Darr sounded nearly apoplectic. “But John promised me. So I think you need to do this.” Suddenly his tone of voice became more menacing. “And if not, I have done a lot of things for John and Summit and you in New York,” he said cryptically. “We've done things that were supposed to be paid back, and this is one of the things you were supposed to do for me.”
Holbrook had no idea what favors Darr was talking about and did not want to know. And he did not take well to being threatened.
“I'm sorry,” he said. “John is no longer involved here, nor can he make a commitment. And, I apologize, but to this extent, I am not going to help you.”
Then he hung up the phone.
Holbrook did not know it, but at that instant, he helped to set in motion a series of events that would damage First South, Watson & Taylor, and eventually Darr himself. But it would be years before anyone at Prudential-Bache knew anything about it.
George Ball felt a little virtuous. He had not allowed himself to be unduly swayed by the rumors about Jim Darr's ethics. And now, in late 1984, months after Ball ordered the investigation of Darr, lawyers for Prudential-Bache reported that they had found no evidence of impropriety. The lawyers chased down every rumor they heard and repeatedly hit dead ends. Although there were widespread stories that Darr was dirty, none of the people they interviewed had any details. To a degree, the investigation had been hampered by Ball's instructions: He wanted it conducted as quietly as possible, to avoid feeding the Darr rumors. The investigators did not even question Darr himself. From all the lawyers could tell, Darr might not be the most pleasant fellow in the world, but they found nothing to prove that he was dishonest.
What was most telling about the second investigation of Jim Darr is what the lawyers left out in their oral report to Ball: They did not mention that Darr had already been investigated by the firm once before, or that the five men who reported specific allegations of wrongdoing against him had been fired or eased out. The lawyers did not find out about Darr's demands for an apartment from VMS for Sherman or about Darr's private investment deals with Watson & Taylor. They also missed his $1.8 million sweetheart mortgage loan from First South and his efforts to coordinate loan swaps out of that troubled S&L for the benefit of Watson & Taylor. In short, the investigators learned nothing about what was actually going on in one of the firm's biggest departments.
Once the lawyers finished their report, Ball felt pleased. He had prevented an innocent man from being maligned by jealous tongues, he thought. Better still, he could now take comfort in Darr's honesty. After all, Darr had just been investigated. Regardless of whatever bad rumors he heard about Darr in the future, Ball felt confident that he would not have to take them seriously.
CHAPTER 9
BOB SHERMAN STEPPED OFF an American Airlines jet into the bright sunshine at the Cancún International Airport. His flight to Mexico on the afternoon of February 19, 1984, had arrived right on time. The small airport was bustling with tourists, buzzing excitedly about having escaped the frigid North American winter. Sherman, dressed in a sport shirt and sport coat, headed onto the tarmac and walked briskly toward the airport's baggage pickup.
Sherman entered the terminal, looking around expectantly. Not a single senior executive from Direct Investment Group was there to meet him. In fact, no one from Pru-Bache was waiting for him. An expression of sheer anger crossed his face. At the very least, Sherman expected that as the head of the firm's retail division, he would be treated with a degree of respect. He set down his carry-on bag and stood inside the terminal gate, furious.
He continued to scowl as a bald, heavyset man walked toward him. “Mr. Sherman?” the man said. “I'm Paul Grattarola, the national sales manager for Graham. We're the sponsors of this trip. I'm here to take you to the hotel.”
Sherman looked at Grattarola, visibly upset. “Where's Jim Darr?” he demanded. “Where are the other people from Direct Investments? Why aren't they here?”
Oh, boy
, Grattarola thought, realizing he had another Prudential-Bache prima donna on his hands. He would have to handle this delicately.
“Well, I apologize for that,” he told Sherman. “We've got some activities going on back at the hotel, and everyone is there.”
Sherman scowled and looked away. Clearly, the explanation had not soothed his bruised ego.
Grattarola picked up Sherman's bags and escorted him to the waiting car. He was dreading the ride back to the hotel. Ever since Graham had assigned Grattarola the responsibility for planning this trip for hundreds of brokers and managers from Pru-Bache, his encounters with the firm's executives had been an endless headache.
The trip was billed as the energy income fund's due diligence trip. In itself, the name was a laugh. If the Prudential-Bache brokers and managers wanted to perform due diligence on the energy income fund, they needed to fly out to one of the partnerships' oil fields in Wyoming or Texas, or maybe to Graham headquarters in Louisiana. Not too many oil wells were likely to be drilled on the beaches of luxury hotels in Mexican resort towns. But then, not many of the 183 Pru-Bache executives who came on the trip, many accompanied by their spouses, were there to learn anything about oil wells.
In truth, the trip was little more than a legal bribe to induce the firm's brokers and managers to sell the energy income partnerships. Any broker who sold $200,000 or more of the energy partnerships won a spot on the trip. Managers who pushed their troops to sell $500,000 worth were also included. All of the qualifying executives won two round-trip air fares to Cancún, four nights at one of the city's finest hotels, plus free meals and drinks. The cost of the entire trip was on Graham, which in turn passed the bills on to the public partnerships. Somehow Graham viewed providing luxurious entertainment for the people who sold the partnerships as an appropriate use of clients' money.
But none of the clients would know anything about it. The trips were never specifically disclosed in the two-inch-thick prospectus for the first series of the Prudential-Bache Energy Income Fund. So none of those clients would ever question whether their broker sold them the partnership because of an honest belief that it was a good investment, or because the broker needed another $10,000 in sales to win a luxurious holiday.
There was little question that the trips succeeded in persuading brokers to sell partnerships. When the Prudential-Bache Energy Income Fund was first offered eight months earlier, John Graham told colleagues that he would be surprised if more than $30 million of partnerships were sold. By the time of the trip to Cancún, Prudential-Bache brokers had persuaded 8,090 clients to invest $91 million in the deals.
Not that Graham was unique in providing the trips; its trips were just among the best. All of the big partnership sponsors did the same thing, although Pru-Bache had the reputation of expecting the most trips with the highest expense. By 1984, the sales force expected the free vacations. Brokers who once only asked “What's the commission?” had added another question to their list: “What's the trip?”
The Direct Investment Group soon was demanding that general partners package the most elegant, expensive, and perk-laden trips possibleâ to England, Sardinia, Amsterdam, Hawaii, or other luxurious travel spots.
Grattarola had learned about that imperious attitude firsthand in planning the Cancún trip, particularly when it came to the care and feeding of Jim Darr. Grattarola was given specific instructions from the Direct Investment Group: While in Cancún, Darr would have a limousine available for him at all times. He also wanted a large hotel suite.
Darr even refused to accept spending restrictions placed on other Prudential-Bache executives. Although the brokers and managers were allowed to order as much champagne as they wanted, Grattarola limited each of them to four bottles of Dom Perignon. In Mexico, that top-of-the-line champagne easily cost more than $100 a bottle. But four bottles were not enough for Darr. He wantedâand would orderâfar more than the limit. After all, the money wasn't his.
As the demands flowed into Graham's headquarters, Grattarola, a blunt Italian American with a long background in the brokerage business, grew uncomfortable. Darr alone might well push the trip over budget. Grattarola sought out Tony Rice, Graham's chief financial officer, and explained the problem.
“Whatever Jim wants, give it to him,” Rice said. “Without question.”
Even with free rein, Grattarola had trouble meeting all of Darr's demands. After all, Cancún was not Manhattanâsome of the things Darr wanted were difficult to obtain. At first, Grattarola could not locate a single available limousine there. He finally tracked one down in Mexico City. But the limousine company refused to send one of its cars hundreds of miles for just a five-day stay. So, billing the cost to the public partnerships, Graham paid for the limousine for two weeks, even though it would be sent back after five days. Delighted, the Mexican company had the limousine driven down to Cancún for Darr and his wife.
Rice instructed Grattarola to give Darr a presidential suite in Cancún. The suite was gigantic, at about five thousand square feet, with multiple levels, a huge bathtub, and its own swimming pool. It was literally the presidential suite: Before they agreed to let Darr stay there, hotel officials checked with the aides to Mexico's president to make sure he was not coming that week. Afterward, Grattarola had to agree that Darr would move if the president changed his mind.
Encouraged by Rice and John Graham, Grattarola went all-out on the kingly treatment for Darr. He arranged for Darr and his wife to be ticketed separately from the others at the airport. On the other end of the trip, Darr's group was met by a mariachi band. While other Prudential-Bache executives waited in line for their luggage to be examined at customs, the Darrs were taken to a special room. There they were offered champagne while their luggage was specially handled. Grattarola also asked the mayor of Cancún to send a representative to greet Darr and to thank him for bringing such a large contingent of American businessmen to the resort.
It had all come off without a hitch earlier that day. Now Grattarola could see that his failure to create a similar reception for Sherman had left him seething. Grattarola figured that Sherman had his own spies on the trip, who must have told him about Darr's majestic welcome. Apparently, Sherman had expected the same treatment. But instead, Sherman waited in line at customs just like any other tourist. Grattarola tried striking up a conversation, but Sherman just muttered at him irritably. Finally they were ready to go, and Grattarola took Sherman out to a waiting car.
As the drive began, Sherman asked where he would be staying. Grattarola said that he had arranged for Sherman to stay in a suite at the Sheraton.
“Is it as good as Darr's?” Sherman asked.
Here we go
, Grattarola thought. “I don't believe so,” he said. “There's only one suite in town that size.”
“Well, why don't you kick Darr out of it and put me in? I'm senior to Darr. He reports to me.”
Grattarola spoke carefully, measuring his words. “I don't handle politics, Mr. Sherman,” he said. “I worked these things out through the people in Direct Investments. I've done what they asked me to do. We did the best we could. I've looked all over town, and there is no other suite like that.”
Sherman snorted. “Well, you don't do a very good job. I'm not impressed with you, and I'm certainly not impressed with your organization.”
For the next few minutes, Sherman was mostly silent, with an occasional cutting remark about how little he thought of Graham. Grattarola felt enormously uncomfortable. He had never met a Pru-Bache executive more senior than Sherman. And the man clearly hated him.
Finally, as the car drove along the streets of Cancún, Sherman broke the silence.
“Look, you're in charge of this thing,” he said. “Well, I want unlimited expenses for room service. I'll probably want to have a party, and I don't want any restrictions. I don't want to have to deal with a bunch of rules. Understand?”
Apparently, all these senior Prudential-Bache executives were satisfied with the same things. If they would buy peace for Graham, Sherman's demands were cheap.
“That's fine,” Grattarola said. “We'll take care of that.”
“And one more thing,” Sherman said. “I'd like some girls in my suite tonight.”
8
What the hell?
Grattarola was shocked. He had just met Sherman. The man had no idea how Grattarola would react to such a request. And the truth was, although Grattarola would do everything within the rules to make brokerage executives happy, he would not cross his own self-imposed line.
“I don't do things like that,” he replied caustically. “I don't buy sex and I don't give cash.”
Grattarola could almost see the rage in Sherman's eyes.
“Do you know who I am?” Sherman snarled. “I'm one of the highest guys at Prudential-Bache. And I want entertainment. I want to throw a party, and I want girls. I want you to get girls.”
“I won't do that,” Grattarola said.
For the next few seconds, Sherman raged at Grattarola. He was an important executive, he said, and was Graham's guest. He expected to have his demands met. He expected Graham to pay for everything.
Finally Grattarola pushed back. “Look,” he said. “If you feel that strongly about it, when we go back to the hotel, you write up the request on Prudential-Bache stationery. Say that you want me to get four ladies to your suite this evening. You sign it, and I'll do it.”
Sherman's eyes narrowed into slits. “You dago son of a bitch,” he hissed. “This is war.”
Not another word was spoken during the ride. When they pulled up to the hotel ten minutes later, Sherman stormed out of the car. Just as he reached the lobby door, he turned and looked daggers at Grattarola.
“Do you think you can handle the luggage?” he snapped. He marched away, leaving Grattarola responsible for moving his bags up to his suite. Grattarola arranged for a bellhop to handle the suitcases. Then he got back into the car and headed for his own hotel.
Oh, my God
, Grattarola thought.
Am I going to be fired?
He hurried to his room as soon as he arrived at his hotel. Then he grabbed the telephone and dialed the room number for Joseph DeFur, a product manager with the Direct Investment Group. A few months before, DeFur had taken over the responsibility for the Energy Income partnerships. Grattarola reached him immediately and told DeFur about his run-in with Sherman.
“I'll tell you, Joe,” he said. “Sherman is livid. I am in deep trouble.”
DeFur thought the whole thing was amusing. As he listened to Grattarola, he couldn't stop laughing. DeFur said he would make some calls. Within twenty minutes, Darr called Grattarola.
“What's the matter?” Darr said, laughing. “You didn't get along with Bobby?”
“Hey,” Grattarola said. “I'm in a lot of trouble here, and you guys are all making a big joke.”
Darr's tone of voice grew serious. “You're not in trouble,” he said. “Sherman can't do anything to you, and he can't do anything to me. He's just a lot of noise. So don't worry about it.”
To a large degree, Darr was right. In the year and a half since Ball's arrival, Sherman's star at Prudential-Bache had waned. The hopes he once had of taking over the firm had vanished; without that aspiration, Sherman had settled into playing intense political games. He called meetings of his senior staff to plot means of undermining other executives. Sherman's insular approach and obvious selfishness bothered Ball, but he was not yet ready to make a change in the department. Still, it was obvious to everyone that Sherman was losing power.
As Darr wrapped up the conversation with Grattarola, he told the Graham executive that no matter how Sherman felt, there would be no repercussions from the matter. Grattarola thanked him.
“One thing would help take care of this,” Darr added.
“Yeah?”
“Don't put a limit on Sherman's bar tab,” he said. “Just let him get drunk.”
John Corbin, the top marketer from Graham, stared across the crowded lobby of the El Camino Royale Hotel in Cancún. The place was packed with dozens of Prudential-Bache brokers and managers. Most of them had just arrived with Corbin on the last plane from California on February 19. Corbin, who handled Graham's West Coast marketing of the energy income partnerships, baby-sat them as they checked in. He had just spent about twenty minutes greeting everyone at the door. Now he was relaxing against the wall, holding a drink and keeping an eye on his charges.