For Trump, his brief period as an activist investor of sorts was a lucrative turn in his career -- at one point netting him more than $200 million for just a handful of targets -- but also a controversial one. His profits were real, but so was the appearance of strategy that brought allegations of stock manipulation from rivals, regulators and lawmakers.
It's a four year-period Trump, now the Republican presidential nominee, never mentions on the campaign trail. Yet his venture into the high-risk, high-reward world of the "Barbarians at the Gate" offers a window into the deal-making strategy that forms the basis for Trump's presidential campaign -- and remains the stated approach the New York billionaire plans to deploy with vigor from the Oval Office should he win.
"I have made billions of dollars in business making deals -- now I'm going to make our country rich again," Trump pledged during his speech accepting the nomination at the Republican National Convention last month.
A CNN examination of the period included the review of hundreds of pages of testimony, depositions, financial and legal documents as well as interviews with more than a dozen former state and federal regulators, lawyers, executives from targeted companies and former Trump organization employees. It reveals a game plan for the novice, would-be corporate raider that bears striking resemblance to the playbook deployed by Trump the novice politician. It lays clear his penchant for operating without the advice -- or even acknowledgment -- of top advisers, placing a heavy emphasis on using the media to further his efforts and deploying bare-knuckled tactics punctuated by efforts to mislead, bully and even punish opponents.
The central issue for many was whether Trump was engaged in the tactic known as "greenmailing." It was an entirely legal strategy repeatedly deployed by activist investors throughout the 1980s -- a practice that, for lack of a better description, amounts to a corporate ransom payment. It works like this: An investor quietly buys up a significant amount of a targeted company's stock and threatens a takeover attempt. The company, in an effort to make the investor just go away, makes a deal to buy that stock back at a premium. The investor nets the difference.
It's a practice that has all but disappeared in the decades since, snuffed out by a series of state laws and a federal excise tax designed explicitly to rid companies of the threat many deemed as stock manipulation. But it was, at the time, legal -- something Trump himself made clear when he testified in April 1987 before the New Jersey Casino Control Commission.
"The practice is a totally legal practice, however, it's something, the name, greenmailer, is not a very pretty word," Trump said, according to a transcript of the hearing that CNN obtained. "It's a practice that on Wall Street is very open and common and done quite a bit."
It was an offhanded, unsolicited defense of a practice Trump, and his legal team, repeatedly and vigorously claimed he didn't engage in.
Explaining how he made $30 million in four months off stock of the parent company of then-Holiday Inn, Trump said simply that it's business.
"Well if you consider making a profit on the stock, you know, a goal, I guess I achieved it," Trump told the casino commissioners. "I would have rather found a cure for cancer, but I didn't, so I have no choice, so I made some money on the stock."
Trump, on the campaign trail, has no apologies for the tactics used throughout his business career. As he told The Washington Post, "I wasn't representing the country. I wasn't representing the banks. ... I was representing Donald Trump. So for myself, they were all good deals."
Asked to make someone available to discuss Trump's strategy and thinking during this period, Hope Hicks, a spokeswoman for Trump, declined in an email, saying: "We will pass. Thanks for reaching out."
First target: Holiday Inn
For Trump, his play in the market came as other business opportunities were beginning to slow down. Like other activist investors of the 1980s, the target was undervalued companies. Trump's endgame wasn't always clear, according to Dan Lee, who as a casino analyst with Drexel Burnham Lambert at the time was in regular contact with Trump about the potential targets and became one of his most trusted, though unofficial, advisers.
Takeovers were an option, but so was the possibility that the stock would simply rise enough for Trump to sell and make money, Lee, now the CEO of Full House Resorts Inc., said in an interview with CNN. One thing, according to Lee, Trump held that others in the business didn't: a willingness to try.
"He was willing to think out of the box, and he was willing to think differently than others," Lee said. "He was constantly pushing -- 'Why can't we do that? Why can't we do this?' He was pretty incorrigible in that way." It turned out to be a competitor -- one Lee agreed at the time was undervalued -- that became Trump's first target: Holiday Corp.
Trump had a contentious relationship with Holiday Corp. before he ever started buying stock in the company. The Trump Organization and Holiday skirmished repeatedly over their joint ownership of a casino in Atlantic City. They traded lawsuits, one of which included Trump's description of himself as "an entrepreneur who has achieved national and international prominence, reputation, and recognition as the result of the outstanding success he has achieved in conceiving, developing, and promoting various enterprises."
Eventually, Trump would buy out Harrah's ownership in the property in March 1986, seemingly putting an end to the drama.
Five months later Trump went after the casino operator's parent company.
Trump quietly began buying Holiday Corp. stock that August, and shortly after, instructed investment bank Bear Stearns to do the same -- just not under his name. It was a deliberate effort to dodge federal reporting requirements that would have tipped the company off to his intentions, according to a complaint the Federal Trade Commission later filed.
"He wanted to accumulate as much as possible before he had to notify the target," said Jeffrey Zuckerman, the former director of the FTC's Bureau of Competition, who oversaw the suit. "That's what this was all about." By the time Trump was done, he would hold 4.9% of the company's shares -- and send the company's management scrambling to block what appeared to be a takeover attempt.
That reaction wasn't off-base. Trump had amassed the reputation and cachet crucial to pulling off the kinds of hostile takeovers then dominating the headlines with names like Carl Icahn, T. Boone Pickens and Nelson Peltz. He was a newly minted billionaire with his own plane, helicopter, Fifth Avenue skyscraper and an oceanside compound in Palm Beach. He was the largest developer in Atlantic City and had the type of relationship with Wall Street banks that all but guaranteed he could get financing to take down any target.
There were also clear strategic reasons why Trump would want to acquire the company. Trump had long been looking for a way into the Nevada gaming market, and Holiday, with two casinos in the state, offered the opportunity to make that happen.
As Trump finalized his stake in the company, articles started to appear with "well-placed sources" in Trump's orbit attacking the company's management and threatening a takeover. A former Trump Organization official who worked with Trump during the period told CNN "it was almost always Trump who was the unnamed source or sources" in these stories.
The effort had its intended effect. Holiday Corp.'s board would, by that November, propose a $2.8 billion plan to restructure the company's debt -- one that gave shareholders a $65 per share dividend. The intent was clear: Block Trump's takeover effort. The company's stock price jumped. Trump sold his stock. He made more than $30 million in four months, having never presented a tender offer to the company.
'A gaming license is not a hunting license'
It was one of two deals Trump pursued that directly affected the gaming industry and, as such, drew scrutiny from gaming regulators. Takeover efforts -- or feints in that direction -- were center stage at Trump's April 1987 casino license renewal hearing in New Jersey.
"A gaming license is not a hunting license," Walter N. Read, the Republican-appointed chairman of the New Jersey Casino Control Commission, told Trump's lawyers at a 1987 hearing, according to a transcript CNN obtained. The state's gaming rules, Read pointedly continued, do "not encompass the use of a casino license as a weapon to weaken or undercut the financial integrity of its competitors."
Yet that, according to Read, was exactly what Trump had done over the course of the previous year.
Trump's emergence on the scene in Atlantic City had been generally welcomed by state gambling regulators. A fair-haired New York developer, Trump had a laudable attention to detail, a focus on building the best -- and most competitive -- casinos, and perhaps most notably, no sign of ties to the organized crime families that caused endless headaches for state officials, according to Carl Zeitz, a commissioner at the time.
Trump repeatedly told regulators his goals in accumulating the stock of his competitor and former partner were not only benign, but also not at all informed by his past relationship or deep knowledge of the company. "I purchased it as an investment in a company that I thought was undervalued at the time," Trump said of his sizable stake.
Asked if he thought he was the reason the company moved quickly to restructure, he pleaded ignorance. "I mean, it's possible it did, to be perfectly honest, it's very possible, but I don't know."
Asked if he thought the restructuring was good for the company, Trump said simply: "I don't think it was." He was right. Holiday Corp. was wounded. By 1988, the company's management was forced to engineer the sale of its Holiday Inn franchise and the company's parts were sold off for significant value for shareholders. Thousands of employees at the company's Memphis, Tennessee, headquarters eventually would be laid off in the process.
Trump, for his part, took to pointing out that by definition, his actions with Holiday Corp. weren't greenmailing. He sold his stock on the open market, not back to the company at a premium. But that was more luck than strategy. As Trump made clear in his testimony, the stock jumped so much it was the only logical move.
Despite his claims to the contrary, he'd explicitly broached the idea of selling his stock back to the company for a premium, the company's CEO, Michael Rose, told the commission.
'When I do research on things, they never work out well'
Trump didn't let his Holiday Corp. payday sit for long. Within days he'd picked out another target, one that just so happened to be another competitor in the casino business: Bally.
Again, he instructed Bear Stearns to do the same on his behalf, but under its name. He would use his Holiday proceeds to purchase $14.8 million in Bally stock, Trump acknowledged in his casino commission testimony. The total fell deliberately just short of the $15 million line that would trigger a need for federal notification. The whole strategy, according to Zuckerman, the former FTC official, was simple: "You're trying to keep it quiet."
But while Trump's ability to establish a major position in these companies quietly was clearly strategic, his rationale for doing so appeared less so -- at least according to him. In fact, when it came to Bally, he got the idea of going after the company from a single conversation with a single analyst -- Dan Lee, his trusted confidante from Drexel Burnham, Trump told a Bally lawyer in a deposition reviewed by CNN.
In that deposition, taken during a suit filed by Bally after Trump amassed 9.9% of the company's stock, Trump said he hadn't even looked at the company's proxy statements before he shelled out millions. He finally held a meeting with advisers from Bear Stearns after he'd purchased his stake in the company. "I wanted to start to learn a little bit about the company," Trump said of that first meeting. "I figured it was not a bad time to start."
Over the course of the depositions and testimony CNN reviewed from the period, it was a regular theme from Trump -- one with familiar echoes to his presidential campaign. While Trump had close advisers, "Trump will do what Trump wants to do. And often he'll do it without telling them at all," one former Trump Organization executive, who was with the businessman during this period, said in an interview.
The executive, who requested anonymity so as not to harm his existing relationship with Trump, recounted how most activist investors had teams of lawyers, analysts and advisers poring over the details of a potential target. Trump, on the other hand, wasn't even aware Bally had had health clubs -- a significant line of the company's business -- when he first started buying the company's stock.
Trump, in his testimony in front of the casino commission, put it like this: "I just felt instinctively -- when I do research on things, they never work out well."
Bally's management, not unlike Holiday Corp.'s, didn't take kindly to the news Trump had become one of the company's biggest shareholders and even less so to the idea that Trump, according to his testimony, was interested in "a friendly transaction" with the company. They sued. Trump countersued.
Eventually, the company made an offer on another casino -- the Golden Nugget -- as a poison pill of sorts. Trump, it turns out, pegged the eventual result of that deal accurately, noting "the debt load will obviously have a significant negative impact on the company," according to an affidavit he filed as part of his legal back-and-forth with the company.
"It suddenly created a situation in Bally Corp in which Bally, to protect itself from Donald Trump the corporate raider, had to go out and buy a second place," Zeitz, the New Jersey casino commissioner at the time, told CNN.
By February 1987, a deal was reached: The company would purchase 2.6 million shares for $24 per share. The shares were trading at $19.75 that day. Trump would also receive an additional $6.2 million for his troubles.
"He was certainly greenmailing," said Zeitz, now a Democrat supporting Hillary Clinton. "There's no doubt that was going on. That's why Bally went out and made a really stupid deal."
Asked during his casino license hearing if he had greenmailed the company, Trump said no.
"If I really wanted to, to use your term, greenmail, I could have probably done this a lot sooner and a lot easier and not have to go through all of the expensive litigation and the expense of, you know, the fight," Trump told the casino commissioners. "I'm not a person that, despite what people think, particularly loves litigation."
Asked if he considered himself a greenmailer, Trump demurred: "I would rather say I sold my stock back to the company as opposed to greenmail, if I could do that. I'm not sure. I hate to refer to myself as a greenmailer."
Behind the scenes though, Trump was blunt about what he'd accomplished, according to John O'Donnell, a former Trump Organization executive.
"Donald had bought a sizable chunk of Bally stock, then induced the company to buy it back at a premium to avoid a takeover -- 'greenmail,' as the practice is known," O'Donnell wrote in his 1991 book "Trumped! The Inside Story of the Real Donald Trump -- His Cunning Rise and Spectacular Fall."
Trump's lawyer at the time, Nicholas Ribis, made their position clear: "The record is clear in Mr. Trump did not buy stock with the intent of seeking a premium but, rather, to make a sound investment."
In 1990, Trump agreed to pay out $2.25 million to Bally shareholders who sued the billionaire and the company for allegedly artificially inflating the stock's price during their negotiations over Trump selling the stock back to the company.
American Airlines --- one target too many?
Over the course of three years, with Holiday Corp. and Bally and followed by companies including Allegis Corp. and Federated Department Stores, Trump netted more than $200 million.
But complaints about his tactics continued -- so much so that Nevada state legislators pushed legislation explicitly designed to block Trump from targeting casinos in their state. And in 1988, Trump agreed to pay a $750,000 federal fine the same day the FTC filed a complaint alleging he dodged federal stock notification requirements due his agreement with Bear Stearns -- though Trump admitted no wrongdoing.
Zuckerman, now the chair of the antitrust practice at Curtis, Mallet-Prevost, Colt & Mosle LLP, said the fault for that civil suit lies more with the investment bank, which pitched several of its clients the idea, than Trump himself -- a fact not lost on Trump, who at the time said he planned to force Bear Stearns to pay him back for the fine.
By 1989, Trump launched his biggest -- and most brazen -- effort of his career, notifying American Airlines executives via fax that he'd acquired a significant amount of the company's shares and was preparing a $7 billion takeover bid.
"Donald was playing a favorite game, a carbon copy of his raids on the gaming industry three years before," O'Donnell, the former Trump executive, said in his book. "The plan, as I saw it, was to spotlight the airline's value, force its board of directors to restructure, thus inflating the price of the stock, or make them run up the white flag and submit to a greenmailing. Either way, he was hoping to stuff millions of dollars into his pocket."
Market analysts questioned whether Trump could actually muster the financing for the deal. Airline insiders couldn't figure out how Trump could ever pull it off. The airline's hard-edged CEO, Bob Crandall, made it clear he wouldn't negotiate or pay ransom. It turns out, he wouldn't have to.
That very weekend, the financing of a separate, unrelated takeover effort of another airline by another investor fell through. A market crash followed, with airline stocks leading the way. Trump's nascent effort never recovered, and he dropped it altogether within nine days. Analyst estimates at the time pegged his paper losses at more than $100 million.
It was an unfriendly capstone to Trump's corporate raider period -- one punctuated by impressive success for a market first-timer but also plagued by controversy.
As he told the New Jersey casino board: "I think my only goal was, as an investor, it's a game that we all have to play, I guess is, to try and come out with more than what you put in. In that sense, yes, I achieved that goal."