by David Howard
These were challenging days for the truth. The country was still roiling from Nixon’s Watergate lies. In New York City on April 7, as the promoters’ meetings wound down in Frankfurt, the FBI faced its own crisis of credibility. A federal grand jury handed up a five-count indictment against John J. Kearney, an FBI supervisor who had overseen the activities of Squad 47, a unit that for years had conducted illegal break-ins and bugging operations during the Weather Underground investigation. (Kearney’s indictment was dropped a year later on the grounds that his supervisors had sanctioned his activities.) Morale among many agents plunged. The New York Times reported the story on its front page. “It killed us,” one agent later recalled. “It just killed us.”
—
Early the next morning, John Calandrella knocked on the agents’ door, looking upset. He’d just checked with the front desk and found that in four days, Phil had singlehandedly run up a tab of $1,600 (equivalent to roughly $6,300 in 2017). Calandrella had agreed to pay Phil’s expenses through either Lucy Trajkovski or John Kaye, but he feared that both of them would stiff him. Trajkovski had vaporized after her two-for-one deal had fallen through, not even ponying up for a smaller swindle they had arranged involving a $200,000 letter of credit to be funded at the Banco Comercial Mexicano in Tijuana.
Like the other promoters, Calandrella had tried to recruit the Junior G-Men away from Phil with promises of highly profitable work. But Jack and J.J. stuck to their strategy of professing unflagging loyalty to Phil. In their hallway conversation with Calandrella, they pointed out that the Intercontinental was expensive and West Germany was pricey in general. They encouraged him to make good on his promise to pay.
But Jack wasn’t surprised when Calandrella approached the table where he and the others sat drinking coffee later that morning. Calandrella asked whether Jack could cover the bill with his American Express; he would pay the money back when they returned to the States. Jack refused. Then Calandrella asked if he could use the card to guarantee a check he planned to present to the hotel. Jack again shook his head. With that, Calandrella packed his bags and said good-bye.
The three of them laughed that Calandrella had accomplished nothing in West Germany except annoying people. As they talked about the day’s plans, a hotel manager approached to ask which of them would present his AmEx to cover Calandrella’s bill. They all exchanged looks; then Phil told the manager that Calandrella was a business associate they’d only just met and there must have been a misunderstanding, because they weren’t paying his tab. The manager stalked off, looking distraught.
The threesome left the next day, Good Friday. When the plane touched down in Chicago, they split up. Jack and J.J. didn’t want to be near Phil going through customs. They had flipped through Phil’s passport and figured there wasn’t a place on the planet he hadn’t been. A curious customs agent might take notice.
That turned out to be a prudent plan. About forty-five minutes after Jack and J.J. had cleared customs, Phil finally showed up, tucking in his shirttails. J.J. smiled wide under his mustache. “Did they ask you to take off your pants?” he asked.
Phil nodded and smiled. After three weeks, over ten thousand miles, several terrorist scares, more conversations about more schemes to defraud than anyone could count, and one strip search courtesy of U.S. Customs, they were back. None of them doubted that Phil would walk away free.
—
The agents had been on the ground in Indiana for only two days when Phil phoned from O’Hare, saying he was about to fly back to Europe to finally close the Kealoha deal. He wanted them to come along, but J.J. made up an excuse. The agents desperately needed to tend to their lives.
Problem number one was how to process all that they’d harvested on their travels. When they’d first started traveling with Phil, the agents had often felt overwhelmed trying to follow the details of the schemes—particularly when the machinations included a half dozen or more people. To cope, Jack and J.J. had come up with a system. At each meeting, J.J. would memorize who was there and where everyone was sitting, and Jack would focus on what was said. When they were preparing a report about Seven Oak paper going to Mexico, for instance, they would compare notes: Jack would recite the plot and repeat what the third guy to his left contributed; J.J. would say, “That was Calandrella,” then fill in anything else he recalled.
At one session in Frankfurt, nearly a dozen people had hashed out a major bank scam. The plot was intricate, and Jean-Claude Cornaz and a few others had occasionally lapsed into German or French. J.J. had missed most of it, and Jack had suddenly felt acutely aware of his aloneness. Harold Silverkur would chime in with a key element of the crime, and Jack would take note, but then Pascal Cornaz would suggest a different approach, and so on. With so many people chipping in with so many relevant pieces, Jack’s mind locked up.
When they returned to Indianapolis, Jack recounted the story and expressed his frustration—and half-jokingly suggested that he should be hypnotized to see if he could pull back the details of that meeting. J.J. grinned at him. “You wanna be hypnotized, Jack? Really?”
They were astonished when, a few days later, Frank Lowie delivered the news: The bureau had signed off on a request for Brennan to undergo hypnosis. Lowie told J.J. to go along and take notes.
Deeghan suggested a psychiatrist who worked nearby, in a Victorian mansion. The doctor seemed to have been plucked out of central casting: bow tie, white shirt, tasseled shoes. He instructed Jack to lie on a couch and close his eyes, then cautioned him not to expect Frankfurt to flood back into his mind, as if on a movie reel. The goal was to gradually coax his memories to the surface.
Jack began talking in a faraway voice: “We’re in the hotel. There are lots of men in the room, and Jean-Claude is sitting over there. There’s a lot of people coming and going. There are deals.”
“Can you focus on any one deal in particular?”
“There are lots of deals…everyone is talking about lots of money.”
As the shrink probed, J.J. sat there with pen in hand, skeptical but hopeful, amused by the sight of his friend stretched out on a couch, mumbling dreamily. He wondered if Jack might start snoring. Eventually the psychiatrist instructed Jack to carry along any memories when he returned, then snapped his fingers.
The agents suspected that they’d made bureau history, regardless of the outcome. Jack was likely the first agent to use hypnosis to hunt for lost memories like surf-tossed treasure on the tide-swept shores of his brain. What his great-grandfather—a certifiable law enforcement pioneer—might have thought of this was hard to fathom.
Jack was able to recall only one thing with absolute clarity: his own despair as he’d looked around the table in Frankfurt and said to himself, “Oh shit, I’m not gonna be able to remember any of this.”
—
Jimmy Kealoha called Phil around the same time to say that he still wanted to proceed with the deal they’d discussed and would pay for the principals to go to Europe to meet Jean-Claude Cornaz.
On April 12, Phil returned phone calls from O’Hare while waiting for the Kealohas to arrive on their connecting flight. He was trying to catch up on twenty other schemes he had going after having spent so much time abroad. He arranged to send a $100,000 letter of credit from Seven Oak to Spain in a scam with Cornaz involving Mexican notes. Another operation targeted a liquor purveyor, Heublein, Inc. A third, totaling more than $1 million, involved tractors imported from Brazil.
Eventually he departed for Frankfurt with the Kealohas, and the next day, in West Germany, they checked into the Park Hotel. After Andy D’Amato and Mark Iuteri arrived, the promoters met on a set of circular couches in the lobby. Cornaz joined them and ticked through a few of his past exploits. D’Amato was starting in on the Fontainebleau when Phil interrupted. “We can’t just leave [the Kealohas] sitting upstairs,” he said.
He called the Hawaiians to join them in the lobby, and as they made their way down he told Cornaz, “They have a presentat
ion on their proposed building back in Hawaii. Just agree to fund this thing here. Let’s not [let them] get into a two-, three-hour presentation, which they can make.”
“Oh my God,” D’Amato said.
“Yeah, I don’t want to go through that again,” Iuteri said.
When the Kealohas arrived, Phil explained that the group had spent an hour detailing the project for Cornaz. “The reason we waited before calling you,” Kitzer said, “we knew that we could probably make a better presentation of the project than you yourself because we know so much about it.”
Then he delivered the news: Cornaz had provisionally agreed to give them interim funding.
“Oh God, thank you very, very much,” Mama Kealoha said.
Her husband smiled. Finally. The group discussed the steps involved in closing the deal. It was Friday, April 15; on Monday, after flying back to Geneva, Cornaz would telex the paperwork for a $10 million interim loan based on D’Amato’s long-term commitment from the Eurotrust.
With that done, the ebullient Kealohas invited everyone to lunch in the hotel dining room. Afterward, Phil asked Cornaz to join him for a walk, and when they stopped at a coffee shop, Cornaz reported that he had heard from others about the Eurotrust.
“The whole thing is bullshit,” Cornaz said. “They got trouble in Zurich. The police are chasing them there.”
Phil was only mildly surprised. He’d obviously known that the Eurotrust was phony, but he hadn’t realized that it was so close to flaming out. He hoped they could take the Kealohas’ money before it happened.
Phil, having finished his part, headed home. But without him there to babysit the scam, it derailed yet again. D’Amato dragged the Kealohas to London to finalize the deal, then pressed the Hawaiians for more money, claiming that Iuteri had a high overhead in his appraisal business. Mama Kealoha wrote Iuteri a $1,000 check and—because her account was low just then—went to their hotel room and rounded up $1,500 in traveler’s checks. Back in the States, with the paperwork tantalizingly close, she handed Iuteri another check for $12,500.
But D’Amato never delivered. The paperwork he eventually handed over fell short of what he had promised. Mama Kealoha called their bank to stop payment on the $12,500 check, but she was too late. By the time the bank located the check, Iuteri had already cashed it.
Not long after returning to Hawaii, the Kealohas filed for bankruptcy.
—
Jack and J.J. sensed a sea change back in Indianapolis. The chain of command no longer doubted what they were doing. The agents had been sending in daily fifteen- and twenty-page reports about the Kealoha rip-off; D’Amato’s Miami Beach scheming; and Iuteri’s alleged murders, arson, and other mayhem. J.J. and Jack had recorded conversations and charted patterns of fraudulent activity, and they could take the witness stand and say, “Andy D’Amato was trying to collect fees to arrange loans, but he said to me that the Eurotrust would never pay a thing.” In many instances, a law enforcement agency knows more about a particular criminal enterprise than it can prove in court. But Operation Fountain Pen had cracked open a window into a world of financial crime the bureau had not previously understood or even glimpsed. Now everyone saw it.
The bureau responded with a sense of urgency. While J.J. and Jack were in Hawaii, the FBI had assigned six agents to help prepare summaries of each case and index relevant information. When the undercover agents returned to Indiana, they huddled with Bowen Johnson to try to deconstruct Phil’s schemes and map out his business deals: where money was coming from, who was getting it, and what each promoter was doing. Three clerks worked full-time to keep a manual database of the various cases up to date, and the office’s steno pool strained to transcribe all the audio coming back from the agents’ travels. The agents converted one of the conference rooms into a full-time OpFoPen war room in which an entire wall was papered with index cards denoting various characters and schemes.
Still, the operation had not yet become a full-blown bureau priority. Lowie requested computer support to help with the indexing, but headquarters reported that no equipment was available.
And the FBI buy-in, while vindicating, brought new pressures. Jack and J.J. were no longer flying under the radar. They had to be ready to answer questions about what they were doing and how they were doing it. If Phil threw something away or specifically gave them something, the agents could keep it—but otherwise they couldn’t take papers from him to use as evidence.
The stakes were higher now. If they screwed up and the cases got tossed out of court, their work would be wasted.
—
These weren’t imaginary worries. Phil had described his Bismarck trial to the agents, the way he and Frank Oliver had turned it into a circus, blowing up years of prosecutorial work. Rather than a cautionary tale, his battle with the federal government was, as he saw it, a source of knee-slapping barstool humor. After his acquittal, Phil had been free to reinvent himself. He’d had a fresh shot at a quiet life of legitimacy.
But, instead of chastening him, the trial left Kitzer feeling empowered—as if the point of his trip to the edge of the abyss were to demonstrate his ability to hover over it.
He’d spent the past decade probing the ramparts and fortifications of the banking and insurance industries, and for his next act he would breach its soft spots.
In 1967, Phil Kitzer moved to Miami, where he purchased First American Insurance Company and began to write sham performance bonds. Florida’s insurance regulators came sniffing around—a development he took seriously. “I knew what happened to me in Minnesota and in Illinois,” Kitzer said later, “and I wasn’t going to give the state of Florida the chance to do the same thing.”
One morning about eighteen months after purchasing First American, he called the firm’s stockbroker and told him to convert all of the company’s securities into cash. Kitzer retrieved the money—about $100,000—at two o’clock that afternoon, then phoned the Office of Insurance Regulation in Tallahassee and said, “Do what you want with the company.”
By the time the firm dissolved, Kitzer had lit out for Europe, where he was hired as an international loan consultant for the United Nations, working under Kurt Waldheim. The U.N. had launched a program to help foreign governments obtain loans, and Kitzer brokered deals between finance ministers and banks. He once arranged for Israel to obtain funding to purchase jets from the Nixon administration. Kitzer said he was told to ask for a “commission,” which was actually a kickback sent to a blind trust fund in Liechtenstein; he took a percentage. The graft was eventually exposed and two diplomats were convicted of taking kickbacks, but neither Kitzer nor Waldheim was implicated.
While he was flitting around the globe, his ex-wife, Helen, was struggling to survive with four kids. Their oldest, twelve-year-old Phil, lied about his age to land a job washing dishes and cleaning toilets at a restaurant. Kitzer’s specter haunted them. Helen had been happy in their modest Chicago bungalow, but before disappearing Kitzer had moved the family into a huge home in affluent Hinsdale. He’d filled the house with furniture, and only when the seller came after Helen for payment did she learn he’d never handed over a cent for it.
Helen sometimes spent her nights trying to harvest her memory of their lives together for clues that would explain his behavior: Possibly it was the money, or his hard drinking, or his family’s dysfunction (his two oldest sisters had cut off contact with their parents and siblings). Maybe it was everything combined. She realized she might never fully know.
At times Kitzer stepped off the tail of his comet and the old Phil appeared. He would telephone Helen, penitent and vulnerable, alive to the cost of surrendering to his demons. He would tell her that he loved her and wanted to come back to her. In December 1968, he sent Helen some Christmas money and wrote that he was sorry for what he’d done to her and the kids, and that he hoped that she could forgive him someday.
In 1970, Kitzer opened a mutual fund called the Depositors and Investment Trust Company, or DI
TCO. The business was ostensibly located in the Cayman Islands, but he ran it out of Geneva. The idea was simple: Investors could send checks offshore and earn incredible tax-free returns. Kitzer mailed prospectuses around the world and advertised in Time and the International Herald Tribune. He sent statements to customers showing robust gains, when in fact he and a partner named Gabe Cicale were pocketing the money.
He opened First National City Bank and Trust of Grenada partly to provide false guarantees and confirmations of DITCO’s deposits. (If investors became nervous, First National’s bankers would reassure them with a phony statement.) This bank bore several hallmarks of a Kitzer operation. It was located in the Caribbean, thousands of miles from DITCO’s headquarters, both of which were beyond the U.S. government’s reach. He chose a name that would be easily confused with the long-established First National City Bank of New York (now Citibank). Opening it was simple. Kitzer rounded up seed money to pay an attorney for the corporation paperwork and to cover a government bribe, then ordered documents from a printer—letters of credit, cashier’s checks, certificates of deposit. The law didn’t prohibit him from having such paper, even though for Kitzer it was like printing counterfeit money. He rented a few sticks of furniture for a tucked-away office, where visitors who blew in on the Caribbean breezes would find nothing more than an empty room with a telex machine run by a sleepy factotum. One such establishment was located above a barbershop.
The magic was in creating the illusion of assets, and in this regard Kitzer’s mastery of banking and insurance was invaluable. He knew how authentic documents looked and read. “I have the capability of putting together deals,” as he later put it, “and making people believe something that is not there.”
Kitzer learned how to manipulate banking terminology. He used “Corp.” instead of “Corporation” when he created a holding company. By choosing this abbreviation, he avoided having to file incorporation papers.
