“If your clients say no, don't worry about it,” he said. “I'll take the heat.”
A few days later, Harris checked around. His brokers had sold only about five hundred shares of the Harrison deal. They had checked with their clients. Nobody wanted it.
Those results angered the firm's senior executives even more. Finally, the regional sales manager called Harris, demanding that his branch push their clients harder.
“Look, I don't care what they want to do in New York,” Harris said. “What they're asking us to do is not appropriate. I'm not going to do it.”
Harris had never seen so much pressure to sell a deal that clients did not want. He assumed that by throwing down the gauntlet with the sales manager, maybe now they would leave him alone.
The next day, Harris was walking through the branch when his secretary called out for him. Peter Archbold, the regional manager in Florida and Harris's boss, was on the line. He wanted to speak with Harris immediately. Harris walked back to his office, shut the door, and picked up the telephone.
“Hey, Peter,” he said. “What's up?”
“I want to talk to you about this Duke Realty deal,” Archbold said. “You're going to sell a lot of it. And if you don't, you're fired.”
Harris was floored. He'd heard war stories about managers' jobs being threatened for not cramming enough of a particular deal down clients' throats, but he always took those stories with a grain of salt. He never believed anyone could do something so unprofessional.
“Peter,” he asked after he collected himself. “Are you telling me that my job is in jeopardy if we don't sell a lot of this offering?”
“That's right.”
Harris hung up the phone. At that moment, he couldn't afford to lose his job. He stroked his temple as he thought about what to do. He could not believe the firm was pushing him to do something so improper after the SEC settlement.
Finally Harris reached a decision. He would put together some sort of incentive, like a cash prize or some sort of brownie points, for his brokers to sell the Duke deal. Essentially, he would offer them a bribe. Harris walked out into the branch to tell his brokers about it.
“I'm not proud of this,” he said after explaining some of the situation, “but if you can find a way to get it done, then do it.”
This is disgusting as hell
, Harris thought. He was ashamed of himself.
Harris took a deep breath. He needed to make some preparations and to get things lined up. It would take him a few weeks, he knew, but he was going to get the hell out of the place. The dirt at the firm seemed everywhere.
The dark sedan pulled into the basement garage at Prudential headquarters in Newark. James Trice, a regional administrator for Prudential-Bache on the West Coast, hopped out of the backseat. An escort immediately whisked him upstairs to an anteroom outside the company's boardroom. As he entered the room, Trice saw George Ball sitting in an overstuffed chair.
“Jim,” Ball said as he stood up. “How are you? How's your son?”
Trice smiled and told Ball about his family. Then Ball got to the point.
“Listen, Bob Sherman spoke to me and he really wants you to go to the Southeast as regional director,” Ball said. “He really feels strongly about it.”
Of that, Trice had no doubt. More than a year earlier, Sherman had tried to get him to swap jobs with Jack Graner, who was the regional director during the Capt. Crab disaster. Graner, another Sherman favorite, had been subpoenaed by the SEC in the investigation. Graner was petrified and wanted to get out of Atlanta. Sherman had suggested that Trice would take his place. But Trice liked California and had refused. Graner came to California anyway, taking a demotion to be regional sales manager. Sherman had replaced him in Atlanta with Saccullo, the manager who was a target of the SEC investigation.
Now that Saccullo had been barred from holding a supervisory position, Sherman had launched a full-court press to again try to persuade Trice to take the Southeast job. Just before the meeting with Ball, Trice had met with Sherman in a private dining room at Prudential-Bache headquarters. Sherman had offered him a raise, a company car, and a slot on the Pru-Bache board if Trice would agree to go. Then he had said that Ball wanted to speak with him out at Prudential Insurance, where he was attending a meeting with the company's board.
Despite the royal treatment, Trice didn't want the job. He told Ball that it was not a good time for him to be leaving California because of some family problems.
“Well,” Ball said, “you can go back whenever you want to, if you need to. That's not a problem. We'll take care of it. It won't be any cost to you.”
Trice raised an eyebrow. They were offering him free airfare back and forth across the country. This package was really getting rich.
“Jim, we'd greatly appreciate this,” Ball said. “We realize it's an imposition on you, but we really would appreciate it. We'll remember it.”
Trice sat back in his chair. “I want to ask you a question,” he said. “If I refuse to do this, do you want my resignation?”
Ball smiled. “Oh, absolutely not. That's not the intention of this. We want you to go down there because we need you.”
Less than a week later, Trice called Sherman and told him he'd take the job. Jack Graner was promoted to Trice's old job, giving him supervisory responsibility for the firm's golden branches on the West Coast.
That left open Graner's job as California's regional sales manager. Sherman thought he knew the perfect person: He selected Rick Saccullo, the former Atlanta branch manager who had just been sanctioned by the SEC. Once his eighteen-month bar from supervision was over, Saccullo would be more influential than ever.
The day the firm announced Saccullo's selection for the job, Carrington Clark, the regional director, received a telephone call from Robert Leecox, the manager of Prudential-Bache's St. Louis branch.
“Hey, is it true that we're getting Saccullo as the regional sales manager?” Leecox asked.
“That's the word, Doc,” Clark said.
“Well, why don't we just hire Al Capone?” Leecox asked. “I mean, if we're going to use somebody in trouble with the government, at least Capone's a more visible guy.”
On February 27, 1986, Jim Trice and his assistant, Marvin Coble, caught the red-eye from Los Angeles to Atlanta. They were ready to get started running the troubled Southeast region of Prudential-Bache. For the first time, they would get a firsthand look at the mess left behind by Rick Saccullo and Jack Graner.
Within a few days of arriving in Atlanta, both Trice and Coble thought that the region was far worse than they had imagined. It was a hotbed of sloppy broker activity, with little to no discipline imposed from above. Many of the brokers just went about doing their own thing without worrying about their higher-ups.
“This place is running like a country club,” Trice told Coble.
On his first full week in the job, Trice toured the region to meet his branch managers. On Tuesday, March 4, Trice held a dinner meeting in Richmond, Virginia, with all of the branch managers in that state. He chatted with each manager, and the evening seemed to be going well. Finally he struck up a conversation with Joseph Schwerer, manager of the firm's Norfolk branch. Schwerer told Trice he had a problem.
“What's the matter?”
“I've got two problem brokers in my branch who seem to be getting into some trouble,” Schwerer said. Schwerer told Trice that the two brokers had been violating numerous rules. They had even set up their own dummy company that engaged in bogus trades with some of their own clients.
Trice's good mood gave way to shock. This sounded horrible.
“Well, my God,” Trice said. “Why don't we just get rid of these guys?”
“That's the problem,” Schwerer said. “The legal department told me I can't.”
Trice assured Schwerer that he would take care of the problem as soon as he returned to Atlanta. A few days later, he telephoned a lawyer in the legal department. He laid out everything he had just heard about the two brokers in Norfolk.
“Why haven't we fired them?” he asked. “They sound like a major problem.”
“We can't,” the lawyer replied. “We're already in the soup with these guys, and we have some pending litigation. If we fire them, we'll have them as adverse witnesses against us. We can't afford to do it. So we'll just have to sit with it and hope it will just work itself out.”
“So we're keeping these characters around to make sure we don't lose a couple of lawsuits?” Trice asked. “That just isn't right.”
Trice hung up, called another lawyer, and then called Bob Sherman. Each time, he was told the same thing: Regardless of the allegations, the brokers had to be kept on at the firm. The potential liability from them was just too large.
As far as Trice could tell, Prudential-Bache had learned absolutely nothing from its humiliating settlement with the SEC. If what he was seeing kept up, he knew it wouldn't be long until the regulators came back and slammed the firm with sanctions all over again.
Jared Kopel settled comfortably into his chair at his new office in Palo Alto, California. The Capt. Crab investigation, which he had supervised at the SEC for almost three years, had been his last case as a government regulator. Within months of the filing, Kopel had taken a job with the law firm of Wilson, Sonsini, Goodrich & Rosati. After all his years in government service, private practice looked pretty good.
On this day, an old acquaintance told him a bit of news. Rick Saccullo, the former branch manager and one of the men Kopel had investigated and helped charge, had been transferred to California to work as a regional sales manager. To Kopel, it certainly sounded like a promotion for the man who was largely responsible for Prudential-Bache's recent regulatory troubles. His acquaintance asked what he thought of the outcome.
Kopel just shrugged. “It's not really surprising, given what I've come to expect from Prudential-Bache,” he said. “But it certainly doesn't augur well for their future.”
Charles Grose charged across the Dallas branch office toward Fred Storaska's Corporate Executive Services Department. In his hand, he held another letter of complaint about Storaska, one of several to have arrived at the branch by mid-1986. This time the letter came from the accountant for some customers. The accountant wrote that her clients, Lawrence and Virginia Heiner, were deeply distressed to be receiving confirmations in the mail of trades that they had never authorized. The issue about the Heiners' account had come up before, and Storaska had assured Grose that the husband had authorized all purchases. Now, with this letter, Grose was worried. He had been in the business long enough to know that repeated complaints of unauthorized trading were a red flag for potentially major securities law violations.
“Fred, I've got to talk to you about the Heiners again,” Grose said as he walked into Storaska's office. “I've got a letter here, and they're upset. I don't understand why, when you're telling me that Mr. Heiner authorized these purchases.”
“Well,” Storaska said, “their accountant actually authorized the purchases.”
“Well, that's funny,” Grose said, thrusting the letter toward Storaska, “because the accountant is the one writing the letter of complaint!”
Storaska looked down at the letter in Grose's hands and then calmly looked back up. The expression of confidence never left his face.
“She's not a very smart person,” he said.
Grose felt like he was going to explode. “How the hell do you take an order for $1.2 million worth of bonds for someone you don't think is very smart? Secondly, how could you take that order from an accountant who doesn't have power of attorney?”
Storaska stared back at Grose, still serene and unruffled by the confrontation. “Lawrence Heiner told me I could take orders from the accountant.”
Grose wanted to scream. Taking on Storaska was like trying to grab smoke. No matter what Grose did, Storaska always had another line. But this one made no sense: Anytime a customer passes trading authorization to another party, the broker has to obtain it in writing. Most brokers knew that after their first day of training.
“You
can't
use verbal authorization for a power of attorney,” Grose boomed. “The
law
says that you've used discretion. Fred, this is the type of trading that could cause you many serious legal problems.”
Grose cut off the conversation and left. Any other broker probably would have been fired at that moment, but Grose felt powerless. He knew Storaska was untouchable. He was protected from above by George Ball himself.
He headed back to his office, grabbed a sheet of interoffice memo paper, and quickly typed up a version of the events that had just happened for his files. Grose was sure that, someday, Storaska would blow himself up by running roughshod over securities laws. The SEC would be swarming all over the branch. If Grose couldn't punish Storaska, at least he could protect himself. He finished typing the memo, then opened his credenza and stuffed the memo into his rapidly growing secret file about regulatory problems that no one wanted to stop.
On Monday, May 12, 1986, the SEC disclosed the most significant enforcement action in the agency's history. After almost a year of investigation, it had cracked an insider-trading scandal emanating from Nassau, the Bahamas, out of the modest offices of Bank Leu International Ltd., a subsidiary of Switzerland's oldest private bank. That morning, lawyers for the commission rushed into the courtroom of Federal District Judge Richard Owen in New York. They were seeking an injunction to prevent the transfer of $10 million out of a Bank Leu account controlled by Dennis B. Levine, an investment banker with Drexel.
Shortly after 7:30 that night, prosecutors with the U.S. attorney's office in Manhattan arrested Levine for insider trading. In hopes of cutting a deal, Levine offered the government information about his insider-trading accomplices. The names included one of Wall Street's biggest fish, Ivan Boesky, the wealthy arbitrageur. For the next five years, prosecutors and the SEC, starting with Levine's information, aggressively pursued a trail of evidence that led them to some of Wall Street's most powerful financiers. By the time they were done, a number of prominent executives, including Michael Milken, Drexel's junk-bond wizard, would go to jail. It would be one of the greatest successes in the history of securities law enforcement.