#812: High Rise, Low Returns As a businessman, President Trump is known for his towering buildings. Today we tell the story of one of those skyscrapers and what it says about how and with whom Trump does business.
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#812: High Rise, Low Returns

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#812: High Rise, Low Returns

#812: High Rise, Low Returns

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STACEY VANEK SMITH, BYLINE: Hi, I'm Stacey Vanek Smith.

CARDIFF GARCIA, BYLINE: And I'm Cardiff Garcia.

VANEK SMITH: And we are super excited to tell you about a new thing that we've been working on.

GARCIA: Yep. It's called The Indicator from PLANET MONEY. You can find it wherever you listen to podcasts, wherever you listen to PLANET MONEY proper.

VANEK SMITH: It's like PLANET MONEY, but it is newsier and shorter and - of course, Cardiff, because we are hosting it - smarter (laughter).

GARCIA: Wittier.

VANEK SMITH: Just a lot smarter. I mean...

GARCIA: Even better looking somehow, yeah.

VANEK SMITH: ...A lot. So much better looking.

So go check it out. It is called The Indicator from PLANET MONEY, and you can find it wherever you get your podcasts. Here's today's show.

(SOUNDBITE OF MUSIC)

NICK FOUNTAIN, HOST:

Hello, and welcome to PLANET MONEY. I'm Nick Fountain, one of the producers here. And I'm going to let you in on a little secret about the news business. If you work for a big company and you have some bad news, there are two perfect times to tell the world about it, Christmas Eve and the day before Thanksgiving. If you release your bad news on one of those days, chances are very few people will ever hear about it, which is why when on the day before Thanksgiving, we heard some news, we almost missed it. And we would have missed it if it weren't for one person.

KELLY MCEVERS, BYLINE: (Laughter) Hey, there.

FOUNTAIN: This is Kelly McEvers, of course, host of All Things Considered and also one of our favorite podcasts, Embedded. Kelly, the latest season of your show is about who - what exactly?

MCEVERS: President Donald Trump. We did stories about the real estate that has his name on it and about the people who he surrounds himself with.

FOUNTAIN: And today on the show, we are going to play a part of an episode you did about Trump SoHo. It's this big hotel condominium tower in Lower Manhattan.

MCEVERS: Right. It's called Trump SoHo, but Trump and his company, the Trump Organization, did not build this tower. They actually licensed the Trump name to the people who did build the tower, and then they manage the building. And then, on the day before Thanksgiving - this day when news can happen and people can miss it - the Trump Organization actually announced that they were cutting their ties with the building.

FOUNTAIN: So today we are not going to let them bury that news. We're going to play Kelly's terrific show about the developers that built Trump SoHo.

MCEVERS: There are actually a lot of developers of this building, and we focused on one in particular - it's this company called Bayrock - and a guy who worked at Bayrock, this guy named Felix Sater.

(SOUNDBITE OF ARCHIVED BROADCAST)

MCEVERS: All right, so now we're going to talk about one of the developers of Trump SoHo. And to know the story about this developer, you need to know the story of a guy named Felix Sater.

(SOUNDBITE OF MUSIC)

MCEVERS: The two NPR reporters who did this story are Alina Selyukh.

ALINA SELYUKH, BYLINE: Hello, hello, hello.

MCEVERS: And Jim Zarroli.

JIM ZARROLI, BYLINE: Hello, hello.

Sater was from the former Soviet Union, came here as a child, living in the Brighton Beach section of Brooklyn, which is home to a lot of Russian immigrants.

MCEVERS: Felix Sater's father has a criminal history. He once pled guilty to extortion charges. And he wants his son to do better.

DAVID BARRY: He wanted Felix to be an above-board businessman. That was Felix's father's hope for his son.

ZARROLI: That's David Barry. He's a former AP reporter, and he's spent a lot of time covering organized crime. He covered the mob scene in Providence, R.I. He actually ended up writing a memoir with a guy named Sal Lauria, who is very good friends with Sater.

SELYUKH: And I should add here that we did try to talk to Felix Sater himself. Through his lawyer, he declined.

MCEVERS: So like David Berry just said, Felix Sater's father wants him to be an above-board businessman. He goes to a good high school. He takes some college classes but doesn't graduate. And then he becomes a stockbroker with his friend Sal Lauria.

SELYUKH: And so Felix Sater and this guy Sal Lauria grow up to be these high-flying brokers on Wall Street. They've got nice suits. They have nice watches. They're suave and dapper. And Felix Sater's trouble with the law starts at this party one night in 1991.

(SOUNDBITE OF MUSIC)

SELYUKH: Sal had just passed a broker's exam. It's very hard to pass. They're out celebrating.

BARRY: And it was a nice night of celebration at a nice restaurant that specialized in margaritas.

MCEVERS: There's this other broker who's there at the time. Somehow a fight breaks out over a woman.

BARRY: And Felix exploded and smashed this heavy margarita glass. You know, it was a goblet, not like a martini glass. And he just, in half a second or more, cut this guy's face open and kept swearing at him after knocking him down and leaving his face a bloody mass.

MCEVERS: The New York Times reported the man suffered nerve damage and later needed 110 stitches in his face.

(SOUNDBITE OF MUSIC)

SELYUKH: Felix Sater ends up going to prison, and he loses his broker's license.

BARRY: The really big thing for him was a felony conviction bars you from setting foot on a brokerage floor.

SELYUKH: Many years later, in 2016, Sater told a Russian news site that this drunken brawl, as he says, makes him a criminal. And he can't even get hired as a driver after this.

ZARROLI: And yet that really wasn't the end of Felix Sater's criminal career.

(SOUNDBITE OF MUSIC)

MCEVERS: After Felix Sater gets out of jail for the margarita glass incident, court documents show that he and Sal Lauria then started what's known as a pump-and-dump scheme.

ZARROLI: Sater and other people would buy up shares of stock through offshore accounts without telling investors about it. And by buying up a lot of shares, they would artificially inflate the price of the securities they were selling.

MCEVERS: Once the price was inflated, court documents say, they would sell the stock to unknowing investors. At the time, the FBI said Felix Sater and Sal Lauria were part of an operation that made $40 million this way.

ZARROLI: And we should say here that Sater and Sal Lauria weren't operating by themselves. They had help from the Italian Mafia.

MCEVERS: Again, this is from the court documents.

BARRY: To run something like that on a large scale, you need muscle.

ZARROLI: I mean, you can't just, you know, politely ask the other brokers not to sell the stock that you're trying to inflate.

BARRY: But if you have two guys who were soldiers for the Gambino family and they show up at the brokerage, the brokers listen. They're not listening to Hutton at that point. They're listening to Dominic and Sonny.

MCEVERS: Sal Lauria and Felix Sater's operation is discovered by authorities. They're arrested and accused of conspiring with the Mafia to launder money and defraud investors. In 1998, Felix Sater pleads guilty to one count of racketeering as part of this $40 million scheme. And here is where things get even more interesting. Instead of being sentenced for his crime...

ZARROLI: The charges against him were sealed, and the case against him was basically frozen for years. And the reason was that he turned state's evidence. He started to become a cooperating witness for the government, and he became a really valuable witness over the next 10 years or so.

(SOUNDBITE OF MUSIC)

ZARROLI: There was an FBI agent who testified at his sentencing hearing years later who said, you know, the difference between us cracking a case and not cracking a case is very often just one good, cooperating witness. And Felix Sater was that witness for us.

(SOUNDBITE OF MUSIC)

MCEVERS: One thing Felix Sater reportedly helped the U.S. government do was to try to get Stinger missiles. These are these shoulder-fired, surface-to-air missiles that have been used in Afghanistan off the black market. We read this in that book by David Barry and Sal Lauria. It's called "The Scorpion And The Frog." In the '90s, Sater reportedly traveled to Russia - remember, he's from there - and located a dozen of these Stinger missiles on the black market. Sater offered to buy the weapons, ostensibly to keep them away from terrorists. And in return, the CIA promised to keep Sater from going to prison. The deal ultimately fell through, but the contacts Sater were made were helpful to the CIA and the FBI after 9/11.

(SOUNDBITE OF MUSIC)

ZARROLI: We should say here that Sal Lauria disputed the accuracy of "The Scorpion And The Frog" right before it came out in an effort to stop it from being published in the early 2000s. But since then, David Barry says, Sal has told him the book is accurate after all. And Sal Lauria's name is still on the book.

SELYUKH: And this is where we now finally return to the story of Trump SoHo because what happens after this is Felix Sater has gone through a stint in jail and then turned as an informant in order to avoid his sentencing for the pump-and-dump scheme.

MCEVERS: But then, that second part becomes a secret. Like, everything you just heard about Felix Sater's $40 million pump-and-dump scheme and his cooperation with the government goes into a vault. As Jim said, the file is sealed by the court for years. And Felix Sater reinvents himself.

SELYUKH: And the next thing that he moves onto is a new real estate investment company called the Bayrock Group.

MCEVERS: A new real estate company called the Bayrock Group, one of the developers who would later go on to build Trump SoHo.

(SOUNDBITE OF MUSIC)

MCEVERS: And the reason we're talking about Felix Sater and Bayrock is because there are two very important questions, one of them reportedly of interest to investigators working with special counsel Robert Mueller right now. Here's the possible Mueller question - where did Bayrock get the money to help build Trump SoHo? And here's the other question - did Donald Trump know about Felix Sater's past as a convicted felon? Because if he did, well, that could be a problem.

(SOUNDBITE OF MUSIC)

MCEVERS: We'll have that part of the story after the break.

(SOUNDBITE OF ARCHIVED BROADCAST)

SELYUKH: So we've heard the story of Felix Sater. Now we're going to hear the story of this real estate company he joined, Bayrock. The company's founded in 2001. And in the next few years, they reportedly have their first meeting with Donald Trump. And they get an office at Trump Tower...

TIM O'BRIEN: ...Two floors beneath where the Trump family conducted their own business at the Trump Organization.

ZARROLI: That's Tim O'Brien. He's with Bloomberg. And he's been reporting on Donald Trump for decades. So at some point, Bayrock and the other developers come to Trump with this idea of building Trump SoHo.

SELYUKH: And the pitch is this. Let's build this 46-story condo hotel. You put your name on it, but you don't have to invest any of your money. We will raise the money. You'll get equity in the building. Plus, you'll be paid some management fees.

MCEVERS: It's called a licensing deal. Trump has done a lot of these kinds of deals over the years around the world. And here's why this deal made sense for Bayrock.

O'BRIEN: It's free publicity. The Trump name is known globally. For them, it amounted to hitching their wagon to a proven star, star of "The Apprentice," a well-known business name.

ZARROLI: And here's why that made sense for Trump. Remember, by this point, Trump's businesses have been through several bankruptcies. And Trump cannot get loans from major banks.

O'BRIEN: From Trump's perspective, anybody who walked into Trump Tower and put a bag of money on his desk could do business with him.

MCEVERS: This conclusion is based on what Tim O'Brien's sources have told him. So this licensing deal is clearly a win-win for Trump and Bayrock.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED CROWD: (Applauding).

MCEVERS: Then comes that TV announcement.

(SOUNDBITE OF TV SHOW, "THE APPRENTICE")

PRESIDENT DONALD TRUMP: Located in the center of Manhattan's chic artist enclave, the Trump International...

MCEVERS: Now, we do not know everything about where Bayrock and the other developers of Trump SoHo got their money. But there is one guy who claims he has an inside view of Bayrock. He worked there. His name is Jody Kriss. And one of the few reporters who has interviewed Jody Kriss on the record is Tim O'Brien.

O'BRIEN: Well, Jody Kriss grew up in Miami. He was a very good student. He went to Wharton. He excelled in mathematics and finance.

ZARROLI: And he wanted to be a New York City real estate investor. So at one point, he meets Felix Sater.

O'BRIEN: And Felix called him up and said, you should come and join us at Bayrock. We've got a lot of money. We've got some big developments in the pipeline. And ultimately, they said, you'll get a chance to work with Donald Trump.

ZARROLI: So Jody Kriss goes to work at Bayrock.

O'BRIEN: And in fairly short order, he starts to realize that he's in the middle of what he would describe as a car crash. It's poorly managed. There's a lot of money flowing through it, but he doesn't know where the money's coming from.

MCEVERS: Jody Kriss later filed a lawsuit against Bayrock, which lays out all these allegations.

ZARROLI: In the suit, Jody Kriss says every time Bayrock ran out of cash, money would just magically show up, sometimes from another Bayrock founder's brother who had access to cash from a chromium refinery in Kazakhstan.

SELYUKH: And then in 2007, this investment fund from Iceland called a FL Group announces that it will invest $50 million in Bayrock. And Jody Kriss had never heard of it.

O'BRIEN: He inquired of his partners - well, who is the FL Group, and why are we doing business with them? And in fact, we have better offers - or at least comparable offers - from other investors. So why are we going with this bank? And Kriss was told, he says, that we have to go with the FL Group because it's closer to Putin.

(SOUNDBITE OF MUSIC)

MCEVERS: Vladimir Putin, the president of Russia. Jody Kriss told Tim O'Brien he thought it was a joke when they said Putin's name - that he didn't know how to make sense of it all. The Kremlin has denied any connection to the FL group. And we should be clear here - taking money from Russian people isn't a crime.

But what Jody Kriss alleges in this lawsuit is that Bayrock was basically a money laundering operation. In other words, his suit says it was taking dirty money from Kazakhstan and Iceland and hiding it in what looked like a legitimate business, Bayrock, which built Trump SoHo. In the lawsuit, Jody Kriss says there's no evidence that Donald Trump took any part in or knew of Bayrock's racketeering schemes. Either way, Bayrock has denied the allegation.

SELYUKH: So back to Jody Kriss and this $50 million investment from FL Group to Bayrock - Jody Kriss was frustrated. He was a partner, but he wasn't getting his share.

ZARROLI: He went back to his partners and said, look, you owe me more money than you've paid out. The FL Group just put $50 million into our company. I think, based on that deal and others, I'm owed at least several million dollars.

MCEVERS: And this is where Jody Kriss says things get ugly.

O'BRIEN: And, according to Kriss, they said not only are we not going to pay you that but if you push the matter, physical harm will come to you.

(SOUNDBITE OF MUSIC)

ZARROLI: Here's what the lawsuit actually says. Sater made him an offer he couldn't refuse. Either take $500,000, keep quiet and leave all the rest of his money behind, or make trouble and be killed.

(SOUNDBITE OF MUSIC)

MCEVERS: Jody Kriss would not talk to us on the record. Bayrock said it can't comment on ongoing litigation. And Felix Sater's lawyer told us Jody Kriss' lawsuit is extortionate litigation.

SELYUKH: Either way, there's one more important thing to know about Judy Kriss' lawsuit against Bayrock. The legal proceedings start dredging up Felix Sater's criminal past, specifically the pump-and-dump scheme that was kept secret once he started cooperating with the feds.

MCEVERS: And this is something Jody Kriss, in his lawsuit, says was a very big concern inside Bayrock.

ZARROLI: He says the firm did what it could to sort of hide the fact from investors, from securities officials. And they were worried about it all the time.

MCEVERS: Which gets us to the final question - did Donald Trump know about Felix Sater's conviction in the pump-and-dump scheme and his connection with the mob in that case? Because if he did, at the least, he did something unethical. And at the most, it's possible he broke the law.

(SOUNDBITE OF MUSIC)

MCEVERS: OK. So first, here's why this could be a problem. Companies are required to tell investors if they have someone working for them who has a relevant felony conviction. Jody Kriss' lawsuit says Bayrock hid Felix Sater's conviction. Some lawyers we talked to said that if Trump worked closely with principal fundraisers at Bayrock who hid this connection, it could be considered part of a conspiracy. Other lawyers say conspiracy would be a stretch. And they say there's no evidence that Trump was a principal fundraiser for Bayrock. That is what would require him to disclose Sater's conviction.

At the very least, if Trump knew about Sater's felony conviction and didn't disclose it, most of the lawyers we talked to said it's unethical and it shows the kind of person Trump is willing to deal with.

SELYUKH: So it is possible that from the time they met up until 2007, Donald Trump did not know about Felix Sater's financial crimes, that pump-and-dump scheme that he pled guilty to. Trump says his company does background checks as best it can.

MCEVERS: Either way, the whole story broke on December 17, 2007, when The New York Times published an article about Felix Sater. And it told the story of the margarita glass, the pump-and-dump conviction, the Stinger missiles. As for what happened next, a lawyer named Richard Lerner picks up the story from there. He's been involved in lawsuits against Bayrock for years, and he has internal Bayrock emails from that time. They were filed as part of the Jody Kriss lawsuit.

RICHARD LERNER: The New York Times article was published on December 17, 2007. Two days later, in the case of Donald Trump against Tim O'Brien, he was deposed.

(SOUNDBITE OF MUSIC)

ZARROLI: Yes, you heard that right - Donald Trump v. Tim O'Brien, the same Tim O'Brien from Bloomberg that you heard earlier. Like we said, he has reported on Trump for years. And Trump sued him for defamation.

MCEVERS: In a deposition from that lawsuit, Trump was asked whether he knew about Felix Sater's conviction in the pump-and-dump scheme. Trump says nobody knew anything about him. An attorney asks, have you severed your ties with the Bayrock Group as a result of this? Trump answers, well, I'm looking into it because I wasn't happy with the story. So I'm looking into it.

LERNER: Then on January 21, 2008 - just a few weeks later - there are internal emails at Bayrock saying, there's going to be a meeting. And Donald Jr., Ivanka, Eric and Donald Trump Sr. are coming. Julius Schwarz, the general counsel of Bayrock, is coming. Sater will be there.

MCEVERS: Now, we don't know what that meeting was about. But remember, just five weeks earlier, The New York Times had published that article about Felix Sater.

LERNER: So in that email chain of January 21, 2008, I believe the very final email of the day is...

MCEVERS: Quote, "Donald is happy with me," Felix Sater says. "I'll explain when I see you."

(SOUNDBITE OF MUSIC)

MCEVERS: So in 2007, Donald Trump says, I'm looking into it. In 2008, Felix Sater writes, Donald is happy with me. And as recently as 2010, Felix Sater had a business card that said senior adviser to Donald Trump, the Trump Organization. And in that Russian interview he gave, Sater actually says for 10 years, he reported everything to Trump, quote, "sometimes twice a day, sometimes twice a week, sometimes twice a month."

Then, in 2013, Trump does this interview with the BBC's John Sweeney.

(SOUNDBITE OF TV SHOW, "BBC PANORAMA")

JOHN SWEENEY: Why didn't you go to Felix Sater and say - you're connected with the Mafia, you're fired?

TRUMP: Well, first of all, we were not the developer there. That was a licensing deal...

SWEENEY: But your name was on it.

TRUMP: ...A very simple licensing deal.

SWEENEY: But your name's on it, Mr. Trump.

TRUMP: Excuse me. But I don't know - you're telling me things that I don't even know about. I mean, you're telling me about Felix Sater. I know who he is. I know of him, and I know who he is.

SWEENEY: You stayed in bed, if I may say so, with Felix Sater. And he was connected with the Mafia.

TRUMP: Again, John - maybe you're thick - but when you have a signed contract, you can't, in this country, just break it. Sometimes we'll sign a deal, and the partner isn't as good as we'd like. But that does happen.

ZARROLI: We should say, contracts can be broken or renegotiated. And then, Trump just ends the interview.

(SOUNDBITE OF TV SHOW, "BBC PANORAMA")

TRUMP: And by the way, John, I hate to do this, but I do have that big group of people waiting. So I have to leave.

SWEENEY: OK. No - one last question please, sir.

TRUMP: I have to leave. Thank you.

SWEENEY: OK. All right then. Sir, let me shake your hand.

(SOUNDBITE OF MUSIC)

MCEVERS: The same year of this BBC interview, in 2013, Trump is asked again about Felix Sater in another deposition, this one related to a Bayrock property in Florida.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED WOMAN: So help you God?

TRUMP: I do.

MCEVERS: Here's a recording of some of that.

(SOUNDBITE OF ARCHIVED RECORDING)

TRUMP: I don't think he was connected to the Mafia. He got into a barroom fight. And - in fact, he was supposedly very close to the government of the United States as a witness or something. He got into trouble because he got into a barroom fight, which a lot of people do. I don't because I don't drink. But, you know, again, I don't know him very well. But I don't think he was connected to the Mafia.

UNIDENTIFIED MAN: About how many times have you conversed with Mr. Sater in...

TRUMP: Over the years?

UNIDENTIFIED MAN: Over the years, if you could estimate.

TRUMP: Not many.

UNIDENTIFIED MAN: Not many?

TRUMP: If he were sitting in the room right now, I really wouldn't know what he looked like.

UNIDENTIFIED MAN: OK. So when you say not many, I mean, is that - can you count that on one hand?

TRUMP: No, I wouldn't know what to say about that because I don't know. He would call - I think he dealt mostly with my company, not with me.

MCEVERS: This is how licensing deals work - right? I just had my name on the thing. I wasn't involved in the day to day. Jody Kriss told Tim O'Brien Trump was involved in the day to day - that even if Donald Jr. shook your hand on a deal, he might come back downstairs to renegotiate if his father told him to.

(SOUNDBITE OF PODINGTON BEAR'S "VIBE DRIVE")

MCEVERS: OK. So how does any of this relate to Robert Mueller and the special investigation into whether the Trump campaign colluded with Russia? We know from recent reports the investigation is broadening to include the financial dealings of Trump and his associates. We know the team will be looking at contacts made during the development of Trump SoHo between Trump and his associates and any Russians who could later have been trying to influence the election.

We know that Felix Sater has contacts in Russia. That's where his family's from. He helped the U.S. government there. And he's testified he traveled there with Donald Jr. and Ivanka Trump to try to drum up support for a Trump Hotel in Moscow. That hotel never happened. And now we know that Felix Sater, in 2015, sent this email - first reported by The New York Times - to Donald Trump's lawyer, quote, "our boy can become president of the USA, and we can engineer it." He goes on, "I will get all of Putin's team to buy in on this. I will manage this process." The White House says that email is a non-story.

Oh, and as for Bayrock and Trump SoHo, Bayrock has basically been dormant for several years. It hasn't done business in a while. Jody Kriss is in settlement talks with the company. After the financial crisis, Trump SoHo was sold in a foreclosure auction to another real estate company, which now runs it mostly as a hotel. The Trump Organization still gets management fees. Since Donald Trump became president, the restaurant in Trump SoHo closed, and sports teams have refused to stay there. A new restaurant is about to open. And of the nearly 400 units in the building, about a third of them have been sold.

(SOUNDBITE OF PODINGTON BEAR'S "AIRLINER")

MCEVERS: This episode was reported by Alina Selyukh and Jim Zarroli and produced by Chris Benderev and Tom Dreisbach. It was edited by Neal Carruth and Marilyn Geewax with help from Meghan Keane, Mark Memmott and Brett Bachman. Huge thanks to Barbara Van Woerkom on our investigations team and Mollie Simon on our business desk. Fact-checking was by Greta Pittenger and Tom Dreisbach. Our technical director is Andy Huether. Our lawyer is Ashley Messenger. Our theme song is by Colin Wambsgans. Other original music in this episode is by Jonathan Hirsch and Ramtin Arablouei. Digital help is from Alexander McCall. EMBEDDED is executive produced by me, Chris Turpin and Anya Grundmann.

You can find a lot of the legal documents we reference in the story at npr.org. Also, be sure to check out the excellent reporting on that criminal fraud case that was eventually dropped by the Manhattan DA. It's by Andrea Bernstein and Ilya Marritz of WNYC and Jesse Eisinger and Justin Elliott of ProPublica. It was published by WNYC and The New Yorker. There's a link to it on our Twitter feed, @NPREmbedded.

You can hear more NPR on your local public radio station on another show I host called All Things Considered. That is it for this round of Trump Stories for now. Thanks for listening.

(SOUNDBITE OF MUSIC)

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