“Tom, this is Clifton Harrison,” Darr said. “He’s a world-renowned real estate investment banker. He’s been very successful in the Dallas real estate market and knows the New York market. We’re going to be doing a lot of things with him.” He was someone with almost a Midas touch, Darr said.
As Darr spoke, Harrison reached into his pocket and produced an oversized business card that carried a European address. He offered it to Huzella. As they spoke, Huzella noticed that Harrison could not maintain eye contact. Instead, Harrison was always looking around the room, as if he feared missing something. It struck Huzella as odd. But, if Darr recommended Harrison so strongly, Huzella figured he must be a first-class general partner. So, when Harrison’s deals started coming out, Huzella eagerly told his clients about them.
“We have this wonderful investment with a New York City property called the Barbizon,” he told prospective clients. “It’s being put together by Bache with Harrison Freedman Associates, an internationally known real estate developer.”
Eventually in his pitch, Huzella, like every broker in the system, assured potential clients of the investment’s safety.
“This has the full blessing of the firm,” he said. “We spend a lot of money on due diligence to make sure everything is done right.”
D’Elisa stormed into his office in Smithtown, New York, and called in his secretary for some dictation. He had finally had it with Clifton Harrison. The man refused to cooperate with any of the requests from the due diligence department. If Levine or D’Elisa asked for financial records to back something up, Harrison would just refuse, or instead would go over their heads to Darr. Harrison failed to show up for appointments to review his deals. Even when he did come, he never had done his homework—he couldn’t answer some of the simplest questions. On this day in 1982, D’Elisa decided to throw down the gauntlet. If he couldn’t get Harrison under control, maybe some memos in the file might make Darr do it.
After his secretary sat down, D’Elisa dictated a memo to Harrison. “I fail to understand why we have so many problems in the deals we do with you,” D’Elisa said. “We require adherence to procedures that we have gone over again and again with you in Dallas and New York. These continued problems may require us to reevaluate future programs with you.”
Then D’Elisa told his secretary to take another memo, this time to Darr. “Clifton seems to feel that he has leverage in dealing with me through his close relationship with you. I am sure you will agree that he, like any other sponsor, including some of our proprietary sponsors, must follow strict offering and submission procedures.” He added bluntly, “I refuse to have myself or my staff antagonized by someone who is not part of this organization.”
Once his secretary finished typing the memos, D’Elisa reviewed them and shipped copies to Darr, Proscia, and Peter Fass, the outside lawyer who worked on Harrison deals. That, D’Elisa thought, might shake things up a little. The head of real estate due diligence had put a memo in the file saying that a sponsor was using his influence over the head of the department to avoid following standard procedures. It was the kind of document that might cripple any defense if the firm was sued over a Harrison partnership. The memos had the intended effect—for a short time. Darr called to assure D’Elisa that Harrison would start cooperating. And he did, for about three weeks. But then Harrison again started refusing to cooperate with the due diligence department.
If D’Elisa expected that his protests would slow down Darr’s appetite for Harrison deals, he was disappointed. The department soon started marketing one of the biggest real estate deals in its history, called the Archives New York Limited Partnership. The deal, with Harrison as the general partner, was a $16.5 million offering—an astonishing sum at the time.
Proscia handled the marketing out of New York. In consultation with Darr and Harrison, he developed an aggressive strategy: Branch offices were canvassed to find brokers who would want to sell the product; regional marketers for the tax shelter department were telephoned and ordered to include discussions of Harrison in any future meetings; and plans were drawn up for training brokers about the tax shelter deals. On Harrison’s tab, ten of the firm’s top brokers were flown to Manhattan for a dinner hosted by Darr and Harrison at the expensive 21 Club.
Amid all the hoopla, no one noticed the deal’s fatal flaws. It needed at least $40 million in financing but had access to only $30 million in loans at any one time. In other words, from the first day the partnership was formed, the Archives deal was already short $10 million in cash. Even the loans it had were dicey—they were conditioned on the completion of a construction budget. The offering documents implied a budget existed; in fact, there was none.
The biggest, most public deal in the history of the department was doomed from the start.
The sounds of a raucous party spilled out from a private room on the second floor of Smith & Wollensky. Prudential-Bache’s entire partnership department—from Darr to the regional marketers to the secretaries—was at the Manhattan steakhouse celebrating the successful completion of the Archives deal, one so large that it would mean big bonuses for the department’s professionals. So, on this night in the fall of 1982, Harrison hosted the dinner at one of Darr’s favorite restaurants. It was becoming a tradition that general partners would buy the department dinner at Smith & Wollensky once every three months.
The dinners had all the subtlety of a Roman orgy. They were nothing like the staid, civilized, and professional closing dinners that sometimes accompany the completion of a successful deal on Wall Street. “The Smith & Wollensky dinners were epic in their grossness and expense,” one department executive who worked at a number of Wall Street firms said years later. “To this day, I’ve never seen anything else like it. And the fact that we were making somebody outside the department pay for it was disgusting.”
In the days leading up to the Harrison dinner, Darr wandered about the department, speaking to female employees.
“What are you going to be wearing at Smith & Wollensky?” he asked. “Are you going to wear a nice dress?”
By the night of the dinner, the excitement was overflowing. Some members of the department purchased new clothes just for the occasion. At the appointed time, everyone ambled into the banquet room and found a seat around the long tables arranged in a C shape.
Then the heavy drinking started. As master of ceremonies, Darr wandered about the room with a knife in his hand, cutting off the tie of any executive who didn’t turn away fast enough. Later, he stood up and gave a speech, hurling insults at Harrison, the host, as well as at members of the department.
With the cost on someone else’s tab, executives, secretaries, and other staff members ordered enough food for several meals. Giant five- and six-pound lobsters were delivered to the table in front of a single person, along with huge steaks and side dishes. At the end of dinner, they loaded the extra food into doggy bags and took it home. Everyone knew that after a Smith & Wollensky party, they could expect free dinners at home for days.
Even the due diligence executives were ordering with abandon, although not for the free food. Instead, the evening at Smith & Wollensky was their one opportunity to get back at Harrison. If they couldn’t stop his deals, at least they could run up his tab. During the meal, a secretary leaned over to David Levine. She showed him the wine list and asked if it would be all right to order a particularly expensive bottle of wine. Levine looked at the list and saw the bottle cost close to $150.
“Oh, yeah,” he said. “A $150 bottle of wine? No problem.”
The drinking and revelry went on for hours. The marketing executives started a competition of trying to drink more of the expensive wine than anyone else. Darr, who told everyone he was something of a wine buff, always had his own favorite brand and year—even if it was not on the wine list—brought in special in a crystal decanter. Pittman also liked wine and begged Darr for a taste of the good stuff, but Darr refused.
During the meal, two execut
ives, who by then were completely drunk, slid under the table and began crawling around the room, looking up the women’s dresses. One marketer picked up an extremely expensive brand of champagne and downed it straight out of the bottle. When he finished, he hurled the bottle across the room. It whizzed past Freddie Kotek, a member of the due diligence department, barely missing his head before hitting the wall.
Following the after-dinner drinks, the drunken and sated ordered cigars all around. Executives stood, stumbling out of the room, cigars in hand. A waiter walked into the room carrying a leather case with the bill, which he placed in front of Harrison.
Kotek and other members of the department were walking past Harrison as he opened the case and looked at the bill. Harrison looked positively stunned.
“I don’t believe it,” Harrison muttered to no one in particular. “Six thousand dollars for a dinner, and I didn’t get no pussy.”
The due diligence executives looked at each other and rolled their eyes. Boy, this is a class act we’re working with, Kotek thought.
They strolled out of the room as Harrison put down his American Express card to pay the bill. They felt satisfied that they had at least been able to stick it a little bit to Darr’s friend.
But in truth, the dinner didn’t cost Harrison a penny. Like all of the Smith & Wollensky dinners, held four times a year for much of the rest of the decade, the general partner simply submitted the bill to the partnership he ran. It was, after all, a legitimate business expense. So the cost of the dinners didn’t come out of the pocket of Harrison, or Darr, or any of the people who gorged themselves on those nights.
Instead, the bills for the department’s drunken revelry were paid out of the savings that small retail clients had entrusted to Prudential-Bache.
Later that same year, on a sultry Texas Sunday in October 1982, the relationship between Harrison and Darr reached a high point, in front of about 150 spectators.
They gathered at St. Michael and All Angels Episcopal Church, a place so well known for its wealthy parishioners that Dallas wags call it “St. Mink’s and All Cadillacs.” In the elaborate church, Harrison waited that day to marry his fourth wife, Alexandra, less than a year after divorcing his third wife. Joining him in the front of the church as one of his two best men was Darr, who had flown down from New York specially. Executives in the department marveled that, over so short a period of time, Darr had apparently become Harrison’s best friend.
Harrison liked to brag that this time he was marrying into money: His new wife’s family, he told friends, controlled a major international company. Wealth showed in the apparent cost of the wedding—between the service at St. Michael and the reception at the tony Northwood Country Club, some guests estimated that the price tag for the day must have reached as high as $60,000.
A few weeks later, Harrison returned from his honeymoon and immediately headed to the Direct Investment Group. He was roaming about the department when he stopped at the desk of Kathy Eastwick, the former compliance administrator who now worked as a product manager. Eastwick congratulated Harrison on his new bride. After thanking her, he cracked a smile.
“You won’t believe what Mr. Darr did to me,” Harrison said.
“What did he do to you now?” Eastwick asked.
“Well, you know I’ve told you he never spends a penny,” Harrison said. “But do you believe that man made me pay for his airline tickets for him to come to my wedding?”
D’Elisa set his portfolio briefcase on the kitchen table, opened its flap, and carefully slid a tape recorder inside. He plugged a microphone wire into the recorder and slowly laid the wire up the inside of the briefcase and over its opening at the top. Then he tore off a piece of electrical tape and attached the tiny, sensitive microphone to the outside of the briefcase. He closed the flap over the microphone; it was hidden, but pointed toward an opening between the flap and the briefcase. D’Elisa turned on the recorder and checked it out. It picked up his voice perfectly.
He stood back and examined his handiwork one more time. No one would be able to see the microphone was there. Finally he was ready to go tell Darr he was quitting. Whatever tricks Darr decided to play in response would be captured on tape. It was the only way D’Elisa could think of to protect himself from Darr’s manipulative tactics.
By May 1983, Darr was one of the most powerful people at Prudential-Bache. Despite the initial promise when Ball took over, the firm was still struggling with heavy losses. The Direct Investment Group was one of the rare divisions in the firm that was actually making money. And Ball believed in feeding success. Whatever resources Darr wanted had been given to the department. In speeches to brokers, Ball had almost always thrown in a line of support for the partnership effort. Ball frequently invited Darr to make presentations to senior executives. No one could have missed Ball’s seal of approval for Darr and the Direct Investment Group.
That particularly delighted Bob Sherman, the head of retail and Darr’s boss. To him, Darr’s partnerships appeared the way to almost limitless revenues—and fat bonuses for all of the executives involved.
“Darr’s producing a lot of money,” Sherman told a group of senior retail executives at the time. “He’s going to be making a big contribution to retail.” To some executives, Sherman also said that Darr had secretly confided that he had once worked with the Central Intelligence Agency. That, Sherman said, was particularly exciting.
Even with the support that the department was receiving from the firm, D’Elisa did not think he could work there anymore. He thought the department was doing bad business. He had watched all the quality people either get forced out or simply abandon the firm in disgust. Of the Futon Five, only he and Dennis Marron still survived. Too many of the executives who remained were concerned about the wrong things. In D’Elisa’s mind, Darr had corrupted people with the easy money that his department was bringing in. Too many of them had seemed to forget that this business wasn’t about living the highest life.
Despite his frustration, D’Elisa had stayed with the firm because he worked out on Long Island, some forty miles away from Darr. But weeks earlier, Darr had called to say that D’Elisa would have to start working in Manhattan. D’Elisa immediately had started looking for another job and had found one at Bear Stearns & Company. He didn’t want to work alongside Darr; D’Elisa didn’t want to risk being corrupted, too.
After setting up his tape recorder, D’Elisa traveled to Prudential-Bache headquarters and went to Darr’s office. Before walking in, he turned on the recorder.
“Relax, John,” Darr said as D’Elisa sat down. “I know why you’re here. I know you’ve got a job offer from another firm and I know you’re seriously considering it.”
There it is again, D’Elisa thought. Ever since the Futon Five fiasco, Darr delighted in telling members of the department that he knew everything they did and said. Dennis Marron theorized that Darr somehow was listening in on their telephone calls. Others thought it more likely that there were spies in the department.
“So, what would it take to make you happy here?” Darr asked.
For you to leave, D’Elisa thought. He said the Bear Stearns offer was too good to pass up. It was making him a partner, which Prudential-Bache couldn’t do, since it was not a partnership. Plus, he said, Bear Stearns was paying him a lot more money.
“Look,” Darr replied. “I can’t make you a partner, but this is what I can do. I’ll make you a senior VP. I’ll give you a $50,000 raise. And I’ll vest you immediately.”
The offer was unbelievable. The raise was enormous. But the vesting offer was more important: That would guarantee D’Elisa a share in the fees and cash flow pouring into the corporations, like Bache Properties, that Darr set up for the partnerships. Each day, he was establishing new corporations, such as Prudential-Bache Energy and Prudential-Bache Minerals, among others, and they were bringing in millions of dollars a year. Darr’s offer could easily have been worth $2 million. Still, it wasn’t good enoug
h.
“Jim, I don’t want to commute into the city every day.”
A look of anger flashed across Darr’s face. “You’re willing to commute into the city every day for Bear Stearns, aren’t you? Why aren’t you willing to commute into the city for me?”
“Well, I just would prefer not to.”
Finally Darr caved. D’Elisa could stay on Long Island, as long as he shipped one of his staff members to Manhattan. Then Darr would live up to all the other financial promises. The offer was too sweet to simply reject out of hand.
“All right, Jim, I’ll consider doing the deal,” he said.
“Come back to me tomorrow, and I’ll talk with the necessary people,” Darr replied. “But it’s a done deal.”
The next afternoon, D’Elisa couldn’t bring himself to make the final commitment. He needed more time to think about it. Even with all that Darr had put on the table, he still was not convinced that it was worth it. He felt as if he were selling his soul.
After a sleepless night with his head spinning, D’Elisa decided to take the deal. He went into Manhattan the next morning and walked into Darr’s office.
“All right, Jim, if we’re going to do this, I want it in writing,” he said. “I want a contract.”
“OK, I’ll give you a contract,” Darr replied. “But forget about the Long Island office. You could have had it yesterday. But you’re a day late. You can’t have it today.”
D’Elisa stood up and shook Darr’s hand. “Thanks a lot,” he said, and he turned to walk out of the office. That was the end. He quit his job.
If Darr had been so quick to back out on the Long Island commitment, D’Elisa knew that everything else would vanish, too. He was tired of playing Darr’s games. He just wanted out.
D’Elisa took the elevator downstairs, pushed through the building’s revolving door, and began walking briskly down the street. With each step he took, he felt an enormous weight lifting off his shoulders. It was over. After the years of battling and intrigue, it finally had come to an end.
Serpent on the Rock Page 21
