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Chapter 16

Anticipating a Republican victory in the congressional elections of 1994, Gerald Cassidy, a lifelong Democrat, acquires a GOP lobbying firm. This shrewd move, however, is not enough to compensate for the loss in business that ensued.

By Robert G. Kaiser

Gerald Cassidy's ability to sense shifting winds in Washington is legendary among his colleagues. A memorable example came in 1994.

For years Cassidy had employed Fraser Barron, a quirky character who had worked on Robert F. Kennedy's presidential campaign, as the firm's director of research. In June 1994, Cassidy and several of his colleagues remember, Barron announced that the Republicans would regain control of the House and Senate in November. Cassidy found the prediction credible, he said years later. But his Democratic friends on Capitol Hill did not.

Characteristically, Cassidy decided he had to take Barron's prediction seriously. He approached two Republican lawyer-lobbyists, Peter Madigan and Michael Boland, both with good personal ties to the George H.W. Bush branch of the GOP. Boland and Madigan had gone into business together as lobbyists, and were doing pretty well. Cassidy offered to acquire them using company shares in a tax-free reorganization of the firm. Cassidy also proposed "to double the considerable money we were paying ourselves," as Madigan put it in an interview.

By October 1994, they had worked out details of a deal. The final papers were signed shortly after the thumping Republican victory that November. Most of the Cassidy firm was still Democratic, and the prospect of the first Republican Congress since 1953 unhinged an office that had traded on its Democratic connections. Cassidy's colleagues realized that he had taken an important precautionary step:

"People were impressed!" remembered Dale Leibach, then with Cassidy & Associates. "Gerry had in his drawer the most brilliant insurance policy! Boland and Madigan were players, and they were very smart."

Boland & Madigan was highly profitable and immediately made a significant contribution to Cassidy's cash flow -- $2.3 million in 1995, $3.4 million in 1996. Nearly half of its earnings were profits.

In hours of interviews for this series, Cassidy struck a modest pose, rarely taking credit and almost never bragging, but when it was suggested to him that lining up Boland & Madigan so fortuitously must have made him feel "pretty smart," he allowed himself a smidgeon of self-congratulation:

"Yeah, I was pretty pleased with that."


Still, the Republican sweep was an unwelcome event for a lobbying business founded by Democrats that had long relied on Democratic leaders in the House and Senate to win favors for its clients. James Fabiani, Cassidy's chief operating officer (and himself a Republican), remembered the 1994 election as one of several developments that knocked the firm off the smoothly ascending growth curve it had been on.

Increased competition; large investments in Powell Tate, the firm's new public relations arm; and a significant loss of business after the election -- Fabiani remembered losing $6 million in revenue by mid-1995 -- forced Cassidy into "a pretty substantial reorganization, including layoffs." In one difficult 30-day period in 1995, Fabiani recalled, "we fired 27 people," about one fourth of the staff. The salaries of those who remained were frozen. Fabiani remembered that he and Cassidy both worked for a year without a salary; Cassidy's recollection is that they worked for a reduced salary and took no bonus.

Grass-roots lobbying got the firm into hot water in 1995. A coalition of the big long-distance companies including AT&T and MCI hired Cassidy's new affiliate, Beckel-Cowan (now renamed BBA), to generate telegrams and mailgrams from voters to their members of Congress recommending defeat of a bill they thought favored the regional "Baby Bell" phone companies. Half a million mailgrams were produced by a telemarketing firm that BBA hired, but it soon emerged that most of them were bogus. Some came from dead people; many came from individuals who said they had never authorized use of their names. The coalition had to apologize profusely for the screw-up. Bob Beckel, who ran BBA, took responsibility for it, while blaming the telemarketing firm for the mistakes. The episode gave grass-roots lobbying a very black eye.

Buying Beckel-Cowan "was a major miscalculation on my part," said Cassidy years later. He tried to keep the firm going -- "another mistake" -- but dissolved it in 1998. Frederick Schneiders didn't work out either. The firm "did wonderful work," but Cassidy couldn't find paying customers who would commission the polls and focus groups it did. Cassidy had trumpeted the potential for collaboration among the various units he had assembled, but in the words of Greg Schneiders, "the much ballyhooed synergy" never really materialized.

Though Powell Tate did well at first, its revenues peaked in 1996, and the firm's big payroll then became a drag on overall earnings.

Even so, the numbers were much bigger than Cassidy and his colleagues could have imagined just a few years earlier. As it turned out, $6 million in lost revenue could be made up with aggressive marketing, long a specialty of the firm. By using outside "consultants" who acted as salesmen bringing in clients, and by approaching institutions that had never thought of hiring a lobbyist with ideas for how to extract money from Washington, Cassidy & Associates had a steady stream of new customers. By the end of 1995, the firm's billings were expanding again and totaled about $36.5 million.

But the ups and downs of the mid-90s took a toll on many of the old-timers who preferred life in the boutique firm that existed before 1989, when money began to dominate life at Cassidy & Associates.

"The company went from 'work hard, do good work for good people,' to just greed," said Elliott Fiedler, one of the early employees who came to Cassidy from the staff of Rep. David Obey (D-Wis.), a senior member of the appropriations committee.

Cassidy wouldn't use a term like greed, but he never tried to deny his interest in making more money. Wealth was always his preferred defense against the vagaries of life, to which he had been over-exposed as a boy. Employees like Fiedler loved the money they made at Cassidy & Associates, but they didn't share the proprietor's restless ambition for the really big bucks. Lobbying was the end for many of them; for Cassidy it was always a means -- a means to get rich.

So he repeatedly turned information gleaned in his lobbying work into investment ideas. Some never panned out, but some were remarkably successful. For example, he saw the opportunity created by the Reagan administration's Caribbean Basin Initiative, which allowed goods produced in favored Central American nations to be imported duty-free into the United States. One beneficiary was Costa Rica, where Cassidy invested $1 million in 1986 in a company that made circuit boards. He sold his interest in 1990 for $4.4 million.

Similarly, Cassidy saw the potential for cellular telephones when the government first allocated licenses by lottery to build the first cellphone systems. "I was part of a group that won one of the cellular phone licenses, and we built a cellular phone company down in North Carolina," he recalled. His original investment was $206,000; after a few years he cashed out for $3.1 million.

Over the years, Cassidy has often responded to ideas put before him by others. One such was brought to him by David Ifshin, a charismatic lawyer and financial executive prominent in Democratic and Jewish circles in Washington. Ifshin was impressed by the accomplishments of David Rubinstein, a young White House aide in the Carter administration who had made millions through the Carlyle Group, a global private equity or investment fund.

David Ifshin
David Ifshin proposed that Cassidy create an investment fund in hopes of cashing in on buying and selling other companies. (Photo courtesy Baltimore Jewish Times)

By 1995, Gerry Cassidy's own imagination was ranging far beyond the lobbying business when Ifshin suggested that they launch an equity fund of their own. "Gerry was very intrigued," recalled Lester G. "Ruff" Fant, Cassidy's lawyer at the time. Cassidy persuaded Fant to join the new enterprise, which Ifshin named Galway Partners LLC for the county in Ireland from which Cassidys had emigrated to America. Fant gave up his partnership in the Washington office of Sidley & Austin, a huge Chicago-based law firm, eventually joining Cassidy full time.

Ifshin thought they could exploit their personal connections to "raise large amounts of money, invest them in companies and get something for doing it," Fant recalled. "We know so many important . . . and rich people," Fant quoted Ifshin saying. "Through Gerry, we're one phone call away from everyone on the planet. There ought to be a way we can make some money on this." Fant said he wasn't sure this was a real business plan, but Ifshin pursued it by talking to a lot of rich people, offering to put them into future deals.

But no good opportunities had been identified, and no deals made, when Ifshin suddenly fell ill with renal cell cancer and died in April 1996. Galway hired a staff -- it grew to five or six people -- and did help launch an investment advisory firm called Columbia Partners, which has prospered for a dozen years. But Galway never had a real payday. Cassidy & Associates paid its costs, including rent in the building at 700 13th St. NW where the Cassidy firm had moved in 1991, and the salaries and expenses of all of Galway's employees.

Those outlays became a bone of contention within the lobbying firm, since, as Fant put it, a dollar spent on a Galway expense "was a dollar that was not available to be paid as a bonus to a lobbyist." Had Galway made money, Cassidy & Associates would have received 44 percent of its profits, Fant explained -- that was its share of the ownership. Galway was also committed to repaying its costs to Cassidy when it made some money -- but it never did. It eventually ate up several million dollars.

One Cassidy employee who worked on Galway was retired Gen. P. X. Kelley, former commandant of the Marine Corps, whom Cassidy had recruited to help diversify the firm's business. Kelley said he had many contacts in corporate America and was able to introduce some of them to Cassidy as possible clients. He only agreed to work for Cassidy on the condition that he never be asked to lobby Congress or the Pentagon.

Gen. Paul X. Kelley, USMC Ret.
Former Marine Corps Commandant P.X. Kelley was asked to work with Galway Partners. (Getty Images)

When Cassidy asked him to work on Galway, Kelley said, he agreed without really knowing what he was getting into. "It never really got off the ground," he said. "I'm not sure I knew what was going on, and that was my problem. . . . You kind of lose interest when nothing is happening."

Cassidy was easily tempted by new ideas for making money, Beckel said. "There was always this urge to drift off into other businesses that were quicker money makers than actually going out to work."

No matter -- Cassidy's determination to expand his reach, increase the size of his firm and get still richer only intensified. So he would next try, audaciously, to sell stock in his company to investors -- to "go public," something no lobbying firm had ever done.

Washington Post research editor Alice Crites contributed to this report.

Tomorrow: The stock market isn't interested.

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An overview of Gerald Cassidy's life and career.

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Now this is the Waashington lobbying/PR world I remember: insatiable greed at the top exemplified by an obsessive, not to say maniacal push for new clients, whatever the stripe; and mid-level staff only interested in doing the job rather than generating new business tryring to weather the enormous presure from the top for new business acquisition.
David Jewell -- Philaelphia

Posted by: dajewell | March 26, 2007 05:37 AM

"Cassidy wouldn't use a term like greed, but he never tried to deny his interest in making more money."


"Cassidy's determination to ... get still richer"

I want to know why Robert Kaiser is so suspicious of wealth acquisition. Does he find this to be an illegitimate or disreputable goal? What's all the weirder still is that he has already used Cassidy's childhood poverty as a way of "excusing" this behavior in his subject, but then looks down the nose at such activity at every opportunity. What's up with that? Someone once told me all journalists are socialists, but I never really believed it until now.

And Jewell, I don't think we read the same article. The factual aspects of this article are pretty impressive. Cassidy saw that the business climate was going to change before almost anyone else and made a savvy investment to take advantage of that -- which made money for himself, his employees and returned value for his clients. Bravo, I say. From your tone, it sounds like you think Cassidy would have done everyone a favor by going bankrupt.

Posted by: sportsfan | March 26, 2007 07:31 AM

The best part of today's story is actually at the very top -- when Robert F. Kennedy is mentioned. I was too young to really be part of that Kennedy magic, but I sure hope it returns in 2008. I read somewhere that Hillary Clinton was inpsired by Robert Kennedy, or something like that. Maybe she read his biography when she was younger. I don't know if she can recapture that spirit. She was OK in that town hall on TV this morning. But Iowa is not Camelot. Still searching.

Posted by: John2.Bravo | March 26, 2007 08:47 AM

To "sportsfan": I didn't mean to imply a lack of respect for Mr.Cassidy's business acumen which I gather is considerable. Nor suggest that his client's did not receive value for money, which some of them, at least, clearly did. My point, rather ineptly made, is that there is a climate in these industries (lobbying and PR) driven by the owners, that maniacally prizes new business and denigrates the servicing of existing accounts in which the top people lose interest once the new accounts are on board. Perhaps I have sensed this in the Cassidy firm where it did not exist. Perhaps Cassidy was/is an exception to this rule. As to all journalists being socialists I think, as an ex-newspaper reporter of 17 years in the professon, that you are somewhat off the mark. I think that most newspaper reporters are left-of-center to varying degrees, although I can't recall ever meeting any I would call socialist. Of course I supppose it depends upon one's definition of the word socialist which would be quite subjective. When I think of socialists in this country I think of Ralph Nader, Joan Claybrook and their acolytes. -- David Jewell, Philadelphia

Posted by: dajewell | March 26, 2007 09:29 AM

BTW, the Ifshin mentions brings more back memories too. Kind of foggy on this, but I seem to remember a story where Ifshin was protesting the Vietnam War, and they piped his messages into John McCain's prison cell. McCain and Ifshin later became friends, I think. How often do you see that. But I had forgotten that Ifshin died of cancer. Makes me think of Elizabeth Edwards, and what that poor family is going through. They've suffered so much. They were great on 60 Minutes last nite, tho, weren't they?

Posted by: John2.Bravo | March 26, 2007 11:16 AM

Sportsfan, I thought maybe you could use some clarification on why Cassidy and his associates tend to err on the nasty side of greed and how their actions effect other people in a negative way. I did a little research regarding Silber and Cassidy and their "nice" little alliance through BU. Let me remind you, Silber was the reason for BU investing in Saragen at the behest of Gerry i.e. " affiliate" in the article. They screwed the minority stockholders and then had to belly up the money to compensate them for their losses(almost five million dollars). When greed and wealth is your goal, you will corrupt in your soul. Hmmm, nice little rhyme I just made up.

Delaware Court Of Chancery Holds That Controlling Stockholder And Directors Breached Their Fiduciary Duty Of Loyalty To The Minority Stockholders In Connection With The Allocation Of Merger Proceeds

Delaware Court Of Chancery Holds That Controlling Stockholder And Directors Breached Their Fiduciary Duty Of Loyalty To The Minority Stockholders In Connection With The Allocation Of Merger Proceeds
The case of Oliver v. Boston University, 2006 WL 1064169 (Del. Ch. Apr. 14, 2006) involved Seragen, Inc. ("Seragen"), a financially troubled biotechnology corporation that was nurtured and controlled by Boston University ("BU") and by affiliates of BU. After numerous investments and the purchase of preferred stock by BU and its affiliates, and while Seragen was "on the precipice of financial doom," Ligand Pharmaceuticals, Inc. ("Ligand") offered merger consideration of approximately $75 million to acquire Seragen. In light of the merger, BU and its affiliates negotiated and entered into an accord agreement (the "Accord Agreement"), which "carved up" the consideration to be paid by Ligand.
The negotiation that occurred in connection with the Accord Agreement was a process that, according to the Court:
[W]as not burdened by anyone acting on a counseled and informed basis on behalf of the common shareholders who, from among various stratagems, could have injected into the allocation process (i) various derivative claims based upon earlier self-interested, capital-raising transactions and (ii) arguments against specific steps taken in that process that were inconsistent with the rights of the common shareholders.
The minority stockholders of Seragen commenced an action against BU, the directors of Seragen and certain affiliates of BU, which challenged (among other things) the process by which the merger proceeds were allocated.
After a two-week trial, in connection with the allocation of the merger proceeds and the Accord Agreement, the Delaware Court of Chancery held that BU and the BU-related directors of Seragen violated their duty of loyalty and had the burden of demonstrating entire fairness of the allocation and of the Accord Agreement:
The allocation of merger proceeds accomplished by the Accord Agreement was a self-interested effort that raised significant doubts about the director defendants' loyalty because these parties stood on both sides of the transaction and sought to gain, for themselves or for BU, at the expense of the common shareholders. Because this transaction was in violation of the duty of loyalty, the BU Defendants are charged with the burden of demonstrating the entire fairness of the overall allocation. . . .
The Court then held that BU and the BU-related directors of Seragen failed to demonstrate the "fair dealing" component of entire fairness:
The Director Defendants treated the merger allocation negotiations with a surprising degree of informality, and, as with many of Seragen's transactions reviewed here, no steps were taken to ensure the fairness to the minority common shareholders. More disturbing is that, although representatives of all of the priority stakeholders were involved to some degree in the negotiations, no representative negotiated on behalf of the minority common shareholders. BU, even with its substantial holdings of Seragen common stock, did not have the same incentive to negotiate for the minority common shareholder as an otherwise disinterested representative of the minority common shareholder would have been, because BU had interests that went well beyond its common shares. . . . Clearly the process implementing these negotiations was severely flawed and no person acted to protect the interests of the minority common shareholders.
Turning to the "fair dealing" component of entire fairness, the Delaware Court of Chancery reviewed each aspect of the allocation and held that BU and the BU-related directors of Seragen failed to demonstrate that certain aspects of the allocation were fair to the minority common stockholders. Indeed, the Court concluded (i) that the price assigned to the cancellation of a series of preferred stock held by BU - a price that resulted in BU being allocated $2,546,744 of the merger proceeds - and (ii) that a portion of the price assigned to the purchase of an entity related to Seragen and owned by BU - a price that resulted in BU being allocated $2,262,500 of the merger proceeds - were unfair. In sum, the Court held that damages "amount to $4,809,244," and that "[p]laintiffs are additionally entitled to nominal damages for the other process failures associated with negotiation and implementation of the Accord Agreement."

Posted by: Rachaelcre8f8 | March 26, 2007 12:18 PM

I forgot to mention that Ifshin worked for Mondale. I don't really remember much about that, I was just googling for memories of the good ole days.

Posted by: John2.Bravo | March 26, 2007 12:44 PM

sorry, I also wanted to mention that there's a great discussion about John Edwards and Elizabeth going on at Kos right now. You should check it out. Some of it's kind of weepy, but mostly really intelligent thoughts about them and their interview with Katie on sixty minutes. OK, just wanted to point that out. Elizabeth Edwards is great.

Posted by: John2.Bravo | March 26, 2007 12:55 PM

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