With Henry in Dallas, Hayes in Washington, and D'Elisa in Smithtown, Long Island, the only chance to meet face-to-face would be at the department's next quarterly meeting in Manhattan, scheduled in two weeks. But they agreed that they would say nothing about their suspicions at Bache headquarters; the risk of detection was too great. Instead, they had to meet somewhere they could speak privately.
Henry called Dennis Marron, who worked for the department in New York, to see if he could find a meeting place. When Marron asked why, Henry told him what was going on. The story confirmed Marron's worst fears. He had listened to Darr for months, spinning lie upon lie about his military career, and had grown more uncomfortable with his boss as each new version emerged.
“The guy is pathological,” Marron muttered. Henry pushed Marron again about a meeting place. After thinking for a moment, Marron had an idea.
“What about Wally Allen's apartment?” he asked.
Allen, Darr's old friend from his Merrill days, rented an apartment just two blocks from the firm after Darr hired him. It was the perfect place, Marron said. It was close enough that everyone could go there during the lunch break and be back in an hour without anyone the wiser. But the idea left Henry wary. After all, Allen knew Darr longer than he knew any of them. How could they know that he could be trusted?
“I don't think Wally will be a problem,” Marron replied. “He may have been hired by Darr, but he's not a big Darr fan.”
Marron was right. Allen agreed to let everyone meet in his apartment and said he would not tell anybody about what was happening.
By October, the plans were set. The staff of the Bache tax shelter department arrived in Manhattan for the quarterly meeting. Nothing seemed unusual. They listened as Darr spoke about the sales performance of the prior quarter, they took notes during presentations about new deals scheduled to be sold. At the lunch break on the first day, everyone streamed out of the building, headed toward nearby restaurants. Amid the hubbub, Hayes, D'Elisa, Henry, Marron, and Allen politely rejected any lunch invitations. They had other plans.
The five men left separately from Bache's headquarters at 100 Gold Street and slowly walked the two blocks south to Allen's apartment at the old Excelsior Power Company. The Excelsior, built in 1888, was the first coal-generated electric powerâgenerating station in Manhattan. In 1979, the brick building was transformed by a historic rehabilitation, giving somebody, somewhere a tax shelter. One at a time, the men followed as Allen led the way to his apartment. Through the nondescript lobby of the Excelsior, down a long hallway to the small, new elevator, up to the fifth floor, left, down the carpeted hall, into the apartment at the end.
Allen, whose tastes ran to contemporary, simple designs, had decorated his apartment almost exclusively with futons. Everyone started trying to fashion chairs out of them. Grabbing a few beers out of Allen's refrigerator, the men chatted nervously in the living room as they waited for everyone to arrive. They commented on the apartment's gorgeous view of the Brooklyn Bridge and kidded Allen about his taste in furniture. At some point, the suggestion was made that the group take a name in honor of their meeting place. From then on, the gathering would be known within Bache as the first official meeting of “the Futon Five.”
No one ran the meeting. It just flowed, like a group therapy session without a therapist. D'Elisa opened the conversation, describing what he had heard from Sinclair and Gosule. Then he turned the floor over to Henry, who told of his experience with Leach in Oklahoma. Despite the repetitive nature of the information, all of them knew it was still too thin. They needed something more.
D'Elisa turned to Allen. “Look, you've known Jim longer than anybody,” he said. “What do you know about the guy? Have you ever heard of anything like this?”
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 conversationâhis 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.