120–21: Some details of the one-year meeting of Bache and the showing of Annie from the Wall Street Journal, July 16, 1982.
122: Ball’s comments to headhunters from Gregory Miller in “Can George Do It?” Institutional Investor, July 1984.
CHAPTER 6
125: The dialogue from Bradford Ryland’s conversation with George Ball from Ryland’s sworn testimony of March 24, 1987, in the arbitration captioned “In the Matter of the Arbitration Between Christopher Heino and Prudential-Bache Securities.”
128: Details of Fomon’s battle for control of Hutton and Ball’s decision to back the candidate who eventually lost from Sterngold, Burning Down the House.
129: The growth of Hutton, in part, from Sterngold, Burning Down the House.
130: The financial figures from the Hutton check-kiting scandal are from Sterngold, Burning Down the House. Also, see Sudden Death: The Rise and Fall of E. F. Hutton, by Mark Stevens.
Ball’s use of Monopoly money in bonuses to encourage aggressive efforts to recapture bank float is described in “E. F. Hutton Mail and Wire Fraud,” Report of the Subcommittee on Crime of the House Judiciary Committee, December 1986.
Ball’s May 12, 1981, memo is described in Panel Decision 88–19 of the New York Stock Exchange, April 11, 1988.
133–34: The dialogue between Schechter and bank regulators at the February 10, 1982, meeting in part from Sterngold, Burning Down the House.
134: The description of the meeting between Hutton lawyers and Arthur Andersen accountants from two in-house memos to the file at Arthur Andersen, dated March 7, 1980, by Louis T. Lynn and John Tesoro; and February 23, 1982, by John Tesoro and Joel Miller.
135–36: Some details of Franco Della Torre’s financial dealings with Merrill and Hutton originally from Ralph Blumenthal, Last Days of the Sicilians, 1988.
136: Some details of Al Murray’s first steps in investigating the Hutton check-kiting scandal from Barbara Donnelly, “The Man Who Nailed Hutton,” Institutional Investor, September 1985.
138–39: Mike Fahy’s discovery of Della Torre’s name was first described in Blumenthal, Last Days of the Sicilians.
141–42: Ball’s comments to the Bache broker meeting in Phoenix from “Ball Takes Bache and Runs with It,” Fortune, January 24, 1983. That same article reported his comments about the firm’s “second-raters.”
141–45: Some details of Ball’s first days on the job at Bache from Miller, Institutional Investor, July 1984. Also, see “New Bache Chief Pushes a Host of Changes, Including New Name, to Lift Firm’s Image,” the Wall Street Journal, October 29, 1982, and Miller, Institutional Investor, July 1984.
144: The residuals program at Bache is described in a memo from Ball to the firm, dated September 16, 1982.
145: The new advertising campaign for Prudential-Bache from the advertising column of the New York Times, September 21 and November 1, 1982, and February 10, 1983.
CHAPTER 7
150: Harrison’s spending habits are detailed in copies of receipts, checks, credit card bills, and checking account ledgers that were obtained by the author. Details about Harrison’s mismanagement of his Diners Club account come from a May 21, 1981, letter to him from B. Singer, the director of collection for Diners Club International. The information about Harrison exceeding his MasterCard spending limit from a 1982 notice from the MasterCard Department.
151: Description of Darr’s bank accounts, including the Swiss account in which he had an interest through an investment in another entity, from his testimony before the SEC, August 1 and August 2, 1991. Harrison described the gifts he provided Darr, including the artwork worth $8,000 to $9,000, in his testimony in First v. Prudential-Bache, cited above.
152: Darr’s last-minute changes in fees on a Harrison deal are described in a memo dated June 29, 1981, from Donna Webb of Harrison Freedman to Clifton Harrison.
The Bessemer–Key West deal is described in “Agreement and Certificate of Limited Partnership of Bessemer–Key West Limited Partnership,” dated November 15, 1980.
153: The author has obtained copies of the May 20, 1981, letter sent by Clifton Harrison to the investors in Bessemer–Key West.
153: Harrison’s net worth or cost basis, as of 1981, is disclosed in “Barbizon New York Ltd. Private Placement Memorandum,” dated October 12, 1981. When an estimated value of his properties was included, his net worth was positive. But that number papered over the riskiness of his financial condition: To get into a positive net worth, he would have to sell his properties. That document also describes the details of the Barbizon deal and the fees involved. Bache Properties’ participation in the Barbizon cash flow is described in an August 25, 1982, letter to Clifton Harrison from John D’Elisa.
154: The author obtained a copy of Harrison’s liquor license application from 1982. Harrison’s refusal to sign the document is described in the November 3, 1993, deposition in First v. Prudential-Bache of Andrew Bene, a former executive with Banque Arabe et Internationale D’Investissement, which lent money to the Barbizon deal.
156–57: The author obtained copies of D’Elisa’s memos of April 7, 1982, to Darr and Harrison. The actual impact the document would have in litigation is hard to discern. The firm has not produced the D’Elisa memos in any of the lawsuits involving Harrison that were reviewed by the author.
157–58: Details of the Archives deal from the “Archives Limited Partnership Private Placement Memorandum,” undated copy.
The financial problems in the Archives deal are described succinctly in Federal District Judge Bruce M. Van Sickle’s opinion, dated February 3, 1989, in McNulty v. Prudential-Bache, civil action number 3-87-196 in the U.S. District Court for the District of Minnesota, Fourth Division. The opinion was vacated as part of a settlement between McNulty and Prudential-Bache.
164: The proposed Exchange Center deal was described in “Exchange Center Limited Partnership Investment Summary,” an internal document of Harrison Freedman Associates.
167: Ball’s involvement in the development of the energy income partnership in part from a July 27, 1982, memo from him to Alan Altschuler of Bache.
169–70: The background of Graham Resources, including its deal with St. Paul, is described in the June 1983 prospectus for the Prudential-Bache Energy Income Fund.
176–77: The descriptions of the Graham marketing video come from the 1983 script for the promotion.
The number and total investment of Prudential-Bache clients in P-1 from Stuart Goldberg, Prudential-Bache’s $1.3 Billion Energy Income Limited Partnership Oil Scam, 3rd ed., June 1993. The document is a published analysis of the energy income deals written to assist lawyers in their suits against the firm.
CHAPTER 8
180: Darr’s investment of $4,000 in the first Watson & Taylor public deal is disclosed in his testimony to the Securities and Exchange Commission of August 1, 1991.
180–81: The conversation between Bill Petty and George Watson is described in Petty’s deposition of September 26, 1991, to the Securities and Exchange Commission in its investigation captioned “In the Matter of Certain Limited Partnership Offerings,” case number NY–5975. This deposition is also part of the ongoing investigation and is not publicly available.
Watson has denied that the conversation took place and also denied that the Stemmons deal, called Lombardi Number Three, was presold. And indeed, the documents in the deal show that the two parcels of land involved were acquired on September 29, 1983, and October 7, 1983. Darr’s check for $20,600 was deposited on November 11 of that year. The property was sold on February 21, 1984.
Still, the documents raise odd issues. Darr was not admitted as a joint venturer until March 2, 1984, weeks after the property was sold. However, his admission was given an effective date in the documents of September 29, the date of the first land purchase.
Other former Watson & Taylor executives said that, given the hot Texas real estate market, the dates from the documents could easily show a deal that was
presold, particularly if there were rezoning efforts needed for the Stemmons property.
The terms of the Lombardi Number Three deal were also publicly described for the first time in the Business Week cover story of February 1991, cited above.
182: The backgrounds of George Watson and A. Starke Taylor III are described in their testimony in United States of America v. Howard J. Wiechern, case number LR-CR-89-64(1) before the U.S. District Court for the Eastern District of Arkansas. Their testimony took place on October 15 and October 16, 1990. Both men were cooperating with the government in the criminal case against Wiechern, the former head of First South Savings, in exchange for immunity from prosecution.
Also, some details from Watson’s background are from a 1994 Texas Business School Magazine, the alumni magazine for the University of Texas at Austin, College and Graduate School and Business.
182–83: Information about Prudential-Bache/Watson & Taylor Ltd. 1 is described in the prospectus for that investment, dated January 21, 1983.
183: Taylor recounted his first meeting with Wiechern during his testimony in United States of America v. Howard J. Wiechern.
183–84: The First South loans to Watson & Taylor are described in the civil complaint captioned Federal Savings and Loan Insurance Corporation v. George S. Watson, A. Starke Taylor 3d, et al., case number LRC 87–806, filed in the U.S. District Court for the Eastern District of Arkansas, Eastern Division.
Watson & Taylor subsequently filed suit against its law firm, claiming that the violations in the First South investment were the result of bad legal advice. The suit, Watson & Taylor Realty Company et al. v. Akin, Gump, Strauss, Hauer & Feld et al., was filed in the District Court of Dallas County, Texas, as case number 90–12266-A. It was subsequently settled.
184: The performance of Watson & Taylor’s private land deals was described by Taylor during his testimony in United States of America v. Howard J. Wiechern.
Details of Darr’s investment in Lombardi Number Three and Trinity Mills from “Final Report Regarding Certain Transactions Among James Darr, George Watson and A. Starke Taylor III,” a confidential February 28, 1988, report by Locke Purnell Rain Harrell.
Also, see Darr’s deposition of October 18, 1994, in Griffin v. Prudential Securities, case number 250791 in California State Superior Court in and for the County of San Joaquin. Some details also from Darr’s testimony of August 1, 1991, to the SEC.
The author also obtained Darr’s Schedule K-1, a federal tax document that lists a limited partner’s share of income credits and deductions, from the Lombardi deal for calendar year 1983.
Darr testified that he informed Sherman and Schechter of his investments with Watson & Taylor before they were made on October 18, 1994, in Griffin v. Prudential Securities. Schechter denies that he was ever told anything meaningful about Darr’s investments.
The author obtained certain documents that indicate a degree of Sherman’s knowledge. They include a June 14, 1983, memo from Darr to Sherman regarding the Thoner investment and a June 24, 1986, memo from Sherman to Darr relating to some investing material. The second memo says that Darr indicated to Sherman that he had informed Schechter of the investment under discussion.
185: The First South stock purchases of George Watson and Tracy Taylor are described in “FSLIC’s Opposition to the Watson & Taylor Defendant’s Motion to Dismiss,” filed March 11, 1988, in Federal Savings and Loan Insurance Corporation v. George S. Watson, A. Starke Taylor 3d, et al.
186: Once Darr sold his house in Stamford—the one purchased with money he received at Josephthal from general partners—First South required him to pay down some of the loan. Effectively, the only money he put in his new house came from general partners. Certain terms of Darr’s mortgage loan with First South are described in the certified copy of his mortgage, filed with the town clerk in Greenwich, Connecticut, book number 1414, page 247.
188: Petty’s discussion about having Watson & Taylor pay for Darr’s $1,800 weekend in Dallas with his wife from Petty’s testimony to the SEC.
189–90: Information about Prudential-Bache/Watson & Taylor Ltd. 2 from the prospectus for that investment, dated March 2, 1984.
190: Details of Darr’s investment in Northwest Highway/California Crossing Joint Venture from the Locke Purnell report, cited above.
190: Sales points on Prudential-Bache/Watson & Taylor Ltd. 2 from an undated fact sheet distributed by the Direct Investment Group to Prudential-Bache brokers throughout the country.
190: The performance of Prudential-Bache/Watson & Taylor Ltd. 2 from The Perspective, a publication of Partnership Profiles Inc., April 1993.
192–93: Quinn’s telephone call to Barry Breeman is described by Breeman in his deposition of December 2, 1992, in First v. Prudential-Bache .
Information on 680 Fifth Avenue Associates from the prospectus of that partnership.
193–94: Some details on the Barbizon investment offered to Prudential-Bache executives from the February 1984 brochure on the deal sent to Darr from Michael Walters, a marketer with Harrison Freedman.
193: A copy of Darr’s letter of February 27, 1984, to Walters was obtained by the author.
194: Details of Harrison’s purchases in 1983 from copies of his receipts and credit card bills, both of which were obtained by the author. Specifically, they include the December 12, 1983, receipt for the satinwood table and mahogany clock from Manheim Galleries of Dallas.
194: Darr’s solicitation of Prudential-Bache executives, including George Ball, for investment in the Harrison deal from a March 30, 1984, memo written by Darr and obtained by the author.
The Prudential-Bache executives who invested in the second Barbizon deal and assumed Harrison’s debt are named in a December 9, 1985, letter from Carnegie Realty Capital Corporation to Steven B. Lipton. In the end, the loan would prove tortuous. Darr himself skipped payments he owed on the loan, but Carnegie never took action against him. In 1987, Darr paid off the loan and all of his past-due interest payments. That same year, Harrison, who paid nothing back on the loan, was sued by Carnegie for defaulting. The court ruled in favor of Carnegie. Darr’s repeated failure to pay his interest on the Carnegie loan is described in an October 17, 1986, letter to him from Carnegie demanding payment. According to the letter, Darr failed to pay interest payments of $13,715.75 and $14,178.08 that were due on May 1, 1986, and August 1, 1986. The letter does not threaten Darr with any action if he fails to pay.
Terms of the Harrison deal for Prudential-Bache executives are described in “Agreement and Certificate of Limited Partnership of CSH-BHP Limited Partnership,” a document filed with the Texas secretary of state on November 5, 1984.
195: Walters’s “merry men” letter of March 26, 1984, to Howard Feinsand was obtained by the author.
196: Darr’s orders to change the Madison Plaza video are described on an invoice to the Direct Investment Group, dated February 7, 1984.
Darr’s demands of Ed Devereaux and other regional marketers from the third amended complaint in First v. Prudential-Bache.
196: Harrison’s comment to Barry Breeman regarding his joining the Madison Plaza deal from Breeman’s deposition of December 12, 1992, in First v. Prudential-Bache.
197: Roberts’s jet-setting and high spending were described in the August 24, 1993, deposition of James M. Holbrook, a lawyer for Summit Savings, in First v. Prudential-Bache.
Roberts’s illegal purchase of the Gulfstream II jet aircraft is described in United States of America v. John H. Roberts Jr., case number CR3-89-154-R, filed on June 8, 1988, in Federal District Court for the Northern District of Texas. He pleaded guilty to two felonies under an agreement filed with the court on July 5, 1989.
197–98: John Roberts’s financial dealings are described in detail in personal diaries he kept from 1983 to 1984. The documents were obtained by the author.
198: The transfer of the Summit loan to the Grand Cayman Islands branch of the Republic Bank of New York is disclosed in a wire t
ransfer, dated May 31, 1984, from the New York office of Republic to the branch. Officials with ties to Carnegie were named as the trustees for the account.
Roberts’s June 1, 1984, meeting in New York with Darr and John Holmes is described in his personal diaries, cited above.
199: Steven Davis’s comments about Harrison’s need for new deals to pay for old ones from Holbrook’s August 24, 1993, deposition, cited above. Also, Holbrook’s disinterest in the performance of Madison Plaza for investors from the same testimony.
199–202: Darr denies having discussed loan swaps between Summit and First South. However, Roberts took contemporaneous notes of the August 30, 1984, conversation in his diary, cited above. Also, Roberts testified under oath that the conversation took place.
Further, Holbrook, the Summit lawyer, testified under oath on August 25, 1993, that Roberts had told him that Darr had requested a loan swap between Summit and First South. In that same testimony, Holbrook described his own conversation with Darr, in which Darr demanded that the loan swaps be done.
CHAPTER 9
204: Details about the Graham due diligence trip to Cancún from a January 1984 sales sheet to Prudential-Bache brokers, which described what they needed to do in order to qualify. The number of executives who went on the trip was determined by a list of attendees obtained by the author.
212–13: Sherman’s actions at the Cancún awards ceremony were described to the author by multiple witnesses.
213: The author spoke to a wide range of people who either witnessed or were subjected to sexual harassment by senior officers of Prudential-Bache.
No executives were the subject of more such accusations of sexual harassment than Bob Sherman and Carrington Clark. One woman sued Prudential Securities, describing situations of sexual harassment that were similar to what the author was told in numerous interviews. The suit, Kristi Mandt v. Prudential Securities, says:
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