The Knowland Retribution

New York

Elizabeth Reid had lunch delivered to Nathan Stein’s suite at twelve thirty. She ordered from Cippriani’s because Nathan was especially fond of their fettuccini with clams. For Tom Maloney she ordered the salmon. Both men had taken a walk after their meeting with Dr. Roy ended. She was ready for their return. Ms. Reid had been Mr. Stein’s secretary for seventeen years. She eschewed the inflated title “Administrative Assistant” while gladly keeping the inflated compensation it carried. While she was only two years older than he, she looked upon Nathan Stein as a nephew or cousin who needed assistance. She was loyal beyond any question, privy to most of his secrets, and quietly instructed her sister in buying and selling stocks about which she had acquired some overheard knowledge. Perhaps, she thought, it might be questionable, although she never for an instant thought it might be illegal. Everyone in the higher reaches of Stein, Gelb benefited in some way, and she was content to consider such things part of her pay package. Of course, she never overdid it. Her sister’s account, maintained at a distance at Smith Barney, was worth hundreds of thousands, not millions.

She saw Wesley Pitts and Louise Hollingsworth leave the meeting, followed shortly thereafter by the lovely Indian woman, Dr. Ganga Roy. Tom Maloney had given Elizabeth an envelope with instructions to hand it to Dr. Roy as she left. She knew there was a check inside. “It has to be a large one,” Elizabeth thought. The envelope was sealed.

She arranged the lunch carefully on the table in front of Mr. Stein’s couch. When Nathan and Tom returned she told them the food had arrived. Then she left them, closing the door behind her.

“What is it we’re sure of, Tom? Actually know, not surmise.”

“We’re certain the Knowland amp; Sons plant in Lucas, Tennessee, has turned out beef, ground beef, that’s testing positive for E. coli and that it’s happening too frequently for them to disregard. They’re thinking of shutting down and recalling the meat.”

“How frequent is too frequent?”

“The problem seems to be that they’ve been cited for violations an awful lot. In and of itself, that’s not big news. Every meat plant’s got E. coli violations. It’s all part of the game. But now there’s so much bad meat going out, and they’ve got so many violations, they think they may push the inspectors too far, which is hard to do. Ordinarily, they might recall the meat, shut themselves down, get cleaned up. That costs money, but sometimes it has to be done. Except now, MacNeal is worried about the deal. He wants to know how bad it will hurt to shut down. He wants to know if we can put off the IPO or pull some other rabbit out of the hat. He’s scared and he’s looking to us for direction.” He stopped and listened for signs of progress.

“How can they turn out beef with E. coli? How does that happen?”

“Well, I’ll tell you, Nathan, but you probably won’t eat beef anymore.” Tom laughed and took a forkful of salmon and spinach dripping in sesame sauce. He hoped the walk, the food, and the casual laughter would put Nathan’s mind at ease. For all of his faults, Nathan Stein had a keen sense of what to do in the trenches. “That’s where we are for sure,” thought Tom, “ in the trenches.” He wanted Nathan clear-headed and sharp as ever. He reiterated the process Billy Mac and Pat Grath had already outlined, complete with its potential downside effect. Tom had been sitting with Wesley Pitts when Billy Mac and Grath were on the conference call. Grath explained the concept of “captive supplies” and the money to be made speculating in live cattle. Knowland had done that, and the herd in question was, they thought, limited to the Tennessee plant. They were almost certain of that much. However, they had also been “mixing” more than usual-this on Billy Mac’s orders, which he freely admitted. By “mixing” foreign beef with their existing domestic supply they could increase profits dramatically in the short run. Billy Mac’s emphasis was now completely on the short run. He was selling the whole shebang and he wanted cash flow at the highest possible level in anticipation of the stock offering. The plant was also operating around the clock-three full shifts. Everybody in and around Lucas who could walk, crawl, or be dragged into that plant was working there, most six days, and some seven days a week. Almost all of them worked overtime because they always had trouble staffing the third shift. “Like it or not,” Billy Mac said to Tom and Wes, “we got drunks, junkies-amphetamines are real big around there-poorly trained incompetents, and men who haven’t had a night’s sleep in a week. Hey, look. you want the production, you get it any way you can. We got lines running three hundred cattle an hour!” Pat Grath had already talked about “operator fatigue”-a problem that haunted the industry-and he pointed out that the injury rate was now the highest in the company’s history.

“It’s a fucking time bomb,” said Billy Mac, “but who gives a shit. Soon as this thing goes down, we’re outta there.”

Very nice, thought Tom. However, Billy MacNeal conveniently overlooked the fact that another Stein, Gelb client, Alliance, would inherit his problems and pay a handsome sum to do so.

Grath had explained how the cattle are killed. Tom, obligingly, passed the information along to Nathan. One by one, he told him, the cows were herded into a chute, big enough for only a single animal. “Cows are dumber than shit,” Tom recalled Grath saying, with his usual, West Texas, semi-arrogant laugh. “But you’d be surprised how many of them get real antsy right about then, moving around, sort of trying to get out, you know, eyes all funny, squealing like pigs. Almost like they know what’s coming.” And what was coming was The End. The Knocker-that’s what Grath said they called him-used a handheld device that quite literally thrust a steel bolt in the cow’s head. “The cow goes down,” Grath had said, “usually dead. But when you’re running a line at three hundred head an hour, well, goddamnit, you’re pushing one through every ten seconds or so. Some of them don’t die. They’re still alive.” After the cow went down, it was hoisted, hung upside down with chains. Its throat was cut. Most of the animals that were still alive died then. However, a few didn’t. Federal law was quite specific on this point. The animal had to be “insensible” to pain before butchering was allowed. Grath had snorted at this point in his recitation. “What are they gonna do? Call Johnny Cochran?” The next stop on the line was the giant scissors. They looked like scissors, so that’s what Grath called them. Here the cow, dead or alive, had its legs cut off. As Tom told all this to Nathan Stein, he felt an irrepressible urge to laugh-the kind of laugh people have when something awful happens to someone else, the kind of laugh that says, “I’m so glad it’s you, not me.” He also saw that Nathan was queasy, visibly shaken by the image of anything hung upside down and having its legs cut off.

“You alright?” he asked. Nathan just nodded. Having successfully stifled his nervous laughter, Tom continued. The carcass gets skinned and split in half, he explained. Then it’s subjected to Steam Pasteurization, during which the meat is blasted with steam at 180 degrees while passing through a stainless steel chamber thirty-two feet long. When the beef emerges from “SP,” as Grath called it, another operator does a Steam Vacuum. The “SV” process is just like a carpet cleaner, he told them. It uses hot water and steam in a vacuum to pick off any remaining hair or fecal matter. “That’s cow shit for you fellas in New York City,” Grath said with a chuckle. He knew they knew he had never been close to cow shit.

After this, according to Grath’s running commentary, the meat was cut up and finally tested for contaminants. Tom stopped at this point to eat the last of his salmon and check Nathan’s intestinal stability.

“You okay?” he asked, patting his own stomach.

“Yeah,” said Nathan.

“Here’s the thing,” Tom said, “there’s always some meat that tests positive for E. coli. What they do with that meat is sell it to people who make chili-”

“What!”

“No, no. Don’t laugh. It’s true. They sell the bad meat for chili and dog food because it’s cooked before it’s sold to the public. Remember, if you cook beef to 160 degrees the E. coli is killed off. It’s only a serious problem when you eat those burgers rare. Grath said he himself adds prune puree to ground beef before making a burger; it’s supposed to suppress the E. coli, and, he says, makes the burger taste better if its cooked well done. So anyway, it’s the chili folks and others who make precooked beef products who get all the contaminated meat.”

“Holy shit,” Nathan said. “Do you eat chili?”

“No, I don’t.”

“Me neither. Not anymore. Is that legal? Selling it for chili?”

“It’s either legal or nobody much cares. Pat says that’s SOP. But what happened here is they needed so much meat to make their own quota that, first, they didn’t test as much of the meat as they’re supposed to. A lot of it went straight to the grinders. Second, some of the inspectors were tired, hungover, whatever-not up to their usual standards. Those guys work for the government, but they’re local people too. They were driving the line. Production was beyond plant capacity and they cut some corners. When they grind this stuff, according to Grath, it all gets mixed together, sort of like putting dressing on a salad and tossing it. The E. coli present in one batch spreads to others, and the whole thing with ground beef is that it’s so thoroughly combined the bacteria shows up everywhere.”

“Just the ground beef?” Nathan asked.

“No, not just the ground beef, but it’s a much bigger problem than with steaks or other cuts of beef. Once you clean those they’re apparently okay. Keep in mind, Nathan, I’m telling you what Pat told me. He said there are more than a hundred million cattle in this country, and we eat thirty-five million of them every year. I’ve got no reason to doubt him on these technical issues, but we can’t be a hundred percent sure.”

“Dr. Roy didn’t tell us any of this,” said Nathan.

“Meat packing and animal slaughter is not exactly her area of expertise.”

“Yeah, I know… all that doctor-doctor shit.” Nathan got up from the chair next to his couch, went to his private bathroom, and emerged a few minutes later. Tom was still sitting there.

“So, there’s no way there’s nothing to this?” the wiry little man asked Tom. Tom could see Nathan was physically trying to squeeze out of this-weasel out if he could. He’d seen Nathan Stein like this before. Just tell him there’s a way out and he’ll take it, and when it blows up in your face, he’ll blame you. On the other hand, Tom knew, tell Nathan Stein he’s in a bind, that the monsters have surrounded his house, and he becomes a single-minded fighting maniac. Tom decided that’s what was needed now.

“No,” Tom said. “Billy Mac is fucked. That means we’re fucked.”

“I want to know what our options are.”

They decided to meet again later that afternoon and have Wes and Louise join them. Tom’s responsibility was to coordinate with the others and present a battle plan for Nathan’s approval. The meeting would be in Maloney’s office, where he knew Nathan felt comfortable.

They gathered at three o’clock. Wesley Pitts spoke first. He nodded several times. “Let me give my conclusion first, and then explain my logic.” He’d been working on this all day, calling around, putting out feelers, checking with players who mattered. He’d spent the last hour and a half thinking about his alternatives, trying to come up with new ones. At the end he hadn’t budged from the first idea that came to him on the phone during Pat’s initial call, but he’d steadily built up a weight of anxious concern. Now he was more than ready to pass it around.

“If we tell Billy MacNeal to recall his meat and take his plant off line, we are fucked. There is no way around it. First we are fucked with the mutual funds. I went all out with them. I put my credibility on the line, the credibility of this firm. You know it hasn’t been easy. Some of these people have doubts. They don’t like that much cash going into Billy’s pockets. They think we’re generously structured. It’s taken a lot to keep them in line. If we pull back for a minute, postpone, show any weakness, they will walk. And then there will be a stampede. After that we won’t have a second chance. Not only will they not commit a cent, they will laugh at me for trying. And that’s just the beginning. Some of these guys do guest shots on cable and Wall Street Week, and the rest. We drop the ball on this and they will be talking about it. They will make it, and us, a joke.”

Wesley wiped his forehead with a monogrammed handkerchief. To Louise, the shining cotton looked like a bandage raised to a flowing wound. She’d never seen him quite this way, caught between fear and fury. Usually that part was under wraps. Nor had she seen him this eloquent. His normal act was a powerful mix of intellectual force and locker-room vigor. She considered him unique, morally righteous. How many ex-professional football players actually married a woman-a girl, really-he got pregnant? Pitts did. And while Pitts lived in Manhattan while his wife and daughter lived in Detroit, Louise thought she understood. She admired him.

He led with his meticulous grasp of facts based on research; delivered his pitch with celebrity panache, a winner’s edge of certainty. And he closed with the knack of knowing the answer before his opposite number thought of the question. He typically spoke slowly, weighting his words with belief. He wasn’t speaking slowly now. Louise was fascinated. She was also thrilled.

“People will want to know what went wrong. And it won’t take them long to find out Billy shut his Lucas plant because it was putting out poisoned meat. And it won’t only be Lucas. All of his plants will have to go down. Pat and Billy swear the other plants are clean, but who knows, and the government doesn’t care. If Billy shuts down Lucas, the public will demand he shut them all. And he might even have to shoot his whole captive herd. The minute he recalls one pound of meat, they won’t have any choice. It’ll make a helluva story. Stein, Gelb, the Texas tycoon, and the horse’s ass.” Nathan seemed about to say something, but Pitts refused to surrender momentum. “I’m just getting started.”

Louise flicked her eyes to Nathan. He looked like a dreadful statue, mouth frozen half-open, stone eyes locked on Wesley, Adam’s apple painfully sharp. With this kind of news, Nathan would be looking to her. She’d be his real hope now. Tom would try to soften the edges, but she could turn it around. And Wesley was setting the stage. She felt the excitement build inside her as Wesley thundered on.

“Now, let’s move to the mutual funds that currently hold Alliance stock. They’ve been expanding positions based on what Hopman’s putting out on the Second Houston deal. We postpone and they start asking questions. The deal looks weak and Alliance drops three or four points. Now those guys are in Hopman’s face. Is he fucking with them, or what? Here’s what they start to believe: We are peddling Billy Mac’s bullshit and Hopman’s peddling ours. Here’s what I think we’re looking at. First, no Second Houston IPO, now or ever. Second, busted credibility with the funds I’ve been working, and the funds holding Alliance stock. Third, a foreseeable parting of the ways vis-a-vis Hopman and everyone he knows.”

Wesley looked from one to the other. Louise narrowed her eyes when he got to her.

He grinned ferociously. “But wait; there’s more. Our own special accounts, all the big ones we’ve been working, our favored clientele. A deal like this goes down the drain, they never look at us the same. Next time they want this kind of action they go to Morgan Stanley, Prudential, East Bumblefuck Financial. Anywhere but here. We will have our best private accounts holding their noses when we come around. And what about all the assholes on the street? There are plenty of people who hate us as much as we hate them. They will take a thing like this and beat us with it until we are broken. Pretty soon, someone like Ben Stein will be picking through our ashes.”

He paused. When he continued, Wesley spoke slowly, choosing his words in the old familiar way. “And then there are the dollars we lose. If this falls through, Stein, Gelb watches seven to eight hundred million dollars slip through its fingers, plus sunk costs, which is the fifteen million we have already tied up in this. All down the drain.” Wesley coughed, took a sip of water, and went on.

“Knowland is the principal income stream for Second Houston. A government shutdown, a recall of bacteria-infested ground beef, perhaps just the implication, and you’ve got trouble pricing and selling the IPO and it no longer looks like a great move for Alliance to purchase control of Billy MacNeal’s company. And let me tell you something else,” he said, looking particularly at Tom, “Billy MacNeal may be a goddamn billionaire, a colorful character, all that cowboy crap, but to the people I talk to, he’s a fucking shitkicker, a wealthy fucking shitkicker, but a shitkicker nonetheless. Folks like us won’t run out in the street to stop the bus when it runs over him. We deserve better than to go down in flames with a guy like him.”

Nathan looked at Louise. She was busily going through her notes. Tom waited several seconds, then said, “Louise?” She felt ready. Nathan was waiting for her to dish up magic. Confident she had the stuff, Louise was equally aware of the importance of taking it out of the box just right. She opened her attache case and spread her notes in front of her for easy reference, point by point.

“This is very difficult, especially after hearing Dr. Roy, so let me just lay it out.” She paused while Tom cleared his throat and Nathan shifted uneasily in his chair. Then, she dove in. “Six plants distribute ground beef to the same market as Knowland’s Lucas plant, which is to say the southeast. Each of the six is owned by a different company. When something like this occurs, it’s not all that easy to track down the exact source of the meat.”

“You know this to be so?” Tom said.

She saw the nascent glimmer in Nathan’s eye. “I do. There have been a surprising number of E. coli incidents over the past ten years. They usually locate the source, but it takes time. And sometimes they never quite get it at all. The stores mix meat, one plant with the other, and it’s not as easy as you might think to separate out one from the other. The story is the people getting sick. By the time the source is identified the story has played itself out. Bad hamburger makes page one. Five or six months later, the story about who did it ends up on page fourteen, in a box. Few read it, and most of them forget it before their second cup of coffee. But,” and again she paused for effect, “assume things do go badly. Assume that someone does get sick, or worse. Assume the legal vultures all come down from the trees. They will. But they don’t know who to sue. So, they sue all six companies. The packers either settle or deny. That’s a lawyer’s decision. If you settle, you have it sealed. Probably Knowland settles. Why? If someone does get serious, there will be records. How much went to the chili and dog food people? That’s all written down. There is documentation. It may not all be accurate, and may not exactly follow the rules, but it’s there. Sooner or later some plaintiff’s attorney will put it together. The other five may feel they have nothing to hide, in which case they will deny. One or two may have problems of their own we don’t know about, stuff they don’t want looked into. So maybe they settle. That’s what Knowland does. Purely a lawyer’s decision. No admission of anything. Confidentiality rules. No investigation that means anything. And all of this is months down the road.”

Wesley said, “At what cost? How much?”

“Less than what you were talking about. Twenty to fifty thousand for someone who’s hospitalized. And if, God forbid, there’s something else, a half million, a million, tops two or three. Historically, that’s what it’s been.”

Tom said, “Something’s not clear. Aren’t there inspectors crawling all over the plant? Why don’t they do the recall and shut it down?”

Louise felt high as a kite. Meeting a twenty-five-year-old bartender as horny as she or a delivery boy with unlimited stamina also made her feel this way. She heard her voice, symphonic, in the distance.

“They don’t have the power. The system is built the American way. It’s there to protect the industry as well as the people who eat the meat and do the work. We are not Communists here. If you want to take a plant off line, or do practically anything else, you have to report it up the chain. And that’s when things slow down. Reports get lost. Reviews take time. There are always appeals. You want to know about recalls? The entire Department of Agriculture cannot order a recall. All they can do is recommend.”

Nathan, suddenly back from the dead, joyously barked: “You know what? This is the greatest country on earth.”

Louise reached into the spread of notes. “Let me read you something. It’s from the New York Times. This is purely mainstream.” She held up a printout. “It’s about a plant called Shapiro, similar to Knowland. Dozens and dozens of violations. Nobody lifted a finger. Inspectors everywhere. All of them know what’s going on, but they also know the law. They know they can’t do a thing. This is a quote from several inspection reports. They wrote this over and over: ‘Preventative measures not implemented and/or not effective.’ Do you follow that? What does that mean? Nothing. It’s not supposed to.”

Louise beamed at her colleagues. “Until 1992 nobody thought E. coli could kill. Then a couple of people died from eating Jack in the Box hamburgers. That’s a fast food chain on the west coast. After that they tweaked the system. Passed some regulations. All of which led to what? The rates of E. coli did not change and life goes on.”

Tom said, “This is great to hear. But where does it get us?”

“The inspection system is set up to fail,” Louise said. “Imagine the worst does happen. People go to the hospital. Maybe one or two succumb. It was bound to happen. And everyone’s exposed. The industry, the government agencies, politicians, whatever. The general trend is to cover it up and make it go away. Some people, a couple of liberal papers perhaps, show a little interest. Otherwise, what happens? Cable and the networks march along. They take the message they’re given and work it. What I’m saying is that as a practical matter, we may find that moving ahead need not impose prohibitive risks.”

Nathan said, “We keep the plant running?”

“I’m not saying that, Nathan. That’s something I cannot say, especially after hearing Dr. Roy. That’s not a decision I want to make. I’m saying that if you decide to go that route, there may be ways to manage it. I’m not saying it will be easy. We’ll have a lot of mountains to move. But as a practical matter…”

Tom said, “Thank you, Louise. Frankly that’s more good news than I expected.” Then he sat back, fingertips touching.

“As I see it,” said Tom, “we have three options. First, we can advise Second Houston to recall its ground beef and then postpone or cancel the IPO, with all the consequences Wesley has outlined. Second, we can advise Second Houston to say nothing about any bad meat already out there, hope it takes weeks for the stink to reach Knowland, if it does at all, go forward on our end with the IPO, and deal with adverse effects later on. These will include exposure to Alliance, Second Houston, and potentially to us, in terms of the clients we put into this, and perhaps the value of our own warrants and options down the line. Third and finally, we can advise Second Houston to go forward, to publicly deny any responsibility for anything, and to settle claims on a confidential basis following advice of counsel. We move our clients in and out of both Second Houston and Alliance a bit more quickly than we planned. Simultaneously, Louise starts working now to position the following message: meat packing is not a pretty business, and it’s absolutely un-American to scapegoat one company out of many.”

Nathan said, “What happens to the price of meat?”

Louise said, “I’d expect a hit to the industry. But it shouldn’t last very long. I think we’d see some short-term losses, but no lasting damage. Obviously there are no guarantees.”

Wesley said, “I can’t think of anything else. One puts us dead in the water. Two puts us waiting to die. Option three gives us a working shot. All we need is a little nerve.”

Tom said, “There’s one more point that should be made. By allowing this IPO to move forward without disclosing what we know, we are in violation of statute. I’m not suggesting we let that taint our judgment. I just want to have it clearly said, because it’s a part of the picture.”

Tom Maloney’s job as Senior Vice President of Mergers amp; Acquisitions meant he would be the point man for such a deception. He hadn’t reached these lofty heights by being stymied by bad news. He calculated the odds of success in his mind, looked at Nathan, and nodded in agreement. Wesley Pitts watched Tom’s eyes and immediately signaled his support. Only Louise, whose analysis led to the third option in the first place, seemed to hesitate. “Dr. Roy said ‘people will die.’ People will die,” said Louise.

“People die every day, Louise,” Tom said.

“Like this?” she asked.

Wesley Pitts said, “Remember the natural gas deal we had two years ago? They had a labor problem that held the whole thing up for weeks. When they sent me their plan, do you remember what it said?” He was talking directly to Louise and he waited for an answer. He knew she remembered, but he wanted to hear it out loud. Finally, she said, “Yes, I remember.”

“Two million dollars and two lives,” Pitts said. “Two million and two lives.”

“There’s a budget for everything, Louise,” said Nathan.

“I know,” she said, “I know. But what if Dr. Roy’s worst case scenario emerges from this? A lot of people could die. What do we do then?”

“Not going to happen,” Nathan said. “And what about our people? What happens to all the people who depend on this firm? We get hurt. We get hurt bad. What do you say to the guy in our Seattle office who’s got two kids in college? Or the young hotshot in Chicago who just turned down a job at Merrill or Morgan Stanley because he’s confident his future is here, with us, with Stein, Gelb, Hector amp; Wills? We have people all over the country like that. For more than seventy years our people have trusted their management. That’s not going to change on my watch.” Nathan stood and waved his arms around as if the act of doing so enabled him to take the entire company and hold it to his breast. “What about all these people right here in New York, right here in this building, on this floor, outside that door? What do we say to them if, today, we make a decision in this room that brings the kind of results Wes talked about?”

Tom Maloney, much to his surprise, choked up. He hadn’t heard Nathan talk like that in years. He was reminded of how he once admired the man. Wesley Pitts paid no attention at all to what Nathan just said. It seemed he’d heard that kind of crap from dozens of coaches all his life. He did, however, sense the thrill of victory. “The kind of results Wes talked about.” Those were Nathan’s words.

Louise Hollingsworth looked at Nathan Stein. She knew he trusted her, relied on the opinions she offered, and demanded unanimous consent for a move like this. Option three was hers. She felt the pressure to support it like rocks stacked on her chest.

“Okay,” she said. And with that simple, single word, all doubt vanished from her mind. Her energies were already concentrated on success.

“Sell this,” Nathan demanded.

“I’ll call Billy Mac,” Tom said.

“Call Hopman too,” said Nathan.