Who’s Gobbling Up New York’s Hottest Small Independent Fashion Designers?

Half-quietly, a new conglomerate has been gobbling up-or really, rescuing-some of New York’s hottest small independent fashion designers. Its working name is Pegasus Apparel Group, and in its bid to become New York’s homegrown equivalent of French luxury giant Moët Hennessy Louis Vuitton SA, it has already inspired talk of an industry transformation.

But its backers, an $800 million Greenwich private equity firm called Pegasus Capital Advisors, and a little-known New York dealmaker named Seth Bogner, are virtual strangers to the fashion business. Many of the same people who are looking to them for salvation are also wondering who the heck they are.

Pegasus has already bought evening wear designer Pamela Dennis, downtown hipster brand Daryl K and last season’s media darling Miguel Adrover. Deals with Cynthia Rowley and John Bartlett, among others, are in the works. And dozens of designers, desperate for backing, have been reaching out to the new guys, hoping to find shelter under Pegasus’s wing. Pegasus Capital Advisors has pledged up to $100 million to the fashion venture.

Mr. Bogner, a relative newcomer to the industry, helped cook up the original idea for a company that would provide management expertise, capital and back-room synergy to small but promising designers who can’t grow their brands on their own. Since the beginning, he has been involved in identifying and structuring the acquisitions. He is the dealmaker, the negotiator and hand-shaker who meets with the designers and talks through the deals. He is on the Pegasus committee that decides on further acquisition strategy. With a minor equity stake in Pegasus and a major strategic role, Mr. Bogner’s job now is basically to help make the deals happen.

Mr. Bogner refused to comment on the record for this story, and company officials deferred questions to Jason Weisenfeld, Pegasus Apparel’s director of public relations, who came to the company from Barneys New York. Mr. Weisenfeld insisted that Mr. Bogner was a background player, and that the leading figure in the Pegasus story was its new chief executive, Stephen Ruzow, a fashion industry veteran who formerly was president of Donna Karan. Mr. Ruzow has assembled an experienced management team comprised of many former Donna Karan colleagues. His credibility has gone a long way toward convincing industry observers that Pegasus is a promising venture that could infuse the industry with new talent.

But in press accounts, the name that keeps popping up, without explanation, is that of Seth Bogner. He has been identified in newspaper articles as an “investment banker” and “the mogul” (as Pamela Dennis, Pegasus’s first acquisition, called him in Women’s Wear Daily , much to the irritation of executives at Pegasus).

From published accounts of his past dealings and conversations with a dozen former associates, many of whom would not speak for attribution, The Observer has assembled a portrait of Seth Bogner, businessman.

At 38, the affable and well-spoken investment adviser has spent most of his career in real estate finance. He has the reputation, among former associates and employees, for being brilliant and articulate, with the ability to structure extremely sophisticated deals. But these former associates also complain that he often winds up getting the better of them. Numerous past real estate deals involving Mr. Bogner disintegrated into bitter legal battles between him and his partners. His career has been pockmarked by lawsuits, foreclosures and allegations of financial mismanagement. Of course, angry partners are not uncommon in the slippery, litigious real estate world, and it is difficult to determine whether Mr. Bogner’s legal skirmishes are symptomatic of a slick wheeler-dealer or merely a tough negotiator. But he has left behind a trail.

Seth Bogner’s current business at 200 Park Avenue South is called Union Square Partners. He’s also done business under the names Bogner Equities Corporation, Hearthstone Management Corporation and Nexus Management Corporation.

Mr. Bogner came to the city from Long Island in the early 80’s. He was in his early 20’s; former colleagues said he does not have a college degree. He worked as the manager of a restaurant called Cahoots on Columbus Avenue. “He was always a wheeler-dealer,” recalled a former Cahoots colleague. “He was a hard worker; he always had his eye on what was the next thing. He came in as a manager and left as a manager, but he looked like he was onto something bigger.”

After less than a year at Cahoots, he answered a newspaper ad for a real estate broker, according to someone who worked at the brokerage firm, Loeb Partners Realty. “They were looking for somebody with experience,” the person said. “But the guy loved his moxie and hired him.”

Steve Steiner, Mr. Bogner’s boss at Loeb Partners Realty, ended up suing him; according to people familiar with the suit, he alleged that Mr. Bogner had skimmed money from deals they had done together. Eventually they settled the suit. Mr. Steiner declined to comment.

Bright and Bad

After his apprenticeship at Loeb Partners Realty, Mr. Bogner began working with Morton Ginsberg, a Manhattan developer. They met when he was the broker for properties that the developer acquired. Mr. Ginsberg refused to comment to The Observer about Mr. Bogner.

The developer was impressed by Mr. Bogner’s articulateness, presentation and savvy, according to a former colleague of both men. Mr. Bogner wasn’t yet 30, but his confidence was seductive and so was his track record. “He’s a smart guy, very aggressive, he knows the financial markets, the real estate markets, Wall Street. That’s what Ginsberg brought him in for,” the colleague said.

According to sources close to the deal, Mr. Bogner played a central role in negotiating a $290 million mortgage-backed securities deals with Donaldson, Lufkin & Jenrette Inc. in the early 90’s. At the time, according to Barron’s , it was one of the largest bond deals of its kind. Eventually, the deal went bad and ultimately caused DLJ losses of close to $100 million, and a spate of lawsuits that, according to DLJ spokeswoman Cathy Conroy, were finally settled only last year.

“He’s a very bright man, he’s as bright as he is bad,” said Lloyd Zeiderman, who owns a real estate investment firm. After becoming involved in the DLJ deal and successfully selling some property through Mr. Bogner, Mr. Zeiderman says that he and his partners made Mr. Bogner a personal loan of $250,000. Despite a concession of a judgment signed at the time of the loan, subsequent litigation that began in 1993 and then settlement through mediation, Mr. Zeiderman said he is still owed more than $20,000, which Mr. Bogner is now paying back.

“He’s charming, and he has the ability to present just a fabulous situation,” said Mr. Zeiderman. “At the time when we first met him in the very early 90’s, he was a pretty young guy, but he had enormous sophistication in very complicated financing, and he had the ability to structure deals that were magnificent.”

The DLJ deal was this: Mr. Ginsberg would raise cash through a refinancing underwritten by DLJ. In 1991, and then again in 1993, DLJ issued bonds backed by mortgages on residential properties owned by Mr. Ginsberg. Bondholders then earned interest generated by the bonds, whose value was based on the properties and their revenue.

“When he came to us,” said Mr. Zeiderman, “it appeared to be a win-win for everybody.”

Instead, the deal turned into a fiasco for nearly everybody. By 1994, the revenue from the 38 apartment complexes came up drastically short of what had been projected. The properties were in serious disrepair and occupancy levels had dropped significantly. The 38 apartment complexes were managed first by Mr. Ginsberg, then, as of 1993, at DLJ’s request, by Mr. Bogner himself, through Nexus Management and then Hearthstone Corporation. In the summer of 1994, Moody’s Investors Service downgraded the bonds to junk status. Hearthstone was removed as property manager-Mr. Bogner was essentially fired. DLJ was forced to buy back $262 million worth of the bonds and ultimately became involved in a series of lawsuits with bond-holders, Mr. Ginsberg and Mr. Bogner. All told, by the time DLJ was finally able to sell the mortgages in 1997-in bankruptcy-the deal may have cost the firm close to $100 million.

Hearthstone folded, but Mr. Bogner was still able to leverage the DLJ deal profitably. It had earned him the reputation of being able to play with the big boys. The deal had been extremely complex, and the ensuing legal imbroglio was murky. But what people in real estate remembered was that this young hotshot had been able to negotiate and close a sophisticated Wall Street deal.

By now, Mr. Bogner drove a Mercedes and lived in a house in Connecticut, with his wife and children. (He and his wife have since divorced.) Out of Hearthstone’s ashes rose Bogner Equities which brokered deals, bought and sold apartment complexes and raised equity.

Assets? What Assets?

One real estate investor described how he became involved with Mr. Bogner in another property deal in the mid-90’s, just before the DLJ deal blew up: “I met Seth through a very good mutual friend of his, and Seth had done the DLJ deal, and I thought he was going to be a hot, young rising star while the DLJ deal was still alive and well. You know, you go into a guy’s office and he’s got 40 people working there, beautiful conference room, really showy place, and so the show was very good, and Seth is a really intelligent, well-spoken guy.”

This piece of business involved a multimillion dollar residential property in Delaware. Mr. Bogner had four partners in the venture. According to sources close to the deal, Mr. Bogner obtained the financing for the venture through First Union Corporation, where two of the DLJ bankers with whom Mr. Bogner had structured the DLJ deal had since moved.

“The deal was that Seth got the debt and he managed the property,” said one associate. “He never gave us financial reports, so we never knew what the property was doing. We didn’t have any partnership agreements among ourselves. Things escalated, we weren’t getting financial reports, no one was getting a penny, and we knew the property was cash-flowing.”

According to the sources, Mr. Bogner’s associates never saw any revenue from the deal. They eventually sued him. The property was put into bankruptcy, and then ultimately sold. Mr. Bogner and his associates came to a settlement agreement. “His whole thing,” claimed the former associate, “is having the management. Because when he has the management he has control of the funds.”

“He was managing partner,” said Eric Berliner, an attorney at Berliner & Pilson in New York, who was formerly counsel to Mr. Bogner and then a partner with him in the Delaware venture. “He basically put everything in his girlfriend’s name. All the management responsibility was in her name, and he had all the money sent to her.”

“When we did an asset search,” Mr. Zeiderman said, “we found that he had no money, or at least in his name.”

Wherever his assets are these days, Mr. Bogner has moved on.

So how will he fare in fashion?

“He’s bright, knows numbers, he’s a dealmaker,” said a former associate. “If other people can make money out of a relationship with him-so what if he has a reputation in another arena? He has the reputation of successfully doing a deal.” Who’s Gobbling Up New York’s Hottest Small Independent Fashion Designers?