Serpent on the Rock (68 page)

Darr's demands of Ed Devereaux and other regional marketers from the third amended complaint in
First
v.
Prudential-Bache
.

196:
Harrison's comment to Barry Breeman regarding his joining the Madison Plaza deal from Breeman's deposition of December 12, 1992, in
First
v.
Prudential-Bache
.

197:
Roberts's jet-setting and high spending were described in the August 24, 1993, deposition of James M. Holbrook, a lawyer for Summit Savings, in
First
v.
Prudential-Bache
.

Roberts's illegal purchase of the Gulfstream II jet aircraft is described in
United States of America
v.
John H. Roberts Jr
., case number CR3-89-154-R, filed on June 8, 1988, in Federal District Court for the Northern District of Texas. He pleaded guilty to two felonies under an agreement filed with the court on July 5, 1989.

197–98:
John Roberts's financial dealings are described in detail in personal diaries he kept from 1983 to 1984. The documents were obtained by the author.

198:
The transfer of the Summit loan to the Grand Cayman Islands branch of the Republic Bank of New York is disclosed in a wire transfer, dated May 31, 1984, from the New York office of Republic to the branch. Officials with ties to Carnegie were named as the trustees for the account.

Roberts's June 1, 1984, meeting in New York with Darr and John Holmes is described in his personal diaries, cited above.

199:
Steven Davis's comments about Harrison's need for new deals to pay for old ones from Holbrook's August 24, 1993, deposition, cited above. Also, Holbrook's disinterest in the performance of Madison Plaza for investors from the same testimony.

199–202:
Darr denies having discussed loan swaps between Summit and First South. However, Roberts took contemporaneous notes of the August 30, 1984, conversation in his diary, cited above. Also, Roberts testified under oath that the conversation took place.

Further, Holbrook, the Summit lawyer, testified under oath on August 25, 1993, that Roberts had told him that Darr had requested a loan swap between Summit and First South. In that same testimony, Holbrook described his own conversation with Darr, in which Darr demanded that the loan swaps be done.

CHAPTER 9

204:
Details about the Graham due diligence trip to Cancún from a January 1984 sales sheet to Prudential-Bache brokers, which described what they needed to do in order to qualify. The number of executives who went on the trip was determined by a list of attendees obtained by the author.

212–13:
Sherman's actions at the Cancún awards ceremony were described to the author by multiple witnesses.

213:
The author spoke to a wide range of people who either witnessed or were subjected to sexual harassment by senior officers of Prudential-Bache.

No executives were the subject of more such accusations of sexual harassment than Bob Sherman and Carrington Clark. One woman sued Prudential Securities, describing situations of sexual harassment that were similar to what the author was told in numerous interviews. The suit,
Kristi Mandt
v.
Prudential Securities
, says:

Sherman and Clark . . . engaged for many years in wrongful conduct of a sexually harassing nature, in violation of Title VII of the United States Code. . . . Sherman, in his position as head of the retail division of Prudential, insisted and demanded from time to time that Clark, as a regional manager, locate female employees to accompany Sherman on business outings for the sole purpose of gratifying Sherman's sexual desires. . . . Clark himself also insisted from time to time that female employees engage in sexual relations with him as a condition of their continued employment and/or advancement of employment opportunities.

In a sworn affidavit attached to that complaint, one former branch manager, Bruce Biermann, described certain actions by Carrington Clark that were filed to support Mandt's claim. In the affidavit, Biermann said:

I personally observed [Clark] asking for dates with female employees in my office. While I do not know the results of those overtures by Mr. Clark, I was told by one such employee . . . that she was uncomfortable in Mr. Clark's presence. On more than one occasion, Mr. Clark indicated to me that he would have appreciated my getting him dates. I never did so.

In the case, Prudential Securities, Sherman, and Clark do not address the substance of the allegations. Instead, they successfully argued that the claim was time-barred.

217:
The details of the Prudential-Bache Energy Income Partnerships Series II come from a copy of the prospectus, dated March 9, 1984.

218:
The sales pitch offered to Prudential-Bache brokers for Series II of the energy income partnerships from an undated fact sheet by Steve Starnes, a marketer in the Direct Investment Group, titled “Prudential-Bache Energy Income Fund II.”

Also, similar information was provided in a July 16, 1984, fact sheet from Barron Clancy, head of the Northeast Region of the Direct Investment Group. It is titled “Prudential-Bache Energy Income Partnership II: The Window of Opportunity.”

224–25:
Ball's experience at Sherwood's retirement party is described in a memo Ball wrote to the firm, dated November 26, 1984—the “losses suck” memo.

The deteriorating financial performance of Prudential-Bache is described in
Business Week
, “Pru-Bache Is Putting Its Parent's Patience to the Test,” December 17, 1984.

CHAPTER 10

227–28:
Details of the Capt. Crab case from “In the Matter of Prudential-Bache Securities,” 34 SEC Docket 1094, Administrative Proceeding number 8–27154, file number 3–6600, brought by the Securities and Exchange Commission, January 1986.

227–29:
Saccullo's opinions, and quotes from his SEC testimony, from the transcript of proceedings, “In the Matter of Trading in the Securities of Capt. Crab's Take-Away,” investigation HO-1573. The testimony was given on February 20–21, 1985. The documents were obtained by the author under a Freedom of Information Act request.

The quotations cited are the actual statements of the participants in that proceeding. However, at times, the back-and-forth between the investigators and Saccullo—such as questions answered with “I don't recall”—have been edited out for simplicity. None of this editing changes in any material way the meaning of Saccullo's answers or of the investigator's questions.

227–28:
Lugo was a cofounder of the Executive Securities Corporation, which went bankrupt in the 1970s. He was barred from the securities industry for one year in 1972 by the SEC because of his participation in a reported stock fraud at Executive Securities. His role in the manipulation of International Diamond won him a suspension for ten days. At the same time he was being investigated for the Capt. Crab manipulation, the SEC was also examining a similar fraud involving Lugo and shares of a company called Creditbank.

Information about the secondary offering of Capt. Crab shares from the July 21, 1983, prospectus for Capt. Crab's Take-Away.

229:
Lugo settled the Capt. Crab case with the SEC, and on November 5, 1991, an order was entered against him barring him from further violations of securities laws. At the time, Lugo no longer worked as a licensed stockbroker. See SEC Litigation Release number 130393, dated November 18, 1991.

The performance of the Polaris partnership from
The Perspective
, March/April, 1993.

229–30:
Some details of Sam Kalil's sentencing hearing from “Broker Convicted of Theft Ordered to Pay Restitution, Serve Jail Term,”
Florida Times Union
, February 9, 1985.

Kalil's crimes from “In the Matter of Prudential-Bache Securities,” cited above.

Also, see “Stockbroker Kalil Charged with Theft,”
Florida Times Union
, December 30, 1983; “Ex-broker Sam Kalil Faces 10 Counts of Stock Fraud,”
Jacksonville Journal
, December 29, 1983; and “Troubles Mount for Fired Jacksonville Stockbroker,”
Florida Times Union
, December 13, 1983.

232:
The quotations from Meese about the Hutton settlement from a copy of his prepared statement.

232–33:
Ball's congressional testimony from transcripts of the hearings entitled “E. F. Hutton Mail and Wire Fraud,” before the Subcommittee on Crime of the House Committee on the Judiciary, October 31, 1985, pp. 1544–1608.

235:
Information about the Capt. Crab/Kalil settlement from 34 SEC Docket 1094 cited above.

Quotes about the settlement from “SEC Censures Bache for Supervisors' Lapses,”
New York Times
, January 3, 1986.

235–36:
Ball's January 24, 1986, meeting with Storaska is described in part in an internal CES memorandum prepared for Storaska. The confidential document was obtained by the author.

236:
The terms of Storaska's employment were described in a memo to Storaska's files, written September 3, 1984.

The author obtained a November 12, 1984, letter to Prudential-Bache from the Chicago Board Options Exchange, saying that the exchange was investigating Storaska for matters that occurred prior to his termination from Kidder.

The letter of complaint against Storaska from Lee Cowen, dated October 31, 1985, was obtained by the author.

240–41:
Some details of Jim Trice's discussions with George Ball and Bob Sherman from Trice's sworn testimony in his 1989 arbitration case against Prudential-Bache captioned “James E. Trice vs. Prudential-Bache Securities,” NASD number 89–03394. Also, see Trice's testimony of April 14, 1994, in “Alexander and Wanda Belmont v. Prudential Securities,” arbitration number 93–02086, before the National Association of Securities Dealers.

241–42:
The events surrounding Jim Trice's arrival in Atlanta are described in his sworn testimony in his arbitration case, cited above.

243–44:
The author obtained the July 8, 1986, memorandum to the file by Charles Grose, which described his encounter with Storaska about the Heiner account. The author also obtained the letter of complaint from the accountant, Susan Hedegaard.

244–45:
The events surrounding the Levine case and its subsequent development were described in fascinating detail in Douglas Frantz's
Levine & Company
and James B. Stewart's
Den of Thieves
.

CHAPTER 11

246:
Some descriptions and details about Longleaf Plantation from a series of undated brochures and pamphlets published by the hunting reserve.

Also, for some description of Longleaf, as well as intricate details of the Prudential-Bache Energy Income partnership fraud, see the groundbreaking and award-winning series by Scot Paltrow in the
Los
Angeles Times
. Part 1 ran on June 22, 1993, under the headline “Partners in a Troubled Venture.” Part 2 ran the following day under the headline “As Energy Funds Stumbled, Companies Reaped Benefits.”

Rice's role in teaching Darr how to hunt from Rice's December 16, 1991, testimony before SEC investigators, cited above.

247–49:
In a sworn deposition, Graham at first claimed not to remember some of these comments and subsequently denied making them. The deposition was taken on May 25, 1993, in the case
In Re:
Prudential-Bache Energy Income Partnerships Securities Litigation, MDL docket number 888, U.S. District Court for the Eastern District of Louisiana.

However, the conversation was described in detail in a January 9, 1985, memo to Anton Rice III written by Mark Files shortly after it occurred.

247–48:
The manipulation of the distributions for the energy income partnerships is described in detail in thousands of internal documents in the case
In Re: Prudential-Bache Energy Income Partnerships Securities Litigation
, cited above. Many of those documents are cited here.

Also, it is described in
State of Idaho
v.
John F. Corbin
, civil complaint number 97964, filed on July 21, 1994, in the District Court of the Fourth Judicial District of the State of Idaho. That complaint, which Corbin, a Graham marketer, later settled, stated in reference to the income partnerships: “Corbin omitted to disclose that the identified rates of return were being manipulated by the general partners, so that the charts did not reflect the actual operating incomes experienced by the prior programs during the relevant time periods.”

The author also incorporated information from a series of depositions in the case
In Re: Prudential-Bache Energy Income Partnerships Securities Litigation
, cited above. The 1993 depositions include those of Matthew Chanin, taken March 29–30; Sam Blaize, taken April 14; John Graham, taken May 25–27; Joseph DeFur, taken June 1–3; Mark Files, taken June 4–5; Anton Rice III, taken June 9–11; James Kelso, taken June 14–15; and James Darr, taken July 12–14.

Finally, the inflation of partnership distributions was widely reported in the press. Again, the author refers to the Paltrow series in the
Los Angeles Times
, cited above. Also, see Michael Siconolfi, “Prudential-Bache Inflated Partnership Payouts,”
Wall Street Journal
, April 8, 1993.

248:
Darr's hardball tactics in negotiating with Graham, and the anger that resulted, are described in Rice's 1991 deposition to the SEC.

250:
Dawson's $1.4 million day in selling Prudential-Bache Energy Income partnerships is described in
Energy Digest
for May 1985. The newsletter was published by Graham Resources for distribution to brokers in the Prudential-Bache retail network.

251–54:
Descriptions of the May 30, 1985, meeting at Prudential-Bache come in part from a June 3, 1985, memorandum by James C. Sweeney, written for his own files.