Serpent on the Rock (14 page)

“How could you be so disloyal?” Pittman snapped at Dennis Marron. “How could you turn on the man who signs your checks?”

“As far as I know, my checks come from Bache, not from him,” Marron replied coldly. “My loyalty is to the firm.”

Pittman challenged almost every member of the Futon Five, but no one took him seriously. He was not a senior member of the department. His uncontrollable temper made him the butt of jokes. Many were still laughing about how, a few weeks earlier, Pittman lost control in a restaurant when Kemmerer played a joke on him. In response, Pittman picked up a plateful of strawberry shortcake and heaved it at his tormentor's head. The plate missed its target but flew across the restaurant, shattering into tiny pieces. If this was the best defender Darr could find, the Futon Five quipped, then he must be sunk.

Jones's investigation was going very badly for Darr. He had tracked down Alan Gosule, who in recent weeks had obtained more damning information about Darr. A friend at Josephthal had given Gosule an envelope containing copies of checks and deposit slips from Darr's transactions with clients. He agreed to turn the documents over to Jones.

Gosule and Jones agreed to meet on November 13 at the Plaza Hotel in midtown Manhattan. At the appointed time, Jones took the elevator to a suite where Gosule was waiting. Jones lightly tapped on the door, and Gosule let him in. They spent no time with small talk—Gosule handed Jones the envelope and suggested that he examine the contents. Then Gosule told Jones he had someone for him to meet. The lawyer brought out his client, who had claimed that Darr had put the squeeze on him before moving to Bache. Gosule introduced the two men and walked out of earshot as the client answered Jones's questions. After about twenty minutes, Jones stood up and thanked both men. Gosule escorted the investigator to the suite's door.

Before opening the door, Jones turned to him. “I want you to know,” he said, “Darr is as good as dead.”

Jones spoke with John D'Elisa that same day. “We've got him nailed,” the investigator said. Jones was ready to let senior Bache executives know what he had found. His report would be done in a day or so. D'Elisa called the other members of the Futon Five. Hayes had heard the same thing from Jones. They needed to start getting ready for a transition of leadership. It would be tough for the firm, particularly for Lee Paton—he had just been named a director a few months before. Now one of his first big hires was about to be labeled a crook.

Darr's mood blackened. He began to seek out other senior executives in hopes of finding an ally. He visited George McGough, the head of Bache corporate resources, and poured out his fears. These rumors were swirling around and they just weren't true, Darr said. He didn't know what to do about it.

“Look, if you're innocent, and these rumors are untrue, take a polygraph,” McGough said. “We'll give you the questions in advance, or you can help formulate the questions. Then everyone will know what the results are, and it'll be over with.”

Darr looked pensive. “Yeah, that would probably be the best way,” he said softly. “Who would see the record?”

“It would be whoever is heading this thing up. Who do you think should see it?”

The two men chatted another few moments about Darr taking the test. Then Darr got up to leave, saying he would get back to McGough.

McGough heard nothing back from Darr about the test. But soon after he received a telephone call from John Curran, Bache's general counsel.

“Did you try to convince Jim Darr to take a polygraph?” Curran asked.

“Yeah,” McGough said. “I think he is going to take it, too.”

“Well, we don't want him to take it,” Curran said. “Just forget about it.”

It sounded to McGough like Bache was getting ready to resolve the Darr matter somehow. “OK, John, that's fine,” he said.

In mid-November, Douglas Kemmerer called Dennis Marron at home on the weekend. The calls had become almost a daily ritual. Kemmerer seemed to have become the most plugged in on the developments in the Darr investigation. This time, his information seemed too incredible to be believed.

“Darr's going to beat the rap,” Kemmerer said.

“Oh, come on, Doug, that's crazy,” Marron replied. “How could he beat the rap? The firm is not going to keep a guy around that does that kind of stuff.”

“I'll bet you a dinner.”

“Fine,” Marron said. “You're on.”

But in the office that Monday, it began to sound as if Kemmerer might be right. Word started getting around that Darr had appealed to one of his bosses, who were just learning of the investigation. Darr promised that he had done nothing improper, saying that the money he received was for work he had done on an airplane lease deal and other consulting. The members of the Futon Five started to fear that the investigation might be on the verge of backfiring.

Gosule arrived in the office that day after a weekend of relishing victory. He was sure he'd put a dirty player out of the business and solidified his relationship with the tax shelter department. It thrilled him to think that his contribution to the investigation could well lead to more business for Gaston & Snow from a thankful Bache.

That morning, he received a telephone call from John D'Elisa. “I can't believe it!” D'Elisa sputtered. “Darr beat the rap!”

“That's impossible!” Gosule replied.

But when Darr arrived that day, everyone could tell he had won. His fearful look gone, Darr strutted into the office with his chest out and his head high. He took obvious delight in his sudden comeback.

A number of executives in the department, including all of the Futon Five, were called to an emergency meeting at Bache a few days later. They gathered in a conference room, where Darr was sitting quietly, glaring at them. Someone started discussing a new deal that was in the works. As a speaker droned on, Lee Paton's secretary came into the room. Darr's eyes locked on her as she walked around a table to where David Hayes sat. She tapped him on the shoulder.

“Lee would like to see you,” she said.

Darr smirked as Hayes walked out of the room. Hayes had heard the rumors but couldn't believe Darr was getting cleared. He walked apprehensively into Paton's office a few minutes later and shut the door.

“All right, David,” Paton said, his tone of voice betraying deep anger. “This little investigation is finished. Darr has checked out. He's clean as a whistle.”

Hayes felt light-headed, blown away. He knew about the checks. He knew about Gosule's client. Jones himself had told him that everything he suspected was true.

This is a total political cover-up
, Hayes thought. Maybe it was because of the silver crisis a few months before. Maybe Paton didn't want to admit a mistake. Either way, it was clear to Hayes that somebody at Bache was trying to avoid a scandal.

“How could you be involved in something like this?” Paton asked sharply.

Hayes didn't know what to say.

“David, how could you be involved in something like this?”

Hayes sat there, numb, silent.

“David,
how could you be involved in something like this?
” Paton demanded.

Hayes finally mumbled something about doing what he thought was right. He staggered to his feet and headed to the door. He couldn't wait to get out of Paton's office. Back in the conference room, he slumped into his chair. Paton's secretary then returned and tapped Wally Allen on the shoulder.

“Lee would like to see you,” she said.

One by one, Paton spoke to almost everyone who had been involved in the investigation of Darr. Later, he announced to other senior officers in the department that Darr had been cleared, so as to dispel any rumors. Only Dennis Marron did not hear the news that day. He was out of town on business and wasn't expected to catch up with anyone in the department for more than a week, when all of them were supposed to travel to Puerto Rico for an oil and gas conference.

For some of the Futon Five, Paton inadvertently signaled that their careers at Bache were over. In his meeting with Henry, Paton produced a document pertaining to Trace Management, the entity that provided a participation for him, D'Elisa, and Darr in some tax shelters. Paton said Trace angered the brokers, who wanted to share in the profits, too. So he wanted Henry to sign the document, which would liquidate his ownership stake and, Paton said, let Bache dissolve Trace.

Well, this is certainly a blatant, bald-faced lie
, Henry thought. He was sure Paton was trying to get him to surrender his stake in Trace so they wouldn't have to pay him anything after he was fired. He told Paton that he would review the document with his accountant and get back to him the next week.

He never had the chance. On Monday, Darr called D'Elisa into his office for a moment. “I want you to see something.”

Darr turned on the speakerphone and telephoned Henry in Dallas. No one could find him at the branch. But just then, Henry called in from a pay telephone in the men's restroom at a French restaurant in Dallas's Quadrangle shopping center. He was having lunch there with his sister, Kay. His secretary told him to call Darr immediately.

“I'm sitting here with D'Elisa, and I want you to know we are reconsidering the way the department is organized,” Darr said, staring at D'Elisa as he spoke. “There is no longer any room for you here. You're fired.”

Henry wasn't surprised. “All right, Jim,” he said.

“Well, I'm going to put this down as termination for insufficient production.”

“Darr, you're going to put down whatever you're going to put down,” Henry replied. “But you know that's not the reason and I know that's not the reason. But I don't care. I'm having lunch with my sister right now, and I'm going back to that.” Henry slammed down the telephone.

As the days passed, the casualties spread. Darr fired Kemmerer, who didn't attend the Futon Five meeting but was one of the biggest talkers. Gosule's firm, Gaston & Snow, was never offered another assignment from the department. If the firm fired all of the Futon Five, the department would have collapsed from lack of manpower. So, for the time being, Darr just confronted the others but allowed them to stay. He talked to Marron in Puerto Rico at the oil and gas conference.

“Looks like you owe Kemmerer that dinner,” Darr told him. Marron was stunned. Not only did Darr survive; somehow he found out about his private conversations. Darr smiled and walked out to the tennis court, with an obviously delighted Bill Pittman following him. At that moment, Marron realized that, because of Pittman's loyalty, the guy whom they all belittled was now Darr's new favorite.

In the days that followed, it became clear that Darr emerged from the investigation more powerful than before. Paton gave Darr an accelerated promotion to senior vice-president—a symbol of regret, Darr bragged, for the aggravation he suffered because of the investigation. Questions disappeared about I.E.I., the energy roll-up, and the deal was put on the fast track. Clifton Harrison reemerged and began dropping by the office more often. Darr became his champion, pushing the department to pursue deals with him. Within weeks, the department's first deal with Harrison was being put together.

Finally, when everything settled down, Darr called a meeting in his office of the department's executives, including the surviving members of the Futon Five.

“I am now the most investigated person in this firm,” Darr declared. “I have been given a completely clean bill of health.” To some listeners, the meaning was obvious. Darr's ethics were now above question at Bache. No one could challenge him.

“Some of you tried to destroy me,” he said, “and I won't tolerate it. So I want this clear: If any of you ever attempt to do anything again that could harm me or my family, I'll take decisive action.”

Darr looked slowly around the room, checking to see that everyone was listening.

“I'll kill you.”

CHAPTER 4

HARRY JACOBS FLIPPED THROUGH the secret investigative file on his desk, reading each page carefully. The findings clinched it: Bache couldn't possibly be involved with someone tied to illegal activities. It didn't matter that no one had ever brought charges. Bache might cripple its already soiled reputation by associating with such people. Jacobs finished reading with renewed certainty: The Belzbergs had to be stopped.

It was January 1981, and Bache's massive, worldwide investigation of the Belzbergs was finally getting results. For months, the firm's investigators had dug into the Belzbergs' background, poring through corporate records, chasing down rumors in the Canadian business community, and leaning on friends in the government.

Finally, paydirt: Buried in a file cabinet at the Bureau of Customs was a report linking the Belzbergs, albeit tenuously, to the Mafia. The report had been written by customs agents, who, along with the FBI and Canadian Mounties, secretly watched a February 1970 meeting of American and Canadian mobsters at the Acapulco Hilton. All of the kingpins were there, including Meyer Lansky, the infamous underworld financier. As undercover agents dutifully took notes, Lansky got chummy with a man later identified as Hyman Belzberg, Sam's brother. For the next few days, Hyman Belzberg was seen in the company of Lansky and Benny Kaufman, a reputed member of the Canadian Mafia.

The report was thin gruel. It had no information on Hyman Belzberg's conversations with the mobsters. Bache tried to follow up leads, without success. Still, for Jacobs, the secret report was more than enough; he wasn't going to let his firm be overrun by gangsters.

In mid-January, Bache's nominating committee met to consider Belzberg's request for board seats. Jacobs took his information with him to the meeting. He told the five members that, based on the shocking facts uncovered by the firm, he could not and would not accept any of Belzberg's board nominees. His implicit threat wasn't missed: The board was choosing between Belzberg and Jacobs. If they voted against him, Jacobs would resign. With little debate, the committee sided unanimously with Bache's chairman and rejected Belzberg's demand.

After the board's decision, Jacobs called a meeting of senior executives and advisers. He knew that something more had to be done to stop the Belzbergs from buying Bache shares. Once they owned enough to control the firm, they could name their own board. Almost certainly, the executives who opposed the Belzbergs so aggressively would then all be fired.

Unless, suggested Clark Clifford, the former defense secretary who was advising the firm, Bache could scare the Belzbergs away. Why not sit down with Sam Belzberg and let him know the information that Bache had uncovered? Belzberg might be so shocked and scared of exposure that he'd turn tail and run. And to make sure the message had the highest impact possible, Clifford volunteered to carry it to the Belzbergs personally.

Jacobs was delighted. Clifford's reputation among Washington's power elite dazzled him; he felt sure Belzberg would be thunderstruck when such an important man delivered such a dangerous threat. Jacobs said he would contact Belzberg to tell him that Clifford would be calling.

He made the telephone call a few days later. Belzberg felt certain Jacobs was going to tell him that the demand he made at the La Guardia meeting had been approved. So he was surprised when he called back and Jacobs sounded so distant. In a tone of obvious pride, Jacobs told him that he should expect a telephone call from Clark Clifford.

Belzberg paused for an instant, perplexed. “Who's that?”

The first stage of the Bache new strategy had flopped. Although many American businessmen might have been impressed to receive a call from a former defense secretary, the Bache strategists forgot something about their adversary: He lived in Canada. He had never heard of Clark Clifford.

A few minutes later, Clifford telephoned Belzberg, suggesting that they get together to talk. “Could you come down to Washington to see me?” Clifford asked.

Belzberg had never heard such arrogance.
They
were the ones who wanted to see
him
. Why should he go to Washington? “Look, if you want to talk to me, why don't you come to Vancouver?”

Clifford paused. “Do you know who I am?”

“I'm really sorry. I don't. And I really don't know where this conversation is going to take us.”

Clifford again asked Belzberg to come to Washington and gave him his private telephone number. Belzberg hung up the phone and instantly dialed Jacobs again. “Harry, I left you at that meeting with a very simple situation,” he said. “I want two seats on the board. So why is this Clark Clifford fellow calling? Who is he?”

Jacobs hesitated for an instant. “Well, something very terrible came up, out of nowhere, as we were discussing your nomination to the board,” he replied. “Mr. Clifford has been retained by us to talk to you about it. It's very important that you go to Washington and see him.”

Whatever came up, Belzberg responded, it couldn't be that terrible. He wasn't going to Washington, he said, and would proceed with his plans for the firm.

A few weeks later, Belzberg was flying from Denver to eastern Canada. With a simple rerouting, he would be able to take his private plane to Washington. He telephoned Clifford, and the two men agreed to meet at Dulles International Airport in the first-class lounge of Air France. A few hours later, Belzberg was sitting across from Clifford, a tall man with patrician good looks and white hair. The meeting grew rancorous quickly.

Bache had considered putting him on the board, Clifford said, but had voted it down. He pulled a stack of papers out of a briefcase and showed them to Belzberg. “The firm is simply too concerned about the terrible thing your brother did,” he said, motioning toward the papers.

For an instant, Belzberg could not imagine what Clifford was talking about. Then it hit him:
Hymie's trip to Acapulco
.

For years, the time his brother unwittingly had palled around with the Mafia during a vacation had been a big family joke. While in Acapulco, Hymie, who ran the family's furniture business, had bumped into Benny Kaufman, who owned a Canadian rug dealership. The two had done business before. Hymie had no idea that Kaufman was a reputed mobster. It was Kaufman who introduced him to Lansky. Hymie didn't recognize the name; he just assumed he was meeting some businessman. When Hymie returned home, the Mounties came calling to investigate. Hymie was dumbstruck. He said he had no clue that his friends from the Acapulco Hilton were reputed mobsters. The Mounties wrapped up the investigation quickly, and Hymie, while a little embarrassed, was none the worse for wear.

“You couldn't be talking about that crazy thing in Acapulco, could you?” Belzberg asked.

“Oh, we don't think it's crazy at all, Mr. Belzberg,” Clifford responded.

For the next few minutes, Belzberg explained what happened. He told Clifford that the Mounties had investigated and cleared the matter up years earlier. “You don't know Hymie,” he said. “Only he could walk down the beach with gangsters and not know it.”

Belzberg offered to have the Canadian attorney general telephone Clifford the next day to confirm everything, but Clifford demurred. The board had already voted, he said, so such a phone call would be unnecessary. The meeting reached an impasse. After a few minutes, Belzberg left, frustrated and angry.

On the plane headed to Toronto, Belzberg stewed. He kept running through his mind how mistreated he felt. He never had intended to take over Bache. But they kept pushing him and pushing him. And now this, from someone like Clifford, whom he now understood had been an adviser to presidents. By the time his plane arrived, Belzberg had put away a few drinks, and he was boiling. Despite the late hour, he picked up a telephone and called Clifford's private line.

“Mr. Clifford, I'm really surprised at you, a man of your stature, trying to intimidate me with this kind of dirt,” Belzberg said. “You've worked with presidents, and here you are wallowing in the mud. I'm not just going to take this sitting down.”

“Are you threatening me?” Clifford snapped.

“I'm not threatening you. I'm saying that I gave Mr. Jacobs a proposal, and what you have brought up here means nothing to me. You're not interested in finding out the truth, so I'm not worried about it.”

“Well, Mr. Belzberg,” Clifford responded, “if you don't stop buying stock in Bache, this is all going to be in the papers in the next week or so.”

Belzberg's soft voice betrayed his absolute anger. “I have been threatened with my life before, sir,” he said. “And you don't frighten me.”

He slammed the phone down in its cradle.

It didn't take long for Bache to realize that its latest tactic had been a disastrous miscalculation. Belzberg opened up the throttle on buying Bache stock. In just two trading sessions, a few days after meeting with Clifford, he purchased more than 20,000 shares. By February 9, a few weeks after their meeting, the Belzbergs had snapped up another 200,000 shares. No longer were Sam Belzberg's investment decisions based on strictly financial considerations; now he was being driven by pure anger. He wanted to teach Bache a lesson. Even when Bache made good on its threat, turning the information about Hymie and the Mafia over to the
Wall Street Journal
, Belzberg just bought more shares. Soon he controlled close to one-quarter of the firm's publicly traded shares.

“Is there nothing that will stop these people?” Jacobs moaned at a Bache executive committee meeting that month.

On March 2, 1981, he decided he had had enough. He called Robert Bayliss, an investment banker with the First Boston Corporation. Bayliss was a longtime friend of the firm—he was the banker who helped take Bache public in 1971.

Jacobs told Bayliss that he had a new assignment for him: He wanted to put Bache on the block. After a hundred years of independence, the firm had to be sold to the highest bidder. It was the only way left to stop Belzberg.

Bayliss hopped on the assignment and called back the next day with tantalizing news: First Boston had received a nibble of interest from the Prudential Insurance Company of America, the financial giant based in Newark, New Jersey. The company was already looking to get into the brokerage industry but had not found the right situation yet. If they moved quickly, Bayliss said, a deal could be wrapped up in a matter of days. Jacobs was skeptical. He knew that Prudential was a mutual company, meaning that it was owned by its policyholders. He doubted whether it could legally buy a securities firm.

Still, a company like Prudential could be the answer to Bache's problems. If nothing else, it brought something to the table that Bache desperately needed: undeniable, unwavering integrity. Prudential's reputation had been built over more than a hundred years, since being founded by an obscure life insurance agent named John Dryden. Its image as a company dedicated to helping working people find financial security could wrap Bache in a new blanket of respectability. The firm's scandals and missteps might finally be washed away. With a simple stroke of a pen on a merger agreement, Bache's sullied past could be subsumed into the glorious history of the Prudential.

JOHN FAIRFIELD Dryden, a bookish, gangly thirty-four-year-old, arrived in Newark in 1873 with a wife, two children, and a history of failure. Dryden's career had centered on fruitless attempts to build a life insurance company for the poor and working class. He wanted to model his company on the Prudential of England, which had already succeeded in that line of the business. But Dryden's contemporaries scoffed. In an era when American insurance was a privilege of the wealthy, the idea seemed too radical. Worse, few of them believed the poor could afford the premiums. Dryden was told repeatedly that his business plan was only so much social dreaming, destined to go belly-up. When Dryden replied that he could sell his policies for as little as three cents a week, he was dismissed with a laugh.

Newark was Dryden's last chance to build his company. Then the nation's third-largest industrial city, Newark built a reputation in trade and manufacturing on the strength of its leather making, metalwork, and jewelry manufacturing. Across the country, beer drinkers knew the local Feigenspan's brand as P.O.N., for Pride of Newark. The scores of mills, ironworks, and factories dotting the waterfront attracted hundreds of new immigrants and working-class Americans to Newark. It was among these people that Dryden hoped to find his customers.

Dryden cut an impressive figure for the people of Lincoln Avenue in Newark, where he took up residence. With his thin, long legs and piercing blue eyes, he stood out as a man to reckon with. Each day, he tried without success to persuade members of Newark society to invest in his idea. Finally, Dryden met Allen Bassett, a big-talking former military captain who made his money in real estate after the Civil War. Dryden persuaded Bassett to let him have some desk space at no charge so that he could organize the Widows and Orphans Friendly Society, a nonprofit organization that would sell insurance to its members. This, Dryden hoped, could be the foundation of the profit-making insurance company he hoped to establish.

With Bassett opening the doors, Dryden's new society attracted the support of some prominent Newark citizens, some of whom took unpaid positions as the foundation's senior officers; Dryden assumed the lowly title of secretary. After a few months, with its leadership helping the society to gain great respect in Newark, the group converted into a full insurance company. That allowed it to sell policies to anyone, not just its members. The name was changed to the Prudential Friendly Society, in a tip of the hat to the Prudential of England. Dryden approached new investors and won more support for his ideas. Within a short time, he had raised the $30,000 in capital his company needed.

The Prudential had been born.

In 1876, while running an errand for his mother, fifteen-year-old William Digannard was struck by a train and killed. He was the eldest son of a poor family, and his death may have gone unnoticed in history but for one thing: Digannard's parents were among the first to collect on a Prudential life insurance policy. Their decision to take out the policy on their son's life allowed them to bury him without destroying the family's meager finances. “What my poor desolate household would have done without this policy I do not know,” William's father wrote in a letter to the company. “God bless and prosper the Prudential Company.”