(FORTUNE Magazine) – In Thomas Lee's tony Manhattan pied-a-terre hangs a Frank Moore painting of a happy Norman Rockwell-esque family dinner. All appears in perfect order as everyone gathers around a platter of...drugs and syringes.

The picture is as jarring as events in Lee's life lately. Lee has spent years quietly collecting modern art and money. Once a rising star at Bank of Boston, he started his own LBO firm in 1974. He built a $600 million fortune, most of it from a series of LBOs in which he bought small to midsize companies with strong earnings and bulked them up for a later sale. This group includes hits such as Snapple, First Alert, and General Nutrition, all taken public.

But this year Lee himself was taken public in ways he never dreamed. Lee's maelstrom of bad publicity lit up the Boston newspapers like a summer thunderstorm. He went through a high-profile divorce that probably halved his pile; a disgruntled franchisee in his Diet Centers chain accused him of money laundering; and worse, a Philadelphia stockbroker, Laura Goldman, claimed Lee raped her in 1993. He maintained their liaison was consensual, which she later attested to in an affidavit. He paid her $150,000 to go away.

Goldman, now under psychiatric care--Lee paid for some of that too--barraged him with phone calls, letters, and faxes. Lee brought in heavy-hitting lawyer Arthur Liman to handle the legal side and spinmeister John Scanlon the publicity. Goldman was subsequently arrested and charged with harassment and extortion. The case is pending. She is also in litigation with at least two other people who claim she harassed them.

But Lee's women troubles were not over. Marianne Quinn, a former franchisee in Lee's disastrous Diet Centers chain, fed the tabs an intriguing tale: that the suburban Maryland Diet Center she ran was being used by Lee to launder money. She has not, however, mustered anything that resembles credible evidence.

Lee is certainly guilty of bad judgment in buying Diet Centers in 1988. Says he: "It was a lousy deal. The problem was management. And when we bought it, the downtrend in diet counseling was not apparent. We gave GNC, brilliant retail guys, a contract to manage Diet Centers, but that didn't work, either. People left the diet industry in droves." Unhappy franchisees sued.

Yet since its inception, Lee's company has had an annual rate of return of about 80%, this despite running two public bond funds with Merrill Lynch that disappointed investors. But his latest buyout fund, raised in 1989, has returned 84.3% annually against an industry benchmark of 14.8% for funds started that year. Ted Virtue, a managing director of Bankers Trust, says Lee is "one of the most successful at identifying middle-market growth companies. The returns speak for themselves."

Lee still insists that "it's been a great year." Despite all the weird publicity, he's raised his third fund, the largest to date, with a $1.3 billion cap. He also sold four companies and $401 million of General Nutrition stock, and he plans to announce two more deals. The day he was divorced, he announced his engagement to Ann Tenenbaum, a New York arts patron. To celebrate, perhaps, he bought at auction a Gorky painting called Scent of Apricots on the Fields. Price: a record $4 million for that artist. A great year indeed.

--Anne Faircloth