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Even so, he never contemplated leaving the firm, even when John Mack of Morgan

Stanley offered him the job of running fixed income there.

But he began to drink more. A colleague saw him sit at the table in the Lehman dining

room and knock back a drink in one gulp before turning to greet people. "I was shocked,"

says this person. "Ordinarily Chris was the most perfect host; he'd always wait for

everyone else to have their glasses filled and make a toast before taking a sip; I realized

what a strain he must be under. Clearly he was drinking for medicinal purposes."

He had reason to be stressed. The lines dividing work and family had been blurred for so

long that the consequences of his infidelity were manifold. The Pettits and the Lessings

built homes in Hobe Sound's Loblolly Bay neighborhood near Jupiter, Florida, and Steve

Lessing's father-in-law, Andrew J. Melton Jr., got Chris, Joe, and Tom into his country

clubs. Tucker's wife, Heather, and Lessing's wife, Sandra, in particular, felt horrible for

Mary Anne. And Tom Tucker, reeling, blamed himself, says a colleague, because he'd

hired Dillman.

Colleagues say Pettit became increasingly isolated in the office. He wouldn't listen to

anyone; he became hot-tempered, apparently changing into someone that even Tucker

had to admit "he couldn't like." He became feared.

In 1995, he and Martha moved into a $5 million house in Brooklyn Heights.

Even though she knew it wasn't what her mother or any of her siblings wanted, Lara

Pettit slowly got to know Dillman during this period. "I could see she made my father

happy, and I didn't want him out of my life," she says.

But others in the office were less forgiving. They felt deceived by Pettit. "When we found

out that this affair was going on, it was such a betrayal," says one former Lehman

employee. "Part of the reason I loved being there was because I liked working for these

guys. I feel like they at least had some sort of code. And that affair was a breach of the

code."

Dillman was also divisive in the office because she was thought to be "Chris's spy." A

former senior executive recalls that he and his peers were told by John Coghlan, a

managing director in fixed income, to clam up whenever she entered the room, and as

politely as possible, to leave. "We were told to tell her absolutely nothing," says one

person intimate with the situation.

Pettit's troops resented her because she distracted him from his job--the two of them

would disappear for hours.

Gregory played up all the tumult the affair created in the office. He had good reason. He

knew Dillman loathed him, and he was still chafing with Pettit because of the peso fiasco.

Fuld largely kept out of all this. He did tell a few people, including Pettit, that he deeply

disapproved of the affair. He expected Pettit to sort it out.

Eventually Pettit talked things over with Dillman and they agreed that she had to leave

Lehman. In early 1995, Fuld sent out a firmwide memo saying Dillman was stepping

down to spend more time with her family.

No one was fooled. Pettit, according to Lara, felt so bad about the whole thing that he set

up a company for Dillman and put in some of his money. "He felt she'd given up her job

for him," she says.

Dillman's resignation did little to silence Gregory, who told others that Pettit was still

unhinged and that his private life was still affecting his work. Gregory also had another

reason to pick a fight with Pettit. He felt his division, fixed income, which brought in the

bulk of Lehman's revenues, should be better remunerated, and he didn't like the fact that

Pettit was protecting the heads of equities and banking, which were not performing so

well. (They were newer and weaker divisions.)

Gregory began holding secret meetings with people on the operating committee to

explore ways to limit Pettit's power.

Gregory said he was doing this for the good of the firm. Tucker recalls that in early 1996,

Gregory told him that Tucker had been a loyal