Former New York Mayor Rudy Giuliani has made millions from his Sept.
11 grandstanding and has positioned himself for a presidential run based on
his 9/11 persona. How much longer will he get away with it?
Even before he left office as New York City's mayor at the end of 2001, Rudolph
Giuliani was telling reporters about Giuliani Partners, the management consulting
firm he intended to open up with his old City Hall team. The partners were more
of a Giuliani posse than a group of peers. Michael Hess, the former city corporation
counsel, was named managing partner. Fire Commissioner Tom Von Essen became
a senior partner, as did Police Commissioner Bernard Kerik, whose later nomination
as head of Homeland Security would go down in flames after revelations that
his concern for following the rules and avoiding ethical conflicts appeared
close to nonexistent. The only partner who came from outside the City Hall crowd
was Roy Bailey, former finance chair of the Republican Party of Texas, who'd
gotten to know Giuliani when he helped raise money for Giuliani's abortive 2000
Senate campaign against Hillary Clinton. Bailey helped finance the new company,
whose reported start-up payroll was $10 million a year.
The most valuable commodity the new company had to sell was not management
expertise but the aura of America's Mayor -- the man whose cool-headed 9/11
leadership had taken on mythic proportions. While Giuliani's first term as mayor
brought him renown as a crime fighter who made New York livable again, his second
term was a slowly escalating disaster before 9/11. The city, which admired his
feisty stubbornness when the enemies were drug dealers and cop killers, had
grown tired of a seemingly endless series of political catfights with school
chancellors, black neighborhoods, museums, rival politicians and even hot-dog
vendors. And, as would become clear later, Giuliani had allowed the city to
meet the disaster unprepared in myriad ways, ignoring the well-noted lessons
of the first attack on the towers, which occurred less than a year before he
Now, with Giuliani traveling the country as a 2008 Republican presidential
hopeful, his record both as mayor and afterward is coming under increasing scrutiny.
In no area is there more to examine than in the story of Giuliani Partners.
Giuliani Partners' initial press releases religiously avoided any mention of
the attacks -- Rudy is described as the man who "returned accountability
to city government and improved the quality of life for all New Yorkers."
But when their clients, who were very frequently companies in trouble, told
the world they had just hired a renowned team of "crisis managers,"
no one pretended their critical expertise came from handling snowstorms or subway
Before long, Giuliani Partners was all over the map, consulting on security
for nuclear power plants one day, on efficient bulk purchasing for New York-area
hospitals another. It signed on to help the troubled, scandal-plagued WorldCom
establish a "model form of corporate governance" and to help Delta
Airlines with its bankruptcy. It agreed to review the National Thoroughbred
Racing Association's electronic betting systems after a race-fixing scandal.
It formed a series of investment alliances that purchased interests in everything
from a Tokyo wind-power company to a California firm, CamelBak, which made backpacks
with sipping tubes for people like long-distance bikers and soldiers in desert
postings. (Kerik was enthusiastic; it was "a perfect mechanism to stay
hydrated," he told the Daily News, envisioning every New York City firefighter
equipped with a CamelBak as a matter of course. "If I was a fireman I'd
The Partners also rekindled relationships with some old friends who played
central roles in some of the biggest city failures on 9/11. Among them was a
"strategic partnership" with CB Richard Ellis, the successor of the
firm that had found the city the perfect location for a command center -- high
above lower Manhattan in one of the World Trade Center towers. The announcement
of the deal, in which Giuliani Partners would be advising Ellis on "location
and site assessment" as well as on emergency preparedness and fire safety,
was made without any discernible sense of irony.
Cashing in on 9/11 took many forms. In 2004 Giuliani Partners signed up Pharmaceutical
Research and Manufacturers of America, which was concerned about the popularity
of drug re-importation. American pharmaceutical companies sold their product
at much lower prices in Canada and Europe, where national price controls were
in effect. The big profits came in the United States, where Congress had vigilantly
guarded the drug manufacturers' right to charge what the market would bear.
But American senior citizens had begun taking bus trips to Canada to buy their
medication, and, in a far more ominous development for the drug companies, members
of Congress were talking about making it legal to import cheaper prescription
drugs from across the border. PhRMA wanted Giuliani Partners to prepare a report
on the safety of these practices.
The report found re-importation to be a bad and dangerous thing. "As the
nation tightens its borders against possible future terrorist attacks, it risks
undermining security and safety by opening them to non-FDA approved prescription
drugs," the Giuliani study concluded. Giuliani himself testified before
two Senate committees. When the public was invited to take its turn to testify
before a federal task force studying drug importation, one of the first speakers
was Kerik, who raised the possibility that terrorists could send weapons of
biological warfare across the border disguised as prescription drugs.
Entergy Nuclear Northeast hired Giuliani Partners to evaluate emergency planning
and security systems around its five nuclear plants in the Northeast, including
Indian Point, north of New York City, which were always under the sharp and
hostile glare of the communities in which they were located. Then, when Hurricane
Katrina struck, Entergy was happy to announce that Giuliani Partners was going
"to counsel the company in coping with the aftermath," which included
trying to get its New Orleans electric utility back in operation. In making
the announcement, J. Wayne Leonard, the chief executive officer, said, "Rudy
Giuliani is a proven leader and his team of experts are probably the most acclaimed
crisis managers in the world." Not only was New Orleans getting the attention
of Rudy himself, the press release noted, but also that of a team of experts
in this sort of catastrophe. All this consulting firepower was not enough, however,
to keep Entergy New Orleans from declaring bankruptcy right after the hurricane,
or to get power back to large swaths of the city, which were still without electricity
months after the hurricane struck.
While such deals may have raised a few eyebrows, they don't compare with Nextel.
Indeed, if there was any doubt that Giuliani Partners was all about 9/11, it
was erased by the Nextel deal. Nextel was one of the firm's first and most lucrative
customers, forming what the Partners called a "strategic alliance to significantly
improve public safety communications across the United States."
The theme was consistent and clear: "On September 11th, we learned the
true importance of interoperable communications. It was a chaotic scene at Ground
Zero, but if it weren't for Nextel providing us with interoperable communications
tools, it might have been worse." This pitch was so much the core of the
Giuliani Partners message that partner Richie Sheirer was quoted as repeating
it word for word at Nextel-sponsored public safety conferences in Washington,
DC, and St. Louis in the spring of 2003. Tom Von Essen made the identical statement
at yet another Nextel-sponsored event, at the Hilton hotel in New York City.
Nextel echoed the point, describing how it had distributed thousands of cell
phones at both Ground Zero and the Pentagon (along with mobile cellphone masts
to get them working) and how "with local phones jamming and telephone and
power main stations down, Nextel's Direct Connect service and two-way messaging
remained working throughout the entire crisis, recovery and clean-up."
But Nextel's role in emergency service communications in New York was far from
universally positive. It was, in fact, so problematic you'd have thought Giuliani
would have left office with a bad taste in his mouth for the entire product
line. The city was a big Nextel client when Rudy was mayor, leasing its phones
for agencies from the Police Department to the Board of Education to the Office
of Emergency Management. But as Nextel phones and equipment became omnipresent,
the system developed a stunning, even life-threatening, glitch. The engineering
tricks that allowed co-founder Morgan O'Brien to brag that Nextel had managed
to stuff 8 million subscribers on a spectrum that was supposed to have a ceiling
of 1 million also had a troubling side effect: The infrastructure created interference.
In communities across the country, including New York City, Nextel signals were
causing those in adjacent frequencies to drop or become garbled to the point
While no one can establish that Nextel caused interference on 9/11, there is
good reason to wonder. Five days after the attack, a lawyer representing the
city e-mailed the FCC about the deployment of all the Nextel equipment at Ground
Zero -- particularly mobile cell masts -- and observed that if Nextel and the
city didn't coordinate closely, "it is highly probable that Nextel will
disrupt these other critical communications." Another city attorney testified
at a subsequent Senate hearing that the city and others in a communications
coalition held teleconferences twice a day right after 9/11 to "monitor
and, if necessary, remedy any interference," focusing especially on Nextel.
Even the company acknowledges that interference with public safety communications
increased with the kind of explosion of cellular use that occurred on 9/11.
There are also indications that the World Trade Center might have been a particular
source of Nextel interference. John Paleski, president of Subcarrier Communications,
which managed sites atop the WTC, said Nextel had several pieces of interference-generating
equipment there, including digital and analog antennas. While those antennas
were probably knocked out from the moment the planes hit, Nextel apparently
had a lot of similar equipment nearby.
In fact, the company had so much disruptive equipment in the area that a year
after 9/11 it was still a public safety headache. Giuliani led the commemorative
services at Ground Zero on September 11, 2002, even while his largest client,
Nextel, made the city's interagency communications at the site so "inoperable"
during the ceremony that the Bloomberg administration filed a complaint against
the company that used precisely that word.
Giuliani Partners was not hired to defend Nextel's performance, however. It
was retained instead to stress how important it was to protect the public from
Nextel interference, and to promote the company's own self-serving solution.
Only a few weeks after the attack, Nextel filed a proposal with the FCC, beating
its own chest about the need to end its interfering ways. It offered to surrender
some of its 800-megahertz frequencies to public safety, cutting the interference.
In exchange, it wanted new, continuous spectrum from the FCC estimated to be
worth a minimum of $4.9 billion. On May 2, 2002, when Giuliani announced his
company's partnership with Nextel, the former mayor talked about the interference
problem: "Giuliani Partners is committed to helping resolve these concerns
and improving the ability of public safety authorities to speak with one another
during both day-to-day operations and crisis situations." He also told
the New York Daily News that he had reviewed the varied plans for fixing the
problem and had decided that Nextel's was the best--"without any doubt."
As part of his Nextel duties, Giuliani appeared at conventions of public safety
officials to talk about 9/11 and the need for antiterrorism preparedness. In
his keynote speech at the convention of the Association of Public-Safety Communications
Officials International in Nashville in 2002, for instance, he delivered his
standard talk on 9/11 and his five principles for leadership, one of which was
communication. Communication reminded Giuliani of the importance of being able
to get through on the telephone in a time of crisis. "I am in favor of
your support for the consensus proposal before the FCC that would allow public
safety to have more frequencies and better communications," he said. "Thanks
to you and Nextel who agreed on that. It can be positive for the future."
A trade journal covering the convention called Giuliani "engaging, funny,
seemingly honest and informative," but noted that "he never mentioned
his consulting company's link to Nextel."
After forcing some changes in the Nextel plan, APCO and other public safety
organizations rallied behind it, and it was artfully redubbed the Consensus
Plan. But Giuliani and the Partners were also making friends at the FCC, doing
volunteer jobs that had been brokered by Nextel's counsel. The Partners spent
more than a year helping the FCC prepare a report about how local government
can best communicate with the public. Sheirer, Von Essen and another Giuliani
partner, Tony Carbonetti, attended a meeting of the FCC's Media Security and
Reliability Council just as Nextel hired their firm in May 2002, and another
partner, Tom Fitzpatrick, who spearheaded the New York Fire Department's disastrous
radio contracting process, moderated an FCC panel. Finally, Giuliani himself
was named to a prestigious FCC advisory council two months before the Nextel
deal was approved.
"Everybody knows what we're doing, so there's nothing hidden," Giuliani
told the New York Times, in explaining why he had not registered as a lobbyist
for Nextel or anyone else. Actually, few did know what he was doing. Giuliani,
for example, pushed his bandwidth crusade before the 9/11 Commission and in
television interviews without ever acknowledging his interest. Two months before
the FCC vote on the spectrum deal in July 2004, Giuliani called for "a
dedicated bandwidth for emergency services" on Larry King Live and CBS
as the solution to the 9/11 communications breakdown. He didn't specifically
refer to the Nextel deal, saying only that the bandwidth was "doable but
the FCC has to approve it."
By the time Giuliani made these appearances, his consulting deal with Nextel
had come to an end, but the Partners still may have had the stock options, then
valued at $15 million, that they received as part of their compensation. Shortly
after the company got its new spectrum without the public auction usually required
for such FCC largesse, Sprint merged with it in a $36 billion deal. Between
2002 and 2004, Nextel's stock rose nearly tenfold, according to the Wall Street
Giuliani Partners is a private company, and one that keeps its dealings very
close to the vest. Conventional wisdom, encouraged by Giuliani Partners insiders,
holds that the firm made around $100 million a year, or more than $2 million
per employee. Giuliani had never seemed particularly concerned about money --
he wouldn't have been scheming so desperately for a third $195,000-a-year term
as mayor if wealth had been his top priority. But his sudden riches came in
handy. His settlement with his former wife, Donna Hanover, in the summer of
2002 called for him to pay her $6.8 million over three years as well as child
support. Hanover's lawyers estimated that Giuliani's income in 2002 was $20
million, a little more than half from speaking fees and book advances. And he
quickly adapted to his new lifestyle, demanding first-class flights and accommodations
for himself and his posse when he traveled and purchasing a $4 million summer
house in the Hamptons for himself and Judy Nathan, whom he married in 2003.
The couple also have an apartment on Manhattan's East Side worth more than $5
million, complete with Rudy's Yankee diamond rings displayed in wooden boxes,
a lithograph of Winston Churchill above the fireplace, two white Churchill porcelain
figures and a Joe DiMaggio shirt encased in glass.
Giuliani Partners attempts to present itself as just another vehicle for Rudy
Giuliani's fight for justice. "We take these things on if there's good
to be done," said Michael Hess. But most of the deals it has made were
like the Nextel one -- patently about a client's hope to cash in on Giuliani's
fame, to borrow a little of his crime-fighting aura or to make use of the Partners'
many connections in the increasingly profitable business of homeland security.
Rick Perkal, a senior managing director at Bear Stearns Merchant Banking, told
Newsday that his company had been impressed by Bernard Kerik's membership on
a federal panel that was supposed to give the Department of Homeland Security
advice on, among other things, what it ought to be purchasing. Bear Stearns
had agreed to invest up to $300 million in new security-related ventures identified
by Giuliani Partners, and Perkal said, "Being an adviser in Homeland Security,
what has been helpful to us is that he understands the needs of the country.
When we look at opportunities, companies that come up for sale, he can say:
'This is a good company. I think it has good growth prospects.'"
But the American public seems indifferent to such conflicts of interest. A
June Quinnipiac University poll showed that Giuliani had the highest rating
among nineteen national leaders and potential 2008 presidential candidates,
ahead of John McCain, Hillary Clinton and Barack Obama.
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