MD04 - Final Verdict

by Sheldon Siegel

  Really? “Why would he have done such a thing?”

  “I don’t know. He didn’t make any such comments to me.”

  Of course not. “What was your reaction?”

  “I was disappointed that our lead investor said something that could have had an adverse impact on our business. He later acknowledged that his remarks had been taken out of context.”

  He still hasn’t answered my question. “Did Mr. Grayson ever indicate that he intended to withhold any future funding commitments to your company?”

  “Absolutely not.”

  “And was that the consensus of all of the partners of Paradigm?”

  “That was the consensus of Mr. Grayson, who was the investment manager.”

  “What would have happened to your business if Paradigm had withheld funding?”

  His answer is more forthright than I would have expected. “Growing companies rely on predictable sources of capital. When funding is disrupted, it makes the operations more difficult.”

  “And you would have been extremely upset at Mr. Grayson if he had chosen to do so?”

  “It would have been a violation of our funding agreement and we would have brought legal action.” He realizes his testimony is starting to sound heavy-handed, and he tries to downplay the possibility of litigation when he says, “It was just business, Mr. Daley.”

  Sure. “Did you discuss business with Mr. Grayson on Tuesday night?”

  “Yes. He was being pressured by his investors to change the structure of our deal.”

  Really? “What sort of changes?”

  “He wanted to make the fund’s additional commitments to us contingent upon our meeting certain financial milestones. I made it clear to him that we had a binding contract and that I expected Paradigm Partners to live up to its obligations. He acknowledged that a deal’s a deal and that he had the final say on investment matters. He also noted privately that he was going to have some unhappy investors.”

  As Carponelli is leaving the witness box a moment later, it occurs to me that the unhappiest of the investors is waiting his turn outside the courtroom. “The defense calls Lawrence Chamberlain,” I say.

  *****

  Chapter 51

  “We’re Very Happy with our Portfolio”

  “The most important element in considering an investment is doing a complete due diligence analysis. There is no excuse for shoddy research.”

  — Lawrence Chamberlain. Profile in San Jose Mercury News.

  Lawrence Chamberlain’s demeanor is a study in Silicon Valley cool. He brushes the sandy hair out of his eyes and tugs at his navy blazer. A trip to court is minor inconvenience that’s pulling him away from his full-time job of making money.

  Rich people usually have good manners. He’s polite as he describes his investment in Paradigm, but he doesn’t realize that his use of the royal we is condescending. He confirms that he’s the majority investor and says the fund is doing well. His lower lip juts out when he concludes, “We are happy with our investment.”

  His presentation becomes wooden and his answers seem rehearsed when we turn to his relationship with Tower Grayson. He’s a little too forceful when he insists that he respected and trusted his partner, and is more cordial toward Grayson than he was when we talked to him in private. The reporters in the gallery may be buying it, but I’m not.

  “Mr. Chamberlain,” I say, “did you and Mr. Grayson agree on investment strategy?”

  “Fundamentally, yes.”

  “But you had some disagreements?”

  “From time to time.”

  He isn’t going to make this easy. “In particular,” I say, “you thought Mr. Grayson wasn’t aggressive enough, didn’t you?”

  “These issues come up in every investment partnership.”

  “And you had disagreements about fund management, didn’t you?”

  “I held a majority interest and I served on the fund’s advisory committee.”

  “You found a discrepancy in the fund’s accounting that you reported to your fellow investors, didn’t you?”

  A solemn nod. He takes full credit for exposing the undocumented loan to Grayson. “I had no choice,” he insists. “I had a fiduciary duty.” He backtracks slightly when he adds, “Tower admitted his mistake and repaid the loan. That was the end of it.”

  Not quite. “You met with Mr. Grayson and Mr. Lucas on Thursday night to discuss matters pertaining to the operation of the fund, didn’t you?”

  “We discussed a variety of issues. We’re very happy with our portfolio.”

  “Did you suggest any changes in the operations?”

  “I asked to be included on major investment decisions. I didn’t think it was unreasonable to request a greater role in management.”

  Especially after Grayson tried to poach a hundred grand. I ask him how Grayson responded.

  “He said he would think about it.”

  I tweak him. “So he still had legal authority to spend your money?”

  Chamberlain shows his first sign of irritation. “Yes.”

  “What were you planning to do if he didn’t accept your proposal?”

  His jaws clench when he says, “I didn’t think that was a possibility.”

  I ask him if he had any problems with the fund’s current investments.

  “Just one,” he says. “We made a ten million dollar investment in a company called BNI.”

  Oh? I try for an innocent tone when I ask, “What’s the issue?”

  “It’s losing money.”

  Not according to Artie Carponelli. “What recourse do you have?”

  “We can convert our preferred stock into a controlling interest and replace the existing management with our own people.”

  That would represent a significant career interruption event for Artie.

  He adds, “We’re reluctant to do it.”

  So you’ve told us. “Sounds like you may have no choice.”

  “It’s complicated. I have no experience operating boutiques that sell adult entertainment products. People from my neighborhood don’t get involved in those sorts of businesses.”

  People from my neighborhood call it porn. “You must have known the nature of BNI’s business when you were considering the investment. You did a full due diligence, didn’t you?”

  He has no choice. “Of course.”

  “If you were morally against such an investment, why did you go along with it?”

  “Tower had the final call and the numbers looked good.”

  So did the dancers. “Mr. Chamberlain,” I say, “in the course of your due diligence, did you spend some time down at a club called Basic Needs?”

  “I toured all of their facilities.”

  “And you confirmed the numbers and checked out their inventory?”

  This elicits laughter from the gallery, but Chamberlain is not amused. “Yes,” he says.

  I can’t resist one more double entendre. “Did you like what you saw?”

  “From a financial standpoint, yes.”

  I decide against another cheap wisecrack. “But now the numbers haven’t penciled out.”

  “There’s another complication.” He explains that Paradigm will lose its right to take control of the company if it fails to make its five million dollar follow-up investment.

  “Where did you leave it with Mr. Grayson on Thursday night?”

  “I told him that I expected him to negotiate an amendment to our deal with BNI so that we would be obligated to make the additional investment only if certain financial milestones were met. He promised to take it up with the chairman of BNI.”

  “What were you planning to do if he was unable to renegotiate the deal with BNI and he was unwilling to make the changes in the management of the fund that you requested?”

  He takes a deep breath and says, “I informed him that I intended to take all necessary legal action to replace him as the managing partner.”

  “With whom?”

  Hi
s small blue eyes narrow and he says, “Myself.”

  “What was his reaction?”

  “He said he understood my position.”

  He probably added a few other choice words. “And Mr. Lucas?”

  “He agreed to provide an analysis of the legal ramifications.”

  At $675 an hour, Brad will take his time. I say, “I understand that you, Mr. Grayson and Mr. Lucas had dinner at Boulevard after your meeting.”

  “We did.” He says dinner broke up at one o’clock on Friday morning and Grayson gave him a ride home.

  “Did anybody see you come in?”

  “Other than Tower, I doubt it.”

  “Can any of your neighbors confirm your story?”

  McNulty finally objects. “Relevance, Your Honor. If Mr. Daley wants to suggest that Mr. Chamberlain was involved in Mr. Grayson’s murder, he needs to provide evidence.”

  “Your Honor,” I say, “I am simply attempting to corroborate the whereabouts of everybody who was with Tower Grayson on Thursday night and Friday morning.”

  “Overruled.”

  Chamberlain says, “I was in my apartment the entire night. I don’t know if any of my neighbors saw me come in. It was late.”

  “Did Mr. Grayson tell you where he was going after he left you?”

  “Home.”

  He never made it. “Do you know where Mr. Lucas went after your dinner?”

  “The last time I saw him, he was walking back to his office.”

  “Do you when he went home?”

  “You’ll have to ask him.”

  That’s precisely what I intend to do.

  *****

  Chapter 52

  “We Discussed Certain Legal Issues of a Confidential Nature”

  “There was a time when clients came to business lawyers just for legal advice. Now we are also investment bankers, accountants, tax advisors and confidantes.”

  — Brad Lucas. Profile in San Francisco Bar Journal.

  Brad Lucas is trying to dispel the adage that good lawyers make bad witnesses. He’s presentable enough in his five-thousand-dollar gray suit, blue-and-red rep tie and gold Rolex. We’ll see if the fancy clothes and expensive haircut offset his smooth, but condescending demeanor. His erect bearing and circumspect nature suggest he’s here under duress. In response to my question about his occupation, he says he’s the head of the corporate department of a major San Francisco law firm. He adds that he will assume the chair of the ABA’s Business Law Section in January. Judge McDaniel isn’t as impressed as some of the courtroom groupies in the gallery. I tell myself not to get personal.

  “Mr. Lucas,” I say, “you prepared the organizational documents for an investment fund Paradigm Partners, didn’t you?”

  “Yes.”

  More accurately, one of his associates drew up the papers. Masters of the Universe don’t soil their hands with the legal profession’s equivalent of menial labor. “And you’re involved in negotiating and documenting investments by the fund?”

  “Yes.”

  I’m looking for yes-or-no answers. I’d rather lead him than take my chances with open-ended questions. “Your law firm also holds an ownership interest in the fund, doesn’t it?”

  “That’s true. It isn’t uncommon for law firms to take equity interests in their clients.”

  “This put you in a position of having a conflict of interest, didn’t it?”

  He tries to act as if it’s no big deal. “We obtained the necessary consent letters.”

  Of course. “Is your firm happy with its investment?”

  He seems surprised by the question. “Yes.”

  “Mr. Lucas,” I say, “we have heard testimony about your meeting with Tower Grayson and Lawrence Chamberlain in your office on Thursday, June second. We understand that the purpose was to discuss certain investment and operational issues of Paradigm.”

  The defensive shield comes up and he addresses the judge directly. “We discussed certain legal issues of a confidential nature that are subject to the attorney-client privilege.”

  “Your Honor,” I say, “I would ask you to give us leeway.”

  She doesn’t buy it. “If you were in his shoes, you’d be invoking the privilege, too.”

  Yes, I would. “Perhaps we could discuss this in a side bar or in chambers.”

  “A side bar isn’t going to change the fundamental principle that Mr. Lucas is not required to divulge information that he obtained in confidence from his client.”

  It’s the price you pay when you call a lawyer as a witness. “At least Mr. Lucas could comment generally about the subject matter and the scope of the conversations at the meeting.”

  She decides to throw me a bone. She says to Lucas, “We would be grateful if you would describe the subject matter of the meeting in general terms without divulging any confidences.”

  This elicits a triumphant grin. “Yes, Your Honor. I met with Mr. Grayson and Mr. Chamberlain to discuss operational issues pertaining to Paradigm Partners and its portfolio investments.” He leaves it at that.

  My requests for additional information fall on deaf ears. I get a similar non-response when I ask what was discussed at Boulevard. Lucas conveniently invokes attorney-client privilege when it suits his needs.

  With no chance to get him to contradict something said by Carponelli or Chamberlain, I shift to questions about where he was on Thursday night and Friday morning. He says he left Boulevard at one-ten A.M. and walked to his office. He went upstairs and got his briefcase. “I left for home around one-thirty,” he says. “You can get the exact time from the security guards.”

  We already did. I ask, “Did you drive home?” I know the answer.

  “Yes.” He confirms that he lives in a condo just north of the ballpark.

  “Did any of your neighbors see you come home that morning?”

  “Not that I recall.”

  And not that we’ve been able to find. “Did you park in your garage?”

  “Yes.” He says that each loft has a separate garage and it is unlikely that anybody will be able to corroborate his story. He says he last saw Grayson driving Chamberlain north on the Embarcadero. “I presume he took Lawrence home.”

  I need to tweak him. I return to the lectern and say, “Mr. Lucas, are you familiar with a portfolio investment made by Paradigm in an entity called BNI?”

  “Yes.”

  “And do you know the nature of BNI’s business?” This should be a beaut.

  “It’s an entertainment conglomerate.”

  Yes, it is. “It also owns a theater on Sixth Street called Basic Needs, doesn’t it?”

  “Yes.”

  “And Basic Needs is what is commonly referred to as an adult theater, isn’t it?”

  “Some people might say that.”

  Everybody in this courtroom would. “Have you ever been there?”

  “Yes.”

  “When?”

  “In the context of conducting the legal due diligence for my client in connection with its investment in the company.” He adds that most of the legwork was done by a small army of the junior lawyers at his firm.

  I would speculate that this might have been viewed as a rather plum assignment at a stuffy shop like Story, Short and Thompson. “What did you do in this legal due diligence?”

  “We inspected all of the facilities and made sure the company’s inventory matched what was shown on its books.”

  One cannot help but wonder how naked dancers are booked on the records of Basic Needs. “Did everything check out?” I ask.

  “Yes.”

  “Have you been down there since then?”

  “No.”

  Not according to Pete. “Mr. Grayson never invited you to see it?”

  “No.”

  One more time. “You’re sure about that?”

  McNulty objects. “Asked and answered,” he says.

  “Sustained.”