“Well, you were right about the suites,” Sherman said. “I called Rand Araskog, the chairman of ITT, to see if the Sheraton had something larger than Darr’s suite. They don’t. He’s got the largest suite in the city.”
Grattarola just looked at him. He knew that Sherman was trying to awe him with his easy access to the chairman of ITT, which owned the Sheraton hotel chain. But he was not impressed. With Sherman the head of retail at a national brokerage firm, Grattarola would have been shocked if he hadn’t been close to someone like Araskog.
“Well,” Grattarola finally said, “I guess that’s the answer then.”
“No, that’s not the answer,” Sherman said. “I want Darr out of that room. I want it. I’m his boss. Hell, I’m everybody’s boss here. I want you to fix it. Tonight.”
Grattarola tried hard not to grit his teeth. “Look,” he said. “I can’t go around throwing senior guys out of their rooms. If you can work this out with Darr, that’s fine. I’ll help get you moved over there. But I’m not going to just throw him out.”
The scowl descended over Sherman’s face again. “Son of a bitch,” he muttered. Then he turned and walked away, disappearing into the crowd of merrymakers.
Two nights later, about four hundred brokers, managers, and their spouses milled about a courtyard at the El Camino Royale. It was the last full night that the group from Prudential-Bache would be staying in Cancún, and it was meant to be something special. At other dinners that week, there had been singers, fireworks, and elegant food. But this time, Graham went all-out. The hotel’s man-made lake had been partially drained to create a big private beach. A special awards ceremony had been arranged to honor the brokers who had sold the most energy income partnerships. A representative from the president of Mexico had even been invited to extend his greeting.
Darr had agreed to make a rare talk to all of the firm’s brokers, during which he would present the awards. Darr asked for a Graham executive to write the speech but refused to describe what he wanted to say. So, with no input from Prudential-Bache, a speech was written about the great sales performance that year by the firm’s brokers in the Energy Income Fund.
The Pru-Bache managers and brokers had started gathering early in the courtyard. On the stage, Darr and other executives hobnobbed with the Mexican official.
The crowd quieted down as Darr walked to a podium on the stage. With a tone of respect, he introduced the special guest. The Mexican official, a man of average height dressed in a light suit, stepped up to the podium amid polite applause. His heavy accent made his English difficult to comprehend. But almost everyone understood the gist of his words: On behalf of the Mexican president, he thanked them for coming, extended his hopes that they had enjoyed their stay, and invited them to return in the future.
Suddenly, from the back of the courtyard, there was a loud noise.
“Come on!” Bob Sherman yelled. “Let’s get this show on the road!”
Everyone turned and looked as Sherman staggered in, accompanied by two attractive women in their twenties who were not part of the Prudential-Bache group. Everyone could tell that Sherman was rip-roaring drunk. Some thought that if he didn’t have the women to lean on, he’d fall down.
The Mexican official continued speaking.
“What’s with this?” Sherman shouted. “Doesn’t this guy speak English?”
Sherman and the women wandered through the crowds. Some wives of brokers shot their husbands dirty looks as Sherman walked by with the young women under his arms. More than a few seemed to be wondering what their husbands had done on other trips they had attended by themselves.
“Come on!” Sherman shouted. “Let’s get it over with. Let’s party!”
Suddenly Sherman started pointing at Darr, who was visibly upset by his boss’s behavior. “Holy shit! Look at that old man up on the stage with the white hair,” he shouted. “He is fucking ugly!”
The Mexican official sat down. Then Sherman spun around, yelling at the assembled brokers. “You guys think you’re so fucking great! But you might not even be at this fucking firm next year! We don’t need you!”
Grattarola, who was up on the stage to help hand out the awards, began to think that it might not have been a good idea to pull the restrictions on Sherman’s bar tab. He leaned over to speak with Darr.
“We’ve got to do something,” Grattarola said. “We’ve got to get him out of here. Do you want to take care of it, or should I call the hotel people?”
“I’ll take care of it,” Darr replied. He stood up and walked down from the stage, signaling one of his regional marketers to come with him over to Sherman. For about thirty seconds, Darr spoke with Sherman, trying to calm him down. Darr wrapped his arm around him, as the marketing executive got on his other side. They turned Sherman around and, walking as if in a chorus line, headed for the exit.
“Come on, Bob,” Darr said softly. “Let’s go.”
A few minutes passed by, and Darr returned. He walked briskly to the stage, hopped up on it, and headed back toward the podium.
“Well, I’d like to apologize to everyone, and particularly the wives here tonight, for the language,” he said. “Bob’s not always like that. Obviously, he had too tall a beer.”
His audience tittered. Darr was putting them all back at ease.
“All right,” he said. “It’s time to start presenting the awards for some really great work.”
Nothing more was said about Sherman, but as the evening wore on, a heavy pall settled over the crowd. Sherman’s performance had left many of them uncomfortable. He was the highest-ranking executive there that night. He was one of the people responsible for making the decisions that directed the huge sales force of the giant brokerage firm. Investors around the country were affected by what he decided to change and what he chose to ignore.
It was hard to believe someone that important could be such a public embarrassment.
Carrington Clark called John Corbin as soon as everyone returned from Cancún.
“I have never been treated so shabbily in my entire life, John,” Clark said. “I want you to know that I hold you personally accountable for ruining my trip to Cancún.”
Corbin didn’t know what to say. He had no idea what Clark was talking about. But he did know that Clark could make his life miserable. Not only was Clark the director for the West Coast region that Corbin covered for Graham, but he was also one of Sherman’s best friends. If Corbin didn’t smooth the problem over, there might be hell to pay.
“I’m sorry if you had a bad time, Carrington,” he said. “What is it that happened?”
“Don’t give me that,” Clark snapped. “You kept taking out that girl when you knew I was interested in her. You ruined my trip.”
Corbin paused. Now he understood. Clark and Sherman had kept asking out Vass and her friend. Each time, the two women went out with Corbin and his friends instead.
He knew Clark had a reputation among the female brokers at Pru-Bache. More than a few of them had talked about sexual harassment problems at the firm involving Clark, and Sherman as well.9 But apparently, Clark thought that his position entitled him to go out with whomever he pleased and to tell Corbin whom he could take out. Corbin shook his head. He didn’t need the permission of Clark or Sherman to go out on a date. But there was no saying that to Clark. He was too angry.
“I’ll tell you how things are going to be from now on,” Clark said. “I don’t want you offering anything to my brokers that isn’t offered to me. Not one meal, not one drink. And I want to know everything you’re doing in my region, anytime.”
“All right, Carrington,” Corbin said. “That’s fine.”
Corbin hung up and sighed. Having dinner with those women had brought a heavy price. Now Clark—and probably Sherman—didn’t like him at all.
Tony Rice, the chief financial officer of Graham, eased into a chair by the telephone at his comfortable home in Stamford, Connecticut. He didn’t like what he was about
to do. But the instructions had come from Jim Darr himself. John Corbin, the biggest-selling wholesaler at Graham, had to be fired.
While there had been some complaints that Corbin exaggerated the performance and safety of the Energy Income Funds, that was not Darr’s concern. Apparently, Corbin had offended Bob Sherman and Carrington Clark in Cancún—something to do with some woman. Now, to appease them, Prudential-Bache wanted Graham to get rid of him.
For Rice, the relationship with Pru-Bache was too important to argue about the matter. He had always lived in Connecticut, far from Graham’s Louisiana headquarters, so he could keep a finger on the pulse of Wall Street. It had been his job to make sure Darr was happy. At first the two men had had a strained relationship. Then Rice did Darr a few favors, like pulling some strings to get him accepted at the Greenwich Country Club. Since then, the two had developed a good rapport. Rice was not about to blow it over John Corbin.
Rice started calling around, trying to find Paul Grattarola, who as Graham’s national sales manager was Corbin’s boss. Rice eventually tracked him down in San Francisco, where Grattarola was visiting with his son.
“I’ve got to talk to you,” Rice said. “It’s an emergency.”
“What’s up, Tony?”
“You’ve got to fire John Corbin.”
The request was greeted by a few seconds of total silence.
“And why is it we need to fire our number-one salesman?” Grattarola finally said, his tone disbelieving.
“You’re not listening to me,” Rice replied. “Corbin’s got to be fired. Right away.”
“Tony, whether you agree or disagree with the way John sells, he’s still our number-one guy,” Grattarola said. “I mean, what do we tell the managers in the Prudential-Bache system in California? That we reward our best people by firing them?”
Rice sighed. “Well, all right, here’s the story. Darr called me. Sherman wants him fired. So we’ve got to fire him.”
“Sherman?” Grattarola asked. “What the hell happened with Sherman? What’s going on?”
Rice said that he didn’t know the details, but it had something to do with some women at Prudential-Bache who interested Sherman and a friend of his. But the women went out with Corbin instead.
The information struck Grattarola cold. The whole conversation seemed absurd. He couldn’t believe that Rice was willing to disrupt the entire company’s business simply because some Prudential-Bache executives had their egos hurt. He told Rice that before they did anything, they needed to get more information. Otherwise, if they were wrong, Graham could be facing a huge lawsuit for wrongful termination. And if they were right, then the company could have a sexual harassment problem.
“Let me see if I can talk to Darr about this,” Grattarola said. “I’ll try and do some damage control.”
Grattarola had been scheduled to fly to Hawaii in a day or so for a seminar for Prudential-Bache brokers. He picked up the telephone and canceled those plans. Instead, he arranged to fly to New York to meet with Darr. Within a few days, he was at the offices of the Direct Investment Group. For the first time, Darr agreed to meet with Grattarola in his office, behind closed doors. Even though Darr obviously thought the issue was serious, he couldn’t help laughing about it every so often.
“But we do have a problem, because Sherman does want Corbin fired,” Darr said.
Grattarola went through the same litany he laid out to Rice, about the problems that would be created within the Prudential-Bache system if the top wholesaler for Graham was fired for little reason. Darr sat back in his chair.
“You know, you’re right,” he said. “But what can we do to prevent it from happening again?”
The question hit Grattarola like a sock in the stomach. His temper flared up.
“How can we prevent it?” he snapped. “I don’t know how I can prevent a guy from picking up some girl. If she wants to go, she’ll go. What do you want me to do?”
Darr paused, thinking for a moment. “Well, somebody’s got to pay a price here,” he said. “Do a favor for Carrington Clark. Some marketing thing. Pay for a seminar in his region. If Carrington feels better, I’m sure I can pawn the whole thing off.”
“OK, that’s fine. But what about Sherman?”
“I’ll take care of Sherman,” Darr said. “Don’t worry about it.”
Relieved, Grattarola left Darr’s office and called Clark out on the West Coast to schedule a meeting. Clark told him that he was just about to leave for two weeks on the road, but he agreed to meet Grattarola at the airport where he would be the next day. Grattarola arrived at the meeting tired and angry. It was the first time he had ever met with Clark without being surrounded by brokers. Clark sat with a scowl on his face.
“Carrington, this whole thing is really ridiculous,” Grattarola said.
Clark looked taken aback. “I am really offended by that,” he said. “We’ve got a serious problem here, and I don’t know how we can straighten it out.”
What bullshit, Grattarola thought. The implied threat to Graham’s business seemed unmistakable. It infuriated him.
“Look, Carrington, we don’t have a serious problem here at all,” he said. “If you want to make it serious, then we can make it serious.”
Grattarola leaned forward in his chair and lowered his voice. He was ready to bore in. “All we’re really talking about here is some married man who wanted to date a single woman who instead went out with a single guy. I don’t want to get into moralities here, and I couldn’t care less who you shack up with or don’t shack up with, or who you pimp for or who you don’t pimp for.”
He leaned back. “I was told by Darr to straighten this out with you, and that’s what I’m here to do,” Grattarola said. “Let’s get it over with. What do you want from me?”
Clark, apparently stunned, backed down slightly. Although his tone was still angry, he began discussing some ways that the problem could be solved. The two men agreed that, as appeasement, Graham would pay for some sort of event in Clark’s region. Clark said that he wanted Graham to sponsor a full training seminar, plus a cocktail party, for all of the big producers in the region.
Son of a bitch is trying to blackmail me, Grattarola thought. He knew the total cost of the request would be close to $9,000.
“No, I’m not going to do that,” he said.
Instead, he suggested hiring a speaker he knew who lectured about telephone techniques for brokers. Grattarola figured that would cost about $1,000 for each speech, and he offered to pay for two. Clark agreed.
As the two men stood up to leave, Clark said, “But listen. If Corbin ever comes back into my region again and fools around with any of my brokers, I’ll see to it that he’s taken care of.”
Fine, Grattarola said. Clark continued on his trip, and Grattarola flew back to New Orleans. He felt angry for days afterward. He had flown all over the country and dropped out of his trip to Hawaii just to deal with a bunch of pampered egos.
The Corbin affair had drawn to a close. The total cost to resolve it— between the lectures for brokers, the last-minute airplane flights, the hotels, and the rental cars—was close to $15,000. Those bills were handed off to the energy income partnerships, to be paid for out of the investment dollars of Prudential-Bache clients. And all because Bob Sherman and Carrington Clark, two married men, couldn’t get a date.
The prospectus for the second series of energy income partnerships was completed on March 9, 1984, just a few weeks after the Cancún trip. It was the first to be put together since Bill Pittman took over the due diligence for energy deals, and it contained a number of changes from the earlier prospectus.
One difference involved Pittman himself. Although his name did not appear in the first prospectus, in the new one, Pittman was listed as the second-highest-ranking officer—subordinate only to Darr—with Prudential-Bache Energy Production, Graham’s co–general partner. With that change, Pittman was among the group in line to receive a share of the cash flow
from the energy partnerships.
Buried on page 50 of the prospectus was another change: A few paragraphs, written in dense language, explained how Graham partnerships that had already been sold were having financial trouble. The partnerships had difficulty making their quarterly distributions, the document said. But $120,000 in cash was distributed anyway—much of it a return of investors’ own capital. Graham simply loaned millions of dollars to the partnerships to help cover the distributions, as well as pay operating expenses and interest costs on the debt.
Few of the 17,925 Prudential-Bache clients who would purchase $200 million worth of the second series of energy partnerships likely read the prospectus. But the message buried in the thick, complex document was unmistakable: The energy income partnerships weren’t working. Because of high expenses and falling energy prices, the partnerships did not have enough cash flow from the sale of oil to make the promised distributions. By quietly advancing the cash, Graham pumped up the distributions, making the partnerships look like strong performers. That assured brokers and clients that the partnerships were good investments.
The sales material distributed to Pru-Bache brokers throughout the spring and summer of 1984 emphasized the supposed quality of the latest income partnerships. Any attempts to tell investors that the partnership distributions included return of their own original investment had been abandoned. Instead, the new sales literature falsely referred to those distributions as the partnerships’ “yield.” The Pru-Bache brokers who just months earlier struck Graham executives as too unsophisticated to understand the energy income partnerships were being fed a pack of lies by the Direct Investment Group.
The first lie blared off the front page of a nine-page fact sheet about Series II: “Last year was great. 1984 should be even BETTER.” The fact sheet never mentioned the financial problems that were forcing Graham to lend money to the partnerships.
Other documents distributed to brokers were even more blatant in their falsehoods. The extremely risky investments were repeatedly labeled as safe and conservative. “This is a low-risk investment in oil and gas, offering high yield,” said a July 16, 1984, sales sheet about the partnerships. “Safety” and “low risk” were listed as the top sales points in other marketing materials.
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