Allen shrugged. It seemed like he knew less than everybody else.
For almost an hour, the five men debated what to do. They talked about the silver crisis and how they all might lose their jobs if this was mishandled. They had to have a solution in place if Darr got fired. Among themselves, they agreed that they would turn the department over to Hayes, who would run it either permanently or until a new manager could be found. More important, they decided that they had to keep investigating. D’Elisa was assigned to contact Gosule again and pump him for information. Everyone else was told to make quiet inquiries about Darr among their contacts in the business. Hayes suggested that he find out which employees conducted investigations of crooked brokers for Bache and turn the matter over to them.
As the meeting broke up, no one realized that the messages had been mixed in their conversations. Hayes thought he was supposed to contact a Bache investigator immediately; everyone else thought he would be waiting until they amassed more information. It would prove to be a critical miscommunication.
On returning to Washington, Hayes called a lawyer he knew in the Bache legal department, saying that there was a problem with an employee suspected of illegalities. He said the employee’s supervisor had not yet been told about the problems because no one was sure yet if they were true. The lawyer told Hayes he had done the right thing and said that the person who handled such matters would contact him soon. Two days later, he received a telephone call from Bill Jones, the former FBI agent who headed Bache’s security department. Hayes said that members of the tax shelter department had reason to believe that their boss had been involved in illegal activities at his former firm. For the next few hours, Jones questioned Hayes in detail about everything he knew: the rumors about Josephthal. The questionable deals being sold at Bache. Darr’s lies about his background.
By the time it ended, Hayes had exhausted everything he knew about Darr. Jones thanked him and said he would get back to him later. Hayes hung up, pleased that, with all the ways this could have been potentially mishandled, the right people seemed to be onto the case.
Jones dug into the Darr investigation with relish. After interviewing Hayes, he contacted other members of the Futon Five. He also called Douglas Kemmerer in San Francisco, who had been trading stories with some members of the group about what he heard was happening.
When D’Elisa heard from Jones, he couldn’t believe it. It’s too soon for this. Somebody must have spilled the beans, probably Kemmerer, he thought. He didn’t have all the information he needed. So D’Elisa started pressing Gosule hard, demanding in a telephone call that the lawyer open up.
“You have got to let me know what’s going on,” D’Elisa pleaded. “You have to get involved in this. If you don’t, this whole thing is going to get mixed up and everyone is going to get hurt here.”
“Look, John, this is a tough one,” Gosule said. “I’m trying to build a relationship with Bache. I don’t want to jeopardize that.”
“Damn it, Alan, if you know something, you have an obligation to stand up and say it,” D’Elisa snapped.
Gosule struggled for a moment with his conscience. He wanted desperately to help D’Elisa but feared that doing so would eventually backfire on him. He weighed his options as D’Elisa pressed him. Oh, the hell with it.
“All right, John, listen,” Gosule said. “I’m going to tell you what I know. But I want you to know, I’m doing this for you, I’m doing this for Bache, and I’m doing this for our industry.”
With that, Gosule launched into his story. He knew nothing firsthand, the lawyer cautioned, but had heard enough to be sure that D’Elisa was on the right track. He had close contacts within Josephthal and already heard about what had happened there. Darr had received checks from at least two real estate syndicators who did business with Josephthal, and deposited the money directly into his personal bank account. Gosule said he knew people who had seen copies of both the checks and the deposit slips.
D’Elisa listened carefully, surprised that Darr would have left such an obvious trail. He had thought Darr would have been more clever.
There was more, Gosule said. After speaking with D’Elisa a few weeks ago, Gosule had mentioned Bache’s interest in Darr’s background to some of his friends. One of them was a client who had sold some real estate deals through Josephthal. Gosule had thought little of the conversation—his client had nothing to do with the general partners who gave Darr checks.
“Yes?” D’Elisa asked.
“Well, this client told me that he has information that could be helpful to your case,” Gosule said. “Jim tried to put the squeeze on him, too.” The client had told Gosule that Darr had approached him for money when he was trying to sell a tax shelter deal through Josephthal.3
But Darr didn’t make the demand at the height of his power, Gosule said. He sought the payment long after Josephthal had discovered the others, after that firm’s investigation had ended, just weeks before he started at Bache.
D’Elisa couldn’t believe it. He had found the smoking gun. Jim Darr is history.
Darr knew nothing of the secret investigation under way, and every member of the Futon Five made sure not to act suspiciously. They knew it would take weeks for everything to be wrapped up. So, the department plugged along as always. The product managers marketed deals. Darr held his weekly conference calls. The origination team searched for new general partners. And D’Elisa had found one in Texas he thought was particularly intriguing: a real estate man named Clifton Harrison.
Shortly after hearing about Harrison, D’Elisa took a trip to Dallas to visit Harrison at his company, Harrison Freedman Associates. Harrison gave D’Elisa a tour around the small company’s operations, speaking effusively about all of his deals. D’Elisa was impressed. This new potential client was nothing like the gruff real estate developers and packagers with whom he usually did business. Harrison was just the opposite. He had no rough edges. His style and mannerisms had more of a delicate, Continental flavor. He was extremely deferential; when they went to a restaurant, he ordered D’Elisa’s food for him. Harrison wore his hair to his shoulders, with a European cut, and dressed in expensive imported suits. D’Elisa thought Harrison’s fabulous image could help promote deals he sponsored.
Better still was the nature of Harrison’s business. He was not just a developer who built buildings or a syndicator who packaged existing properties. Harrison bragged about managing money for Phillips N.V., a Dutch institutional investor. The Dutch money had been the key to Harrison’s success in the real estate business, helping him finance a number of lucrative deals. D’Elisa knew that kind of relationship in real estate was fairly uncommon and could help Bache make some contacts to improve its European business as well. Pleased with what he saw in Harrison, D’Elisa boarded a jet back to New York and briefed Darr on this new potential sponsor. Harrison should speak with Darr soon, D’Elisa said.
Harrison made the trip from Dallas a few weeks later. The meeting went well, and Darr seemed intrigued with Harrison’s jet-setter lifestyle and his experiences and contacts in Europe. Darr gave D’Elisa the go-ahead to start exploring possible deals with this flamboyant real estate man from Texas.
Harrison started doing some business with Bache’s European branches, which reported to the international division. Darr and D’Elisa were eager to put together some American deals for the tax shelter department. Even though D’Elisa usually reviewed the real estate deals, for the Harrison partnerships he passed that responsibility on to Curtis Henry. Since Henry was based in Dallas, the decision to put him in charge seemed obvious.
One afternoon, Darr and D’Elisa placed a call by speakerphone to Henry at the branch office. “Curtis, we’ve had this sponsor who has been doing some things with our European offices,” Darr said. “Now, we’ve decided that this guy has a good reputation and we are going to do some American deals with him.”
Henry grabbed a pen and paper to start taking notes. “OK, so what do I do?
”
“He’s down in Dallas, so I am putting you in charge of putting the due diligence together,” Darr said.
“OK, that’s fine,” Henry said. “Who’s the sponsor?”
“Clifton Harrison.”
Henry paused for an instant. “Well,” he drawled. “OK.”
Henry wrote the name “Clifton Harrison” across the notepad on his desk. Then he put down his pen. “Before you tell me about this deal, I’ve got one serious question. When did our policy change?”
“When did what policy change?” Darr asked.
Henry paused, wishing he could see Darr’s face at that moment.
“About doing business with convicted felons,” he replied.
CLIFTON STONE Harrison was the most successful ex-convict in Texas real estate. Born in 1938 in a small farming town in east Texas, Harrison had already seen the fortunes of his life rise and fall many times. He was raised in Amarillo, a west Texas town where his family moved after his father found a job at a bomb factory during the war. A severe dyslexic, Harrison was unable to read or write until he was fourteen years old. Many of the people who knew him, including his teachers, decided that he was mentally retarded. But, under pressure from his mother, Harrison was kept in school.
Harrison became a quiet little boy who often pulled back from the crowd, choosing instead to live mostly within himself. At school, he always sat in the back of the room, saying nothing. He heard the remarks of pity, like “Clifton’s such a nice boy. But he sure is dumb.” They cut him deeply.
For his mother, the criticism fueled constant battle with the school. She insisted that the teachers pass him. When they refused, she stood her ground and turned up the pressure. Finally, they just threw up their hands and agreed to move Harrison on rather than fight his mother again.
When Harrison turned thirteen, his parents sent him to Ponca Military Academy, in the hopes that smaller classes, more attention, and discipline might help him overcome his disabilities. While he was there, Harrison successfully learned to read and write. But his hold on the skill was thin— he always remained terrified of reading aloud. He grew to fear going to church, out of concern that the preacher might ask him to read a selection from the Bible.
His shaky grasp of literacy slowed Harrison down in college. The classes were very difficult for him; he excelled at nothing. He jumped from school to school, never clicking with one institution and never doing well enough to graduate.
With little going Harrison’s way, an uncle got him a training-level job at the First National Bank in Dallas in February 1963. There Harrison found a talent. He did well analyzing loans and proved adept at selling himself. Harrison was selected to join the national accounts division, where he would be an assistant cashier in the bank’s lending activities around the country.
For the first time in his life, the boy from west Texas began enjoying success. He became boisterous and glad-handing, with a taste for expensive clothes and fast cars. He wanted to be accepted among the wealthy elite of Dallas but did not have the income to travel in that circle. To accomplish what he wanted, he needed more money.
So he started stealing. The scheme began simply in 1964, when he falsely reported stock certificates he owned as missing. When he received the new certificates, he sold them. Then he pledged the worthless originals as collateral for loans from Wynewood State Bank & Central Finance Company. He did not intend to repay the debts.
In 1966, when he received lending authority at First National, his crimes worsened. He filled out all the necessary paperwork to support bogus loans. In some cases, he made up names for the supposed borrowers; in others, he used the names of famous people in Dallas. Then he took that money from the bogus loans and deposited it in his own bank account under the name B&J Investment Co.
Harrison was drunk on the thrills of money. He borrowed some money to pay other loans back. He bought stocks and bonds in the hopes that a rising market would pay off all his debts. Harrison did not see any harm in what he was doing; it was all just one big, giddy game.
Eventually, the senior officers at First National realized that their junior executive spent more money than he earned. They decided to investigate. Following up on their suspicions, Roy Lambert, an auditor for First National, confronted Harrison about his lavish spending. Harrison grew indignant, denying that he had done anything improper. But within days, Lambert had pieced together Harrison’s scheme. The bank contacted federal prosecutors in Dallas. That weekend, Harrison traveled to Las Vegas for a few days of gambling. On Sunday afternoon, when he returned home, he was met at Love Field by agents of the Federal Bureau of Investigation and taken to jail.
On September 6, 1967, Harrison pleaded guilty to multiple counts of embezzlement, bank fraud, and mail fraud. The case was assigned to Federal District Judge W. M. Taylor Jr., which Harrison found almost amusing—one of the people whose names he improperly used for the bogus loans was that of the judge’s nephew. Judge Taylor sent Harrison to a federal mental institution for three months of psychiatric evaluation. After being found sane, Harrison appeared again before Judge Taylor, who sentenced him to three years in prison in Texarkana, Texas.
For the first time in his life, Harrison was in an environment where he could read and write better than most of the people around him. He met big-time criminals, including members of the Mafia being held in protective custody. Some, impressed with Harrison, asked him to work with them when he got out. But the offers frightened Harrison, and he declined.
Prison life proved difficult for Harrison, who at times ran into the very circle of people he had tried to impress with his stolen money. Once he attended a speech at the prison that was being given by an executive with a local savings and loan. After he arrived, Harrison realized that he had done business with the executive while at the bank.
“Clifton!” the executive called out. “What are you doing here?”
Harrison was humiliated.
I have to educate myself, he decided. Education is the only way you can get out of this ghetto.
Harrison pleaded with the prison officials in Texarkana and persuaded them to send him to a rehabilitation program. Eventually they agreed, and Harrison was transferred to a minimum security prison in Dallas. He applied and was accepted at Southern Methodist University. So, every day beginning the next semester, Harrison, wearing his prison-issue clothes, boarded a bus at the prison and headed to SMU. He arrived at 6:00 A.M. and spent his mornings in the cafeteria, waiting for classes to begin.
He began studying real estate, and did well. After his first year at SMU, Harrison was paroled. He received his bachelor’s degree, then went on to earn an MBA with a concentration in real estate. But Harrison’s hope for a job in the business seemed limited. Not too many people in the real estate business wanted to take on an ex-convict.
With the help of an admiring professor, Harrison found a job selling limited partnerships for Irving Klein, a scrappy local real estate investor. Soon Harrison was rubbing elbows with the Dallas elite he admired, selling them Klein’s successful deals. Harrison bragged that even Stanley Marcus, whose Neiman-Marcus department stores were legend, was one of his satisfied customers.
When Klein died in the early 1970s, Harrison already had a fat Rolodex and a good reputation. He persuaded two of his investors, Raymond Freedman and Herman Ulevitch, to back him in a new company, Harrison Freedman Associates. Through his connections, he started doing business with the Strauss family of Dallas, who were related to Bob Strauss, a politically prominent lawyer who was in line to be the next chairman of the Democratic Party. Harrison even hired Strauss’s law firm, Akin, Gump, Strauss, Hauer & Feld, to handle some of his business dealings.
Bolstered by his success, Harrison launched a drive to win a presidential pardon. A number of his high-profile investors wrote recommendations to the Justice Department. In later years, Harrison would brag to friends that Bob Strauss himself helped lobby for the pardon. With such high-profile support, Harrison
pulled it off. President Gerald R. Ford signed Harrison’s pardon on October 9, 1974, one month after his pardon of Richard Nixon. Everything was finally in place for Clifton Harrison to start his life over.
But by 1980, as Bache began knocking on Harrison’s door, troubles started emerging in his real estate empire. His investors, Freedman and Ulevitch, felt that Harrison had become carried away with money. There was a feeling of being lavish—extra lavish. There were too many fancy cars, too much expensive jewelry, too many unpaid bills. Freedman thought it was obvious that Harrison spent more money than he made. He just had no idea how Harrison did it.
Worse, some of the deals Harrison put together were collapsing, and in some instances, he was leaving his partners on the hook for the mess. An office park in Dallas was foreclosed on, and shopping centers in Bowie and Lewisville, Texas, defaulted. Harrison failed to pay $434,000 owed on a note he arranged and signed; Freedman and Ulevitch paid the debt. Finally Freedman decided that Harrison’s claims of rehabilitation were bunk. Something about the way Harrison did business just didn’t seem kosher. He wanted out. Harrison agreed to buy Freedman’s shares in Harrison Freedman and signed an IOU for $100,000. More than fifteen years later, that debt would remain unpaid.
When Bache started looking into doing business with Harrison, nobody asked Freedman’s opinion of his partner. But years later, when asked what he would have said if asked, Freedman’s response was blunt: “Hell no. Do not invest with this man.”
D’ELISA FIGURED the deal was dead the minute he and Darr heard about Harrison’s criminal record. As soon as Henry told them about it, Darr went ballistic.
“What are we doing?” Darr demanded. “D’Elisa, why are we talking to this guy?”
Well, that’s that, D’Elisa thought. Darr took the matter to the security department, asking that Harrison’s background be investigated. But soon, before D’Elisa knew what was happening, Darr started changing his tune about Harrison. Maybe, he said, the criminal record wasn’t an impossible problem. The man did have a presidential pardon, after all.
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