The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [344]
Within Salomon, the squeeze had caused considerable angst. In the press, the firm was painted by its competitors as the pirate of Wall Street. The board members, including Buffett, had expressed outrage at a meeting that Salomon had cornered the market for two-year notes. Feuerstein had had Snow commence an internal investigation of the squeeze in June. As it turned out, Mozer had held a dinner with two hedge-fund customers right before the auction, and these customers had placed bids involved in the squeeze. With hindsight, the dinner pointed to possible collusion and market manipulation. But in the absence of proof, Mozer explained it away.31 Gutfreund had set up a meeting to see his overlords at the Treasury and the Fed to mend fences over the squeeze. When he went to see Glauber in mid-June, he sat on the sofa puffing a cigar. He offered a mea culpa to Glauber for the aftereffects of the squeeze and offered to cooperate with the Treasury—but defended Mozer against allegations of intentionally rigging the May auction. And he made no mention of what else he knew, leaving out anything about Mozer’s false bids in the earlier auction. In response to the squeeze and to the earlier run-ins with Mozer, however, unbeknownst to anyone at Salomon, the SEC and the Antitrust Division of the Justice Department began investigating the firm anyway.
About a week after the Glauber meeting, Gutfreund, Strauss, and Meriwether met to consider whether the firm should now come clean with the Treasury about the February auction. Because the hue and cry over the squeeze had not abated, they decided to keep silent. They felt the time was not right. Days later, the SEC sent Salomon a letter asking for information about the May auction. This was the first indication that the problem of the two-year note auction might be escalating instead of fading away. Anyone receiving this inquiry letter might reasonably have gotten nervous about the SEC’s sudden interest in the operations of the government-bond trading desk.
Two days later, Gutfreund had flown to Omaha to visit Buffett, while on his way to Las Vegas to see some property that Salomon had financed. In telling the backstory to Maughan, Snow, who did not know about this trip, left it out. Buffett would later fill in these details.
“I picked him up at the airport. John was in the office for about an hour and a half. He spent about an hour making some calls, then we talked for about half an hour. He was sort of pacing around. We didn’t talk about anything in the end. It’s a pain in the neck to stop in Omaha, yet he really had nothing to say.”
Somewhat baffled as to the purpose of the visit, Buffett took Gutfreund to a quick lunch, then for a visit to the recently acquired Borsheim’s jewelry store, near the Furniture Mart. The proprietor, Ike Friedman, Mrs. B’s nephew, was cast in the same mold, and like her, somewhat larger than life.
Friedman took Gutfreund to Borsheim’s “center island,” where the really expensive goods were displayed. Gutfreund picked out a $60,000 item for Susan. It mattered to Buffett, Gutfreund said later, that he had made a purchase.32 Then he glanced at the expensive watches strategically displayed just behind the center island, and strolled over to look at the merchandise. Friedman preferred selling very expensive jewelry to timepieces. “Oh, watches,” he said to Gutfreund. “You lose them, you break them. Why pay a lot of money for a watch?” He looked at the fancy wristwatch on Gutfreund’s wrist and asked Gutfreund what he paid for it. Gutfreund told him.
“$1,995,”33 Friedman repeated. “Well. You got taken, John.”
“And you should have seen the look on John’s face.”
Wearing the watch on which he got taken, Gutfreund returned to New York at the end of June to present the burgundy-colored satin-lined Borsheim’s box to Susan.
Within days—by early July—the Antitrust Division of the Justice Department