Every lawyer is trained on how to handle approaches like that. Anyone—from a rival lawyer to the subject of the investigation himself—could call up and ask such a question. Colella was appropriately noncommittal.
“I don’t know what you’re talking about,” he said. “Why don’t you tell me why you’re calling?”
“I wouldn’t expect you to answer that question,” Humphrey said. “But I want you to give a message to whoever is working on the investigation at your office.”
Colella grabbed a pen. He listened silently, ready to take notes.
“One of my clients has informed me that the Locke Purnell attorneys examining the relationship between Watson & Taylor and James Darr should investigate the financing of Darr’s personal residence, specifically with respect to the terms and conditions of that loan, as well as the identity of the lender and the lender’s principal shareholders.”
Colella scribbled down the information. Humphrey never mentioned First South, but he and Henry felt sure that Locke Purnell would figure it out.
“Also,” Humphrey continued, “my client believes that William Petty, a former employee of Watson & Taylor, would confirm that Darr acquired an interest in some of Watson’s private partnerships only after the profitability had been assured. The documents you are reviewing have been backdated to conceal this.”
Colella wrote that down as well. He waited a second for more, but then it became apparent that Humphrey was finished.
“Well, again, sir, I don’t know what investigation you’re talking about, but I’ll pass this message on to see if someone might be interested in the information,” Colella stated.
“Thank you, Mr. Colella,” Humphrey said. Then, without another word, he hung up.
Humphrey and Henry sat in the office for a moment in silence. Henry felt sure that what they had just done would set in motion events that not even Darr could control. But in that instant, he didn’t feel elated, or fearful, or happy. Instead, he was resigned, as if what had just happened had been determined by fate.
We had to do it, Henry thought. Darr had to be stopped .
Bill Petty was walking past the kitchen in his Austin home when the telephone rang. It was a morning in mid-January, days after Humphrey had given Petty’s name to Locke Purnell. He strode over to the phone and picked it up.
“Mr. Petty,” the caller said. “My name is Bud Berry, and I’m a lawyer with the Dallas law firm of Locke Purnell Rain Harrell. Our firm has been retained by Prudential-Bache to conduct an investigation involving Watson & Taylor.”
Petty listened, intrigued. At this point, he was not quite sure whether Berry was legitimate, but he thought the lawyer sounded fairly convincing. Petty was a cautious man who played his cards close to the vest. He had no idea if this investigation might lead to some liability for him. For now, he was going to let Berry do most of the talking.
“All right,” he said. “So why are you calling me?”
“We’ve received an anonymous telephone call that you would have information that might be of interest to us.”
“Well, what are you investigating?”
“We’ve been asked to look into the financial relationship between James Darr and Watson & Taylor,” Berry said. “Would you know something about that?”
For an instant, Petty felt astonished. It had been four years since Darr had accidentally tipped him off about the investment he had with George Watson in a private partnership called Lombardi Number Three. He remembered how amazed he had felt when Watson had told him the land in the partnership had been presold and the profits guaranteed. He remembered how Watson had allowed Darr to invest $20,000 in the deal but let him put in only $5,000. This topic that so interested the Dallas lawyer on the phone was definitely something Petty could help him with.
“I know about that relationship,” Petty replied.
Berry mentioned that Locke Purnell was aware that he had invested with Darr in the Lombardi deal and also knew that he was the former national sales manager for Watson & Taylor. Those were some of the areas Berry wanted to discuss.
“Would you mind meeting and talking with me?” Berry said. “I can fly down to Austin, meet you anyplace you’d like.”
Petty was willing to talk, but he still wasn’t completely sure that Berry was who he claimed to be. He couldn’t think of who else might want this information, but Petty wanted to be safe.
“Tell you what,” Petty said. “You write me a letter on your firm’s letterhead confirming everything you’ve just told me. I’ll take a look at it, and if everything’s OK, I’ll meet with you.”
Berry agreed and contacted his colleague, Chris Allison. Allison dictated the letter right away for Bill Petty. At the top of the letter was a single line:
“Re: James Darr investigation.”
Berry relaxed on a sofa chair near the lobby of the Marriott Austin Airport Hotel, off the intersection of Interstate 35 and Highway 290. Petty had selected the hotel as the location for their meeting on the morning of January 28, and Berry was the first to arrive.
Within a few minutes, Petty walked into the lobby. He noticed Berry almost immediately, but at first wasn’t sure if that was the man he was looking for. Berry didn’t look much like a lawyer to Petty. Most lawyers he knew always seemed intense and pensive. But Berry seemed relaxed, almost laid-back. He was wearing a sport coat instead of one of the standard-issue pin-striped suits. For a second, Petty hesitated. Then he realized that any lawyer who went by the name “Bud” was probably going to look a little more at ease than the typical corporate lawyer. Petty walked up to Berry and introduced himself. The two men wandered to the back of the hotel lobby, where they found a table in a bar area. They both ordered something to drink, and Berry took out a pen and a legal pad. They talked for a few minutes, with Berry trying to help Petty relax.
“I want to take this one step at a time,” Petty said.
“I understand that,” Berry said. “We can take everything real slow.”
He gradually began asking questions. Berry was a skilled interviewer. He started by leading Petty through his personal and professional background, letting him handle softball questions that would put him more at ease. Petty described being hired to work for Watson & Taylor and his eventual departure from the company in 1985. He had been working as a financial consultant to real estate companies since then, he said.
Berry started pushing into more sensitive areas. He asked about the Lombardi Number Three deal. Petty relayed the story of how Darr had called him in the office, looking for George Watson and wanting to know where he could send his money. He described how a day or so after he told Watson about the call, Watson offered him the chance to invest $5,000 in the same deal.
“George told me that the property involved had already been sold and that the profit was assured,” Petty said. “And sure enough, my five thousand dollars was returned to me a month or so later, and sometime after that, I made another eleven or twelve thousand dollars.”
“Do you have a copy of the check you invested in Lombardi?” Berry asked.
“I’m sure I do.”
“I’d like to see it, if I could.”
Petty shrugged. “I don’t see any reason why not.”
Berry asked if Petty or any other midlevel officers had been allowed to invest in deals other than Lombardi. Petty shook his head and said that, to his knowledge, the Lombardi deal had been the only time anyone at his level had been offered the opportunity.
Berry flipped a page in his legal pad. “Do you know anything about the financing Darr received on his house in Connecticut?”
“Well, I’m aware that Watson & Taylor arranged a million-dollar loan from First South Savings and Loan to Darr so he could buy that house,” Petty said. “Both Watson and Taylor are big shareholders in First South.”14
As he scribbled that information in the legal pad, Berry asked if Petty had any other information of interest. Petty nodded, describing how Watson had paid a $1,800 hote
l bill for Darr and his wife in Dallas, even though Petty questioned the amount.
“There was also a time when we had a sales incentive trip to Switzerland,” Petty said. “Darr called up and said he wanted to fly on the Concorde. He insisted on it. I told George, and really questioned that expense. But George gave the go-ahead, so we bought the tickets.”
Berry finished writing that on his notepad and looked up. “Anything else?”
Petty shifted in his seat, looking uncomfortable. “Yeah,” he said. “I could name four other Pru-Bache sponsors who would say that Darr put the touch on them in return for Pru-Bache cosponsoring their deals.”
Berry asked for details, but Petty made it clear that at this point he had gone as far as he was ready to go.
“I’m not comfortable about saying too much now,” he said. “I’m worried about my own liability here and the downside of speaking up. I’ve lived with these secrets for years. I’m willing to talk, but I want to be careful.”
“All right, sir, I understand that,” Berry said. “I want to thank you for all your help. At this point, either someone from my firm or Joel Davidson from the Prudential-Bache law department will get back to you on this.”
Petty nodded his head. The two men shook hands and headed out the door. Their meeting had lasted almost two hours. It was about lunchtime, and the crowds were already gathering down the street at the popular Nighthawk steakhouse. Petty hopped into his car and drove away.
Bud Berry and Joel Davidson turned their rental car into Petty’s driveway on the chilly Monday morning of February 8, 1988. It had been a little more than a week since the meeting at the Marriott. Berry had told Prudential-Bache’s lawyers in New York about what he had learned, and almost immediately Davidson asked to see Petty personally. Petty’s oblique reference to other general partners was too intriguing to ignore. Berry arranged to meet with Petty at his home, and Davidson flew down from New York.
The three men gathered in Petty’s living room that morning. This time, Petty seemed more at ease, and the lawyers got right to the point. They asked if Petty could provide them with more information about Darr’s dealings with other general partners.
Petty thought for a moment, then leaned back in his chair. After a few seconds of reflection, he looked at both lawyers. He was ready to talk.
“You need to speak with some of the people who used to work for Darr,” Petty said. “They’re the ones who could tell you a lot of information about Darr getting personal benefits out of the partnerships.”
Petty started spilling some names as Berry took notes. He suggested that they call Wally Allen and John D’Elisa, two of the original members of the Futon Five, and told the lawyers where the men could be found. He also suggested that they contact Curtis Henry, although he didn’t know where Henry was. No one knew that, through an intermediary, they had already been in contact with him.
The lawyers asked Petty for whatever details he knew about Darr’s personal involvement with general partners.
“I can’t offer any details,” Petty said, “but I’ve heard about a lot of instances where Darr got something in exchange for decisions he made.” Then he paused again, apparently thinking about how he wanted to phrase what he was about to say.
“You want to take a look at his dealings with Clifton Harrison from Dallas,” Petty said. “Darr received about $200,000 in benefits from him in connection with real estate syndications Harrison did through Pru-Bache.”
Petty said he had heard that Darr had also profited from personal dealings with a real estate syndicator from Birmingham, Alabama, and had received financial favors in conjunction with horse syndications sold by the firm and sponsored by a company in Lexington, Kentucky.
“Also, you need to look at Darr’s limousines,” Petty said. “A company called VMS regularly provided limousines for Darr’s use.”
Berry wrote down that information, too. Then he asked Petty to tell Davidson about the Lombardi Number Three deal. Petty repeated all the information he had passed on more than a week before at the Marriott.
“Another thing you need to be aware of,” Petty said. “There was something wrong with the due diligence in that department. The entire time I was at Watson & Taylor, nobody other than Darr ever even bothered to take a look at the properties the public partnerships invested in.”
Berry nodded and wrote that down, too. After about two hours, their meeting wound down.
Petty looked over at Davidson. “I assume that something is going to be done about all this.”
“We’ll keep you informed,” Davidson said, his face a blank slate.
The lawyers left. Petty never heard from them again.
On the evening of February 16, the telephone rang at Locke Purnell. Richard Colella answered it.
“Mr. Colella,” said Charles Humphrey, with Curtis Henry standing by his side. “This is the lawyer who recently spoke to you anonymously. I’m again calling on behalf of my client.”
“Yes?”
“There’s some other information that I believe you should know about,” Humphrey said. Henry had picked up another story about Darr and wanted to make sure that Locke Purnell had heard it.
Humphrey said that during the mid-1980s, Darr and a group of other Prudential-Bache executives purchased foals of horses owned by a breeding partnership. The purchases were made individually, or through a partnership, he said.
“The offering documents for the breeding partnerships said that the foals were supposed to have been sold at auction to the highest bidder,” Humphrey said. “Each of the partnerships has the word ‘Amherst’ in its name.”15
Colella took down everything Humphrey said. “All right, I’ll pass this on and see if anyone is interested.”
“Thank you, Mr. Colella,” Humphrey said, and hung up the phone. It was the last time he fed a tip about Darr to Locke Purnell.
Loren Schechter sat in his office, carefully reviewing the nine-page summary of the final report by Locke Purnell. Dated February 23, 1988, it was a rather dry recitation of facts, without any attempt to reach a conclusion about the propriety of Darr’s actions. The law firm had reviewed documents on six of Darr’s investments with Watson & Taylor and interviewed principals about one other investment. All of the records they had found were included in a massive, three-volume set that had been sent to the Prudential-Bache law department.
What Schechter read made him enormously uncomfortable. In one partnership, Darr invested no money at all, although Watson & Taylor contributed almost $6,000 for him. In another, the land in a partnership was sold before Darr was admitted to the deal. In a few more, Darr transformed a joint venture interest, which had some liability for him, into a net profit interest without paying any money for the change. The signs that these deals were far from arm’s-length transactions went on and on.
At the end of the summary, Schechter read about the anonymous caller and his contact with Richard Colella. Then he closed the last page of the summary and began reviewing the notes Berry had typed up from his meetings with Bill Petty. Locke Purnell had not followed up with any of the people mentioned by Petty, such as Wally Allen and John D’Elisa. Even so, the information was devastating, if only because of the number of major general partners whose names turned up in the document. Clifton Harrison. VMS. Watson & Taylor.
Schechter finished the last page of Berry’s notes. He didn’t need to bother reading the hundreds of documents in the three-volume set. The summary was enough for him to make a conclusion: Darr was involved in improper dealings. There could be no place for him at the firm. He was a liability and a growing danger each day he stayed at Prudential-Bache. Schechter knew that the decision to fire such a high-ranking executive would have to come from George Ball. He stood up and headed toward Ball’s office. Schechter had to speak to the firm’s chairman immediately.
George Ball finished reading the summary to the Locke Purnell report shortly after Schechter handed it to him. Schechter had been fairly clear about
how he thought the matter should be handled. And from what he had read, Ball had to agree. He didn’t know if the information he was reading described illegal conduct, but he was certain that it was improper. Darr had to go.
But then again, maybe not right away. Ball realized that this report gave him the perfect opportunity to rearrange the senior management of Prudential-Bache in a manner more to his liking. He had tried for years to bring Bob Sherman on to the team, to persuade him to work with the other departments for the greater good of the firm, but to no avail. Ball thought Sherman was just too much out of the old Bache mold of turffighting and byzantine intrigue. Sherman didn’t fit in with the firm Ball wanted Pru-Bache to become.
The perfect thing to do, Ball decided, was make a clean sweep of it. Sherman had to go, and Darr desperately wanted his job. But Darr had to go, too. The easiest way to avoid any problem would be to toss them both out on the same day. Replacing two top managers was not something that could be done overnight. It would take months of planning and corporate games-playing by Ball. He told Schechter that he would get rid of Darr, but he wanted to take some time to ensure that all the changes were handled as smoothly as possible. He had to brace other senior managers and let them know what was going to happen. He also had to find a replacement for Sherman and build this person up to the troops. Once all was ready, Ball said, Darr would be fired.
That was how Darr was able to continue at Prudential-Bache for almost nine months after the general counsel and chairman of the firm came to believe he was up to no good. During that time, more than half a billion dollars of new partnerships were sold. In every one of those partnerships cosponsored by the firm, Darr’s name appeared as the chairman of the Prudential-Bache subsidiary acting as general partner. None of those documents disclosed the Locke Purnell findings or the concerns of the two top officers of Pru-Bache about Darr’s honesty. Investors would not be told.
But by now Prudential-Bache had far too many secrets to keep hidden. Some of them were about to be uncovered.
Serpent on the Rock Page 41