2001, Saban called Martin Indyk, who had been a U.S. Ambassador to Israel during the Clinton Administration. When they met in New York about a week later, Indyk recalled, “Haim said, ‘I’ve made all this money; I’m giving ten million to the D.N.C., and I want to set up a think tank. I think we really have to resolve the Arab-Israel conflict. These terrorists give me a potch in the panim, but I still think it’s important for Israel’s future to achieve peace.’ ” Indyk advised him to make a donation to the Washington Institute for Near East Policy, but Saban said, “ ‘You don’t understand. I want my own.’ ”
Indyk was at the Brookings Institution at the time, and he suggested that Saban set up a center there. “What’s Brookings?” Saban wanted to know. “We invited him here for lunch,” Indyk went on. “I showed him the wood-panelled rooms, the portrait of Robert Brookings. He turned and said to me, ‘We’ll do it here.’ ” Not all of the Brookings board members supported the idea. One told me that Brookings donors care about Brookings, and Saban seemed to care only about finding a location for his center. Moreover, Brookings is a non-ideological public-policy institute, dedicated to nurturing American democracy. Saban is unabashedly pro-Israel and, according to people who work with him, harbors a wariness of Arabs that may stem from growing up as a Jew in Egypt; he first returned to an Arab country in 2004, when he went to Qatar with Bill Clinton and the Secret Service. But Saban’s gift was then the largest in Brookings’s history: thirteen million dollars, distributed over seven years. And so, in 2002, the Saban Center for Middle East Policy was established.
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