by David Howard
25
The Phil Kitzer Road Show
FEBRUARY 17, 1978
Phil’s suit looked two sizes too big when he walked to the witness stand in the federal courtroom in Louisville. Anyone who knew him would have instantly recognized the physical toll the past four months had taken. His already slender frame had shrunk noticeably, and he was pale and drawn. But an electricity rippled through the room as prosecutor David Everett approached to begin his questions. An intense curiosity about Phil had built over the previous three weeks.
“You have sworn to tell the truth,” Everett began, “and there’s been a lot of testimony about your lying. You have lied quite a bit in your life, haven’t you?”
“I have lied in my life, yes,” Phil replied.
“Quite a bit, haven’t you?”
“Quite a bit.”
“What is your occupation?”
“Insurance and banking.”
“You’re a promoter?”
“Yes.”
“Is ‘promoter’ another word for ‘con man’?”
“Yes.”
Kitzer explained how he talked about scams in a way that sounded as if they were legitimate business deals. “You don’t have to use the word ‘scam,’ ” he said. “We never used the word ‘scam’ when we discussed something.”
Although he’d fibbed often when executing these deals, he insisted he wouldn’t do so in court: “To lie on the witness stand under oath is a foolish, foolish thing.”
Talking in an even, unhurried fashion, Phil explained that during the first six months of 1977, he issued Seven Oak paper with a total face value of $25 million, despite never having more than a few dollars in the bank. He laid out the Kaye deal—how Tom Bannon sought him out, and how on a taxi ride into downtown Minneapolis, Phil spoke frankly. “I told him, if he chooses to do business with me, I said, just as sure as we’re in the cab, you can expect the FBI to come visit you.”
“Why would you want to tell him that?” Everett asked.
“Well, if I was going to do business with him, I knew the FBI would be there, and what would be the sense of starting a relationship with him, to do business for ten hours, twenty-four hours, thirty-six hours, spend money, telephone, telexes, maybe get $500 or $1,000 invested, receive a phone call from him [saying], ‘Oh, wait a minute. The FBI was here, I don’t want to talk to you any longer.’ Might as well have it out right there if it worries him. If it bothers him, let’s finish out the evening, have a few drinks, you go your way, I’ll go my way.”
When the time came for cross-examination, the defense attorneys pounced. Attorney Grantz asked, “During the time that you were negotiating…were you at that time participating in quite a bit of drinking of alcoholic beverages?”
“Yes sir, I drank,” Phil replied.
“Constantly?”
“Yes sir.”
“All right. And drinking like that, did that affect you in any way?”
“No sir.”
“Could you give us an approximation of how much you would consume during this period?…[D]o you have a daily quota?”
“No, I have no daily quota.”
Grantz was diving into the particulars of the Seven Oak deal with John Kaye, probing Phil for inconsistencies, when the judge recessed court for the long Presidents’ Day weekend.
—
Phil and the agents holed up again for the three-day break. A snowstorm hit on the cusp of the weekend, pinning them down in their rooms. “The snow was up to my ass,” J.J. recalled.
Everyone felt restless. Phil had done well so far, but Paul Redmond—the more aggressive of the two defense lawyers—had yet to take his turn. Late Saturday night, J.J., gazing out the window, watched car headlights lurch far below as drivers slid on black ice off an interstate exit ramp and, sometimes, into one another. The demolition derby was a vivid reminder of what he would soon leave behind when he relocated to California. He hoped it wasn’t a metaphor for what was coming on Tuesday.
He needn’t have worried. Phil seemed unperturbed when the defense, as expected, continued to target his character flaws. He answered everything in the narrow, straightforward way in which the agents and Everett had coached him.
Redmond labored to rattle him, at one point shouting so loudly that the judge ordered him to lower his voice. Redmond asked Phil how he could claim to be wary of the consequences of lying in court when he’d fibbed in many other potentially hazardous situations—citing Fred Pro’s statements that Sonny Santini had threatened to kill him. “So what you’re telling us is that you have a great danger of lying under oath because you might go to jail for a few years, but you have no…fear of the danger of lying to people like Santini?”
“No sir, that’s not what I’m telling you,” Phil replied. “I’m telling you if you lie under oath, I know that a judge will sentence you for perjury. What Fred Pro tells me doesn’t make it so. He says Sonny Santini had an ice pick to my ear. That doesn’t make it so.”
The trial stretched on for two more weeks, during which Redmond claimed that Calandrella was “a good-hearted guy who got conned by a couple of real pros,” referring to Phil and Tom Bannon. But on March 7, the jury spent just three hours deliberating before finding both defendants guilty on all four counts, including making false statements in an application for a bank loan and fraud by wire. The Louisville Courier-Journal attributed the conviction to Kitzer’s “damaging testimony.”
Three days later, Judge Allen handed down ten-year prison sentences for both men.
—
After the trial, on March 12, the Department of Justice finalized its deal with Phil. He received his ten-year prison sentence and was whisked off to a prison designed for witness protection in San Diego.
The facility brought another moderate uptick in Phil’s living conditions, though his cellmate was Aladena “Jimmy the Weasel” Fratianno, a mobster who had admitted to strangling three men and shooting two others during his time in the Mafia. When J.J. visited to discuss their next trial, a guard let him onto an elevator and pressed an unmarked button so there was no way to know what floor they were going to. The meeting areas had no furniture; J.J. and Phil sat on the floor. When J.J. asked for a chair, a guard told him that he was lucky to be allowed in with his pencil and notebook.
Phil seemed mostly at peace with what the agents had done. As they talked about his testimony, he sometimes asked how Jack and J.J. had managed specific parts of their investigation while they were all living together. He was impressed that this other world had been operating all around him without him once catching a glimpse.
The next trial, in Hammond, Indiana, covered the letter of credit purchased by undercover agent Dean Naum, acting as Nick Carbone; it brought the first Kitzer case J.J. had built full circle. Phil and Norman Howard testified against Paul Chovanec, who was found guilty on all seven counts and handed an eight-year prison sentence.
So began what the agents and federal prosecutors referred to as the Phil Kitzer Road Show. By the time he reached Memphis, two months later, Phil had become something of a media sensation. One magazine writer described him as being “without peer as a con artist.” Newspaper stories labeled Phil the “world’s greatest con man” and, in a headline, the “King of Scam.” One reporter characterized him as a “genie” who could “perform magic tricks of all sorts.” A federal prosecutor described Phil as a “master con artist” who ran “one of the most cleverly designed schemes that’s ever been uncovered.”
Phil lived up to the hype. Defense attorneys worked furiously to rattle him, but the tenth-grade high school dropout matched them move for move. One lawyer described sparring with Phil as “going up against Dr. J”—referring to NBA star Julius Erving—“on the basketball court.” Another attorney drew a contempt-of-court warning from the judge after complaining that Phil was “too smooth a talker for me.”
Kitzer never spoke to the media, but in December 1978 Charlotte Observer reporter Robert Hodierne interviewed his father, the
n eighty-two. When asked about the American Allied trial, the elder Kitzer “smiles and says it was his son who was the crook, not he. It was a case, the father says, of ‘too much money, and it went to his head. He got to be a big shot with so much money around and it just messed him up.’ ”
The indictments and trials and convictions piled up. In June, prosecutors in Charlotte charged Frank Oliver, along with Pro and Chovanec, in the fraud case FBI agent Allen Ezell had opened several years earlier in North Carolina. They referred to the scam as “the Phillip Kitzer method of finance.”
—
Phil succeeded by being forthcoming, but there was one area in which he continually equivocated: He never revealed how much money he and his co-conspirators had scammed over the years. Because of the vast reach of their fraudulent activities—the trail of bad paper circled the globe, at what a Department of Justice official called “the absolute highest levels of international banking and swindling”—and the fact that many victims never reported the losses, exact figures were elusive. In one report, officials suggested $60 million, with the caveat that the number was “probably very conservative.”
But after Phil’s arrest, Richard Hanning, an assistant U.S. attorney in Hammond, tried to capture the enormity of it. His nine-page memo detailed how OpFoPen had “led to discovery of fraudulent schemes involving 48 judicial districts in the United States and offenses in England, Switzerland, France, Germany, Italy, the Netherlands, Canada, Mexico, Paraguay, Peru, Japan, Hong Kong, Singapore, Thailand, Costa Rica, Iran, Iraq, Nigeria, Liechtenstein, Australia and several island countries in the Caribbean. The investigation has led to date to the recovery of $3.8 million in stolen monies and stolen and fraudulent checks and securities, savings to individuals and financial institutions in excess of $15 million and identification of losses worldwide in excess of $2 billion.”
Phil fancied himself a Robin Hood type, taking from greedy bankers to give to starving entrepreneurs, and the public’s enduring enmity for banks made him a somewhat sympathetic figure. But when banks fail, the government bails them out, and the costs run into the billions—those are taxpayer dollars. And for every person Phil purportedly tried to help, there was a Bernard Baker or Jimmy Kealoha—people whose lives were derailed or ruined by his schemes. When Phil and his cronies busted out companies, people lost jobs, pensions. The societal cost was staggering.
Jack noticed that many fraud victims seemed uniquely damaged. They lived with the knowledge that they’d chosen to participate in the crime. “What you learn in this kind of work,” he said, “you go back and talk to the victims of a con, you find the belief that ‘I did this to myself. My judgment was flawed. I can’t make good decisions.’ ”
The cons did more than ravage people financially. “It’s much more devastating in the long term to a victim who willfully gave the money than somebody who’s a victim from being in the wrong place at the wrong time,” Jack said. “It destroys confidence. It destroys marriages.”
Myron Fuller was shocked when few of Pro’s victims sought reparations or even reported that they’d been cheated. Even after the FBI informed one developer that he’d been scammed, the victim refused to believe it, saying he still expected the funding to come through. Many were too embarrassed to admit that they’d been taken.
As for the banks Phil had scammed, many would instantly fire a teller who skimmed $150 but would clam up about a million-dollar error. Their lawyers advised them to “keep their mouth shut and eat it,” lest they look gullible and lose the public’s trust, he said. They generally didn’t cooperate with the FBI. It was easier to say That didn’t work out than We got fooled. The entire exercise likely seemed futile: The money, after all, was long gone.
Little of the money Phil ripped off was ever recovered, and attempts to pin him down on whether he had anything left usually ended up in a conversational corn maze. One attorney tried to elicit information about the $700,000 he’d once claimed to have tucked away.
“And that is what you have put away?” the attorney asked.
“No sir,” Kitzer replied.
“How much do you have put away?”
“Nothing.”
“So you’re telling us…your net worth is zero?”
“I don’t have anything put away.”
“Okay. Maybe we don’t communicate.”
“Well…sir, when you say net worth, I mean when you say what money do you have put away, there is a big difference,” Phil said, brandishing his skills of deflection. “Now, net worth can be real estate. It can be stocks, bonds, but when you say cash, you’re talking about cash in a safe deposit box. I don’t have any cash in a safe deposit box. A person can have a receivable. They can have real estate. Then you’re discussing net worth when you’re talking about Internal Revenue.”
And so on.
In June 1978, Phil filled out a form pertaining to his ability to pay for legal counsel. He reported his income before his arrest at $20,000 a month—$240,000 a year, which translated to just under $900,000 in 2017. In addition, he reported earning another $100,000 in the previous year from Seven Oak. The FBI agents believe these figures represent a fraction of what he made and spent, without paying taxes. He listed $3 million in debts, about half of which he owed to the IRS.
But he left a few clues as to the wealth he accumulated. Sitting in his hotel room in July, he had scribbled the figures $209,000 and $185,000 on a piece of paper. Jack, sitting nearby, knew from their conversation that the numbers represented what Phil had made selling Seven Oak paper over its final month operating the vehicle. Phil tossed the paper into the trash, and Jack fished it out and tucked it into his pocket—a relatively rare piece of physical evidence that he quickly mailed to Indianapolis.
Extrapolating, the agents figured that Phil had cleared at least $2 million in seven or eight months from Seven Oak alone.
—
Becoming a government witness didn’t translate into the country club prison life Phil had once envisioned. He testified in four trials in 1978, hopscotching around the country, and each local jail he stayed in offered its own distinctive menu of discomforts. “The witness protection program was not well developed then,” said Tom Baker, the former FBI inspector who ascended to a management role.
Today, the U.S. Marshals Service takes responsibility for inmates in the program. But in 1978, FBI agents were frequently left to manage the witnesses they’d cultivated, and Jack and J.J. couldn’t always travel with Phil and watch out for him. Corrections officers in local lockups were capricious in their care, sometimes negligent. Some believed Phil was milking the system, getting benefits as a government witness that he didn’t deserve, and found ways to punish him; they would withhold his ulcer medicine or pair him with volatile inmates. At times, Phil was beaten. “When we met him,” J.J. said, “sometimes he would be in a bad way.”
There were other insults, some stingingly personal. After Oliver was arrested, Phil’s old friend and attorney began savaging Phil in court filings, claiming Kitzer was mentally ill. Clearly concerned about Phil’s ability to testify against him, Oliver cited Phil’s “apparent willingness to state whatever suits his convenience at the moment, regardless of its truth;…his boastful self-glorification in his testimony thus far on behalf of the United States; his utter lack of appreciation of the consequences to him of his offenses; his pretensions to importance…as one of the top ‘con-men’ in the world.” The lawyer speculated that Phil was either a psychopath or a sociopath.
Predictably, Phil was a pariah to Fraternity members he testified against. “He was a government witness, so there are automatically people that don’t like him,” Jack said. “You never knew who he was in jail with. And jail is not a safe place.” The agents worried that an organized-crime boss would find a way to catch Phil moving between trials—or hire someone in an underprotected jail cell to whack him.
Baker was a new field supervisor in the FBI’s Mobile office when Jack arrived. They became friends, he
ading out on sailing and shrimping excursions on Mobile Bay, and Baker tried to help as Jack and J.J. managed Phil’s situation.
Phil would show up for an appearance bruised and raw, and the agents would spend hours tending to him, getting him his medicine and whatever else he needed so he could settle down and concentrate. Describing this to Baker, Jack once started crying. “It was breaking Jack’s heart—literally,” Baker said. “He was torn up about the way Kitzer was being terribly mistreated.”
Baker called headquarters to try to get help. “The FBI is a big bureaucracy,” he said. “Sometimes the right hand doesn’t know what the left hand is doing.”
When they were sailing, Jack also described what he and his family had gone through during OpFoPen. Baker was aghast that he’d been left to sift through the psychological aftermath of the operation—the danger, the long separations from his family—on his own. The FBI had even unhelpfully tried to transfer Brennan to Washington, D.C., not long after he’d arrived in Mobile; Baker scuttled it, citing all that Brennan had gone through in the past couple of years.
Today, the bureau screens agents carefully before sending them into undercover roles. A person needs a strong personality, a steady internal compass, and the ability to think quickly and independently. When undercover investigations end, the FBI provides counseling to help agents process their experiences. “Now, so much attention is paid to people who do long-term undercover work,” Baker said. “Theirs was one of the first ones. These guys did a hell of a thing.”
—
In the late summer of 1978, the government moved Phil to Federal Prison Camp, Montgomery, on the grounds of Maxwell Air Force Base, in Alabama. Wedick no longer had ready access to Phil in California, so he wrote Kitzer a letter bringing him up to date, and trying to lift his spirits.
The letter finally found its way to Phil on November 15.
“J.J.,” Kitzer wrote in reply,
You son of a gun, you really wrote me a letter, just like you said!!! I thought you were bullshit when you told me that. Today I received your letter of Sept. 20, that you sent to Memphis! Took long enough to catch up with me.
