(FORTUNE Magazine) – Picture the scene: Conseco CEO Steve Hilbert and his CFO, sitting down to lunch at the Four Seasons in New York with Salomon Smith Barney analysts Colin Devine and Bill Ryan. Devine and Ryan know this isn't going to be a picnic. They just blasted the major insurance and consumer-lending company in a high-profile research report. But they never expected what happened next. "How the fuck could you do this to me?" Hilbert bellowed, as startled diners turned to stare. "Don't you know I spent $20 fucking million in fees at your firm last year?!" Wow!

That tete-a-tete took place in the spring of 1999, Devine says, when CEOs could yell things like that and analysts in said situations would usually fold. Hilbert doesn't acknowledge swearing; he concedes only that he was angry. But Devine didn't fold (Ryan left Salomon), and of course he was right. Conseco was rotten to the core. Now it's on the edge of bankruptcy.

Conseco is overshadowed by mega-disasters like Enron and WorldCom, but it's still a doozy. (If Conseco sounds familiar to faithful Street Life readers, it's because I wrote about it in June of last year. More on that in a minute.) Consider that Conseco's recent earnings restatement of $368 million for the year 1999 was the ninth largest in U.S. history, according to a New York University study. That Conseco is now the subject of a formal SEC investigation. That the company is not making interest payments on its $6.5 billion in debt.

As if that weren't enough, there's an incredible cast of characters here, including Steve Hilbert, who built Conseco brick by brick. Legend has it that Hilbert met his sixth wife, Tomisue, when she popped topless out of a cake at his stepson's bachelor party. Hilbert has previously denied this but acknowledges that Tomisue did work as an exotic dancer.

The beginning of the end for Conseco came when Hilbert bought Green Tree Financial--a mobile-home lender--for $6.7 billion in 1998. By spring 2000 the company had begun to flag. Exit Hilbert and enter Gary Wendt, the big, swinging GE exec who pledged to put the company in order. The stock jumped on the news. And then began a remarkably public battle between veteran raiders Carl Icahn, who was shorting the stock, and Irwin Jacobs, who was long (the subject of my article last year). All the while Devine, who was savaged by Jacobs and Wendt for not buying the turnaround story, stuck by his guns. "There were three things happening," says Devine. "Subpar earnings for the insurance business. Deteriorating credit quality at the old Green Tree business. And too much debt." Devine says that the company wasn't merely a victim of a weak economy during Wendt's tenure. The ex-head of GE Capital actually made matters worse. "The worst loans ever made by Conseco were within the past two years," he says. (The company denies that.) Meanwhile, Devine estimates that Wendt will end up taking more than $75 million out of Conseco for his trouble. The company says it's some $10 million less.

Devine says that like Hilbert before him, Wendt pressured senior Salomon executives to muzzle him. (Conseco denies the charge.) But his bosses didn't cave. Which in this day and age of compromised analysts--let's not forget that Jack Grubman also worked at SSB--is a refreshing tale indeed. It's perhaps the only heartening part of the Conseco story.

Vice is nice--for marketing

I'm sure you know about socially conscious investing. Only own stocks of companies that don't make cigars, harm seals, or pour PCBs into the Hudson River. They're supposed to do well by doing right. The fact that the returns of these funds are all over the place suggests that this really isn't a strategy, just an excuse for marketing. So now along comes the anti-goody two-shoes fund, the Vice Fund. Only own stocks of brewers, defense contractors, and purveyors of tobacco, etc. (I'm not kidding.) Says Dan Ahrens, co-portfolio manager: "I'd just say that people shouldn't use their investments to voice their political opinions." Excuse me, Dan, but I think you just did.

Bottom line: Does anyone really think that the Vice Fund will perform any better than the tree-hugger funds over time? (Though ciggies, beer, and weapons may do well for now!) Or is it just marketing again? How about this for a novel new fund? The Really Good Fund: Fund manager picks really good stocks that will do really well, and investors make really good money. Where do I sign up?

feedback: aserwer@fortunemail.com