Marc Lasry’s troubled path to Paris

Ron Spogli, former U.S. Ambassador to Italy

FORTUNE — Earlier this week, hedge fund manager Marc Lasry declined President Obama’s request to be nominated as the next U.S. ambassador to France. Today the NY Post reports that Lasry withdrew over ties to “an alleged Russian mob-run poker ring” that was busted last week by the FBI, although a source close to Lasry says that the paper got it wrong.

“Everyone knows that Mark plays poker in big private games, but he was never contacted by anyone involved in this investigation,” the source says. “He already had reached his decision [to decline to nomination] before any of this stuff came up, based on divestitures and other issues related to Avenue Capital [the firm Lasry co-founded and runs].”

To be clear, I’m not sure who to believe. Even if my source is 100% correct about when and why Lasry made his decision — and there’s decent odds on that, given the NY Post’s recent track record with cover stories — the FBI investigation still may have forced his hand in a hypothetical scenario where business complications were manageable. What I do know, however, is that those business complications were very real.

There really isn’t a road-map for how active fund managers transition into ambassadorships. The only one to have successfully done it was Ronald Spogli, co-founder of private equity firm Freeman Spogli & Co., who was President Bush’s pick for Italy in 2005.

Spogli tells me that the process was lengthy and difficult, even though his Los Angeles-based firm only invested domestically. Here is what Spogli ultimately was required to do:

  1. 1. Sell all of his general partnership interests in the firm to its remaining partners — a process that is much more complicated than it sounds.
  2. 2. Divest certain stock holdings, including some held by family members. For example, his wife was required to sell 200 shares she held in Boeing (BA), because it had business in Italy.
  3. 3. Provide information on all third-party funds in which Spogli held a limited partnership interest, so that White House and State Department officials could determine whether any of those (passive) investments posed a possible conflict of interest.
  4. 4. Spogli was not permitted to simply put all of his holdings into a blind trust, which basically means the requirements for ambassador were more stringent than the requirement for president or vice president.

“They were incredibly thorough,” says Spogli, who later repurchased his GP stake and now serves as Freeman Spogli’s CEO. “We began having conversations and going over information in November 2004, and I wasn’t nominated until the following June… For me there wasn’t any question that I wanted to do it, since I’m a third-generation Italian-American and spent two years living it Italy. But for others without such close ties, I could see why the whole process would be seen as too much trouble.”

And for Lasry, the situation may have been even more complicated than it was for Spogli. For example, take the issue of divesting general partner stakes. Spogli had a fairly large group of senior partners who could afford to buy him out — including fellow co-founder Bradford Freeman. Lasry, on the other hand, has a much pricier position and co-founded the firm with his sister (Sonia Gardner). Even if Gardner could have afforded to buy Lasry out, it’s unclear that White House or State Department officials would have been satisfied that the conflict of interest was resolved. Remember, Spogli’s wife had to sell a tiny stock position in a massive public company. Here, Lasry’s sister would be in charge of a portfolio with substantial European assets (including in France).

Lasry also was listed as a “key man” on several Avenue funds, meaning that investors would have to sign a waiver permitting him to leave (or else they could pull their money). Spogli was not the sole key man on any of his firm’s funds, although such clauses could have been triggered had Bradford Freeman also decided to leave.

In short, Marc Lasry was going to have a very difficult path to Paris. Even if he had never anted up at the poker table.

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