Serpent on the Rock

by Kurt Eichenwald

  Wrubel was floored. He’d had a beard throughout his entire Wall Street career. No one had ever objected before. He told Clancy that if he shaved that night he would look terrible at the interview. Clancy warned him to be prepared for Darr’s reaction.

  As Wrubel waited outside Darr’s office, he tried not to be self-conscious about his beard. Finally, at about 2:30 P.M., he was shown into Darr’s office.

  Wrubel had never seen Darr before, but he lived up to his image. He was dressed in the standard-issue outfit for Wall Street in the 1980s: pin-stripe suit, suspenders, yellow tie, cuff links, and a light blue monogrammed shirt with a spread collar. Wrubel looked about the huge office, trying to find something he could admire that might help break the ice. But as soon as he took a seat, he realized it didn’t matter. Darr was not a man for small talk.

  “So,” Darr said, “what the hell makes you think you can be successful at Prudential-Bache?”

  What the hell kind of question is that? Wrubel thought. No small talk? No co fee? But he needed the job too much to say any of those things. He swallowed his pride and gave Darr a quick, snappy answer.

  “Because I was successful at Drexel with a bunch of brokers with a similar mind-set to the ones here,” he said. “I was able to develop a sense in their minds of my own personal credibility. I kept at it, I worked real hard, and I can do the same thing here.”

  Darr raised his hand to his chin and sat back in his chair. He seemed to like the answer.

  For the next half an hour, Darr drilled Wrubel with questions. Finally Darr placed his hands down on his desk and started to get up.

  “Well,” he said. “Welcome aboard.”

  Darr walked around his desk, shook Wrubel’s hand, and patted him on the back. As he started to escort him out of the office toward the elevators, he stopped suddenly.

  “Oh, by the way,” Darr said, chucking Wrubel under the chin. “Nice beard.”

  Darr turned to walk away, a devilish smile on his face. Wrubel stood there, thinking he had just spoken with one of the oddest people he had ever met.

  A few weeks later, on January 25, 1988, Wrubel headed up the steps at the Smith & Wollensky steakhouse for his first quarterly dinner with the Direct Investment Group. The weather was terrible, and Wrubel was soaking wet. As he walked into the restaurant’s private dining area on the second floor, he saw Darr across the room, sitting on a bar stool. He looked angry.

  By this point, Wrubel had already had his fill of the oddities from Prudential-Bache and the Direct Investment Group. He was one of the very few executives in the department who had not developed a career at Prudential-Bache or with some general partner affiliated with the firm. He knew the partnership business. He knew what Wall Street could be like. And this wasn’t it.

  Already, he had been warned by other regional marketers to watch himself around the department. If anything ever went wrong, he heard, Darr and his supporters would rationalize it away. They looked for any reason to throw their weight around and cared nothing about the quality of the partnerships. All that the senior officers of the Direct Investment Group wanted was heavy, continual sales of partnerships. Another acquaintance told Wrubel that he might have some trouble with the senior executives of the department because he was Jewish. The Direct Investment Group, he was warned, was laced with anti-Semitism. All this was not the kind of information that endeared his bosses to Wrubel.

  As Wrubel checked his coat and umbrella, Darr signaled from his bar stool for him to come over. This would be their first conversation since the job interview. When Wrubel walked over and said hello, Darr glared at him angrily.

  “I have a real problem with you,” Darr said.

  Here we go again, Wrubel thought. Aren’t you going to o fer me a drink?

  “What’s the problem?” he said.

  “I told you to shave off your beard. And it’s still there.”

  The beard again. This was getting to be ridiculous.

  “Jim, you didn’t tell me to shave off the beard. When I left your office the day you hired me, you said ‘Nice beard.’ Don’t you remember?”

  “Yeah, but I told Barron Clancy to tell you to shave it off. Didn’t he tell you?”

  Wrubel didn’t want to get Clancy in trouble. But he had never passed a direct order that Darr wanted it shaved off. He’d only told him that Darr didn’t like beards. It would be a few days until Wrubel found out that Darr had never asked Clancy to tell him anything.

  “No, he didn’t tell me.”

  Darr picked up his drink and squinted at Wrubel. “What if I told you right now, shave off your beard or you’re fired. What would you tell me?”

  Somehow, perhaps because the beard had come up so often, Wrubel had a ready response.

  “I’d tell you that you ought to give me three months with it,” he replied. “These are the months that I am going to be meeting with brokers and branch managers and establishing who I am. They’re used to somebody else. But, when I leave the office, they will remember the new guy. They might not remember my name. But they’ll remember me as the guy with the beard.”

  Darr roared, “That’s a great answer.” He finally chuckled. “Keep the damn beard.”

  Later that night, everyone took a seat at the table for dinner. Waiters were walking about the room, bringing wine or refilling the drinks. A clinking noise cut through the conversation. Darr was tapping his glass with his knife as he stood up.

  “Welcome to the first quarterly meeting of 1988,” he said with a smile. “Since we are blessed with a new regional coordinator, and we have never heard him speak before, I think it would be particularly appropriate for our new Jewish friend to say grace over the meal.”

  Amid some laughter, all eyes turned toward Wrubel. He was furious and offended. He had never experienced such disgusting behavior during his years on Wall Street. Another time, in another situation, he would have quit on the spot. But he had a family to support. He swallowed his pride and stood up, a wineglass in hand.

  “Dear God,” Wrubel said. “You’ve got better things to do than pay attention to a group of people like us tonight.”

  The crowd of Direct Investment Group executives laughed and clapped as Wrubel sat back down. He smiled as he looked at Darr, trying to control his hatred.

  This place was worse than anything he could imagine.

  The next day, it got worse. At about 7:30 in the morning, the executives from the Direct Investment Group gathered in a large auditorium to hear the latest about partnerships being planned for the future. Darr would not arrive until later, so the opening speech was handled by Paul Proscia. He impressed a number of executives in the room as a terrible speaker.

  About an hour after the meeting began, Darr came in and took over. Before he went through the production reports for the year, he wanted to mention a few promotions and new hires.

  “I would like to introduce our new regional coordinator for the metropolitan region,” Darr said. “He comes to us from Drexel Burnham, where he essentially had the same role. David Wrubel.”

  Darr looked up and nodded toward Wrubel. “David, would you please stand up.”

  Wrubel stood and looked about the room. “Jim, thanks a lot,” he said. “I’m really excited to be here at the best direct investment firm on the Street. It’s going to be a real challenge, and I look forward to getting to know all of you.”

  As he sat down, Wrubel noticed a deathly silence descending on the room. It was as if the birds in the jungle were quaking in fear at the arrival of the lion. In the front of the room, Darr was staring at him, looking like he wanted to teach Wrubel a very rough lesson.

  “Who told you to say that?” Darr snapped.

  Wrubel muttered an apology. He was starting to learn the rules of the game in Darr’s domain. No one was permitted to speak unless he asked them. Wrubel wouldn’t make that mistake again.

  His first temptation to speak out of turn came later in the meeting. Darr was describing his new pet project, a
super real estate partnership that would purchase distressed properties at rock-bottom prices. The idea would bring together three general partners in real estate: the Related Companies, A. G. Spanos, and Fogelman Properties. All of the general partners had already sold a number of deals through the Direct Investment Group, many of which were struggling.

  As Wrubel listened, he realized that what Darr was describing was similar to a deal that Drexel had already put together. That one involved Lincoln Properties, a general partner that at the time had one of the best reputations in the business. But even with all that quality, the Drexel deal was not working. Lincoln had not been able to find enough good-quality real estate at bargain prices, and it wasn’t about to buy lousy properties just to generate some fees for itself. Instead, the investor money sat in the partnership, doing nothing. That was the primary sign of a deal that should never have been done.

  Wrubel started to say something, but held himself back. By this point, he knew the truth of the Direct Investment Group. Substantive discussions were not welcome. Darr did whatever he wanted. At a Drexel meeting, Wrubel would never have hesitated to bring up his point, and the deal would likely have been shelved. But disagreements with Darr were not permitted.

  As Wrubel sank lower into his chair, Darr finished his presentation and asked if there were any questions. An executive in the back of the room responded.

  “I don’t know how the brokers are going to feel about a deal like this,” the executive shouted. “I mean jeez. Maybe we should call it the Prudential-Bache Jewish General Partners deal.”

  Darr cracked up. “You know, you have a good point,” he said. “On the other hand, because the deal is all Jewish general partners, it’ll probably be a good thing in the minds of our brokers.”

  Wrubel was shell-shocked. It was the most amazing thing he had ever heard in a business meeting.

  Fred Storaska strode toward the podium at a partnership sales meeting in Vancouver, British Columbia. He had just been introduced as the number-one broker in the firm in direct investments for 1987. In that one year, he had sold $22 million of the partnerships to his clients. If Storaska were a branch, he would be the fifth most productive in the country, an emcee had said in an introduction. Now Storaska was going to share the secrets of his success.

  Storaska arrived at the podium amid a smattering of applause. He looked up sharply and began speaking quickly in a rambling, disjointed manner. After talking about some of his strategies, Storaska began to discuss himself and his style.

  “I make it a point to work 105 hours a week,” he said. “I’m up at 4:00 A.M. I go to the office and I’m at the office on Monday morning at 5:30. I usually don’t leave the office until about either Tuesday night or Wednesday night. I usually catch a couple of hours sleep on my couch on Monday night and Tuesday night.”

  A few members of the audience started whispering. Many of them had heard stories about Storaska walking down hallways in the Dallas branch some mornings dressed only in his underwear and bathing in the men’s room sink. Now, it seemed, those stories might be true.

  “When people talk about hard work, they say, ‘Well, you know I’ve got a family and I’ve got this commitment and I’ve got that commitment,’ ” Storaska said. He paused a moment for effect and looked at the crowd.

  “There are no excuses permitted!” he barked.

  His speech meandered into various topics, until finally he settled on the concept of personal control.

  “You need to totally take control,” he said. “Realize you work for yourself. You don’t work for anybody else. You’re your own business.”

  Taking control meant pushing other advisers to the client out of the way when it came time to talk investments.

  “Take the accountant out of the picture,” he said. “Get rid of him. Cripple him. You psychophysiologically cripple the accountant in the first meeting.”

  To illustrate his opinion about keeping control, Storaska related a story about when he was called in to visit his son’s high school principal. He said that he listened while the principal laid out some concerns about the boy’s behavior. While still sitting in front of the principal, Storaska said, he turned to look his son in the eye.

  “And I said, ‘Don’t you ever let a son of a bitch like this tell you if you can go to school,’ ” he said. “ ‘He’s simply a high school principal. If you ever let somebody like this set your goals in life, you’ll end up being like him.’ ”

  Finally Storaska told of a time he was flying in his CES corporate plane when he received an emergency telephone call. A client needed to speak with him immediately in Seattle. So his pilot made an emergency landing at the city’s airport. Rather than going to the terminal for private planes, he pulled up to a gate meant for a Pan American Airlines 747—the quickest way to stop. A policeman arrived and stopped them. But Storaska said that he told the officer that his police chief might know him because he once taught self-defense. As Storaska told the story, the officer called his boss, who instantly recognized Storaska’s name and ordered him released. They then offered Storaska a police escort, he said.

  “And I asked the officer, I said, ‘Could we have really caused any harm?’ He said, ‘Yeah, there’s a Northwest flight and another flight circling because there was a security problem on the ground.’ ”

  Storaska stood up straight and tall. “And I said, ‘Well, they’ll just have to circle,’ ” he boomed. “ ‘I have important business down here.’ ”

  When the speech came to an end and Storaska walked off the stage, the Prudential-Bache brokers watched in astonishment. As they filed out of the room, a few of them talked among themselves and found they all agreed: The biggest seller of limited partnerships at Prudential-Bache sounded like a nutcase.

  At 10:00 A.M. on April 28, 1988, shareholders from E. F. Hutton gathered in an auditorium at 33 Maiden Lane to officially declare that brokerage firm dead. Hutton had never recovered from its guilty plea to two thousand felony counts stemming from its banking practices under George Ball in the early 1980s. Since then, some clients had been rattled about doing business with a felon. The market crash of October 19, 1987, had been the capper. Hutton could no longer survive. The firm was sold to Shearson Lehman Brothers. But few on Wall Street doubted that the sale was a result of the firm’s check-kiting scandal.

  That same week, Ball’s new firm, Prudential-Bache, quietly reached its own milestone: Its sales of the energy income partnerships surpassed $1 billion, making it the biggest-selling partnership for small investors in the history of Wall Street. It was also the single largest deception emanating out of the Direct Investment Group. But it was not the most blatant.

  The quarterly meeting of Prudential-Bache’s California brokers in early 1988 had all the subtleties of a Turkish bazaar. Brokers wandered about the hotel in Palm Springs as marketers from the firm and from outside companies tried to lure them with the glory of their wares. Some described closed-end funds that they said every client should own. Others pitched complex trading instruments that they said could earn money from interest rate movements. But as all the brokers had come to expect, the biggest merchants in the bazaar offered limited partnerships. With oil wells, airplanes, and real estate, the partnership marketers had more than enough merchandise in stock.

  A new deal, being pitched by a marketer named John Macejka from the Direct Investment Group, was attracting the most attention at the meeting. Called the VMS Mortgage Investors Fund, it sounded simply too good to be true.

  Macejka told the brokers that, unlike other partnerships, the fund would trade on a stock exchange. That way, investors could bail out at any time, or, if they wanted, buy more of the deal. On top of that, investors would be guaranteed a 12 percent annual return for three years. It couldn’t have sounded safer. A number of brokers decided, then and there, that they would sell the VMS product to their most safety-conscious customers.

  It was a decision that would destroy many of their careers.

&n
bsp; Bill Creedon, a broker in the firm’s Los Angeles office, hung up the telephone just as the branch manager walked into his thirteenth-floor office. Creedon respected his manager, John Eisle. It was Eisle who had recruited him to Prudential-Bache a few months after the death of his last firm, E. F. Hutton. Creedon, a former navy officer, was also a man who believed in the chain of command. This day in February 1988 would be no different.

  “Hey, Bill,” Eisle said as he sat down in front of Creedon’s desk. “I’ve got something I want to show you. We’ve got a deal coming up that I think would be perfect for your conservative clients transferring over from Hutton. Take a look at this.”

  Eisle tossed a piece of paper on Creedon’s desk, and the broker picked it up. It was a photocopy of some handwritten marketing material for the VMS Mortgage Investment Fund. Creedon read it through and was impressed. The deal had lots of guarantees, and the marketing material stressed that it was a safe investment designed for the most cautious investors.

  “The firm is going to be selling this in a few weeks,” Eisle said. “I’m really excited about it. It’s a slam dunk. It’s the right thing for retirees. It’s a great investment for all your widows and orphans,” he said, joking about the cautious nature of Creedon’s clients.

  “It does look interesting,” Creedon said. “I’d like to look more carefully at it.”

  “Fine, go ahead,” Eisle said. “I think you’ll like what you see.”

  A short time later, Creedon reviewed the prospectus. Another superior, Jack Graner, the Prudential-Bache director for the Pacific South region, had also dropped by to encourage him to sell the deal. But in the end, Creedon still had doubts. He telephoned New York to speak with John Macejka, the assistant product manager on the deal. The conversation lasted more than an hour. Creedon’s main interest was whether these so-called guarantees were real. Too often on Wall Street, he said, guarantees can be empty promises.

  “We are very comfortable with the guarantee,” Macejka said. “It’s a real guarantee.”