After looking over Webb's evidence, Bristow and Hackerman thought they had a great case on the growth fund. But they needed more information about Prudential-Bache itself. They had heard about a lawyer in Atlanta named Boyd Page who had a reputation as a nemesis of the firm. In mid-1990, Hackerman decided to place a call to Page. Maybe, Hackerman thought, Page might be able to help out. Maybe they could even join forces.
Getting sued by Prudential-Bache was one of the best things that ever happened to Page & Bacek. The news of the lawsuit had been reported in some brokerage industry newsletters. Within a few weeks, the floodgates opened. Scores of Pru-Bache brokers and executives, most of whom would have never heard of the small Atlanta law firm, began contacting Boyd Page. Documents were arriving by the carton. Almost every day, Page had new, previously unknown evidence of wrongdoing at the brokerage firm. It was as if by suing the law firm, Prudential-Bache had placed a stamp of approval on Page & Bacek for the hundreds of bitter, angry brokers and managers who no longer trusted their superiors. Schechter's foolish legal strategy had transformed Page & Bacek from an annoyance into a national clearinghouse for damaging information about Prudential-Bache.
Even better, the lawsuit itself was proving to be a joke. One of its big claims was that Page had damaged Pru-Bache's reputation. But with all the evidence Page had found of crimes and fraud in the Direct Investment Group, it was clear by the fall of 1990 that the firm's reputation deserved to be far worse than it was. Page & Bacek countersued, charging that the original lawsuit was part of a racketeering conspiracy by Prudential-Bache to cover up its dark past.
Prudential-Bache's lawyers spent months trying to find out what Page knew by seeking access to his documents and by deposing members of his firm. It was all largely a waste of time. The lawyers walked away with only a small number of documents, and the depositions provided little helpful information.
Then it was Page's turn to start taking statements. Notices for depositions were delivered to midlevel members of the law department as well as a number of senior officers of the firm, including Schechter and Ball.
On October 9, 1990, Schechter flew down to Atlanta for his deposition. It started at 5:00 P.M. Over the next two and a half hours, as he was questioned by William Sumner, the lawyer representing Page & Bacek, Schechter would learn that Page had uncovered some of the dirtiest secrets of Prudential-Bache.
Sumner produced a document that showed that Pru-Bache was paying someone involved in the case, even though he did not work for the firm. Under questioning, Schechter said that he personally had authorized the payments as part of a consulting agreement. The questions roved through a number of details about Risers and about personnel problems at the firm.
Then the bombshells started dropping, one at a time.
“Who is James J. Darr?” Sumner asked.
Schechter provided some background about Darr. Sumner then moved on to some questions about Sherman. It seemed he was done with that sensitive topic.
Then it came back.
“Have you ever had the occasion to investigate Mr. Darr's business relationship with the First South Savings & Loan of Arkansas?” Sumner asked.
“I believe so,” Schechter said. “At one point in time, I directed an inquiry be made into Mr. Darr's relationship with that institution.”
Sumner produced certified copies of Darr's first and second mortgages from First South. Schechter looked at them and said he had never seen them before.
“What was the conclusion of your investigation into the relationship between Mr. Darr and First South?”
Schechter said that he had the matter investigated and that nothing improper had been found in the mortgages.
18
“Have you ever received any information concerning the payment of monies to Mr. Darr by First South S&L by virtue of the refinancing of his home?” Sumner asked.
Schechter replied that he only knew that Darr had a mortgage.
“Well, does Prudential-Bache intend to file suit against Mr. Darr or Mr. Sherman?” Sumner asked.
Schechter said no. With that, the deposition came to an end.
A week later, just before the scheduled deposition of George Ball, the case was settled. Page & Bacek walked away with pocketfuls of cash. Prudential-Bache required that the terms of the settlement forever remain secret.
The first picket sign from a partnership investor outside of Prudential-Bache's Manhattan headquarters came in November 1990. Newspaper reporters and television cameramen crowded the sidewalk outside the building as they interviewed the protester, Eloise Burg, a sixty-one-year-old Florida widow. Burg had lost more than $600,000 in limited partnership investments. But unlike some of her fellow investors who suffered their losses quietly, she refused to stay silent. Instead, she walked back and forth on the sidewalk outside the firm, carrying a sign that read “Prudential-Bache has financially and immorally raped me. Investors beware!”
Burg told reporters her story again and again. She had invested the money her husband left her and asked for safety. She had been pushed into limited partnerships and lost most of it. When she made a claim against the firm, an arbitration panel awarded her only $45,000. She complained to the firm, but executives there would hear none of it. As far as they were concerned, the case was closed.
With her protest, Burg accomplished something that few other people had: She forced reporters from a range of newspapers and television stations to finally tell part of the story from the partnership debacle. Her protest was widely covered in the East Coast press, appearing in the
New
York Post
, the
Daily News
, and a number of Florida newspapers. The story went national when the
Wall Street Journal
reported it. Investors who might not have seen Burg in the newspaper had the chance to catch her on television after Cable News Network videotaped her protest for its
Moneyline
program. She vowed repeatedly not to rest until Prudential-Bache returned all of her money.
In interviews, Pru-Bache executives attempted to play down the controversy Burg was setting off. Schechter dismissed her as part of a “vocal minority” among the firm's huge number of investors. Still, when executives attempted to persuade her to come inside to talk, she refused.
Instead, she continued her picketing, and the matter became a fight in the press between her and Prudential-Bache. She said that her broker had told her the partnerships were as safe as certificates of deposit. The firm announced that the broker denied saying that.
Eventually the pressure on Prudential-Bache became too great. After several months of protesting, Burg was invited to visit with Schechter personally. He offered her full restitution. The picket in front of the firm immediately disappeared, as did the terrible publicity. It seemed like Prudential-Bache got its money's worth.
Steve Hackerman's decision to call Boyd Page had paid off. The two law firms began swapping documents, helping them both fill in a number of evidentiary holes. By the fall of 1990, Page had teamed up with Hackerman and Daryl Bristow to represent more than two hundred clients in litigation against Prudential Securities. With their combined information, they knew more about the frauds that had emerged from the Direct Investment Group than almost anyone in the country.
At the same time, Bristow and Hackerman pursued the growth fund litigation, filing suit on behalf of a client for access to the partnership investor lists. Even though, under the partnership agreements, the lists had to be turned over on an investor's request, Prudential-Bache refused. The firm knew that with those lists, Bristow and Hackerman could prospect for more clients and increase the firm's liability. But despite a strong fight, Pru-Bache's arguments failed. The court ruled that the firm had to abide by its agreements. It turned over the lists.
The attempt to take the offensive with plaintiffs' lawyers had obviously not worked. The law department went back to attacking the brokers.
Bill Webb picked up the message slip that his secretary had left on his desk. It was marked “urgent” and was from Emerald Johnson, a member of the Prudential-Bache law department. Webb dialed the phone and reached Johnson on the first try. She needed something from him, she said.
“You've got to box up all those sales materials and everything else you have on growth fund one and two and get it up to us right away,” she told him.
Webb sighed. Every day of that week in November 1990, he had been getting the same message. With all the lawsuits coming from his clients, the law department seemed eager to dig into the information. But Webb couldn't understand why they needed it so badly from him. It wasn't as if the materials sent to Florida weren't also sent everywhere else in the country. And Webb had simply been too busy.
This time, he thought he had a simple solution.
“Well, I'm meeting with some lawyers from Prudential and Graham on Monday,” he said. “I'll just give it to them then.”
Johnson agreed and hung up. Webb was getting tired of all the lawyers and all the meetings. The one scheduled for Monday had been arranged by Jane Hewitt, one of Prudential-Bache's lawyers from Davis, Polk & Wardwell, the prestigious New York law firm that was handling the partnership mess. Robert Fiske, one of the firm's senior partners, was the lawyer in charge.
19
Hewitt had told Webb that she wanted to review with him how the growth fund had been marketed. The whole meeting made no sense to himâjust a few months before, the lawyers had interviewed him for several hours on just that topic. He thought the whole thing was a waste of time.
On the night of November 12, a group of lawyers arrived at the Fort Myers office to speak with Webb. He was late for the meeting, and nervous. He quickly realized that the supposed reason for the meeting had been a lie. The lawyers spent only a couple of minutes talking about marketing. Instead, they wanted to ask him about Daryl Bristow and Adams & Reese.
Hewitt was joined by Frank Massengale, a lawyer for Prudential-Bache, and Stephen Kupperman, a lawyer for Graham. As the questioning began, Kupperman pulled out a sheaf of papers that listed Webb's clients.
“Bill,” Kupperman said. “All of these clients have filed lawsuits against the firm. I'd like to ask you some questions about them.”
“All right.”
“Now, five of these clients have all hired the same New Orleans law firm,” Kupperman said. “Do you know how that happened?”
Webb's face went red. He felt like he'd been caught.
“Wh-what do you mean?” he stammered.
“How is it that five retirees from Florida all retained the same New Orleans law firm?” Kupperman asked.
Webb took a deep breath. “They asked me for a recommendation. I heard the name of Adams & Reese and passed it on.”
Kupperman went through each of the five clients, one at a time. He asked for every piece of information Webb had about how they came to the firm, their financial background, and any other relevant details. Webb began to feel more relaxed. Then Kupperman picked up another, thicker sheaf of papers.
“Now, Bill, these are some of your other clients who have sued the firm,” he said. “And all of these people have retained the same Houston law firm, named Miller, Bristow & Brown. Do you know how that happened?”
Webb swallowed hard. He was a terrible liar. But he gave it a shot.
“Some lawyer from the firm called me, looking for clients that needed help,” he said. The lie didn't make much sense and didn't help things at all.
Hewitt, the Davis, Polk lawyer, broke in. “Isn't that unethical?” she asked Kupperman.
For the next hour, the lawyers reviewed everything that Webb had done on a case-by-case basis. At one point, one of the lawyers noticed that a number of Webb's family members were among the people filing suit.
“You must have a hell of a family reunion,” the lawyer said.
“You have no idea,” Webb replied. After all, his family members lost their money in the Graham partnerships, too.
The interview came to an end after almost two hours. Webb gathered his things and headed home.
The next morning, before he had left the house, Webb's telephone rang. It was his secretary, telling him that the branch manager wanted to see him as soon as he got in. Webb agreed, hung up, and headed out to the car. As soon as he reached the branch, he walked to the office of his manager, Richard Hollander.
“Bill, I've got some news I've got to tell you,” Hollander said. “I'm going to have to fire you.”
Hollander said that he was being fired because Webb's wife had maintained a brokerage account at another firm and he had purchased a stock there. The firm had rules against owning outside accounts.
“That's bullshit,” Webb spluttered. It was Webb who had informed the firm of the outside account some time before. Both his manager and a lawyer in the compliance department had told him not to worry about it.
“You know what this is about, and so do I,” Webb said. “So don't lie to me.”
The manager didn't reply. He ordered Webb to leave the firm immediately. Webb was not allowed to go near his desk or touch any of his paperwork. Even his personal effects had to be left behind. He wasn't worried about being fired, because unknown to Prudential-Bache, he had been hunting for a new job. But that day, two solid offers he had on the table were withdrawn.
The hardball continued for days. A week after his dismissal, Webb received a telephone call from a Prudential-Bache executive, who said that he was passing a message from Loren Schechter: If Webb so much as telephoned any of his former clients ever again, he would have a significant lawsuit on his back.
The bare-knuckle threat worked. Webb, who had been advising so many people how to protect themselves, stopped calling his clients. He heard through the grapevine that Pru-Bache brokers were telling customers to file claims against him. Within weeks, the law department began adding new complaints to Webb's permanent record, all of them related to the growth fund. The complaints alleged that Webb had fraudulently told customers that the growth funds were safe investments that would be buying heavily discounted, overcollateralized bank loans. Prudential-Bache mentioned nothing about the sales material that said exactly that.