Octone’s Wall Street backing hasn’t escaped notice in the record industry, which is searching for new models at a time of waning profits. (All those 99-cent downloads still can’t compensate for the precipitous drop in sales of $14 CDs.) Last year, another Wall Street-funded partnership, Downtown Records, was financed by a group that includes partners from Allen & Co., investor Michael Hirtenstein, and one of the Octone partners. (See “The Suit With the Golden Ear.”) Downtown had a huge hit almost immediately with Gnarls Barkley, whose single “Crazy” became one of last year’s most popular songs and won a Grammy in February. “Without Octone, I don’t know if investors would have been as receptive to us,” says John Josephson, an Allen & Co. executive and one of Downtown’s founders.

But moonlighting in the record business hasn’t been without dissonant notes for Octone’s Wall Street posse. Early this year, as the label’s second three-year agreement with J Records was coming to a close, Octone decided not to renew the arrangement. Diener denies that there were problems, but according to an insider he was piqued when Davis took credit for Maroon 5’s success at the 2005 Grammys.

Diener’s pinstriped partners might have been expected to urge caution to preserve a good thing, but the opposite proved true. Fink, for one, had no trouble understanding his A&R man’s restlessness; the situation reminded him of his own fraught relationship with Blackstone co-founder Stephen Schwarzman, from whom he split, with BlackRock in tow, in 1995. “Sometimes you have to get out from the shadow of that larger personality,” he says.

In February, Universal’s Interscope Geffen A&M Records, run by Jimmy Iovine, a mogul cut from a more contemporary cloth than Davis, bought out J’s interest in the three acts that had moved up from Octone. The new company, called A&M/Octone, will be a joint venture from the get-go, which means Octone won’t have to absorb all the up-front costs of developing bands. The deal valued the partners’ share of the company at about $40 million—a 700 percent return, at least on paper. For now, though, the partners seem to have no desire to sell.

“Sure, it’s nice to make money,” says Lipson, “but if you were us, why would you get out now, when it’s really starting to get interesting?”