Sherman and Clark . . . engaged for many years in wrongful conduct of a sexually harassing nature, in violation of Title VII of the United States Code. . . . Sherman, in his position as head of the retail division of Prudential, insisted and demanded from time to time that Clark, as a regional manager, locate female employees to accompany Sherman on business outings for the sole purpose of gratifying Sherman’s sexual desires. . . . Clark himself also insisted from time to time that female employees engage in sexual relations with him as a condition of their continued employment and/or advancement of employment opportunities.
In a sworn affidavit attached to that complaint, one former branch manager, Bruce Biermann, described certain actions by Carrington Clark that were filed to support Mandt’s claim. In the affidavit, Biermann said:
I personally observed [Clark] asking for dates with female employees in my office. While I do not know the results of those overtures by Mr. Clark, I was told by one such employee . . . that she was uncomfortable in Mr. Clark’s presence. On more than one occasion, Mr. Clark indicated to me that he would have appreciated my getting him dates. I never did so.
In the case, Prudential Securities, Sherman, and Clark do not address the substance of the allegations. Instead, they successfully argued that the claim was time-barred.
217: The details of the Prudential-Bache Energy Income Partnerships Series II come from a copy of the prospectus, dated March 9, 1984.
218: The sales pitch offered to Prudential-Bache brokers for Series II of the energy income partnerships from an undated fact sheet by Steve Starnes, a marketer in the Direct Investment Group, titled “Prudential-Bache Energy Income Fund II.”
Also, similar information was provided in a July 16, 1984, fact sheet from Barron Clancy, head of the Northeast Region of the Direct Investment Group. It is titled “Prudential-Bache Energy Income Partnership II: The Window of Opportunity.”
224–25: Ball’s experience at Sherwood’s retirement party is described in a memo Ball wrote to the firm, dated November 26, 1984—the “losses suck” memo.
The deteriorating financial performance of Prudential-Bache is described in Business Week, “Pru-Bache Is Putting Its Parent’s Patience to the Test,” December 17, 1984.
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227–28: Details of the Capt. Crab case from “In the Matter of Prudential-Bache Securities,” 34 SEC Docket 1094, Administrative Proceeding number 8–27154, file number 3–6600, brought by the Securities and Exchange Commission, January 1986.
227–29: Saccullo’s opinions, and quotes from his SEC testimony, from the transcript of proceedings, “In the Matter of Trading in the Securities of Capt. Crab’s Take-Away,” investigation HO-1573. The testimony was given on February 20–21, 1985. The documents were obtained by the author under a Freedom of Information Act request.
The quotations cited are the actual statements of the participants in that proceeding. However, at times, the back-and-forth between the investigators and Saccullo—such as questions answered with “I don’t recall”—have been edited out for simplicity. None of this editing changes in any material way the meaning of Saccullo’s answers or of the investigator’s questions.
227–28: Lugo was a cofounder of the Executive Securities Corporation, which went bankrupt in the 1970s. He was barred from the securities industry for one year in 1972 by the SEC because of his participation in a reported stock fraud at Executive Securities. His role in the manipulation of International Diamond won him a suspension for ten days. At the same time he was being investigated for the Capt. Crab manipulation, the SEC was also examining a similar fraud involving Lugo and shares of a company called Creditbank.
Information about the secondary offering of Capt. Crab shares from the July 21, 1983, prospectus for Capt. Crab’s Take-Away.
229: Lugo settled the Capt. Crab case with the SEC, and on November 5, 1991, an order was entered against him barring him from further violations of securities laws. At the time, Lugo no longer worked as a licensed stockbroker. See SEC Litigation Release number 130393, dated November 18, 1991.
The performance of the Polaris partnership from The Perspective , March/April, 1993.
229–30: Some details of Sam Kalil’s sentencing hearing from “Broker Convicted of Theft Ordered to Pay Restitution, Serve Jail Term,” Florida Times Union, February 9, 1985.
Kalil’s crimes from “In the Matter of Prudential-Bache Securities,” cited above.
Also, see “Stockbroker Kalil Charged with Theft,” Florida Times Union, December 30, 1983; “Ex-broker Sam Kalil Faces 10 Counts of Stock Fraud,” Jacksonville Journal, December 29, 1983; and “Troubles Mount for Fired Jacksonville Stockbroker,” Florida Times Union, December 13, 1983.
232: The quotations from Meese about the Hutton settlement from a copy of his prepared statement.
232–33: Ball’s congressional testimony from transcripts of the hearings entitled “E. F. Hutton Mail and Wire Fraud,” before the Subcommittee on Crime of the House Committee on the Judiciary, October 31, 1985, pp. 1544–1608.
235: Information about the Capt. Crab/Kalil settlement from 34 SEC Docket 1094 cited above.
Quotes about the settlement from “SEC Censures Bache for Supervisors’ Lapses,” New York Times, January 3, 1986.
235–36: Ball’s January 24, 1986, meeting with Storaska is described in part in an internal CES memorandum prepared for Storaska. The confidential document was obtained by the author.
236: The terms of Storaska’s employment were described in a memo to Storaska’s files, written September 3, 1984.
The author obtained a November 12, 1984, letter to Prudential-Bache from the Chicago Board Options Exchange, saying that the exchange was investigating Storaska for matters that occurred prior to his termination from Kidder.
The letter of complaint against Storaska from Lee Cowen, dated October 31, 1985, was obtained by the author.
240–41: Some details of Jim Trice’s discussions with George Ball and Bob Sherman from Trice’s sworn testimony in his 1989 arbitration case against Prudential-Bache captioned “James E. Trice vs. Prudential-Bache Securities,” NASD number 89–03394. Also, see Trice’s testimony of April 14, 1994, in “Alexander and Wanda Belmont v. Prudential Securities,” arbitration number 93–02086, before the National Association of Securities Dealers.
241–42: The events surrounding Jim Trice’s arrival in Atlanta are described in his sworn testimony in his arbitration case, cited above.
243–44: The author obtained the July 8, 1986, memorandum to the file by Charles Grose, which described his encounter with Storaska about the Heiner account. The author also obtained the letter of complaint from the accountant, Susan Hedegaard.
244–45: The events surrounding the Levine case and its subsequent development were described in fascinating detail in Douglas Frantz’s Levine & Company and James B. Stewart’s Den of Thieves.
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246: Some descriptions and details about Longleaf Plantation from a series of undated brochures and pamphlets published by the hunting reserve.
Also, for some description of Longleaf, as well as intricate details of the Prudential-Bache Energy Income partnership fraud, see the groundbreaking and award-winning series by Scot Paltrow in the Los Angeles Times . Part 1 ran on June 22, 1993, under the headline “Partners in a Troubled Venture.” Part 2 ran the following day under the headline “As Energy Funds Stumbled, Companies Reaped Benefits.”
Rice’s role in teaching Darr how to hunt from Rice’s December 16, 1991, testimony before SEC investigators, cited above.
247–49: In a sworn deposition, Graham at first claimed not to remember some of these comments and subsequently denied making them. The deposition was taken on May 25, 1993, in the case In Re: Prudential-Bache Energy Income Partnerships Securities Litigation, MDL docket number 888, U.S. District Court for the Eastern District of Louisiana.
However, the conversation was described in detail in a January 9, 1985, memo to Anton Rice III writ
ten by Mark Files shortly after it occurred.
247–48: The manipulation of the distributions for the energy income partnerships is described in detail in thousands of internal documents in the case In Re: Prudential-Bache Energy Income Partnerships Securities Litigation, cited above. Many of those documents are cited here.
Also, it is described in State of Idaho v. John F. Corbin , civil complaint number 97964, filed on July 21, 1994, in the District Court of the Fourth Judicial District of the State of Idaho. That complaint, which Corbin, a Graham marketer, later settled, stated in reference to the income partnerships: “Corbin omitted to disclose that the identified rates of return were being manipulated by the general partners, so that the charts did not reflect the actual operating incomes experienced by the prior programs during the relevant time periods.”
The author also incorporated information from a series of depositions in the case In Re: Prudential-Bache Energy Income Partnerships Securities Litigation, cited above. The 1993 depositions include those of Matthew Chanin, taken March 29–30; Sam Blaize, taken April 14; John Graham, taken May 25–27; Joseph DeFur, taken June 1–3; Mark Files, taken June 4–5; Anton Rice III, taken June 9–11; James Kelso, taken June 14–15; and James Darr, taken July 12–14.
Finally, the inflation of partnership distributions was widely reported in the press. Again, the author refers to the Paltrow series in the Los Angeles Times, cited above. Also, see Michael Siconolfi, “Prudential-Bache Inflated Partnership Payouts,” Wall Street Journal, April 8, 1993.
248: Darr’s hardball tactics in negotiating with Graham, and the anger that resulted, are described in Rice’s 1991 deposition to the SEC.
250: Dawson’s $1.4 million day in selling Prudential-Bache Energy Income partnerships is described in Energy Digest for May 1985. The newsletter was published by Graham Resources for distribution to brokers in the Prudential-Bache retail network.
251–54: Descriptions of the May 30, 1985, meeting at Prudential-Bache come in part from a June 3, 1985, memorandum by James C. Sweeney, written for his own files.
254: The marketing video for the Prudential-Bache Energy Income Fund II was obtained by the author.
254–56: The description of Pete Theo’s presentation to Prudential-Bache brokers comes from a June 28, 1985, script prepared for those sales lectures. The total marketing misrepresentation is described in Goldberg, Prudential-Bache’s $1.3 Billion Energy Income Limited Partnership Oil Scam.
256–57: Dempsey’s recommendation to puff up the distributions was made in a July 2, 1985, letter to Matthew Chanin at Prudential Insurance. Chanin’s acceptance of those terms, and the other requirements he imposed, from a July 16, 1985, letter to Anton Rice.
258: Dempsey’s concern about his ability to “finesse” the $500,000 shortfall was described in a July 23, 1985, memo to Files and Rice. Although Dempsey instructed the readers to destroy the memo after reading it, a copy of it was obtained by the author.
Also, see Dempsey’s testimony of March 30 and April 1, 1993, in In Re: Prudential-Bache Energy Income Partnerships Securities Litigation. The author also referred to Dempsey’s November 1991 deposition in In Re: Prudential-Bache Energy Growth Funds, cited above. Those records, which are not publicly available, were obtained by the author.
A copy of the July 1985 “$uperbroker” comic book was obtained by the author.
259: Alan Myer’s limerick from a 1985 copy of Energy Digest. Barbara Gutherie’s letter of complaint to Ball about the “$uperbroker” comic book was described on June 22, 1993, in part 1 of Paltrow’s energy income series in the Los Angeles Times.
259: The October 17, 1985, meeting between Chanin and executives from the Direct Investment Group is described in handwritten notes from the meeting, as well as a typed record for the files by James C. Sweeney, written on October 30, 1985. Also, see the March 29–30, 1993, deposition of Matthew J. Chanin, cited above.
260: Darr’s hunting relationship with Tony Rice as well as his failure to pay for hunting trips and the $900 rifle are in part from Rice’s testimony to the SEC. Also, in that testimony, Rice describes some details of his car trip with Darr in which they discussed First South.
261: Details of Darr’s second loan from First South and his purchase of First South stock in part from Darr’s 1991 testimony to the SEC. Also, the author obtained a copy of the second mortgage, which was publicly recorded in Stamford.
261–62: The $800,000 shortfall in distributions for the fourth quarter of 1985 is described in a January 6, 1986, memorandum from Mark Files to Anton Rice and A. B. Dempsey. Also, see Files’s deposition of June 4, 1993, cited above. Details of the oil market collapse from USA Today, “Chaos Climbs as Oil Prices Keep Sliding,” January 22, 1986; Time, February 3, 1986.
262–63: The January 23, 1986, conversation between Sweeney and Chanin is described in a memo of that date from Sweeney to Joe DeFur, Bill Pittman, and Paul Proscia. Also, see the March 29–30, 1993, deposition of Matthew J. Chanin, cited above.
263: Al Dempsey’s conversations with Pittman and other Direct Investment Group executives a few days after Chanin’s decision is described in a February 4, 1986, memo from Dempsey to Graham, Rice, and Files. That memo quotes certain statements from Pittman directly.
264: The May 1986 fact sheet on Prudential-Bache Energy Income Series III describing the program as “A Proven Producer” was obtained by the author. The statements that the energy income partnerships were ideal replacements for certificates of deposit were made in a wide range of sales materials. In the time frame mentioned in this chapter, the author referred to the February/March edition of Energy Digest.
265: The investor numbers as of 1986 in the income funds from Goldberg’s Prudential-Bache’s $1.3 Billion Energy Income Limited Partnership Oil Scam .
The author obtained an internal Prudential-Bache document that listed the expected attendees for the 1986 national sales forum, “A Commitment to Excellence.”
268: Darr’s expectation that he would be able to take Sherman’s and then Ball’s job based on a number of confidential interviews and, in part, Darr’s testimony to the SEC.
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269–70: Darr says he always paid for these expenses out of his pocket. However, the bills from the limousine service suggest otherwise. The author has obtained certain of Harrison Freedman’s account statements with Smith Limousine, which describe in detail the passengers, travel time, pickup and drop-off sites, and total cost for various trips. Although Harrison marked the trips of some passengers as personal, Darr’s trips were not so marked. The bills were stamped as “paid” by Harrison Freedman Associates. Darr has contended that he used the limousines only for business purposes. The author leaves it to the reader’s judgment whether such expenditures, in a city with many inexpensive car services and thousands of taxis, were a reasonable use of partnership money.
270: The trip on the Queen Elizabeth 2 is described in sales material from 1986 titled “Harrison Freedman Associates and American Capital Partners Invites You to an Atlantic Crossing on the Queen Elizabeth 2.”
It was also described in detail by Tillie Tillman, a broker on the trip, in his sworn statement in First v. Prudential-Bache.
272–73: The author obtained a copy of Dr. Schieffer’s letter to Harrison Freedman, as well as those of more than a dozen other investors in Bessemer–Key West. The author also referred to the 1981 investor list for the deal.
273–75: Tillman’s experience with Mike Walters is based, in part, on Tillman’s deposition in First v. Prudential-Bache.
275–76: Mandt has signed a sworn affidavit, dated August 27, 1992, stating under penalty of perjury that she was compelled out of fear for her job to submit to the requests of Clark and Sherman. Her statement of claim, which she reaffirms in her sworn statement, says that Sherman and/or Clark engaged in sexual relations with her. The statement of claim can be found in the “record on appeal” in the Mandt case cited above.
277: The author obtained a c
opy of Hoffstaedterr’s September 24, 1986, cable to Clifton Harrison.
278: The confrontation of Prudential-Bache by the German government was partly described in Edward M. Strasser et al. v. Prudential Securities et al. The case is filed under index number 35124/91 in the Supreme Court of the State of New York. Harrison’s decision to take a large fee from Bessemer–Key West when there was no cash for distributions from his testimony in First v. Prudential-Bache, cited above.
278–79: The signing ceremony and background for the Tax Reform Act of 1986 are described in Showdown at Gucci Gulch, by Jeffrey H. Birnbaum and Alan S. Murray. For additional details of the signing ceremony, the author relied on “President Signs New Tax Bill,” New York Times, October 22, 1986.
The quotes from Reagan’s speech are from Speaking My Mind: Selected Speeches, by Ronald Reagan.
280–84: The negotiations between Harrison and the Prudential-Bache legal department are described, in part, in Harrison’s deposition in First v. Prudential-Bache. Also, the author has obtained the correspondence on this matter between Harrison and the legal department from November 1986 until 1988. These include letters to Harrison from Joseph Vallo, assistant general counsel of Prudential-Bache, dated November 13 and 24, 1986, January 2, 1987; from Vallo to Gayle Gordon of Harrison Freedman, dated March 23, April 7, 1987. Also, it includes letters to Vallo from Donna Webb, president of Harrison Freedman Associates, dated December 1, 1986; January 16, March 23, April 1, April 8, 1987; a December 9, 1986 letter to Harrison from Kevin McKay, the firm’s deputy general counsel; and letters to Harrison from Joel Davidson, dated November 6 and November 7, 1986, and June 1, 1988. Those are the critical letters among about forty such documents relied on by the author.
282: The failure of Prudential-Bache to obtain the $2 million owed by Harrison, and Schechter’s description of that failure as “an administrative oversight,” are described, in part, in Strasser v. Prudential , cited above.
282–84: The deposition of Harrison by Charles Cox is taken verbatim from the transcript of that encounter in the case McNulty v. Prudential-Bache, cited above.
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