“You're not listening to me,” Rice replied. “Corbin's got to be fired. Right away.”
“Tony, whether you agree or disagree with the way John sells, he's still our number-one guy,” Grattarola said. “I mean, what do we tell the managers in the Prudential-Bache system in California? That we reward our best people by firing them?”
Rice sighed. “Well, all right, here's the story. Darr called me. Sherman wants him fired. So we've got to fire him.”
“Sherman?” Grattarola asked. “What the hell happened with Sherman? What's going on?”
Rice said that he didn't know the details, but it had something to do with some women at Prudential-Bache who interested Sherman and a friend of his. But the women went out with Corbin instead.
The information struck Grattarola cold. The whole conversation seemed absurd. He couldn't believe that Rice was willing to disrupt the entire company's business simply because some Prudential-Bache executives had their egos hurt. He told Rice that before they did anything, they needed to get more information. Otherwise, if they were wrong, Graham could be facing a huge lawsuit for wrongful termination. And if they were right, then the company could have a sexual harassment problem.
“Let me see if I can talk to Darr about this,” Grattarola said. “I'll try and do some damage control.”
Grattarola had been scheduled to fly to Hawaii in a day or so for a seminar for Prudential-Bache brokers. He picked up the telephone and canceled those plans. Instead, he arranged to fly to New York to meet with Darr. Within a few days, he was at the offices of the Direct Investment Group. For the first time, Darr agreed to meet with Grattarola in his office, behind closed doors. Even though Darr obviously thought the issue was serious, he couldn't help laughing about it every so often.
“But we do have a problem, because Sherman does want Corbin fired,” Darr said.
Grattarola went through the same litany he laid out to Rice, about the problems that would be created within the Prudential-Bache system if the top wholesaler for Graham was fired for little reason. Darr sat back in his chair.
“You know, you're right,” he said. “But what can we do to prevent it from happening again?”
The question hit Grattarola like a sock in the stomach. His temper flared up.
“How can we prevent it?” he snapped. “I don't know how I can prevent a guy from picking up some girl. If she wants to go, she'll go. What do you want me to do?”
Darr paused, thinking for a moment. “Well, somebody's got to pay a price here,” he said. “Do a favor for Carrington Clark. Some marketing thing. Pay for a seminar in his region. If Carrington feels better, I'm sure I can pawn the whole thing off.”
“OK, that's fine. But what about Sherman?”
“I'll take care of Sherman,” Darr said. “Don't worry about it.”
Relieved, Grattarola left Darr's office and called Clark out on the West Coast to schedule a meeting. Clark told him that he was just about to leave for two weeks on the road, but he agreed to meet Grattarola at the airport where he would be the next day. Grattarola arrived at the meeting tired and angry. It was the first time he had ever met with Clark without being surrounded by brokers. Clark sat with a scowl on his face.
“Carrington, this whole thing is really ridiculous,” Grattarola said.
Clark looked taken aback. “I am really offended by that,” he said. “We've got a serious problem here, and I don't know how we can straighten it out.”
What bullshit
, Grattarola thought. The implied threat to Graham's business seemed unmistakable. It infuriated him.
“Look, Carrington, we don't have a serious problem here at all,” he said. “If you want to make it serious, then we can make it serious.”
Grattarola leaned forward in his chair and lowered his voice. He was ready to bore in. “All we're really talking about here is some married man who wanted to date a single woman who instead went out with a single guy. I don't want to get into moralities here, and I couldn't care less who you shack up with or don't shack up with, or who you pimp for or who you don't pimp for.”
He leaned back. “I was told by Darr to straighten this out with you, and that's what I'm here to do,” Grattarola said. “Let's get it over with. What do you want from me?”
Clark, apparently stunned, backed down slightly. Although his tone was still angry, he began discussing some ways that the problem could be solved. The two men agreed that, as appeasement, Graham would pay for some sort of event in Clark's region. Clark said that he wanted Graham to sponsor a full training seminar, plus a cocktail party, for all of the big producers in the region.
Son of a bitch is trying to blackmail me
, Grattarola thought. He knew the total cost of the request would be close to $9,000.
“No, I'm not going to do that,” he said.
Instead, he suggested hiring a speaker he knew who lectured about telephone techniques for brokers. Grattarola figured that would cost about $1,000 for each speech, and he offered to pay for two. Clark agreed.
As the two men stood up to leave, Clark said, “But listen. If Corbin ever comes back into my region again and fools around with any of my brokers, I'll see to it that he's taken care of.”
Fine, Grattarola said. Clark continued on his trip, and Grattarola flew back to New Orleans. He felt angry for days afterward. He had flown all over the country and dropped out of his trip to Hawaii just to deal with a bunch of pampered egos.
The Corbin affair had drawn to a close. The total cost to resolve itâ between the lectures for brokers, the last-minute airplane flights, the hotels, and the rental carsâwas close to $15,000. Those bills were handed off to the energy income partnerships, to be paid for out of the investment dollars of Prudential-Bache clients. And all because Bob Sherman and Carrington Clark, two married men, couldn't get a date.
The prospectus for the second series of energy income partnerships was completed on March 9, 1984, just a few weeks after the Cancún trip. It was the first to be put together since Bill Pittman took over the due diligence for energy deals, and it contained a number of changes from the earlier prospectus.
One difference involved Pittman himself. Although his name did not appear in the first prospectus, in the new one, Pittman was listed as the second-highest-ranking officerâsubordinate only to Darrâwith Prudential-Bache Energy Production, Graham's coâgeneral partner. With that change, Pittman was among the group in line to receive a share of the cash flow from the energy partnerships.
Buried on page 50 of the prospectus was another change: A few paragraphs, written in dense language, explained how Graham partnerships that had already been sold were having financial trouble. The partnerships had difficulty making their quarterly distributions, the document said. But $120,000 in cash was distributed anywayâmuch of it a return of investors' own capital. Graham simply loaned millions of dollars to the partnerships to help cover the distributions, as well as pay operating expenses and interest costs on the debt.
Few of the 17,925 Prudential-Bache clients who would purchase $200 million worth of the second series of energy partnerships likely read the prospectus. But the message buried in the thick, complex document was unmistakable: The energy income partnerships weren't working. Because of high expenses and falling energy prices, the partnerships did not have enough cash flow from the sale of oil to make the promised distributions. By quietly advancing the cash, Graham pumped up the distributions, making the partnerships look like strong performers. That assured brokers and clients that the partnerships were good investments.
The sales material distributed to Pru-Bache brokers throughout the spring and summer of 1984 emphasized the supposed quality of the latest income partnerships. Any attempts to tell investors that the partnership distributions included return of their own original investment had been abandoned. Instead, the new sales literature falsely referred to those distributions as the partnerships' “yield.” The Pru-Bache brokers who just months earlier struck Graham executives as too unsophisticated to understand the energy income partnerships were being fed a pack of lies by the Direct Investment Group.
The first lie blared off the front page of a nine-page fact sheet about Series II: “Last year was great. 1984 should be even BETTER.” The fact sheet never mentioned the financial problems that were forcing Graham to lend money to the partnerships.
Other documents distributed to brokers were even more blatant in their falsehoods. The extremely risky investments were repeatedly labeled as safe and conservative. “This is a low-risk investment in oil and gas, offering high yield,” said a July 16, 1984, sales sheet about the partnerships. “Safety” and “low risk” were listed as the top sales points in other marketing materials.
Any brokers or investors who compared this prospectus with the one distributed almost a year earlier for the first series of energy income partnerships might have been confused. The earlier document provided harsh warnings about the partnerships' riskiness, with no attempts to play those warnings down. On the front cover, in bold and capital letters, the document read: “THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.”
But the second prospectus, assembled under Pittman's watch, eliminated the obvious contradiction. The cover made no mention of the partnerships as risky. Instead, it simply referred investors to another part of the prospectus: “FOR A DISCUSSION OF RISK FACTORS CONCERNING THIS INVESTMENT, SEE âRisk Factors.' ”
The simple, easy-to-understand statement about the partnerships' true risk had simply been removed from the second prospectus. It appeared nowhere else in the document.
Pittman sauntered toward David Levine's office in the Direct Investment Group. As usual, he was dressed in one of the expensive European suits that he loved, and he was in good spirits. He had returned a few weeks earlier from the trip to Cancún. He was looking tanned and healthy.
Pittman rarely dealt with the executives in real estate due diligence anymore. Ever since he had been promoted from his job as a product manager, he had little reason to speak with them. But today, in the spring of 1984, he had a question to ask Levine. He never hid the fact that he was somewhat contemptuous of Levine and his colleagues. All of them were far younger than Pittman, who was now forty-one. Most of them had business degrees; Pittman only had an undergraduate degree from night school. And Darr had a habit of heaping praise on the young MBAs at meetings with brokers, saying how they were the group making sure that the firm sold only the best partnerships. The attention they received seemed to dig at Pittman.
He arrived at Levine's office and stuck his head in. The young executive was speaking with Freddie Kotek, one of his colleagues in real estate due diligence. Pittman interrupted and began raising his questions for Levine in a demanding tone. Kotek slouched in his chair. He wasn't interested in the conversation as it droned on.
Suddenly Pittman turned sharply toward Kotek, staring at him with an expression of anger.
“Don't give me that wise-ass college smile!” Pittman snapped. Then he turned back to Levine and finished his conversation. A few minutes later, after Pittman walked away, Levine and Kotek both cracked up.
“Boy,” Kotek said, “if I ever had to work for that guy, I'd be out of here.”
Darr announced the restructuring of the real estate due diligence department at a meeting of the Direct Investment Group in September 1984. He arrived in the conference room looking confident. There were going to be some changes in the department, he said. Some people needed to be moved around to take advantage of everyone's own individual skills.
“The end of the year is coming up,” Darr said, “and we need to get some deals done.”
The executives in the room listened fearfully. They knew that Darr had been frustrated with the pace of due diligence under Joe Quinn. A number of deals were being held up by questions from the due diligence department. Quinn liked to take matters slowly and deliberately, to make sure that he did not make a mistake. But there was no place for that kind of approach in the Direct Investment Group. Some members of the department had heard Darr complain about Quinn noodling the deals to death. David Levine had also made himself very unpopular with the marketing staff by aggressively pointing out the problems that he found in the real estate deals. So now, as they listened to Darr talk about the need to get deals done, the due diligence executives started worrying about their jobs.
“I'm going to make some changes,” Darr continued. “I'm going to move Joe over to be in charge of asset management, to make sure these investments perform.”
There was no mistaking the fact that Quinn was being demoted. Quinn already was responsible for asset managementâthat department reported to him. With this change, he was losing almost all of his responsibility.
“Now, to take Joe's place, I'm naming someone who in the last year has proven his skills in due diligence and origination,” Darr said. “Bill Pittman.”
The room was completely silent.
Later that same day, Pittman called David Levine into his office for a talk. Levine stepped in and shut the door behind him before taking a seat.
“David,” Pittman said, “I'm taking you off real estate.”
Instead, Pittman told him, he wanted Levine to handle some of the more esoteric partnerships, which for the department were far less lucrative. Levine was being pushed out of the business he knew so that he could begin reviewing deals involving businesses like horse breeding, about which he knew nothing.
Levine just looked at Pittman, trying to contain his contempt. He thought the man was an idiot. And now he had to work for him.
You
couldn't find your asshole with both hands
, he thought.
You're just some fucking
marketing guy
.