Sachi Cole (2:18)

Well, Ian's wearing a button down shirt and carrying a briefcase full of books, financial records and documents. On the surface, you're right. He looks like any other 70s New York businessman. But his office is anything but typical. Ian is one of the co owners of Studio 54, the hottest discotheque in New York City. It's a very exclusive club. Every night thousands of people from all over the world line up outside hoping to get in and party with celebrities like Cher, Liza Minnelli and Andy Warhol. It's the place to be right now. Apparently some people are so desperate to get in they buy maps that claim to show how to sneak into the club through the subway system. And once you're there, well, here's how one ITN reporter set the scene.

ITN Reporter (3:04)

Piercing lights, a cascade and special effects. Supple bodied young waiters dressed in nothing but shorts.

Sarah Haggie (3:12)

Yes, this is cultural iconography at this point. You know, you think Studio 54 and that's exactly what you see. It's like flashing lights, disco vibes, people dancing. People are still doing Studio 54 themed parties today, right?

Sachi Cole (3:26)

Yeah. Studio 54 is a paradise for the beautiful, the fashionable and the famous. Which makes Ian and his business partner Steve Rubell two of the most powerful men in Manhattan. But as Ian rounds the corner of 54th and 8th, he notices something is off. There's a lot of commotion on the block. That's not unusual for Studio 54. But it's nine in the morning, which is way too early for anyone to be lining up. Ian approaches the door and tries to unlock it, but it won't open. He jiggles his key in the lock, but the door still won't budge. Finally, it swings open and standing on the other side is a Federal Marshal. Studio 54 is being raided by the IRS under suspicion of tax fraud. Ian steps inside and sets his briefcase on the ground. And that's when he realizes he's cooked. Because inside that case, along with his books and documents, are five 1 ounce bags of cocaine. The Feds seize the drugs and arrest him. But the coke isn't even the most damning thing they find because the Feds also seize Ian's papers. Papers that might contain evidence of the tax fraud the agents were looking for. Steve and Ian have been doing everything necessary to keep the party alive. But when the full scale of their crimes comes to light, it'll spell the end of Studio 54 and the death of disco itself. From Wondery. I'm Sachi Cole. And I'm Sarah Hagie and this is Scamflancers.

Sarah Haggie (5:06)

Come and give me your attention I won't ever learn my lesson Turn my speakers to 11 I feel like a legend.

Sachi Cole (5:14)

Studio 54 had it all. Disco, drugs and decadence. It was a perfect symbol of the 1970s. And behind it all were two best Ian Schrager and Steve Rubel. Together they built the ultimate party playground at a time when cocaine flowed freely, birth control had just changed the rules and AIDS was still unknown. But Steve and Ian weren't just liberated at the club, they were liberated in their finances too. And after reaching the peak of the global nightclub scene, their seemingly never ending party will end in handcuffs instead of confetti. This is Studio 54. Tax Evasion at the Disco Legend. It's 1964 and 21 year old Steve Rubell is on campus at Syracuse University handing out tickets to a football game. Steve's just five'5 and £120, but he's got a big personality. He has a bright goofy smile, a floppy head of hair, and he really knows how to schmooze. He helped a friend get elected student body president and that friend returned the favor by putting Steve in charge of seating at football games. So if you want a good seat, you gotta talk to Steve. This is just one of the ways Steve runs the school's social scene. Here's how one of Steve's friends described him in the AE documentary studio 54.

Sarah Haggie (6:36)

If you wanted to meet a certain girl, you saw Steve Rubell. If you needed to know what courses.

Sachi Cole (6:43)

To take, you saw Steve Rubel. He knew everybody at Syracuse University. It's a sharp contrast to his childhood where young Steve spent a lot of time on the outside looking in. He grew up in a working class Jewish family in Brooklyn. His dad was a mailman and a competitive tennis player, but couldn't afford to travel enough to go pro. Instead, he started teaching the game on the side. And as a kid, Steve played tennis, but he never quite fit in with the wasp y country club types. Tennis gave Steve a front row seat to a different kind of life, one with estates, country clubs and wealth. Now he's at Syracuse on a partial tennis scholarship, hoping that a higher education will help him attain this kind of life for himself. He's well on his way. In addition to being in charge of football seeding, he's also the captain of the tennis team and he's in a fraternity. Steve's comfortable being the big man on campus, which makes him an unlikely match with one of his close friends, Ian Schrager. Ian's a freshman economics major. He's the total opposite of Steve, quiet and introverted. The two of them met while in the same fraternity, but the details are a little fuzzy. In one version, the two met because they were dating the same girl. In another version, Ian says Steve saw him refusing to give up in a wrestling match against a way bigger guy in their dorm. Either way, they become fast friends, despite their differences. They're both working class Jewish kids from Brooklyn who dream of moving up in the world. And together they're going to do just that by reinventing the party. It's the summer of 1969, and Ian's taking a break from law school to party at Woodstock. We don't know exactly what he gets up to at the festival, but let's imagine him lighting a joint as Jefferson Airplane takes the stage. Whatever he does, Ian later describes Woodstock as one of the most important events of his life. It sticks with him even after he goes back to studying law at St. John's University in Queens. He's amazed that 400,000 people could come together without laws or police, and somehow everyone got along. Woodstock is still in the back of Ian's mind several years later when in the mid-70s, he reunites with his old pal Steve. Steve spent the last few years running a chain of steakhouses called Steak Loft. But he expanded the business too quickly and now he's in debt. Ian steps in as his lawyer and helps him keep the creditors at bay. In the process, they realize they make good business partners. So they decide to take on a new nightclubs. They planned parties and bar mitzvahs back in college, but now they have bigger ambitions. Discotheques are on the rise, especially with the queer community. In fact, Steve is a frequent patron. And while he never publicly identifies as gay, it eventually becomes an open secret. And he is a regular at all the best discos in town. Ian loves the idea of owning a disco for other reasons. To him, it feels like a chance to recreate the energy he experienced at Woodstock. And he might already have an in with the business. His dad was an associate of the famous mobster, Meyer Lansky, who was a notorious loan shark. When Ian's father died, his criminal enterprise was taken over by three brothers, one of whom, Sam Jacobson actually moved in with Ian's mom, which kind of makes him Ian's stepdad. This connection turns out to be an important one, because throughout the 60s and 70s, New York's gay clubs are largely backed by the mob. They are cash heavy businesses, which make them perfect for money laundering, tax evasion and other types of organized crime.

Sarah Haggie (10:25)

Wow, I had no idea. I do think that makes a lot of sense. It's not like a gay club can function totally legally and the mob can provide A level of protection for a price. I don't think they really. They care who their clients are in that sense.

Sachi Cole (10:42)

Well, I think that's Beautiful, Sarah. In December 1975, Steve and Ian opened their first New York nightclub, the Enchanted Garden. It's located in the clubhouse of a golf course so deep in Queens it's almost Long island. It costs them $27,000 to open, but no one's quite sure of where the money comes from. They operate the club under the company name, Steak Loft of Douglaston. So it's possible Steve floated money from his other business. But it's also possible that Ian went to Sam and used his family mob connections. Either way, they are skirting the law from day one. New York City has a cabaret law which bans singing and dancing at establishments that serve food and drink without a special cabaret license. But getting a license takes forever and it costs money. Plus, the law is only sporadically enforced. Most club owners don't bother trying, and neither do Ian and Steve. Instead, they just get a basic restaurant permit and start throwing parties. And these parties are legendary. There's an island of paradise night with fire dancers, palm trees and a 70 pound pig roasting on a spit. And an Arabian Nights themed party complete with real camels and a snake charmer. The events draw over 2,000 people to the club every weekend.

Sarah Haggie (12:01)

That is so many people, especially in a city like New York where there are a million things happening every single night, every single weekend.

Sachi Cole (12:10)

Yeah, well, it also stirs up a lot of anger from the neighbors. Noise and property damage complaints start piling up, and soon the city starts looking into the club since it's on a municipal golf course. The parks department steps in. And In September of 1976, they order Steve and Ian to stop operating an illegal club. They're free to run Enchanted Garden as a restaurant, but they can't keep throwing wild parties without a cabaret permit. But instead of complying, Ian and Steve tell the city to shove it. They get their lawyer to draw things out in court, which allows the Enchanted Garden to keep operating. Things seem calm for a while, but a few weeks later, the club's neighbors take matters into their own hands. Dozens of community members, including a state senator, block the entrance and try to drive away patrons. If the city can't shut them down, the locals will. Steve and Ian are in for a long fight, but their attention is already wandering. Sure, they've conquered queens, but it's not enough. Now they're setting their sights on bigger names and more money. In the bright lights of Manhattan. It's February 1977, about a year after Steve and Ian opened Enchanted Garden. They've spent the last few months touring old churches and firehouses, trying to find a location for a nightclub in Manhattan. But nothing seems right until they hear about a building on West 54th Street. One of their business acquaintances was planning to open his own nightclub there, but his backers fell through. Now the space is up for grabs. The building has a pretty cool history. It was originally constructed as an Opera House in 1927. For a while, it was the CBS TV studio where they taped what's My Line and the Jack Benny Show. But the neighborhood is in rough shape now. There's a lot of crime in the area, including rampant drug use and frequent muggings. But when Steve and Ian pass through the doors, it feels like they've stepped into a different world. The building is massive, 20,000 square feet with an 85 foot ceiling and a grand lobby with original crown molding. Ian and Steve agree. They love it. They pay their acquaintance a finder's fee and bring in a third partner, another Brooklyn guy named Jack Duchet. Jack is 36 years old with dark hair and a cool, laid back style. He owns a successful chain of discount stores, and he actually met Steve and Ian when he hosted his son's bar mitzvah at Enchanted Garden.

Sarah Haggie (14:40)

I feel like everything is really falling into place for these guys in a way that is, you know, I'm waiting for the other shoe to drop here.

Sachi Cole (14:49)

Yeah, well, it's a show called Scampflains Are Sacred. So it's coming. Well, Jack, Steve, and Ian are equal partners in the company they formed to lease the building. But there are some, let's say, discrepancies around the financing. Some sources say that Jack puts up anywhere from $400,000 to $700,000 in cash to make the club happen. Other sources say the three of them contributed $130,000 each. However it went down, they pull together enough money and get to work, and right away, everyone is under a lot of stress because for whatever reason, they want to open in just six weeks. Of course, Jack, Ian, and Steve want to hire the best nightclub people in town. But their competitors have told everyone not to work with them. We don't know if this was an intimidation tactic, but either way, they have to pivot. So if they can't hire nightclub people, then they'll hire theater people. And this turns out to be a perfect fit. After all, the space used to be a theater. They keep the lighting rigs that were already installed and hire the lighting designers from Bob Fosse's steamy new musical Chicago. They also keep the balcony seating for people who just want to watch the festivities from above. There are still some challenges. For example, the sloped floor is bad for dancing, so they have to level it out. But they're able to make all of this construction happen quickly without permits or unions. They also move ahead without a liquor license. It might be because it can take months to get approval for one, but it could be because around this time, the New York State Liquor Authority has a reputation for denying liquor licenses to gay clubs. And Steve explicitly wants Studio 54 to be gay friendly. Either way, they find a workaround. They apply for a series of one day catering permits which allows them to serve alcohol even though they're not really a catering company. It's clever, but also shady. These are the kinds of business practices you normally want to keep hidden. But Steve, Ian and Jack do not care. They want Studio 54 to be huge, so they sprint toward opening day with as much fanfare as possible. As far as Steve and Ian are concerned, more is more and they're about to get everything they can handle. It's the night of April 26, 1977. Moments before the grand opening of Studio 54. The DJ runs a sound check. As the bartenders finish prepping their stations. Steve, Ian and Jack are buzzing with anticipation. They've poured a lot of money into the business already, but they're spending an additional fortune on opening night. It's Maybe not the $1.1 million reported in the New York Daily News, but they are going all out this evening. Steve has been boasting that there will be Hollywood level special effects like a snowstorm and a tornado on the dance floor. And they sent out thousands of elaborate invitations. 16 by 20 full color posters with the Studio 54 logo. Here, take a look.

Sarah Haggie (17:53)

Yeah, you know, it's a photo of Steve and he's holding a poster of the iconic Studio 54 logo that we all know. It's just like one of those things that's so everywhere that you're not even thinking twice about it. It is crazy looking at this photo and regardless of what happens in this episode that I don't know yet, they still did that. And he's holding this not knowing what the future will hold, which I always think is very cool.

Sachi Cole (18:18)

Yes, it is iconic, iconic disco. And Steve and Ian have done a great job creating buzz. Maybe too good. As the crew puts the finishing touches on everything, Steve hears banging on the door. When he runs outside, there's a sea of people spilling out onto 54th street, all clamoring to get into the club. Some are waving invitations demanding entry. A few even throw bottles. Amid the chaos, Steve rushes over to tell the bouncers that it's time to open up. Immediately, the club is packed and people are having the night of their lives. They drink, snort cocaine, and allegedly have sex on the theater balcony. Gay people, straight people, trans people, and drag queens all take to the dance floor, all somewhere between undressed and dressed to the nines. It's exactly what Steve imagined. Sarah, can you read this quote from Steve?

Sarah Haggie (19:13)

Yes. He says if it gets too straight, then there's not enough energy in the room. If it gets too gay, then there's no glamour. We want it to be bisexual. Very, very, very bisexual. You know, I think he's talking about a balance. To me, I understand what he's saying. It's like he wants it to be for everyone, but weird enough, but fun enough, but chic enough. And I guess to get that, you do have to have a proper balance of sexuality.

Sachi Cole (19:44)

I mean, Sarah, this is what we call gay math.

Sarah Haggie (19:47)

Yeah, exactly.

Sachi Cole (19:48)

It's the only math you'll ever need.

Sarah Haggie (19:49)

This is gay math. It's true.

Sachi Cole (19:51)

Well, the opening night party is teeming with celebrities like Cher, JFK Jr. Henry Winkler, and Warren Beatty, along with about 4,000 other people. The party goes until 6am and the next morning, Studio 54 is on the front page of the New York Post. They're a hit until the following night, when the vibes are a little off. Only about 400 people show up for night two, about 10% of the opening night crowd. The dance floor looks pathetically empty. And it gets even worse the rest of the week. Sometimes they close early with only 200 people inside. They need to turn things around fast. So Steve goes back to what's worked over the top theme parties. On May 2, less than a week after opening night, Studio 54 throws a birthday party for Bianca Jagger organized by her friend, fashion designer Halston. Steve hires a publicist to make sure the celebrity list is stacked and the press is in attendance and they're not disappointed. Bianca rides through the club on a white horse, led by a naked man covered in gold glitter.

Sarah Haggie (21:01)

I like that we got to the Bianca Jagger portion of this because she was a bit of a mainstay there. If I remember correctly, she was.

Sachi Cole (21:09)

And suddenly, Sarah, Studio 54 is back. Steve is thrilled. He loves being in charge of the velvet rope, the same way he loved deciding who Got to sit where? At college football games. Unsurprisingly, Steve's pretty picky. As Studio 54 ramps up, he enforces strict standards. For example, anyone who shows up in polyester is immediately denied entry because the fabric will melt under the lights. Here's Steve in an encounter filmed by the British broadcaster itn.

ITN Reporter (21:39)

Oh, you're not shaved. There's no way in. Helen, you guys are gonna get in. It doesn't matter if you're not shaved. Listen, just go home.

Sarah Haggie (21:47)

Yeah, I mean, it's genius to create, like, this level of exclusivity and like an arbitrary set of rules for who gets in and who doesn't. That's what gets people wanting to go there.

Sachi Cole (21:57)

Well, Steve's standards do occasionally backfire. One time, he unknowingly rejects the Saudi prince, which prompts an angry call from the country's embassy. When Steve's not manning the velvet rope, he's hyping up the crowd. Sometimes he runs around the club handing out quaaludes and cocaine from his giant puffer coat. Meanwhile, Ian hangs out in the back office taking care of the boring stuff, like writing off the drugs as a business expense.

Sarah Haggie (22:24)

I mean, technically, they're not a business expense.

Sachi Cole (22:30)

Their first month is a roller coaster, but by the end, the place is packed every night. And between the COVID fee and the price of drinks, they're raking in thousands upon thousands of dollars in cash every night. And the high, both literal and figurative, is intoxicating. Steve and Ian are flying, and they'll do whatever it takes to keep this feeling going, even if it means breaking a few more laws along the way.

Sarah Haggie (23:04)

I feel like.

Sachi Cole (23:08)

It'S the end of May, 1977, about a month after Studio 54's opening. Michael Roth is at a party, but it's Definitely not at Studio 54. Michael's a buttoned up guy with wavy hair and half rimmed glasses, and today he's attending a private event at a Manhattan restaurant. Michael comes from wealth and used to be a partner at a prestigious law firm, but a few years ago he gave up his salary to become chairman of the New York State Liquor Authority. He has political ambitions and a civil servant gig like this probably looks good on the resume. Now his job is mediating disputes over who gets liquor licenses in the city. And earlier this week, his agency cut off the fraudulent one day catering permit Studio 54 has been using to sell booze. So when Michael hears at this party that they're still serving alcohol, he's appalled. Steve and Ian aren't new to the clubbing business, so he knows they're deliberately flouting the law. Michael immediately takes action. He hops in his car, drives to the nearest police station to pick up a plainclothes officer, and arrives at Studio 54 at about 1am There's a line, but the cop flashes his badge and the bouncer lets them in. Once he's inside, Michael is hit with sensory overload. The music is loud, and the strobe lights make him feel like he's moving in the slow motion as he pushes his way through the crowd. When he finally makes it to the bar, he orders a scotch on the rocks. The bartender charges Michael $2.50 and hands him a drink. It's all the evidence he needs to shut the place down. But just to be safe, he finds a second bartender and orders another drink.

Sarah Haggie (24:46)

And then he's like, you know what? I'll find a third bartender. Let me order another one.

Sachi Cole (24:51)

It's a good party.

Sarah Haggie (24:52)

Yeah. I mean, it must suck when you're kind of enjoying the party, but your job is to shut it down.

Sachi Cole (24:59)

Well, the cop leaves to go get backup, and soon enough, half a dozen police officers storm the club. The music shuts off, the house lights turn on, and everyone leaves. Everyone except for Ian, Steve, and two bartenders, who all get arrested. Michael is satisfied at first, but his victory doesn't last. Ian and Steve are released after just a few hours, and the next night, the club draws about 600 people, even without liquor. Really, this might be the biggest scam of all. Because Studio 54 is charging an $8 cover, which is more than 40 bucks in today's money, employees at the club hand out a flyer explaining the situation. Sarah, can you read it?

Sarah Haggie (25:39)

Yes. It says, welcome and thank you for joining us this evening. Due to an unfortunate misunderstanding, we are unable to serve alcoholic beverages tonight. However, we have a variety of soft drinks and juices. And you are welcome to drink as much as you like at no charge. Studio 54 will remain open. We thank you for helping make it the success that it is. That is not encouraging for people who are at the club. I'll say. I mean, free juice sounds great for someone like me, but it's New York City. There are a million other places they can go.

Sachi Cole (26:14)

But here's the thing, Sarah. Even without the booze, people are still having a great time. One reporter writes that spending three hours at Studio 54 made her feel more stoned than she had ever been in her life. And for people who do want more than a natural high it seems like Quaaludes and cocaine are everywhere. In fact, every night, the club lowers a giant set piece depicting a man on the moon snorting coke off of a spoon. After that, they rain fake snow all over the dance floor.

Sarah Haggie (26:43)

Right, I forgot. This is before people knew how bad things were.

Sachi Cole (26:47)

No, it's when drugs were pure and good. We didn't have Fentanyl. We could have fun. Sarah, we used to be a country.

Sarah Haggie (26:53)

Okay, well, you're, like, skipping, like, decades of yeah, yeah, yeah, yeah, yeah information here, but sure, sure, sure, yeah. I mean, it's a carefree time when they're like, wow, I just snored this thing and it makes me feel great. Nothing bad can happen from that.

Sachi Cole (27:08)

Nope. And no wars were ever started. Well, still, Steve and Ian apply for the license they should have had from the start. So Michael's agency launches an investigation into whether or not they should grant one. During this process, they uncover Ian's possible mob ties. When questioned about his relationship with Sam Jacobson, his alleged Mafioso stepdad, Ian says that he has, quote, no contact with him and no personal knowledge whatsoever about him or his activities. After about three months, the State Liquor Authority votes 3 to 2 to reject Studio 54's application because of their, quote, blatant disregard of state liquor laws. But about a month and a half after that, Michael learns that Steve and Ian appealed the decision to a judge and won. They got their license. They submitted a list of more than 50 celebrities who regularly visited the club and several submitted affidavits in support, including Calvin Klein, Andy Warhol and a member of the city council. Michael is pissed. In an interview with the New York Times, he publicly accuses the judge of basically being starstruck. Michael is frustrated, but his defeat is only going to embolden Steve and Ian. And just like all the cocaine flowing around the dance floor, their success is about to go straight to their heads. By November 1977, Steve's on top of the world. Studio 54 has only been open for seven months, and now he isn't just controlling who gets into the club, he is the club. He hobnobs with Elton John, Michael Jackson, Diana Ross, Vera Fawcett. He capitalizes on the success of Bianca Jagger's party. And over the next year, they turn Studio 54 into the go to destination for celebrity birthdays. Elizabeth Taylor's party features a performance by the Rockettes. And at Andy Warhol's birthday, Steve dumps $801 bills over his head, which he later records as a business expense. For Dolly Parton's birthday, they decorate the club like a farm, complete with hay bales and real cows. Steve's charm and his flair for theatrics make him a great interview. He's all over newspapers and tv, even doing joint interviews with the stars themselves. Like this one with Studio 54 regular Michael Jackson talking about what makes the play so great.

ITN Reporter (29:34)

One night, Michael was here and Liz were here and they were dancing. There was no photography. They didn't come here and they were just dancing. It was like a treat that you could. People would have paid $100 a ticket for, I think if they paid just to watch. They were there, we were all dancing together, right. And nobody cared and nobody. They just come in, have a good time.

Sarah Haggie (29:50)

You know, this is exactly what he wanted, was to rub shoulders with famous people and kind of be the one controlling access and his place being the spot. And this is really like a hallmark of the past. No phones, no cameras, like no social media. That's just one of the things people bring up when they talk about Studio 54 is that, oh yeah, all these people were able to like party with celebrities and it wasn't a big deal kind of thing. Yeah.

Sachi Cole (30:18)

And I mean, the fame is nice, but Steve and his partners are also getting really rich. They've started selling annual memberships that cost around $150, or roughly 800 bucks in today's money. Also, the club charges a cover fee ranging from seven bucks to ten. They're at max capacity of about 2,000 people almost every evening, which means each night they're estimated to make around $24,000, or roughly 180,000. $80,000 in today's money. Plus whatever they rake in on drinks. That's a ton of cash. And at some point they start skimming off the top, taking money directly without reporting it to the irs. It's not clear when they started doing this or who the ringleader was till this day. Ian is tight lipped about it, but we do know what their ledger looks like. Every night, someone records the money in five columns. There's a column for Ian, a column for Steve, and a column for Jack. Then there's a fourth column that lists the take for the night and a fifth column that's labeled SK or skim. Every night, whoever's in charge of the books records exactly how much money the business isn't reporting to the irs.

Sarah Haggie (31:30)

Okay, it's always funny when there's so much written detail for the scam where it's like, okay, and this is the column for skimming like, hmm, okay. I guess I just really thought no one would figure it out.

Sachi Cole (31:44)

Yeah, it's a little Looney Tunes. And also cartoonish is that the cooked books are hidden in a drop ceiling in the office, along with garbage bags full of cash. Steve also stashes almost $900,000 in five and $10 bills behind bookcases in his apartment. And it is a very nice apartment. The bathroom is covered in gold foil, and both the floor and the ceiling in the kitchen are mirrored. Steve is on top of the world. Which might explain why he starts getting a little too comfortable with the press. In a November 1977 interview with New York Magazine, Steve boasts, quote, the profits are astronomical. Only the Mafia does it better. He also says, quote, it's a cash business and you have to worry about the irs. I don't want them to know everything. And you might think that this would be a big red flag for the irs, but it's not Steve's big mouth that's going to be a problem. It's his own employees. It's 1978, and a man named Peter Sudler is entering the Federal Reserve Building on Wall Street. Peter's an Assistant U.S. attorney, and with his short brown hair and no nonsense expression, he looks the part. Today, he's about to have the perfect target handed to him. Studio 54. Peter is meeting with a guy named Donald Moon. With his long blonde hair and conventional good looks, it's not surprising that Donald once worked at Studio 54. But he got fired and now he's pissed. In a fit of rage, he contacted the IRS about the skimming operation, and now he has agreed to talk to Peter. It might have been inevitable that Studio 54 would come under federal scrutiny, but Donald really accelerates this process and provides more than enough information for Peter to get a search warrant. So later that year, on December 14, 1978, Peter brings more than 30 agents to RAID Studio 54. This is when Ian shows up and gets caught red handed with both cocaine and damning financial records. Peter is actually pretty surprised by this. Years later, he says it was incredibly stupid of Ian to walk in during a raid.

Sarah Haggie (33:56)

I mean, listen, it's obvious he didn't know he was getting raided or had no idea what was going on. But if you are involved in that much illegal activity, you gotta act like you're always going to be raided. I just feel like there should have been more safeguards for what these people were doing in their own world, you know?

Sachi Cole (34:15)

Yeah, they should have been more careful that's for sure. Once they've taken Ian's belongings, Peter and his team make their way to the basement. Where they find the garbage bags full of money hidden in the ceiling. And when they order the club manager to open the safe, they find the financial records along with 300 quaaludes. Remember how Ian told the state liquor authority that he didn't have a relationship with Sam Jacobson, that mob guy who moved in with his mom? Well, Peter's team finds an accordion folder labeled Sam Jacobson Personal. The folder contains a promissory note and a number of legal pads with Sam's name on them. The Feds also find a payment sheet literally labeled Steve Rubell Sam Jacobson. With figures that run to more than $22,000.

Sarah Haggie (35:01)

I mean, hey, just cause it says his name everywhere doesn't mean it's linked to him, right? One could hope.

Sachi Cole (35:11)

Well, at least there's one silver lining for the Studio 54 boys. The feds field test Ian's cocaine and the results are off the charts. Studio 54 is doling out good shit to their celebrity guests based on the results of the drug test. Ian gets arrested on a charge of possessing cocaine with intent to distribute. When they go to apprehend Steve, he's in his Mercedes and officers find 100 grand in the trunk. Once the initial searches are done, Peter looks through the documents he seized and he's shocked by what he reads. Ian and Steve aren't just keeping meticulous records of the taxes they're avoiding, they're withholding 40 to 60% of their income. Peter's handled a lot of these cases and he's amazed at the audacity required to skim this much. Studio 54 has been open for less than two years and it seems like the party's already ending. But Steve and Ian aren't ready to leave the dance floor just yet. So they're about to bring in someone even more dangerous than the mob. Their lawyer. A few hours after the raid, a man named Roy Cohn gets a call from Ian. Sarah, have you ever heard of Roy Cohn?

Sarah Haggie (36:24)

Yes. He is the guy who made Donald Trump. Right? And he's been in an episode.

Sachi Cole (36:30)

Roy is on our Scamflancers bingo board. That's very true. He's a skinny 5 foot 8 lawyer with a receding hairline and a deep side part. He prosecuted the Rosenbergs, an American couple who received the death penalty for espionage during the Cold War. He was Also Senator Joseph McCarthy's chief counsel during the Red Scare. And now He's a general fixer for some mob guys.

Sarah Haggie (36:53)

Later, you're right.

Sachi Cole (36:54)

He will go on to represent and mentor Donald Trump. Roy has been Steve and Ian's legal counsel since their Enchanted Garden days. It's a bit of an odd fit. Studio 54 is pretty flamboyant, and Roy is an arch conservative who is deeply in the closet. You know how when the RNC is in town, grinder usage goes up? Well, this picture of Roy at Studio 54 is kind of like the 1970s version of that.

Sarah Haggie (37:21)

Okay. This is a photo of Roy in a tuxedo, and he has a crazy headdress thing on. And beside him is a guy dressed like a gay gladiator. And Roy is trying not to smile, but you could tell you see it in his eyes. This man is happy. Yeah.

Sachi Cole (37:42)

Yeah. Imagine what kind of world we would live in if Roy Clone had been free. You know, I don't think it would.

Sarah Haggie (37:47)

Have made him better.

Sachi Cole (37:50)

You're probably right. Well, when Roy learns that Ian's been arrested, he heads down to the jail and gets Ian released on a $50,000 bond. And while Roy is partly responsible for how much Steve and Ian have been able to get away with, what he does next makes things way worse. He tells his clients to go down to the club and mess everything up to make it look like the Feds ransacked the place. They follow his advice and tamper with the crime scene. And Steve isn't making things better. Later that night, Roy and Steve appear at a press conference outside Studio 54, where Steve is maybe a little too confident. Roy watches his client crack a joke that the raid was the first time he had trouble getting into the club.

Sarah Haggie (38:34)

You know, these guys are so arrogant, and I feel like them being near celebrities has really gotten to their head at this point because, like, this is a big deal, and they're making this little joke as funny as it is as a joke, it's a little bold, and it's not going to get people on your side.

Sachi Cole (38:51)

Well, eventually, Roy finds himself as one of the 37 attorneys on Studio 54's legal team, which also includes a former Watergate attorney. We don't know how Steve and Ian assemble this team, but it's possible they rely on Roy's connections. Regardless, they need all the help they can get. On June 28, 1979, a grand jury indicts them on 12 counts, including tax evasion, fraud, and obstruction of justice. Unsurprisingly, tampering with the crime scene totally backfired on them. And the evidence continues to mount against Steve and Ian. A week before the indictment, their third partner, Jack, secretly pleaded guilty in a closed door session and is allegedly cooperating with the prosecution. Roy starts flailing and tries another trick. He's heard that President Jimmy Carter's chief of staff visited the club and used cocaine. So he records a statement from the dealer who allegedly provided the drugs and submits the tape to the FBI. He's hoping Steve will be able to get immunity in exchange for testifying against a juicier political target.

Sarah Haggie (39:54)

You think he would have something worse on someone outside of drug use, which I'm sure many people in the government casually were doing at the time.

Sachi Cole (40:03)

Yeah. These are not good plans. And Roy's Hail Mary does not land. The investigation into the President's chief of staff goes nowhere. And the special counsel even tells the press that Roy was trying to scam him. Meanwhile, Steve and Ian move into damage control mode. They announce a million dollar renovation of Studio 54 to show the public that everything's fine. They install a moving bridge that floats over the dance floor inspired by the musical Sweeney Todd, and cover the balcony in rubber so it's easier to wind washed down at the end of the night. In November 1979, about a year after the IRS raid, Steve and Ian plead guilty to two counts of tax evasion and admit to defrauding the government out of more than $400,000 in taxes. And a few months later, on January 18, 1980, Roy stands next to his clients during their sentencing hearing and makes a plea to the judge. He says they paid back 95% of the money they owe and points out that Steve teaches tennis to underprivileged kids. But the judge isn't moved. He says the crime is, quote, one of tremendous arrogance. Steve and Ian are sentenced to three and a half years in prison, along with a $20,000 fine. They're about to trade cash bars for metal bars. But not even prison will stop them from doing the thing they love. Partying in style.

Sarah Haggie (41:32)

I feel like a legend.

Sachi Cole (41:37)

February 3, 1980, is Steve and Ian's last day as Freeman. So naturally, they throw a huge going away party for themselves at the club called the End of modern day Gamora. Among the 3,000 attendees, attendees are Richard Gere, Reggie Jackson, Diana Ross and Liza Minnelli, who both sing for them. Ian causes mayhem when he announces they're serving alcohol free of charge. Steve wears a fedora and blasts Frank Sinatra's My Way. Here's a picture of him from that night.

Sarah Haggie (42:08)

He is beaming. God knows what he's on. He's wrapped in some sort of fur and he is wearing a fedora. Yeah, this guy's living. Yeah, he's living. He's having his last day on earth.

Sachi Cole (42:21)

Yeah, he really is. Because the next morning, Steve and Ian face their harsh new reality and surrender to the authorities. But Ian is still a savvy businessman. He locates the scariest guy in prison and offers him a deal. He and Steve will send money to his wife on the outside if he protects them on the inside. Meanwhile, Studio 54 is on its last leg. Just two and a half years after opening, the club loses its liquor license for good. There's really no coming back from that. So Steve and Ian decide to sell while they're still behind bars. A restaurateur buys the club for $5 million. And just like that, it's the end of an era. While in prison, Steve and Ian cooperate with a larger federal investigation into tax fraud. Among other nightclub owners, they rat on four other people who eventually plead guilty to their own tax evasion charges. In exchange, Steve and ian only serve 20 months of their three and a half year sentences. When Steve and Ian get out of jail in 1981, they spend two months finishing out their sentences in a halfway house. They may be back in New York City, but the city they knew and loved is unrecognizable. People hate disco. Now there's an entire cultural movement called Disco Sucks. Part of it is the younger generation ragging on the older one. But it's also a backlash against the excess of the 70s. Between a recession and homophobic panic about AIDS, it's easy to blame disco for all of society's ills.

Sarah Haggie (43:51)

It must be so crazy right before you're going to prison, you're on top of the world. Everyone loves disco. Everyone loves this lifestyle. You go to prison for not that long, and everything in your city has changed. It really is like a flip, just kind of switched.

Sachi Cole (44:09)

Yeah, it's a totally different world. Steve and Ian are back on the outside, but this time they are starting from scratch. They owe more than a million dollars in legal fees, plus $750,000 in taxes. And while a lot of their old celebrity acquaintances want nothing to do with them, they still have a few loyal friends. Calvin Klein cuts Steve a blank check and tells him to fill in whatever amount he needs to get by. And Bianca Jagger buys him a watch. Steve hits up the local clubs, trying like hell to get back his social standing while Ian buries his head in books. He's Taken a new interest in architecture. Neither men do well with idle time. So they begin flirting with the idea of a new venture. Luxury hotels. But it won't be easy. The first time. Steve and Ian had tons of friends, easy access to money and no criminal record. And now they'll have to try something new. Going straight. Throughout the early 1980s, Ian and Steve learn everything they can about the hotel business. They start pounding the pavement looking for investors. But every meeting ends in rejection. They can't even convince banks to give them a checking account. But then they get a lucky break. The man who bought Studio 54 also co owns a seedy hotel on Madison Avenue. Called the Executive, he and his partners agree to team up with Ian and Steve if they can come up with $6 million. The pair have an acquaintance look over the deal and he discovers that it includes a subordination clause. This means that any bank that loans money to Steve and Ian would get paid back before the sellers due. Essentially, this means that they can use a building they don't own yet as collateral. And if the hotel tanks, the bank could take the property. Property. Allowing Steve and Ian to walk away. This clause enables them to secure a loan. And in 1984, just three years after getting out of prison, they opened their first hotel. It's called the Morgans, and it totally revolutionizes the hospitality industry. Instead of the heavy drapes and oil paintings you'd find in most hotels, the rooms at the Morgans are sleek and modern, with chrome accents, black and white checkerboard walls, and a more minimalist design. It's considered to be the first ever boutique hotel. And it's such a hit that Steve and Ian immediately make plans to open two more in 1985. New York Magazine runs a big story calling them the Comeback Kids. Here, take a look.

Sarah Haggie (46:36)

This is really, really different from how they were marketing themselves before. The main image of this story is them in suits, arms folded in front of expertly dressed hotel staff. It just looks so proper and like, trust me, please trust me. It's interesting to see this pivot and them hoping it'll work when their whole thing was just being like, really brash.

Sachi Cole (47:01)

Yeah, it's a very different vibe. Well, the two enjoy their second act for a few good years. But in 1989, Steve dies, likely due to complications from AIDS. At just 45 years old, Ian is devastated by Steve's death. He later said it had a more profound impact on him than when his dad died because he was with Steve every single day. Sarah, can you read what he Told Hospitality Design magazine years later about his late great friend.

Sarah Haggie (47:28)

Yeah, he said, we were best friends. We shared houses together. It was my first phone call in the morning and my last phone call at night. I never had another friend like Steve. Steve. Oh, that's really sad. They were true friends.

Sachi Cole (47:43)

Yeah, they were. It was kind of beautiful. Well, Ian keeps working in hospitality, opening more successful boutique style hotels in New York, Miami and Los Angeles. He goes on to have five kids. But over the decades, he still carries a lot of shame about how Studio 54 ended and almost never talks about it publicly. In 1998, the movie 54 comes out with Mike Myers starring as Steve, and Ian hates it. Though it's been 40 years since Studio 54 opened, it still has enormous cultural significance. And his grown kids are asking him about the club and all the tax evasion. So in 2017, Ian decides it's time to tell his side of the story. He works with documentarian Matt Teernauer to make a tell all film about the nightclub, which comes out in 2018. While they work on the movie, President Obama formally pardons Ian. The documentary gets critical praise, and Ian releases an art book with photos of the club and stories from people who worked there. Although Studio 54 only existed for 33 months, it left an impression that will last forever. And though Ian has finally shared his story, he won't be the last one. The upcoming season of American Crime Story is all about Studio 54. Sarah, I know the crimes that they did were bad, and I know not paying your taxes is bad, and I know not having a liquor license is bad. But I love these guys and I love their entrepreneurial spirit and I love. I love how much they love cocaine.

Sarah Haggie (49:17)

Okay, I'm not gonna pretend I know a lot about the club scene back then.

Sachi Cole (49:20)

Sure.

Sarah Haggie (49:21)

I don't know about it now, but I will say that I think this is probably one of the most enduring legacies of, like, party culture that anyone can really bring up. It seems like people are always trying to replicate that kind of carefree spirit that they had. It really was like a thing that people still talk about all the time. And, you know, in some ways not in the best context. Like, I remember Drew Barrymore talking about how she was a child at Studio 54 and allowed to party there. You know, like, that's messed up. Yeah.

Sachi Cole (49:58)

Obviously they weren't operating above board from the get, but it's interesting to think about how, because they were a queer club and a queer friendly club, the way they're sort of shoved into the Shadows, they obviously need protection. I don't think this was a group of people that trusted the cops in the late 70s, you know what I mean? Like, they immediately have to kind of operate like that. Even thinking about the liquor board not giving them a liquor license, it's like, for what?

Sarah Haggie (50:23)

Yeah, it's really interesting. And I feel like at that time also New York City was such a different place. By the time they got out of prison, it was like, you know, the real tough on crime. New York City's dangerous years. I feel like it's something that only could have happened when they did it. This is one of those things where I'm like, these are the only people who could have done this. This is the only time it could have happened. To me, it just is. So right place, right time period, right everything. Like, right level of celebrity, of music. Like, everything was exactly as it had to be for it to work for as short as it did. And it's crazy. Cause also, like, you hear about Studio 54 and you think it's something that was years and years of enjoyment. Yeah. That it was such a short period of time and it's still talked about says so much.

Sachi Cole (51:10)

Yeah, I feel like it's also like the last time a celebrity could do cocaine at a club and nobody had a way to take a photo and tell the rest of us.

Sarah Haggie (51:20)

I think people are kind of wanting to go back to that surveillance free period. Because you do hear a lot of clubs like, you know, especially in like Berlin and Europe, like, you're not allowed to even take your phone into a lot of clubs.

Sachi Cole (51:32)

That's true.

Sarah Haggie (51:33)

I'm hearing more and more places trying to get people to be in the moment, like either covering their phone cameras with stickers or having to check their phones with their coats or something. So I think they were just kind of on to a type of freedom that the world hearkens for in some way.

Sachi Cole (51:52)

The thing about Studio 54 is there's like two versions of it. One is like the celebrity version that people talk about. But the other is that it was like a safe, queer club in New York in a tricky neighborhood, and helped transform a neighborhood that nobody gave a shit about.

Sarah Haggie (52:04)

Yeah.

Sachi Cole (52:05)

And there are lots of issues with that. And, you know, obviously gentrification looms large in Manhattan. But for a long time it was like a very different kind of club. And it was offering something that nobody else was. This was like a weird place where all these weirdos and creeps and geeks and nerds felt like, safe to be weird where you do have someone like Cher who's like, hanging out with gypsies, tramps and thieves. You know, that's where she got it from.

Sarah Haggie (52:31)

People who become famous, they do draw from regular people. I feel like we've talked about this before. Famous people love being around normal people. And weirdos who have no money, they'll always find a way to do that and kind of leech off them. And I think, you know, there is a Studio 54 now. We just don't know about it. There are Studio 54s everywhere for those with eyes to see.

Sachi Cole (52:56)

Did hearing this story make you want to go to the club with me? Do you want to, like, wear a little bandage dress and some impossible heels and eat chicken nuggets at the club? I'll take you.

Sarah Haggie (53:05)

No, I don't want to. I want to be around people, but I don't want to be seen. I wish there was a way I could be, you know, a passive bystander kind of thing. But unfortunately, I'll wear a GoPro.

Sachi Cole (53:18)

I'll wear a GoPro to the club and then you can just watch where I go.

Sarah Haggie (53:20)

That's perfect. I'm sure no one's ever done that.

Sachi Cole (53:23)

I could be like your SIM and you tell me what to do.

Sarah Haggie (53:25)

You can't be my sim. Okay.

Sachi Cole (53:28)

Why not?

Sarah Haggie (53:29)

It's not that easy. You think it's just a. You put on a GoPro and that's it? No, it requires a lot.

Sachi Cole (53:34)

Well, then you yell at me to do stuff and then I refuse to do it, and then the baby's on fire.

Sarah Haggie (53:38)

I've seen that game.

Sachi Cole (53:47)

This is Studio 54. Tax Evasion at the Disco. I'm Sachi Cole.

Sarah Haggie (53:52)

And I'm Sarah Haggie. If you have a tip for us on a story that you think we should cover, please email us@scamfluencerswondery.com we use many sources in our our research. A few that were particularly helpful were Studio 54, directed by Matt Tiernauer. Anything Went, written by Brad Gooch for Vanity Fair and the Last Party, written by Anthony Hayden.

Sachi Cole (54:13)

Guest Liz Galalis wrote this episode. Additional writing by us, Sachi Pole and Sarah Haggie. Eric Thurm is our story editor. Fact checking by Gabrielle Drolle. Sound design by James Morgan. Additional audio assistance Provided by Augustine Ltd. Our music supervisor is Scott Velasquez for Freeze on Sync. Our managing producer is Desi Blaylock. Jeanine Cornello and Stephanie Jens are our development producers. Our associate producer is Charlotte Miller. Our senior producers are Sarah Enni and Ginny Blume. Our executive producers are Jenny Lauer, Beckman and Marshall Louie. For wondery. Loving Scamflancers get exclusive episodes and early access to new ones. All ad free on Wondry Plus. Join now in the Wondry app, Apple Podcasts or Spotify. Before you go, help us out by taking a quick survey@wondry.com survey.