Chasing Phil

by David Howard

  They began to assemble separate lives. Jack stayed with single bureau friends—mostly Wedick, who had a spare bedroom. Becky spent long intervals with her older sister, Diane, a deeply religious homesteader. Diane, whom Becky called “Sista,” quoted the Bible and told of witnessing miracles, and Becky wondered, Why didn’t I ever hear about this growing up in church?

  Sista eventually convinced Becky to give her life to the Lord and return to Indiana to seek Jack’s forgiveness, because Becky’s place was with her husband. Becky saw this with startling clarity. In October, she loaded a truck with her family and their belongings and drove to Indiana, even though she didn’t have a clue about whether Jack still wanted to see her.

  Becky knew that Jack loved the boys and was averse to repeating his family history. After spending a year on a kidnapping case in Minnesota, his grandfather had returned home to an ultimatum: his wife or the FBI. He’d chosen the bureau. Jack’s father traveled frequently and under significant duress. In Mississippi, Edward Brennan helped exhume the bodies of three murdered civil rights volunteers, then photographed the autopsies. The time away and the psychic toll shredded his marriage, which ended in a toxic divorce when Jack was in the eleventh grade—old enough to get into his car and drive away. “I kind of abandoned my brother to my mother,” he said. “He was her only audience to explain how terrible my dad was.”

  His FBI work helped him better understand his forebears—how the pressures of the job had split their lives apart like cordwood. This was the Brennan legacy. The bureau contagion leaped from one generation to the next. This early-life chaos shaped Jack’s personality in a couple of ways. One was that, having been part of the collateral damage, Jack wanted a different outcome for his kids.

  He had signed up for the Kitzer operation figuring it would involve one meeting, maybe two. Now that the master con man planned to take him and Wedick out on the road, Brennan had no idea how long it was going to last.

  7

  No Mickey Mouse

  MARCH 2, 1977

  Wedick was wearing riot gear when he spotted Brennan coming his way. Wedick was on a break from SWAT training at the FBI Academy in Quantico, Virginia, and the sight of his partner yanked him out of a reverie related to a sharpshooting drill. Brennan, who had traveled to the academy for a different set of training exercises, had the expectant, hungry look of someone with something urgent to say. Two weeks had passed since they’d parted ways with Kitzer. They’d spent much of that time puzzling through the next steps in their blossoming fraud investigation, and the training had provided a short but welcome respite.

  “We need to go back to Cleveland,” Brennan said. “Kitzer wants us to meet.”

  Wedick stared at him for a few beats before responding: “What?”

  Brennan explained that Kitzer was working a new scam and wanted them there to watch over his shoulder. Wedick instantly realized what had happened: After they’d returned from Cleveland, he’d given Brennan the number for Executive Enterprise’s answering service. He now realized that this had been a lapse of judgment—Brennan tended to barrel ahead heedlessly. Of course Brennan had retrieved the messages.

  Still, Wedick was furious. It had taken Orville Watts a year to get him enrolled in the SWAT class, and he wanted to finish it. Brennan was less of a box checker—one of the many differences that were becoming more obvious the more time the agents spent together. Wedick was a product of 1950s and ’60s Catholic schools and stern parents; his work space was fastidious, and he preferred to meticulously plot things out. He believed in hierarchies.

  Brennan found no advantage in going slow. Where Wedick saw an organized grid that should be systematically hopscotched, Brennan saw an open field that was best sprinted across before anyone could stop them. If there had been an established protocol for this kind of case, he and Wedick never would have been assigned to it—the work would have gone to someone who’d attended undercover school. FBI headquarters didn’t know what they were doing yet, which Brennan saw as a huge advantage. He had noticed that when he was working on something new, he had about six months before the bureaucracy figured out how to control him. This was one advantage to being in a backwater location like Gary: less oversight.

  For the moment, at least, the bureau leadership was in limbo and distracted. After taking office six weeks earlier, President Jimmy Carter had indicated that he wanted to replace Clarence Kelley as director, but he hadn’t yet done so. No one was certain how new leadership might reshape the FBI, which was another reason to go now.

  In Kitzer’s invitation, Brennan saw nothing more than a superb opportunity to take a front-row seat during a fraudulent deal. “I had learned that it’s better to do something than to do nothing,” he said. “Get forgiveness, not permission.”

  These dynamics were complicated by the way the Kitzer case had come together. Wedick was the case agent, but Brennan also felt some propriety over it, having learned of it from his informant.

  Wedick pointed out that Brennan had promised not to interfere. He didn’t know why Brennan was in such a hurry. They stared at each other. “First of all, it’s my name on the paper,” Wedick said. “You sought me out. Now, you may not like this, but I’m in charge on this freaking case. Let’s figure our moves out.”

  It was too late. Brennan said he had already directed Norman Howard to tell Kitzer they would meet him the next day. Kitzer would be expecting them.

  —

  The same day, a few hundred miles away in Cleveland, Kitzer sat across from Armand Mucci and Bob Bendis at a table in the Sheraton Beachwood’s bar in suburban Cleveland. He was pursuing a promising new deal. A couple of months earlier, he explained, a fellow promoter named Jack Elliott, whom Kitzer called Captain Jack, had introduced him to Jimmy Kealoha, the former lieutenant governor of Hawaii.

  Once labeled “the wonder boy of Hawaiian politics,” Kealoha was elected to Hawaii’s House of Representatives at the age of twenty-six. He held various offices for much of the next thirty years, often winning races by overwhelming margins. His party chose him to run for lieutenant governor in 1959 in the state’s first gubernatorial election—Hawaii became the fiftieth state that year—and his ticket rolled to victory. He eventually morphed into an entrepreneur, and during the seventies he’d launched his capstone project: a thirty-five-story, 206-unit condominium complex called KeAloha at Waikiki. He’d acquired one of the few large-scale development sites left on Waikiki Beach, across from a Hyatt on the island’s sugar-sand shores.

  But Kealoha was unlucky. He sent in the bulldozers just as the nation entered a profound funk. After a thirty-year gallop toward prosperity, America had been staggered by Watergate, Vietnam, and energy shortages. Although newly elected President Carter promised a new era, the national mood was sour. Unemployment hovered around 13 percent. Personal bankruptcy was soaring. Kealoha had approached many banks about financing the $10 million construction, but they wanted him to presell the condos before they committed. And no one was buying. With the market sagging, Kealoha bore the extra burden of selling units that didn’t yet exist.

  Adding to his bind, the city of Honolulu had specified a window of time in which Kealoha needed to start the work. A building permit there was a valuable possession: The city had recently declared a moratorium on high-rises, and this one was grandfathered in—but if he hadn’t started construction by the deadline, Kealoha would have to reduce his building’s size by 70 percent. Meanwhile, with the project stalled, Fireside Thrift, which had loaned him money to clear the land, was threatening to foreclose. Kealoha had sold only 85 of the condos. Desperate, he and his attorney, Ronald Yee, began hunting for an investor willing to purchase the 121 unsold units for $6 million.

  Yee was connected to Jack Elliott, who, in turn, introduced Kealoha to Phil Kitzer. They met at the LAX Marriott in late 1976. Kitzer offered to put up a thousand-dollar letter of credit from Seven Oak as a down payment on each unsold condo—for a fee of $60,000. Kealoha agreed, and flew Kitzer to H
onolulu for a closing.

  Kitzer told Elliott that he could easily wring more out of Kealoha, who was so anxious to see the project through that he had teared up describing it. Elliott laughed and asked Kitzer, “What are you gonna do, take his pants [and] his kids?”

  A few months later, in February 1977, Elliott called to tell Kitzer that Kealoha was still looking for what’s known as a takeout commitment. Imagine you’re going to build an office tower. You need two things: a short-term loan, to buy the bricks and glass, and permanent financing. That second, long-term loan comes from a mortgage company that commits to repay, or “take out,” the short-term lender when the construction is finished. Elliott suggested that Kitzer provide the takeout—for another fee, of course.

  Kitzer was now reluctant. He’d already used Seven Oak to buy the unsold condos and didn’t think it would be wise to issue more worthless paper from the bank to the same customer. Part of his talent was in knowing how far to push his scams. But he promised that if he heard of anything that might fit, he would call. Then Mucci and Bendis told him about an acquaintance named Andrew D’Amato, who was operating a scam involving a Liechtenstein-based trust. Mucci said the trust would “stand up,” meaning that its phony securities could withstand scrutiny from a legitimate bank.

  Kitzer thought this sounded promising—but time was tight. Kealoha had already delayed one Fireside Thrift foreclosure, but he wouldn’t be able to hold out much longer.

  Mucci stood and announced that he would get D’Amato to Cleveland as soon as possible.

  —

  After they returned to Indianapolis, the complexities of what Kitzer had proposed hit Wedick and Brennan flush. Problem number one: They were taking on a deeply embedded culture that resisted the type of work they would have to do.

  For most of its history, the FBI had avoided undercover investigations. Much of this was due to J. Edgar Hoover, who as a young and fast-rising administrator in the late 1910s watched Congress and the judiciary rebuke the bureau for such practices. “We do not question the right of the Department of Justice to use its agents in the Bureau of Investigation to ascertain when the law is being violated,” a panel of prominent jurists wrote in 1920. “But the American people have never tolerated the use of undercover provocative agents or ‘agents provocateurs’ such as have been familiar in old Russia or Spain.”

  By the time Hoover was appointed director, in 1924, he’d embraced a mandate to shield the FBI from political pressure. Despite being fervently anti-Communist, in 1932 he discouraged the attorney general from expanding the bureau’s authority to investigate leftist activities, expressing concern that his charges would need to do undercover work “to secure a foothold in Communistic inner circles.” He resisted efforts to merge the FBI with the Bureau of Prohibition, in order to avoid even a whiff of scandal, and foisted the responsibility for pursuing racketeers onto the states. Hoover nixed undercover work involving the Mafia out of fear that his employees would be bought off.

  By zeroing in on bank robberies, interstate theft and kidnapping, extortion, and fugitives, Hoover adopted an agenda any elected official could love. The idea was to investigate crimes only after they’d been committed. Hoover avoided “turning agents into investigators, working undercover in situations that required one to emulate, if not adopt, the language, style, and values of the criminal world,” James Q. Wilson wrote in The Investigators, an in-depth examination of the FBI’s practices. “Not only would this expose agents to temptations involving money and valuable narcotics, it would also require them to engage in enforcement policies that, though legal, struck many citizens as unsavory.”

  Undercover work was also impractical. As Wilson noted, “the dress code of the agents would have made it ludicrous for most of them to even attempt to go undercover—there are not many hijackers or auto thieves who could easily be impersonated by short-haired, clean-shaven agents.”

  To avoid congressional oversight and keep funds flowing smoothly, the FBI measured its achievements through misleading statistics. Job performances were judged largely by caseloads, even if it meant taking on “shit cases with which to cover your ass by making stats,” as one agent told Wilson. The FBI took credit for the value of a stolen car even when the local police found and returned the vehicle and an agent did nothing more than inquire as to whether the perpetrator had moved it across state lines.

  In each of the FBI’s fifty-nine field offices, the special agent in charge had to answer for each agent’s stats. In this environment, an agent who asked to go undercover long-term—which meant shirking a full caseload to focus exclusively on one investigation—was not warmly received. The emphasis on numbers also discouraged complex white-collar and organized-crime investigations.

  Hoover’s obsessive efforts to protect the FBI’s gilded image were unraveling by the time he died, in 1972. In the five years that followed, Americans would learn that once-mythical G-men had used illegal bugs, wiretaps, and breaking and entering—practices referred to as “black bag jobs”—on citizens deemed to be political dissidents or while investigating the likes of the Weather Underground. Hoover’s eventual successor, Clarence Kelley, under intense scrutiny from Congress for the FBI’s role in Watergate and other pernicious episodes, began a top-to-bottom overhaul, setting organized crime, foreign counterintelligence, and white-collar crime as the new priorities. And in 1975, Kelley adopted a “quality over quantity” policy, in which each SAC decided which cases to pursue. Meanwhile, the FBI teamed up with local police departments in undercover investigations funded by Law Enforcement Assistance Administration grants, providing useful but limited experience. But the bureau retained plenty of rusty hinges. A 1977 manual opined that undercover operations “are far less valuable in the white-collar crime area than in other areas of criminal investigation” and predicted that they would be useful only for “an occasional and unusual opportunity.”

  Still, 1977 was the first year the Department of Justice expressly requested funds for such activities. The $1 million that Congress appropriated for that year funded fifty-three operations—this in an organization with 516 resident offices. By opening their Kitzer investigation, Wedick and Brennan were among the first to tap into that pool of money.

  And they were the first to propose open-ended travel with the subject of a white-collar crime investigation.

  The ground-level realities of their operation were even more daunting. They had no clue how long Kitzer’s trips lasted, whom they’d be meeting, and what levels of danger might await. They would have to persuade the bureau to underwrite their travel. And then what if Kitzer flew outside the country and they needed diplomatic clearance? What would they do when they were witnessing a crime? Where would they draw the line with drinking? What if someone lit up a joint or snorted cocaine? There were no guidelines in place.

  On top of all that, Kitzer’s techniques were entirely new to the bureau. Wedick and Brennan sketched out his criminal enterprise on a conference call with SAC Frank Lowie and several other officials. When they were finished, Lowie said, “Well, so what?”

  This was a time-tested tactic used by bureau supervisors. Old managers tended to ask a thousand questions about something new and unfamiliar, figuring the upstarts would just go away or fail to get all the boxes checked and return to counting stolen cars. Getting anything different done required mulish persistence. The idea—instilled by Hoover’s image-conscious mind-set—was to avoid doing anything that might bring embarrassment or criticism.

  Typical of the new generation, Brennan and Wedick thought it was time to move on from Hoover. They tried Lowie again, emphasizing that they suspected, based on their conversations with Howard and from reading The Fountain Pen Conspiracy, that Kitzer was pruning millions of dollars off banks’ and entrepreneurs’ bottom lines. He didn’t use a gun or a ski mask, but Kitzer was ripping off far more money than the guys who did.

  People still thought of con men as lonesome grifters who roamed small towns, living out o
f cardboard suitcases. The Fountain Pen Conspiracy limned the evolution of a whole new class of criminals during an era of unprecedented American prosperity, when millions of people who had scraped through the Depression suddenly had sizable nest eggs. Businesses were borrowing money and growing fast. Banks were booming. The government wasn’t yet outfitted to regulate this deluge of financial activity.

  The new confidence men wore three-piece suits, moved between high-end hotels, and targeted banks, high-rolling investors, and CEOs rather than barstool pigeons and old ladies on Social Security. They recognized that the powerful and rich weren’t necessarily smarter but were often greedier—and thus more likely to give away money now on a promise to double it later. “When the cash value of promises goes up,” Fountain Pen author Jonathan Kwitny wrote, “when tomorrows are being sold early, swindlers are among the first to profit.”

  Kwitny documented a loosely connected ring of about fifty “superswindlers” who invented rip-offs in entirely different strata: speculation scams involving mineral rights, stock schemes, bogus mutual funds, insurance fraud, offshore banks. They set up on islands off England’s coast and in the Caribbean—places with no laws applying to foreign businesses and run by public officials who could be readily bribed. The superswindlers collectively stole hundreds of millions of dollars, Kwitny wrote. And Kitzer had told Brennan and Wedick that the book was outdated—he’d adopted more sophisticated methods, working with his own loosely organized global network of co-conspirators.

  Lowie was unmoved. He didn’t mind them meeting Kitzer in Minneapolis. But long-term? Maybe the Securities and Exchange Commission should take the case.

  Wedick boiled. The bureau’s other early undercover efforts were going nowhere at that point; he and Brennan had a shot at a mastermind fraudster.

  With his anger rising, Wedick suggested that Lowie tell First National City Bank that he didn’t care what Kitzer was doing. Kitzer had recently sold phony paper by using a virtually identical name—tacking on the words “of Grenada” in fine print.