The Coldest Act Of Revenge

Hello! This is Deep Pockets #22.

What are the biggest perks that come with being a billionaire?

Billionaires own mansions around the world. They own COLLECTIONS of cars. They traverse the oceans in superyachts the size of skyscrapers. They buy whatever jewelry and clothes they want.

If a billionaire loves sports, they don’t just go to games, they buy the team. And the stadium.

If a billionaire loves a particular musician, they don’t just go to a concert, they hire the artist to perform a private birthday serenade.

When they travel, it’s by private jet to exotic locations around the world. They stay in the best resorts. They eat at the best restaurants. They can indulge in every personal passion and hobby. If their passion/hobby is to live on a never-ending 5-star vacation… they do that.

Of all the amazing perks billionaires get, there’s an important one that’s often forgotten:

Revenge

Billionaires have unlimited time and resources to get revenge.

Take hedge fund manager David Tepper. He owns a bunch of homes, a private jet, and a few sports teams. He will also go down in history for pulling the greatest act of revenge of all time. Against his old boss.

DEEP DIVE: The coldest act of revenge of all time.

David Tepper was born in Pittsburgh, Pennsylvania, in September 1957. He was the middle of three children born to an accountant father and an elementary school teacher mother. For college, he didn’t go far from home. He graduated from the University of Pittsburgh in 1978 with honors with a degree in economics.

After college, he landed a job as a credit analyst for a Pittsburgh-based bank.

In 1980, he enrolled at Carnegie Mellon to get his MBA.

In 1982, he got a job in the treasury department at Republic Steel in Ohio. In 1984, he was recruited to work at Keystone Mutual Funds in Boston.

In 1985, David landed in the big leagues when he was recruited to join Goldman Sachs in New York City. Within six months, he had risen from lowly credit analyst to the head trader for Goldman’s newly established “high-yield” bond division.

Black Monday

On Monday, October 19, 1987, the stock market plummeted 22.6% in a single day, seemingly out of nowhere. What we now call "Black Monday” is still the largest single-day percentage drop in US stock market history. The LARGEST. For context, on the largest single-day crash during the 1929 Great Depression, the stock market dropped 13%.

As Wall Street reeled, David Tepper went to work. He analyzed all the financial institutions whose bonds had been eviscerated by the crash and methodically determined which would survive and which would not. For the ones he thought would survive, he deployed tens of millions of dollars acquiring their debt at pennies on the dollar.

Owning these bonds not only paid high quarterly interest fees, but as the economy recovered, the underlying value of the bonds soared. Goldman made a fortune.

At the time, Goldman Sachs was still a private partnership (as opposed to being publicly traded). In the late 1980s, being named a partner at Goldman was arguably the highest accomplishment you could aim for on Wall Street.

Goldman partners in the late 1980s earned a base salary of $1 million, and at the end of each year, they were entitled to a share of the firm’s bonus pool. Even for a junior partner, that bonus could be another $5 million. That’s not all. Goldman partners in the late 1980s received lucrative pre-IPO shares in the bank. When Goldman went public in 1999, it was not at all uncommon for a tenured partner’s equity to be worth $100+ million.

Considering what he had done for the firm in the wake of the ‘87 crash, you can understand David's expectation that being made partner was in the bag. But that’s not what happened.

Passed Over

The guy in charge of selecting partners from David’s division was a guy named Jon Corzine. Corzine joined Goldman in 1975. He became a partner in 1980, and in 1988, he was David boss’ boss.

Corzine did not like Tepper. He thought Tepper was a “loud and profane know-it-all,” which may have been an accurate description. Tepper once famously claimed to have invented the phrase, “It is what it is.”

It wasn’t just his brash personality. David Tepper did not fit the typical Goldman prototype. He didn’t attend an elite boarding school or an Ivy League college. He didn’t wear expensive suits in the preferred Goldman color of navy blue. He didn’t have the perfect Patrick Bateman abs, haircut, and jawline. He was somewhat of a regular Joe from Pittsburgh. An image he actually cultivated and would lean on for the rest of his career.

Ironically, Jon Corzine was also not the typical Goldman prototype. He also did not have the Ivy League pedigree. He grew up on a small farm in rural Illinois and served in the Marine Corps after college before finding his way to finance. You’d think he and Tepper would have bonded. They did not.

Goldman chooses new partners every two years, typically in the first week of November. Coming off his superstar performance that very year, November 1988 was the prime moment for David Tepper. And yet, his name was not on the list.

His name was left off again in 1990.

In November 1992, once again, David did not make partner. Infuriated, he waited for his bonus and quit.

Appaloosa Management

At the beginning of 1993, David borrowed a desk at a mutal fund run by a former client. He then somehow convinced a former Goldman colleague named Jack Walton to quit and join him. Combining $7 million of their own money and $50 million raised from outside investors, they launched Appaloosa Management.

[“Appaloosa” is an American horse breed that is known for having cow-like spotted coats. I could not figure out why they chose this name.]

In the second half of 1993, Appaloosa generated a 60% return. Assets Under Management (AUM) topped $450 million in 1995 and $800 million by the end of 1996.

It wasn’t all good times and winning bets. In 1998, David made a huge bet that Russia would not default on its sovereign debt. On August 17, 1998, Russia defaulted. Appaloosa ended 1998 down 30%. The firm was forced to sell off many positions and, as David would later recall:

“At one point, I wondered if we would be able to survive.”

They did survive. David doubled down on Russian debt at a time when that seemed utterly insane. As Russia’s economy recovered, his investments soared. In 1999, Appaloosa delivered a 60% return.

In 1999, he placed a monumental bet against the NASDAQ, foreseeing the dotcom bubble by several years, but caving to investor pressure, he sold it off in 2000 before the crash. Had he held on to this position, it might been one of the biggest winning bets in Wall Street history. He would not cave to investor pressure again. Lesson learned.

The September 11th terrorist attacks in 2001 – which happened to be David's 44th birthday – sent global markets reeling. On September 17, the markets dropped 7.13%. That is the 20th-largest single-day drop in US market history. Once again, these were the conditions when David Tepper shined.

While the S&P 500 lost 13% in 2001, Appaloosa put up a 67% return.

After a 25% drop in 2002, in 2003, Appaloosa had a 150% return thanks to contrarian bets made on the distressed debt of bankrupt companies Enron, Conseco, and Worldcom. Appaloosa’s windfall was so huge that Tepper paid himself $500 million that year.

That payment made him a billionaire. He was 46.

The Great Recession

In late 2008, the mortgage bubble time bomb exploded, kicking off The Great Recession.

Of the 20 biggest single-day market crashes of all time, THREE occurred in late 2008.

Once-dominant financial firms like Bear Stearns, Washington Mutual, AIG, and Lehman Brothers went belly-up in shockingly quick fashion. Shockwaves were sent throughout the global financial markets.

As he had done in previous crashes, David analyzed which institutions he thought would survive and invested heavily in their debt.

When 2008 was over, Appaloosa had put up a 120% return, roughly $7 BILLION in profits. For his performance in 2008, David paid himself $4 billion.

Between 2009 and 2010 alone, Appaloosa’s assets under management grew from $5 billion to $14 billion.

David was one of, if not the highest-paid person on Wall Street every year for the next decade.

Today, David Tepper’s net worth is $21 billion. He’s one of the 100 richest people in the world (#81 as of this writing) and one of the 40 richest people in the United States (#36 as of this writing).

In 2018, David paid $2.275 billion for the NFL’s Carolina Panthers. It was the highest amount ever paid for an NFL team up to that point. That same year, he paid $325 million for the Charlotte FC Major League Soccer expansion franchise.

He’s given $125 million so far to Carnegie Mellon University. CMU’s business school is called the David A. Tepper School of Business. He has also donated generously to the University of Pittsburgh.

In May 2019, David announced he was converting Appaloosa to a family office and would return all outside money invested. From his start in 1993 through the end of Appaloosa managing outside money, David returned more than $12 billion to his investors, with an average annual return of 30%.

Meanwhile, At Goldman…

Jon Corzine served as CFO of Goldman from 1991 to 1994. In 1994, he was named Chairman and CEO. His COO was a guy named Henry Paulson.

Goldman made $2.7 billion in profits in 1994. That year, Corzine’s bonus was $25 million.

As CEO, one of Corzine’s biggest goals was to take Goldman public. That would finally allow all the paper equity Goldman partners had earned over the years to be converted into liquid cash.

He also pushed Goldman into some risky bets that had disastrous consequences.

In 1998, Corzine championed Goldman into investing heavily in the Russian Ruble, just like his former employee David Tepper was doing at the same time. Goldman lost $1 billion on the trade when Russia defaulted later that year. Goldman lost hundreds of millions more from other Corzine-led investments.

For reasons we don’t need to get into here, Corzine also did not get along well with his #2, Henry Paulson. In January 1999, Paulson orchestrated a coup that successfully ousted Corzine from Goldman and put himself in the top spot in his place. Paulson served as CEO until 2006, when he became George W. Bush’s Treasury Secretary.

Fun side fact: By becoming Treasury Secretary, Paulson was forced to sell his entire stake in Goldman… but a loophole allowed him to not pay any taxes on the proceeds. That loophole saved him around $250 million.

Goldman went public in May 1999, just four months after Jon Corzine was ousted. As a consolation, on the day of the IPO, Corzine’s shares were worth $400 million.

Tepper’s Revenge

Jon Corzine and his wife, Joanne Dougherty, were high school sweethearts. They married in 1969 and had three kids.

After his Goldman ouster, Jon and Joanne retreated to their incredible oceanfront property in the Hamptons town of Sagaponack.

Years earlier, the couple poured themselves into renovating and decorating the 6,000-square-foot mansion that sat on a mind-numbing 7-acre oceanfront plot of land, truly remarkable for the area. A friend would later recall in a VanityFair article:

"Jon loved that house. He was able to relax there. It was huge. Everywhere you looked you could see how much money they put into it. Every bedroom had an armoire the size of the ceiling, like Joanne had bought them in bulk. Not a personal touch anywhere you looked. I remember one of my kids asked me, 'Where can we sit?"

Bored and jobless, Jon soon became intrigued by politics. In 2001, he was elected to the US Senate, representing New Jersey. He spent $62 million of his own money on his campaign. He bought a $5 million townhouse in Washington, D.C., and started splitting his time between DC and the Hamptons (he did also have a residence in New Jersey). After serving in the Senate through 2006, he was elected Governor of New Jersey. He spent $43 million of his own money on this campaign. Jon was Governor of New Jersey from 2006 to 2010. He ran for a second term but lost to Chris Christie.

Joanne Corzine had little interest in politics and zero interest in living in DC. They grew apart, and in 2002, he asked for a divorce. The divorce was extremely bitter.

In the end, Jon agreed to give Joanne $350 million in cash and assets, roughly half the fortune he earned during his decades at Goldman.

For most of their prolonged divorce proceedings, Joanne claimed to not want the Hamptons mansion. Perhaps because she knew how much the property meant to Jon. However, just a few days before the divorce was scheduled to be finalized, Joanne threw out a bombshell. She wanted the Hamptons mansion.

In the end, Corzine grudgingly agreed. The couple valued the property at $9 million when it was signed over to Joanne.

Joanne didn’t even use the house all that often. She rented it out most summers. In the summer of 2010, she rented it out for $900,000 for the season.

When the summer was over, Joanne sold her ex-husband’s beloved Sagaponack mansion for $43.5 million. It was a record amount for the area at the time. It was nearly 5 times what the mansion had been valued at a few years earlier. The house was never listed for sale. It was sold off-market in an all-cash deal without the use of realtors and without any contingencies or inspections.

Cash for keys.

Who on earth was rich enough to pay a record $43.5 million for a Sagaponack mansion in an off-market deal with no realtors and no contingencies?

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.

.

.

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David Tepper

When Jon found out, he was apoplectic. This was akin to sleeping with his ex. Maybe worse because this was more than a one-night stand. His despised former subordinate, turned much-richer rival, would now be the one enjoying a lifetime of memories in HIS beloved home. Tepper would have 4th of July parties. Tepper would have large Thanksgiving family gatherings. Tepper would take baths in his bathtub. Showers in his shower. He would make love in his bedroom. Tepper would be the one soaking in the sunsets and toasting to life.

Unfortunately, that wasn’t Tepper’s final act of revenge.

David Tepper never hosted a 4th of July party or a Thanksgiving at the house. He may not have spent a single night in the house.

Not long after buying the former Corzine Hamptons estate, Tepper bulldozed the entire property.

He replaced Corzine’s 6,000-square-foot mansion with a 20,000-square-foot palace with multiple guest houses, an enormous pool, a tennis court, and sprawling lawns.

Here it is viewed from Google Earth:

Even though it had been over two decades since he was first passed over as partner, David Tepper had become a multi-billionaire. And a perk of being a multi-billionaire is getting revenge on those who did you wrong. For David, getting revenge was erecting a 20,000-square-foot middle finger to Jon Corzine. Or, as a mutual friend of both parties would put it:

"This was just a massive FUCK YOU to Jon."

The hits kept coming for Jon. After losing the gubernatorial election in 2010 to Chris Christie, Jon reentered the private workforce as the CEO and Chairman of a financial firm called MF Global. Within two years, the company was bankrupt, losing $1.2 billion from customer accounts. Corzine had to testify to Congress over the losses. He was sued by the Commodity Futures Trading Commission (CFTC) and ultimately agreed to pay a $5 million fine to settle charges related to his role in MF Global’s collapse. He was also permanently barred from working in any capacity for a similar firm registered with CFTC.

After the $350 million divorce settlement and spending over $100 million of his money on political campaigns, Jon Corzine’s fortunes dropped significantly. With a net worth of $50 million today, he’s still very rich by any rational standard. On the other hand…

• A $50 million net worth is equal to 0.23% of David Tepper’s $21 billion net worth.

• $50 million is probably a third of the value of Tepper’s Hamptons mansion today.

• David Tepper has been known to keep more than Corzine’s entire net worth in his CHECKING ACCOUNT. That’s not an exaggeration.

On June 18, 2011, at 10:14 pm, David used a Capital One ATM in East Hampton to withdraw $400 in cash. That wouldn't normally be notable, but you know how ATMs sometimes list your balance on the receipt? And for a normal person the balance is like $2,500?

David left his receipt in the machine. The next ATM user found the receipt and saw the balance. It read:

$99,864,731

You’re reading that correctly. He had a little under $100 million in his checking account.

A lot of speculation and guessing spread through the financial industry after the receipt was posted on a Hamptons blog. Tepper soon confirmed he was indeed the account holder. Here it is in all its glory:

As a parting thought, do you think somewhere in the back of his brain, Tepper is actually grateful to Corzine? Consider this alternate reality:

Let’s say Corzine pushed for Tepper to become a partner in 1988. Had that happened, Tepper almost certainly would have stayed at Goldman for the next decade, earning huge salaries and bonuses while waiting for an eventual IPO windfall.

In this scenario, there’s a very strong chance that today, Tepper would be a long-retired Goldman Sachs partner with a net worth in the $100 million range. Certainly nothing to sneeze at. Plenty to be living an extremely good life filled with many perks.

But not in the ballpark to own a ballpark. Nowhere near enough to own a 7-acre estate in the Hamptons. There would be no business schools named in his honor. And he would certainly not have the unlimited resources to pull off the coldest act of revenge of all time.

FINAL WORD

On the next edition of “Deep Pockets,” we go from a cold act of revenge to a cold beverage that comes in an innovative plastic pouch and has the most annoying straw ever.

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