Chapter One: "Pizza the Hut": Leon Black and the Art of the Fleece CHAPTER ONE "Pizza the Hut" Leon Black and the Art of the Fleece Katie Watson was a brown-eyed toddler in Phoenix, Arizona, beloved by her family for her sunny, easygoing ways. In 1982, when she was not yet two, Katie had become permanently brain damaged, after a local hospital failed to treat her pneumonia properly. Her parents, Vince and Sue Watson, received a medical malpractice award in a lawsuit against the hospital and, directed by the court, invested part of it in a guaranteed insurance company contract. The investment promised to deliver a monthly stream of income to Katie to cover expenses for her care. That court overseeing the Watsons'' case steered them to buy a product issued by the Executive Life Insurance Company, then rated A+ for financial soundness--the highest grade an insurer could receive. Under the arrangement, known as a structured settlement, Executive Life, California''s largest insurer, contracted to pay $9,000 a month, with a cost-of-living adjustment, for as long as Katie lived. The funds would cover round-the-clock care for Katie at home, and after a trial and settlement with the hospital, the Watsons started receiving the insurer''s payments in 1986. Four years later, Executive Life was teetering.

Its investment portfolio had cratered amid a bond market meltdown, and the California insurance commissioner seized it in the spring of 1991. Then the commissioner sold the insurer''s investment portfolio in a virtual giveaway to a New York financier and his partners, claiming the deal would benefit policyholders. Not exactly: Katie''s "guaranteed" contract with Executive Life--and the payments it had promised--was no longer in force. Under the vastly reduced terms of the new post-takeover policy, her parents could not afford the costs of Katie''s care, expenses they would now have to shoulder themselves. Unable to pay the mortgage on their home, they lost it to foreclosure. Katie, who passed away in 2017, wound up receiving millions of dollars less than Executive Life had promised to pay for her care and support. Executive Life had over three hundred thousand policyholders, many of whom relied on it for regular payments. Like Katie, these customers took a serious hit after the company was seized and its assets sold in a deal engineered by the New York financier.

A 2008 audit of the deal by the state of California tallied policyholder losses at over $3 billion, a figure that is probably low. Which New York titan of finance won control of Executive Life''s deeply discounted assets all those years ago? Leon Black, cofounder of Apollo Global Management and a billionaire many times over. Today he enjoys a sumptuous art collection, an array of palatial homes, and, until recently, a seat of power on the prestigious Museum of Modern Art board. The multibillion-dollar bonanza known as Executive Life was the very birth of Black''s fortune. In 1991, when he snared it, Black''s new partnership, Apollo, had just been born. Running from the implosion of his former employer, a felonious brokerage firm known as Drexel Burnham Lambert, Black managed to wrangle the Executive Life assets on the cheap, for roughly 50 cents on the dollar. Some called it "the deal of the century." Later, the transaction would come under federal prosecutors'' scrutiny and Black would be named as a defendant in a California attorney general''s conspiracy suit related to it.

But that case, alleging secret arrangements that cheated the state and Executive Life policyholders, was dismissed on a technicality--the judge ruled that the AG had no standing. Black walked away with his gains. Thirty years later, the Executive Life transaction is long forgotten. In 2021, a California court approved the state insurance department''s request to destroy all documents detailing the failure, saying that the matter was closed because policyholders had finally received their last payouts. The document destruction started in early 2022. Still, the deal is rich for reexamination. Why? Because it is Exhibit A for the kinds of financial engineering and exploitation that have led to the elevation of wealthy financiers and the degradation of other stakeholders over the last three decades. In fact, Black''s takeover of Executive Life''s assets is a Rosetta stone for how a small group of aggressive moneymen have extracted the wealth and treasure of the American middle class, working poor, and retirees since the late 1980s.

The Executive Life transaction stands out as a harbinger of the destruction to come in another way. In recent years, these same financiers have begun acquiring insurance companies outright, putting current policyholders at risk of losses from questionable investments, all the while generating enormous fees for themselves. Many policyholders don''t even know their futures lie in the plunderers'' hands or that the historically conservative assets that used to back their insurance and retirement policies have been replaced by those that carry far more risk. But we''re getting ahead of ourselves. First, consider the winners and losers in the long-ago Executive Life deal: the transaction made billions for Black and his partners, almost overnight, at the expense of retirees, pensioners, and the disabled. All were Executive Life policyholders, like Katie Watson, who''d been promised payouts or end-of-life benefits. They wound up forfeiting money as a result of the deal that Black and his partners dreamed up. Second, even though the Black-led sale of the insurance company and its assets was overseen by a California court charged with ensuring fairness, many aspects of the deal were cloaked in secrecy and riddled with conflicts of interest unknown to policyholders.

This, too, was a precursor to the present day; conflicts and secrecy--even in a judicial system that is supposed to be transparent for the public good--are key features of the private equity playbook, enabling them to put themselves and their interests ahead of workers, pensioners, and investors. Had the Executive Life policyholders and their advocates known about the conflicts and hidden relationships, they could have agitated for a better deal. For example, if policyholders had known Black and his partners were already investors in some of the bonds they acquired in the Executive Life takeover, the policyholders could have demanded higher prices from Black for those bonds. But the man representing the Executive Life policyholders in the deal, who was obliged to get the best possible outcome for them, was no typical seller. He was the California insurance commissioner, an ambitious politician named John Garamendi. He gave Black the Executive Life prize, claiming then and forevermore that policyholders did well in the deal. After several unsuccessful runs for California governor, in 2009 Garamendi became a congressman, a Democrat who today represents the state''s eighth district, northeast of San Francisco. Wealth transfers like the Executive Life deal, where the assets of everyday Americans wind up in the hands of cunning financiers, are often blessed by government officials.

Indeed, regulatory complicity or complacency has been crucial to the successes of these elites over the decades. More than a decade after the deal occurred, federal prosecutors contended it was infected with fraud. A foreign company, affiliated with Black''s group, that purchased the insurer had unlawfully concealed its ownership stake. Although the United States Justice Department went after some of Black''s associates in the transaction, and California''s attorney general named him as a defendant in its conspiracy case, Black, the mastermind, was never found culpable. Another recurring aspect of the plunder years. Katie Watson''s parents had tried to fight the sale of the insurer''s assets to Black''s new partnership. They''d traveled to Los Angeles to attend court hearings and argued against the sale with the insurance commissioner on the courthouse steps. None of it did any good.

Today, Vince and Sue Watson are still angry that money pledged for their daughter''s care wound up in Leon Black''s pocket. "Leon Black got the deal of the century on the backs of the handicapped and the brain-damaged," Sue Watson told us. "Over the years, we tracked him and saw how he thrived with our money. Wow is all I can say. Wow." Seeing Black pick the Executive Life carcass clean in the early 1990s was only the beginning, Sue Watson recounted. In the years that followed, she and her husband watched as he rose to dazzling wealth and status in New York City, amassing all the trappings. There was the private jet, the yacht, the real estate holdings in the Hamptons, Los Angeles, London, Westchester County horse country, and Manhattan''s Upper East Side.

And the art! Black''s prodigious collection included a Raphael, a famed Picasso sculpture, and the only privately held copy of The Scream by Edvard Munch. One of the most iconic images in all of art, Black purchased it for $120 million in 2012. Six years later, Black ascended to the chairmanship of the Museum of Modern Art, founded by Rockefellers. He and his wife Debra gave $40 million to the museum, which named its film center for the couple. Black''s fortune stood at $7 billion in 2018, according to Forbes magazine. Black''s climb to t.