Chasing Phil

by David Howard

  Haines-Prescott might have taken comfort from the $50,000 Kitzer had given him. The bills of exchange were each for $25,000 and were postdated for three and six months after the sale date—but in light of events, Haines-Prescott decided to try cashing them. Kitzer had built in a trapdoor there, too. After acquiring Seven Oak, Kitzer had sent a telex instructing the staff to place a stop payment on any checks or bills of exchange from any past bank officers or directors “until a determination can be made if in fact they were issued for the personal benefit of past officers and directors.”

  Haines-Prescott realized, to his horror, that he had even inadvertently helped Kitzer cover his tracks. He had written the terms of the deal. If he dragged Kitzer and Chovanec into court, they could simply show Haines-Prescott’s notes: See? We gave him exactly what he asked for. Except, of course, for the money—and in that setting, Kitzer could simply draw attention to Haines-Prescott’s accounting improprieties.

  Haines-Prescott ultimately figured that was worth the risk, because on October 18 he played his final move. He met with Kenneth Guilbert, a detective inspector in the fraud department of Scotland Yard, handed over the sale documents, and explained how two Americans had stolen his bank.

  2

  The Informant

  OCTOBER 18, 1976

  It was midafternoon on a typically chilly autumn day in Chicago when the phone rang in Norman Howard’s pizza shop. Howard, in his early fifties, was a sturdy, soft-spoken black man with a fringe of gray hair. When he lifted the receiver, he was surprised to hear his old friend Phil Kitzer’s voice. During the 1960s and early ’70s, they had engineered many financial frauds together, but they hadn’t spoken for more than a year.

  As a young man in 1954, Howard had joined the police force in his native Chicago. He began selling insurance policies while walking his beat and discovered that it perfectly suited his disarming eloquence. He was struck by how easy it was to convince people to pull out their checkbooks. Howard resigned in 1960, after finding that enforcing the law didn’t provide the same thrills—or income—as breaking it. He quickly advanced from writing bad policies to running high-risk auto insurance companies in order to systematically fleece them of cash. He later graduated to sophisticated schemes involving phony financial guarantees, performance bonds, and other kinds of securities, sometimes working with organized crime. Several arrests barely slowed him down, prompting the Illinois Department of Insurance to warn the industry that Howard’s “history of fraud and flimflam is uncontested.”

  Which was exactly why Kitzer was calling. He said he’d just returned from acquiring a bank in England called Seven Oak and wanted to talk deals. “This is the perfect vehicle,” he said. “I can do anything I want with this vehicle.”

  Howard said he would come by for a visit and hung up. In the past, he would have reflexively risen to this shiny lure, knowing that working with Kitzer meant easy money. But at that moment, he saw a different kind of opportunity. He picked up the receiver again and dialed Jack Brennan, an FBI agent in nearby Gary, Indiana.

  Brennan and Howard also had a productive business relationship, though theirs was of a far different kind. Brennan had collared Howard the previous year for writing illegal bail bonds, and because of his extensive criminal history, Howard faced as many as forty-five years in prison. Desperate for lenience, Howard eagerly offered Brennan his services as a tour guide through the underworld. After cutting a deal with the government, the informant shared tales of corruptible Swiss banks, Mexican presidential candidates unwittingly investing in bogus $100 million letters of credit, and huge labor unions run by mobsters. Some of the most riveting stories were about a group of high-finance con men—Howard called them “promoters”—who worked in tandem to pull off intricate capers, one of which had recently cost the City of Los Angeles almost $1 million. Brennan’s background was in finance, so he was intrigued.

  Brennan sent leads to other FBI offices around the country and flew with Howard to the West Coast, where the informant secretly recorded conversations with suspects. The FBI paid scant attention to white-collar crime, but Brennan realized that if Howard’s stories were true, the bureau was missing out. The promoters were stealing far more than any bank robber ever could.

  When Howard phoned on October 18, Brennan was entangled in a long and complicated trial and didn’t have time to talk. But when the agent managed to call back, Howard sounded excited, and Brennan stopped what he was doing to focus on what Norman had to say.

  You want to go after those promoters I was telling you about? Howard asked.

  Brennan did.

  Well, then, Howard breathed into the phone, I can give you the top guy.

  —

  At thirty years old, Brennan was already an established star in the FBI’s Gary office, having recently quarterbacked several high-profile investigations. He stood out not just for his youth and size—six feet tall and burly enough to have played on the offensive line in junior college football—but also for his speaking style and comportment. Unlike the stereotypical agent, who employed bluster and threats, Brennan spoke gently and with a lilting southern inflection. He had sandy hair, striking pale blue eyes, and an enormous smile that came easily and stretched the length of his round face. For all his capabilities and intelligence, he would never be chosen to play the tough guy. When it came time to convince people to talk—and much of an agent’s job was developing informants—Brennan attacked them with charm and empathy. “C’mon, let’s just chat,” he would say. Then he would sit quietly, laughing easily or levering his expressive eyebrows downward into looks of avuncular concern. For Brennan, listening came effortlessly.

  His retiring demeanor was particularly striking considering the way the bureau was intertwined with his DNA. In 1908, his great-grandfather Edward Brennan was one of the first eight men hired to what was then the Bureau of Investigation. Edward ran some of the FBI’s biggest and busiest offices, in New York, Chicago, and St. Louis, and pioneered the agency’s system of linking suspects to crime scenes by matching fingerprints. In 1921, he organized a training program for new agents, and one of the greenhorns was his son John, who went by Jack and who had joined the FBI at the age of nineteen, over his father’s protestations. Jack became one of the bureau’s first firearms instructors and had a knack for turning up wherever the action was. When J. Edgar Hoover and Clyde Tolson descended on Chicago to take down the Roger Touhy gang, Jack killed two gangsters in a shootout. He also helped capture Pretty Boy Floyd and participated in some of the most sensational kidnapping cases of the era.

  He retired in 1950 just as his son, Edward, joined the bureau—maintaining the family tradition of ignoring his father’s admonitions to seek a safer, stabler life. The FBI moved Edward and his family from Philadelphia to Mobile, Alabama, during the fifties, launching him headlong into the carnage of the civil rights movement. His elder son, Jack, was in the fourth grade when the family relocated, so he heard about the lynchings, shootings, and bombings. “When a civil rights worker was killed,” Jack said, “he would go for three or four months at a time.”

  Seeing a certain inevitability in the family’s fealty to the bureau, Edward took the novel approach of not trying to preemptively discourage Jack and his younger son, Scott, from joining. It almost worked. Jack finished his secondary schooling at Murphy High School, where his stellar academic and athletic performance—he was a guard on Murphy’s football team, which played for a state championship—earned him a nomination to the U.S. Naval Academy. But Jack possessed a sunny, freewheeling disposition, and the last thing he wanted was years of predawn bugle reveilles.

  He enrolled at Auburn and gravitated toward mathematics and the computer lab, where researchers were doing trajectory work on the Apollo moon mission. He was the kind of kid who had begun purchasing inexpensive stocks in high school to try to make money, so at Auburn he and a fraternity brother pooled their funds and started trading commodities on a highly volatile mercantile exchange. They had e
nough success with cattle futures that, after graduation, his broker landed him a job at Lind-Waldock, a huge commodities-trading firm. He moved to Sandusky, Ohio, traded frozen pork bellies during the week with other people’s money, and on weekends flew south to see his girlfriend, Becky Heldreth, at Auburn. In his early twenties, he was making four times more money than anyone back home. He woke early, worked like a demon, then retired to a golf course and bars. “My philosophy was that money was just a tool to do what you wanted to do,” Brennan said.

  But he was also aware, in the recesses of his limbic brain, that he was hurtling toward a spectacular early-life flameout. “It was high stress,” he said. “Not healthy.”

  He and Becky married in 1970, and he bailed on commodities. They were in Atlanta and he was working in Texaco’s tax and property division when, one day, his father called, and Jack’s particular genetic mutation blinkered to life. His father explained that the bureau required each agent to recruit three people annually. And so the man who’d joined the FBI against his father’s wishes induced his largely uninterested son to do the same. Jack wasn’t committing to anything, so he was happy to help his father by applying. But a few months later, a letter arrived saying that J. Edgar Hoover wanted to offer him a job.

  After talking it over with Becky, Jack decided to give it a try. He entered the FBI Academy and was soon helping senior agents work kidnappings and extortion cases and bank robberies. “I learned that there are whole worlds out there that we know nothing about,” he said.

  In 1972, the bureau assigned him to New Orleans, where, working alongside an agent who specialized in tracking fugitives, the former commodities trader learned how to talk to people on the street, to develop informants. He forged a rapport with a Chicago mafioso who explained to him about organized crime, which became useful when, after a year, the FBI transferred him to Gary.

  His successes in his new post came in rapid succession. His mob contact helped him snuff out a home-invasion ring, as well as a band of thugs who were stealing truckloads of televisions from Chicago and selling them out of eighteen-wheelers in Gary. He was working on a case involving massive fraud against the federal government by the bishop of a large church when he met Norman Howard.

  —

  The name Phillip Kitzer sounded familiar, but it wasn’t until the morning after he talked to Howard that Brennan connected the dots. By coincidence, the Wall Street Journal published a story that day under the headline “Uncollectible Drafts on West Indian Bank Flood U.S. and Total Millions of Dollars.” The article focused on Mercantile Bank & Trust Co., an institution run out of a one-room office in Kingstown, St. Vincent, in the British West Indies. The bank had issued tens of millions of dollars’ worth of uncollectible cashier’s checks, certificates of deposit, and letters of credit. Bankers were honoring them partly out of confusion: Mercantile’s name was virtually identical to that of Mercantile National Bank, a long-established Chicago-based financial institution. The story mentioned that Kitzer was an officer.

  Brennan remembered where he’d heard Kitzer’s name before. The FBI occasionally flew groups of agents from all over the country to Quantico for in-service classes. One instructor asked each person to outline an interesting case he was working on. Allen Ezell, from Charlotte, told of a young North Carolina couple, Bobby and Susanna Duckworth, who had sought a half-million-dollar loan to purchase a motel, the Summer Wind Motor Inn, in Myrtle Beach. Lacking any real collateral, they’d struggled to find funding.

  Eventually the couple spotted an ad in a Charlotte newspaper: A broker named Arthur Norman Murley offered to help secure loans through Mercantile Bank. Murley explained that Mercantile itself wouldn’t provide the money; instead, it would furnish collateral against which their local bank would lend the half million. All he required was a fully refundable $19,500 fee.

  This sounded reasonable enough. The Duckworths signed a mound of paperwork, and on January 26, 1976, Mercantile notified Southern National Bank in Charlotte that it was holding a $500,000 letter of credit on the couple’s behalf.

  The letter of credit was to serve as a kind of safety net. In this case, if the Duckworths defaulted on their half-million-dollar loan, Mercantile would pay Southern back on the couple’s behalf.

  Still, everything had to check out. Southern’s bankers requested further documentation—specifically, they wanted proof that there really was $500,000 set aside in Mercantile’s coffers. These inquiries went nowhere, however, and Southern rejected the Duckworths’ application. When the couple, in turn, asked for their $19,500 back, their calls went unreturned.

  The Duckworths contacted the FBI, and Ezell pursued Mercantile, learning what later appeared in the Wall Street Journal: The bank seemed to have virtually no assets, much less half a million dollars, but had charged people around the world for certificates of deposit and letters of credit in deals just like the Duckworths’.

  Grasping the intricacies of Mercantile’s fraudulent operation was one thing. Arresting and convicting Kitzer and his crew was exponentially harder. Mercantile left no trail to follow, and Kitzer operated in a way that spanned various borders, so that any prosecution would require cooperation among law enforcement from different states and countries. Everyone suggested to Ezell that the phony bank was someone else’s problem: the Securities and Exchange Commission’s, the British Crown’s, Interpol’s. Even worse: St. Vincent had no bank regulations, and therefore Mercantile had to file virtually no reports on what it was doing.

  Ezell eventually gathered enough evidence to haul Kitzer into Charlotte in August to testify before a grand jury. The agent approached Kitzer in the courthouse and said he was seeking an indictment for mail and securities fraud and interstate racketeering. Kitzer’s lawyer, Frank Oliver, advised him to invoke his Fifth Amendment right against self-incrimination. With no one testifying to the workings of Kitzer’s criminal operation, Ezell couldn’t counter the argument that the bank was legitimately chartered and that the Duckworth situation involved a bank loan that simply hadn’t worked out.

  This was a problem. Ezell and the federal prosecutors had to convince a jury that Kitzer had intended to defraud the Duckworths and Southern. It was easy to surmise but hard to prove. Without any informants, Ezell could do nothing but watch Kitzer walk away.

  —

  Thinking over the challenges Ezell had faced, Brennan saw that he would have to try a different strategy—and Howard’s cooperation presented one. But Brennan was juggling two complicated trials. He needed help.

  Brennan thought about his colleagues in Gary. Some of them wouldn’t understand what Kitzer was up to, and even more of them wouldn’t care. It didn’t sound like a bureau case. Besides, a majority of the office’s twenty-five agents were busy just trying to survive. Gary had been home to the nation’s highest per capita murder rate for several years running, and the lakeshore had become the Chicago mob’s preferred repository for dead bodies. Agents there were prone to burnout. And the FBI had recently rescinded a policy that allowed them to request their office of preference after five years in one city, so everyone was now marooned there, including a few agents who were only months away from a transfer. The sole ambition for some was to make it to five o’clock so they could go drink in peace. When Brennan arrived, young and hungry, and wanted to pursue promising but risky cases, veteran agents discouraged him.

  To take on Kitzer, Brennan needed someone willing to swim upstream against the culture of resignation—not to mention the bureau’s own resistance to these kinds of cases. He could think of only one guy, the agent everyone called J.J.

  James J. Wedick Jr. was, by all appearances, the yang to Brennan’s yin. He was pure kinetic energy, a vivacious, speed-talking New Yorker who seemed to enjoy the steady adrenaline jag Gary delivered. But like Brennan, he was smart and ambitious and a hard worker.

  Brennan found him near the coffee machine. He explained the case—how exciting it could be, how Howard was a stick of dynamite but a guy who knew p
lenty about the underworld, how this would be something new and challenging and potentially big.

  Wedick stirred five or six spoonfuls of sugar into a cup of coffee as he listened. When Brennan was finished, he shook his head. “Not interested,” he said. “Really. Sorry, Jack, but no way.”

  3

  You Owe Me Fifty Bucks

  OCTOBER 19, 1976

  Unlike almost everyone else in the Gary office, J.J. Wedick was doing exactly what he wanted. He was twenty-six, single, and working sixteen-hour days chasing fugitives and bank robbers. He was six foot two and thin as turpentine, and had dark brown hair parted on the side and a full mustache curling around his mouth. What Brennan was proposing—pursuing a guy in a suit slinging fraudulent securities on a case that could take years—did nothing for him. (In fact, it triggered memories of his days studying accounting at Fordham University—a chapter of his proximate past he was happy to have left behind.)

  He’d grown up Irish Catholic in a middle-class neighborhood in the Bronx, the second of four kids. The entire family was wedged into a two-bedroom apartment—Jim packed into a room with his older sister and younger brother. His father, James Sr., was stern and intense—a fire department battalion chief who before he gave them up smoked three packs of Camels a day. “He didn’t fool around,” Wedick said. “He didn’t want a lot of nonsense with kids not doing their schoolwork.”

  Young Jim was chatty and energetic, an extrovert who frequently hung around the neighborhood playground. He naturally absorbed the colorful patois of the streets, the accents, and with his enthusiasm and excitability, he made friends effortlessly. An indifferent student, he wanted to help people and craved thrills—even as his father pressed him to think about how he could get ahead in life. A typical father-son chat entailed the elder Wedick lecturing his offspring on how a good employee showed up on time and outworked everyone else. When Jim was old enough to get a job, his father said, he should always take a rag and wipe down surfaces when heading out on his breaks. “Don’t just lallygag to lunch,” Jim Sr. advised.