284: Tillman’s conversations with Diestel are described, in part, in his deposition referenced above.
CHAPTER 13
285: In this chapter, the author incorporated information from the sworn testimony of a range of individuals in the case In Re: Prudential-Bache Energy Growth Funds Securities Litigation, cited above. Charles Patterson, taken February 19–20, 1991; Al Dempsey, taken November 5–8, 1991; Bill Webb, taken December 3–6, 1991; Pete Theo, taken January 14–16, 1992; Bill Pittman, taken February 10–12, 1992; and John Barron Clancy, taken February 14, 1992. Those records, which were obtained by the author, are not publicly available.
285–87: The November 11, 1986, meeting about the growth fund between Rice and the executives in the Direct Investment Group is described in a memo of that date from Rice to Dempsey.
287: The early sales performance of the energy growth fund is from a president’s report by John Graham to the board of directors of Graham Resources for 1986.
288: An undated copy of “Harding’s Highlights,” describing the growth fund, was obtained by the author.
288: A transcript of Higbee’s presentation to brokers at the Southeast regional conference was obtained by the author.
A copy of the growth fund sales script for Prudential-Bache brokers in the Southwest was obtained by the author.
289: Patterson’s belief that the growth fund paid $10 million more for the First City loans than bidders would have is described in Patterson’s February 4, 1987, memorandum to senior officials at First City.
290: Terms of the HRB loan are described in numerous documents, including Patterson’s testimony, cited above. Also, see the November 27, 1990, testimony of Chris J. O’Mara, a senior vice-president of First City, in the case Gallagher et al. v. Graham Energy et al., civil action number 89–4296, filed in the U.S. District Court for the Eastern District of Louisiana. Again, the case was settled and the depositions are not publicly available. Also, see the testimony of Al Dempsey in the above-cited case.
Finally, the transaction is described in detail in the December 1991 edition of GFL News, a newsletter for growth fund investors suing Prudential-Bache and Graham Resources.
290: A copy of the summer 1987 edition of Energy Digest was obtained by the author.
292: Through his lawyer, Storaska denies ever having done anything improper. The author again makes reference to “In the Matter of Prudential Securities,” the order instituting public proceedings, making findings, and imposing sanctions. Also, see the above-referenced “The Large Firm Project,” a May 1994 report by the SEC. Neither document names Storaska, but his business practices are criticized with enough identifying detail to make it clear that the government is criticizing him. Also, see “Prudential’s Firm Within a Firm,” New York Times, May 25, 1993.
292–93: Storaska’s trades on June 12, 1987, are described in the June 17 memo by Grose. The author also obtained confirmation slips for those trades to the accounts in question.
293: Storaska’s subsequent purchase of the energy growth fund, which was then canceled, comes from documents in the account of Eddy Phillips, a Storaska customer.
295: The problem with the distributions for the energy income partnerships is demonstrated in the quarterly reports, Prudential-Bache Energy Income Partnerships Cash Distributions, which were obtained by the author.
296: Darr’s attempts to sell the Prudential-Bache interest in the Graham partnerships for his own personal profit are described in Rice’s testimony to the SEC, cited above.
296: The July 23, 1987, instructions from Darr that Graham Resources should structure their deals to ensure that Direct Investment Group personnel received higher pay are described in part in a memo to the files written by Al Dempsey on that date.
296–97: The concern expressed about the distributions by the growth fund is described in the minutes to an October 27, 1987, management committee meeting at Graham Resources.
297: The Maple Gulf Coast deal is described in Al Dempsey’s November 6, 1991, deposition in In Re: Prudential-Bache Energy Growth Funds Securities Litigation, cited above.
Also, see a March 2, 1988, memorandum from Ed Trahan, a member of the growth fund investment group, to the other members of the committee. That document, in reference to the convertible preferred stock proceeds, says “used fund origination fee prepaid interest and first principal installment on Utah reserve loan on PBEGF.” In other words, the proceeds from the preferred stock purchased by the growth fund were used to immediately pay off other obligations to the growth fund.
Terms of the Maple Gulf Coast deal are also described in the December 1991 edition of GFL News, a newsletter for energy growth investors suing Prudential-Bache.
302–4: The author has obtained a transcript of Storaska’s speech at Vancouver. In certain instances, the transcript is incomplete, and the author relied on the memories of people who heard the speech to fill in the blanks. Storaska’s performance and ranking in a branch were discussed in his introduction for that speech.
304: The E. F. Hutton shareholder meeting was described in Carpenter and Feloni, The Fall of the House of Hutton.
The amount of partnerships sold by April 25, 1988, comes from the prospectuses for those deals.
304–6: Details of the VMS Mortgage Investors Fund from the prospectus for that deal, filed in March 1988. The author has also obtained a wide range of marketing materials for the investment, all of which tout its safety and describe it as the perfect investment for retirees and CD buyers.
Creedon’s original discussions about VMS with Eisle and Macejka are described in part in his April 1, 1992, deposition in Morris v. Prudential-Bache, number 92K01527, filed in the Municipal Court of the State of California for the County of Los Angeles.
306: The knowledge of due diligence officials about the intended investments by the VMS Mortgage Investors Fund is disclosed in the April 24, 1991, testimony by James Kelso of the Prudential-Bache Direct Investment Group in the case Miele v. Prudential-Bache Securities, case number 32–136–0357– 90-ID before the American Arbitration Association.
306–7: Details of the fraud involving VMS Mortgage Investors Fund from the prospectus, as well as the recently unsealed fourth consolidated and amended complaint in the case In Re: VMS Securities Litigation, case number 89 c 9448, in the U.S. District Court for the Northern District of Illinois, Eastern Division.
Also, see “Notice of Intent to Invoke Sanctions under the Kansas Securities Act,” in the case In the Matter of Prudential Securities, a/k/a Prudential-Bache Securities, docket number 91E127, before the securities commissioner of the state of Kansas.
307: Darr’s expenses for the trip to London were obtained by the author, including his itemized bill from the Berkeley, dated May 20–31, 1988.
Details of the Berkeley were provided in interviews with representatives of the hotel. The cost of Darr’s Concorde flight was disclosed in the December 1991 issue of GFL News.
308: The expenditures for all of the Graham officials and Prudential-Bache brokers were described in a computer printout of expenses by the Wernli Group, the travel agency that handled the trip.
CHAPTER 14
311–13: The encounter between Schechter and Watson was first described in Hawkins’s Business Week article of March 4, 1991, cited above.
311: The negotiations between Watson and Giordano to change Darr’s risk in light of the inquiry into First South are described by Darr in his SEC testimony.
Also, see “Final Report Regarding Certain Transactions Among James Darr, George Watson and A. Starke Taylor III,” by Locke Purnell Rain Harrell, cited above.
313–14: The background of Locke Purnell from an undated brochure used by the law firm to describe its services to clients.
316: Colella’s conversations with Humphrey, the anonymous caller, from the Locke Purnell report, cited above.
317–18: Some details of Petty’s conversation with Bud Berry from a January 28, 1988, letter to Petty from C.
F. Allison Jr., a Locke Purnell lawyer.
318–21: Petty’s two meetings with Berry are described in the Locke Purnell report cited above.
325: Harrison’s removal of money from the Stamford Hotel partnership is described, in part, in an October 11, 1988, memo to the file by Paul Tessler, an executive with Prudential-Bache.
325–28: Some details of the contentious July 1988 meeting in Florida from handwritten notes about the meeting and Dempsey’s July 5, 1988, memorandum to Pete Theo and Leo Cailleteau.
328–29: Sichenzio’s conversation with Trice in September 1988 was described in Trice’s testimony in his arbitration, cited above.
329: A copy of the 1988 Risers brochure distributed to Prudential-Bache brokers was obtained by the author.
The evidence of the firm’s soft sell of the risks with Risers is based on the author’s review of certain sales material. In addition, the author relied on the sworn affidavits of former Prudential-Bache brokers and branch managers. Many of those affidavits were filed in the case In Re: RAC Mortgage Investment Corporation Securities Litigation, file number K-89–1796, filed in the U.S. District Court for the District of Maryland.
The affidavits are from Robert Leacox, a former branch office manager from Denver; A. James Whitney, the former branch manager in the firm’s Poughkeepsie, New York, office; Richard McCrea, the former branch manager in Wooster, Ohio; Peter A. Dwan, the former branch manager from Syracuse, New York; James A. Laurick, the former branch manager for the Oklahoma City office; John E. Bayum, the former branch manager of the Richmond, Virginia, office; and William Hutchins Smith, a broker with the firm’s midtown Atlanta branch office.
CHAPTER 15
335: Van Sickle’s ruling is filed as case number 3–87–196 at the U.S. District Court for the District of Minnesota, Fourth Division.
336–37: The trading performance of VMS Mortgage Investors Fund from the class-action lawsuit, cited above. Creedon described his reaction to the situation in his deposition, cited above.
339: Apparently Page was right about Kane being a scapegoat. Jim Trice, the regional director in Atlanta at the time, testified in his own arbitration against Prudential-Bache that he had been ordered by the legal department to have Kane fired to make the firm’s response look good to the SEC. Page’s case with Kane is described in the June 12, 1987, statement of claim in “Kane v. Prudential-Bache,” filed with the director of arbitration with the New York Stock Exchange.
The Kane matter is also described in the June 12, 1987, statement of claim from “In the Matter of the Arbitration Between William A. Kane vs. Prudential-Bache Securities, Michael McClain and Patrick Finley.”
341: The details of Webb’s statements in Spain about the growth fund come in part from his December 3, 1991, deposition in Kaminsky v. Graham Energy, number 91–017196, filed in the District Court of Harris County, Texas, 55th Judicial District. That deposition has since been sealed as part of a settlement in the case.
Also, see Webb’s June 10, 1993, deposition in Robertson and Sitter v. Prudential Securities, case number 33–136–00114–92 before the American Arbitration Association.
342–43: A copy of Jackson’s August 23, 1989, letter was obtained by the author.
347–48: Some details of Sichenzio’s speech at the October 1989 national sales meeting dinner in New York from Roger Parsons’s sworn testimony in the Trice arbitration, cited above.
348: Some details of the Silver Screen deal from the complaint in Silver Screen Entertainment Management v. Prudential-Bache, index number 25683, filed in the Supreme Court of the State of New York for the County of New York.
348–50: Parsons’s run-in with Haick and subsequent removal as a branch manager from his sworn testimony, cited above.
351: Details of the announcement by VMS from the company’s 10-Q, filed with the SEC in November 1989. The subsequent stock action from the fourth consolidated and amended class action and derivative complaint in In Re: VMS Securities Litigation, cited above.
351: Creedon’s experiences after the collapse of VMS Mortgage Investors Fund are described in part in his deposition, cited above.
351–52: Some information about Eugene Boyle’s experience with Risers from his September 13, 1990, supplement to the statement of answer in “Prudential-Bache v. Eugene Boyle 3d” before the National Association of Securities Dealers. Also, see Boyle’s testimony in that case and his sworn affidavit of July 9, 1990, in the case Prudential-Bache Securities v. Page & Bacek, civil action number 1:90-CV-1300-GET in the U.S. District Court for the Northern District of Georgia.
352: Boyle described his conversation with Ricca in a sworn statement dated June 4, 1990, cited above. He elaborated on that statement in his own arbitration case.
In sworn testimony on October 10, 1990, Ricca denied ever making the “seventeen years” statement. In his testimony in Prudential-Bache v. Page & Bacek, Ricca labeled the claim by Boyle “a complete fabrication.”
After examining the information, the author has concluded that the facts surrounding the case more closely support Boyle’s version of events. Boyle immediately wrote a letter laying out the nature of the conversation with Ricca. That letter, which was obtained by the author, was fully consistent with his subsequent claims, although it did not specifically mention the “seventeen years” comment. Second, once Boyle left the firm to assist his clients, Prudential-Bache did indeed bring litigation against him, seeking a return of up-front money he had been paid to leave Merrill Lynch for Prudential-Bache. Third, and most disturbing, after Boyle left the firm, Prudential-Bache filed a false form with the National Association of Securities Dealers claiming that Boyle, rather than Prudential-Bache itself, had been the subject of customer complaints for misrepresentation. But those complaints, which were obtained by the author, do not allege impropriety by Boyle but rather by Prudential-Bache. The firm settled those cases. Boyle, on the other hand, was investigated by the New York Stock Exchange because of the form submitted by Prudential-Bache. He was cleared. Subsequently Prudential-Bache was ordered by an arbitration panel to revise its false submission to the NASD. Finally, the author notes that a similar event transpired subsequently, involving James Barrett and described in chapter 17.
353: Schwarzman’s telephone conversation with Lazard was described in an April 16, 1992, letter by Mark Kenyon, a vice-president of finance at Blackstone, to Larry Jacobs, a lawyer with Kramer, Levin, Nessen, Kamin & Frankel.
The negotiations between Prudential and Paine Webber were disclosed by Sarah Bartlett in her article “It’s Deadline Time for George Ball,” in the New York Times, January 14, 1990. Some of the figures on performance also come from that article.
353–54: The author obtained a copy of the confidential information package on Prudential-Bache, dated January 1990, and assembled under Ball’s direction for distribution to German and Swiss banks.
355: Ball’s meeting with Jean-Louis Lalogeais on February 7, 1990, is described in a memo by Lalogeais to his colleagues at Booz Allen. The memo, dated February 9, 1990, was obtained by the author.
355–56: The emergency meeting called by Sichenzio is described, in part, in Silver Screen Entertainment Management v. Prudential-Bache , cited above.
358: The first big Prudential-Bache article in Business Week appeared in the February 26, 1990, issue of the magazine, under the bylines of Chuck Hawkins, Jon Friedman, and David Greising.
358–59: A copy of Prudential-Bache’s lawsuit against Page & Bacek and the service papers were obtained by the author. The case, under the caption Prudential-Bache v. Page & Bacek, is cited above.
359: The timing of the replacement of Proscia by Giordano from Wall Street Letter, March 12, 1990.
CHAPTER 16
361–64: Creedon’s experiences come, in part, from his sworn testimony cited above.
362: The author obtained multiple copies of the law department’s form response—the so-called fuck-you letter—to the client VMS letters.
363
: Although the firm denies it ever attempted to push investors into the class-action suits, the evidence against Prudential-Bache is overwhelming. The author has interviewed brokers from across the country who tell substantially the same story as Bill Creedon. Some have stated that they personally heard Jack Graner, a regional director to the VMS task force established by Ball, state that brokers were to tell investors to join the class action. Similar claims have been made about every major class action involved here. Moreover, the author has obtained notes written by Pru-Bache brokers instructing their clients to wait for the class action, as well as a number of tape recordings that clearly document the nature of what was occurring. With John Eisle, several clients—including Charles Vallas, Mary Lee Griswold, David Hendry, Robert Blondeel Timmerman, Charles Limmer, and Salvatore Russo—filed complaints against him personally, claiming that he fraudulently instructed them that the class action was their only option for compensation. The only court case involving Mr. Vallas’s claim was dismissed because Mr. Vallas had signed a general release.
The other complaints about Eisle were sent to the NASD. The organization took no action, saying it could not find enough supporting documentation. An NASD official said that the group did not consider the various claims as supporting each other because the clients all had the same lawyer. However, the author has spoken to other brokers who confirmed the clients’ version of events. In addition, a series of secret tape recordings obtained by the author also substantiate it.
The author would note that the basis of the denials being issued by Prudential Securities is that the firm steadfastly avoided ever giving legal advice to clients. That statement is a bald-faced lie.
When the firm faced the growth fund litigation from Bristow, Hackerman, it sent a letter in June 1991 advising clients not to participate in the lawsuit. The author notes that this was not a typical class action, which might be settled for pennies on the dollar. Indeed, Prudential-Bache was pushing for a class action, and Bristow, Hackerman was resisting. The potential for huge losses for the firm was apparent.
Serpent on the Rock Page 63
