by Josh Dean
“I’m afraid that’s impossible,” Schoenbaum said. “There’s too much at stake here to give you a piece of paper stating that.”
On April 25, Toy and Morse returned to Watson’s office with a letter dated April 23 and signed by V. C. Olson, Summa’s controller. The letter stated that the vessel was registered in Delaware and was only temporarily in California. It contained no mention of government involvement.
When Watson pressed the matter, asking for a letter that stated the true arrangement, Toy and Morse demurred, because Watson had also invited an attorney from the office of the Los Angeles County counsel—an attorney who was not cleared for program knowledge. The rules were very clear. It could not be discussed in this attorney’s company. Watson sensed the trepidation and afterward pulled Toy aside to ask for a copy of the classified government contract covering the Glomar Explorer project. Toy replied that it was very unlikely Watson could be given his own copy, but that “under appropriate circumstances,” a copy of the contract might be shown to him. Toy said he’d speak with his government contacts, and later that day, he did.
On July 2, another group arrived to see Watson, and hopefully shut him up. This time, it was heavy hitters: John Warner, chief counsel of the CIA; John Howard, acting LA County district attorney; and Stephen Trott, his deputy DA. Watson told the group, again, that he was unconvinced of their story. In fact, he said, he had discovered a Coast Guard document dated October 2, 1973, stating that the HGE was registered by Summa Corporation upon entering Long Beach port.
As a result, he had assessed “for ad valorem property tax purposes” two bills to Summa Corporation of Las Vegas, the ship’s owner—4,395,152.43 dollars for 1974 and 3,119,865 dollars for 1975. He also threatened to assess late fees if the bill wasn’t paid on time.
Toy had warned Walt Lloyd that sending Warner would likely backfire. Watson was a grandstander with political ambitions and he’d see an opportunity to embarrass the federal government as a way to get himself some attention. And Toy was right. By the time Warner was back at his hotel, Watson had called a press conference to declare his intent to assess taxes on the Hughes Glomar Explorer to Howard Hughes’s Summa Corporation.
He wasn’t going away quietly.
64
What Are We Doing Again?
WASHINGTON, DC, FEBRUARY 5, 1975
Despite everything that had happened—press leaks, Soviet complaints, rising resentment in Congress—the pursuit of K-129 somehow continued and had strong support from the people who mattered most, especially Henry Kissinger and the powerful 40 Committee.
On February 5, Kissinger presented a memo to the president summing up the recommendations of the US Intelligence Board, which had met several times over the fall and winter to consider whether or not to go forward with the follow-up to Azorian, in a mission that had been code-named Matador.
The USIB had reaffirmed its view that the equipment on the sub was still important and worth pursuing, and cover and security were somehow still intact. Kissinger said that nearly everyone on the 40 Committee agreed that the mission was worth keeping alive.
His recommendation: that Ford approve preparations for a second mission, code-named Matador.
The support for Matador was hardly effusive. The State Department, especially, was uncomfortable. Some portion of the argument to move forward with a new operation was that the 250 million dollars already spent constituted a sunk cost and that it would take only another 25 million dollars for the follow-up. When someone asked if the 250 million dollars was actually lost, or if the ship could be used for something else, Director Colby said that it could be repurposed into an actual ocean miner, and that he hoped the government could later sell it for 40 to 50 million dollars.
Colby’s standing at this point was clearly in jeopardy. The morning after the 40 Committee meeting, Kissinger told the president that he lacked confidence in the director, who he felt was far too forthcoming with Congress, in part to cover his own ass. “Colby is a disaster and really should be replaced,” Kissinger said. “There are so many people who have to be briefed on covert operations, it is bound to leak. There is no one with guts left.”
65
Stranger Than Fiction
LOS ANGELES, APRIL 3, 1975
LA Times reporter Bill Farr tried for more than a year to get an interview with Mike Davis, the security guard ambushed during the Romaine Street break-in, the strange event that tipped the first domino that led to exposure of the largest covert operation in CIA history. On April 3, 1975, Davis agreed to sit for an interview. And one of the first things Davis told Farr dropped the reporter’s jaw. Davis said that while he was waiting for police to arrive, he’d picked up two papers the thieves had dropped and stuffed them in his pocket. “It was just an absent-minded type thing,” he said.
Once police arrived and began questioning him, Davis completely forgot about the papers—until they fell out of his pockets while he was changing at home later that night. One of the papers, he told Farr, was a Bank of America certificate of deposit for one hundred thousand dollars made payable to Kay Glenn. The other was a typewritten memo from Raymond Holliday to Howard Hughes “saying that the CIA wanted to build a ship or something to bring up a Russian sub,” Davis said. “I don’t remember all the details but I recall that it said President Nixon knew about it and that the IRS would look the other way on how the money was being put in.”
Davis hid both papers inside a dresser drawer and then, months later, when the Soviet sub scandal appeared in the news, he tore the memo into pieces and flushed it down the toilet. “Then I took Glenn’s $100,000 note and put it in a friend’s safe. . . . My god, if only I would have remembered those documents I stuffed in my pockets,” he told Farr. “It would have saved me and a whole lot of other people an awful lot of trouble.”
He said he thought that the memo was “of no personal value to anyone” and that “the person who wrote it knew its content,” while the certificate of deposit seemed more likely to be “of some value to Glenn.” He planned, in fact, to return it to Glenn once things calmed down and thought “I wouldn’t get in trouble over it.” But that never happened. When Davis refused to take a polygraph test following the break-in, he was fired. He subsequently also lost his job at the car lot, and by the time he met Farr, he was unemployed. He’d even sold his house and moved into a smaller, cheaper rental.
“Had I had any idea that the memo involved something of that magnitude, my whole course of action would have been different,” Davis told Farr. “I grant now that I made a mistake but as tough as it is for me now, I want to clear everything up.”
66
The SEC Butts In
Tax problems weren’t Walt Lloyd’s only bureaucratic nightmare. There was also a possible patent lawsuit from Project Moho progenitor Willard Bascom and something he’d already tried to anticipate and fend off—interference from the Securities and Exchange Commission. Global Marine was publicly traded, but a single family owned a significant portion of the company’s stock in a family trust. And unfortunately, back in the program’s early days, just as Azorian was coming together, the family decided to break up that trust and hand each member a portion of the shares, so that he or she would be free to trade them on the stock market, like any other investor.
This wasn’t in itself an unusual thing. It happens. But it triggers an SEC law requiring that when a large enough amount of stock is disbursed, the holders must explain their actions, in great detail, to the SEC, to prove that there’s nothing improper going on. That filing is called a 10-K, and the results are made public to anyone who wants to view them. They list every client, every customer, and every business problem—basically, every way in which a company generates revenue. And it happens immediately, before the trust can be split. That meant that Global Marine’s financials would be published for the world, revealing, at a minimum, that Howard Hughes had quietly hired them t
o mine the ocean—a story that wasn’t going to be public until all of the program’s security, including a robust cover umbrella, had been put in place. That was still months away.
When this news reached Curtis Crooke, he panicked. He called in his lawyer, Dave Toy, who went to see Walt Lloyd, whose job it was to snuff out fires that could engulf the project.
“We’ve got a problem,” Toy said. He’d flown directly to Virginia that morning and met Lloyd at his office, where they schemed furiously until well after midnight. Lloyd’s concerns were many. He knew that, above all, they couldn’t flat-out lie to the SEC, because if it were ever to become public that Hughes was only pretending to hire Global Marine, it could destroy the reputation of two major corporations. And to say that Hughes was acting on behalf of an undisclosed principal, without providing more information, would be highly misleading to investors, who might see this huge mining contract as a reason to invest when, in truth, it was all a lie. The solution, they decided, was to tell one small lie while being overly truthful about everything else. They’d admit that Hughes Tool was representing an undisclosed principal, without disclosing who that was, and then make it very clear that the whole venture was highly speculative and risky. The plan was to make the situation look so unpalatable that no investment adviser in his right mind would recommend Global Marine based on this single deal.
“This mining business could blow up tomorrow,” they would say. “It’s very uncertain. This secret customer is willing to invest his money, but there is no guarantee it’s going to be more than one shot. You aren’t going to make any money down the road. It’s very doubtful.”
In this way, Lloyd and Toy could explain the influx of income that Global Marine was making on the mining project in the near term while painting the worst possible picture of the nascent industry’s longer-term prospects.
• • •
And that all worked out fine, until one attentive clerk at a Wall Street investment firm happened to see the LA Times story and recalled Global Marine’s 10-K claiming that Howard Hughes’s Summa Corp. was responsible for a very large piece of new business that inflated the company’s earnings in 1971 and 1972. She pulled the 10-K, confirmed her suspicions, and then reported the discrepancy to the SEC’s Division of Corporate Finance, pointing out that Global Marine had, in fact, made a false representation.
The SEC’s enforcement division, in turn, charged Global Marine with filing false information, a type of fraud, and requested that Global Marine’s leadership come to Washington to answer the charges. This was a serious matter. Were the charges proven, it would lead to criminal proceedings, potentially causing significant harm to the company and its shareholders.
All of the stockholders stood to lose out in that scenario, and it would have been the CIA’s fault. Again, Curtis Crooke sent Dave Toy to see Walt Lloyd, who recognized the severity of the problem and reported it to the Agency’s general counsel, John Warner.
Warner was not pleased. He told Lloyd to “find out how deep of water we’re in here” and to report to his office in thirty minutes. Lloyd recruited a trusted colleague and asked him to pull anything he could find about securities exchange law that might be pertinent to the case.
The colleague returned with a stack of SEC regulation books, written mostly during and in response to the Great Depression, and Lloyd flipped through the index until he saw a reference to “security” and turned to that page. He smacked the desk. “Hot damn!” There was his answer, in very clear terms: “Nothing in the filings with the Security Exchange Committee including the 10-K shall include information of a classified nature.” The text was plain and unambiguous.
“Holy Christ,” Lloyd yelped. “This is the Golden Grail.”
Warner told Lloyd that he wasn’t sure that this would work but that it was good enough ammunition for him to take over to the SEC and make a very blunt case. “Tell them that we think they’re pissing on one of our contractors,” he said. “And show them this.”
Lloyd did exactly that and ended up in a meeting with not only the head of the corporate finance group, who’d filed the complaint, but also Stanley Sporkin, the SEC’s cantankerous enforcement division head—his nickname was the Enforcer—and three of his attorneys. One of them was particularly obnoxious and made a point to interrupt Lloyd and issue insulting orders like, “Stand up.” (Sporkin, by the way, would go on to become the CIA’s general counsel after leaving the SEC.)
For an hour, the SEC attorneys grilled Lloyd as he repeatedly insisted that the false information was necessary to protect a highly classified program. Hughes Tool Company was never an investor in Global Marine.
At one point, the obnoxious lawyer, who looked as if he was at best only a few years out of law school, threatened to sue Global Marine and the CIA.
Lloyd was prepared for that one. Prior to visiting the SEC, he and Warner had gone to the Justice Department, where the Attorney General’s special counsel, Antonin Scalia—the future Supreme Court justice—heard the case and told them that, in his opinion, the Agency was on “solid ground.” Prior to leaving, Lloyd asked Scalia a question: If this case were to go to court, who would the Justice Department represent, the CIA or the SEC?
“We represent you,” he said. “But try not to tell them that.”
As soon as the lawyer mentioned the threat of a suit, Lloyd put up his hand. “Now stop this,” he said. “But let me ask you: Who is your attorney?”
“The Attorney General,” the lawyer snapped.
“I’m sorry,” Lloyd replied. “But I’ve already spoken to the Attorney General and he represents the Agency. You’ll have to find someone else.”
The SEC relented. If the CIA could produce a document from Hughes verifying all of this, they could probably work it all out. Lloyd called Chester Davis, who happened to be on his way to Washington and offered to come in to personally vouch for the arrangement.
The next day, he and Lloyd met briefly with Sporkin, who left the two to work out the particulars with his deputy, the annoying attorney whom Lloyd referred to in private as “Young Turk.” The man was rude to Davis, too, insisting that his word was not good enough and that the SEC would need documents from Hughes himself.
Davis, who’d been listening calmly to that point, cut him off. “Young man, you don’t seem to understand your own law,” he said. “You shouldn’t talk that way to a privately owned company. You don’t have any jurisdiction over us. Mr. Hughes and I, we’ll do anything we damn well please.” He slammed his briefcase closed. “I think this conversation is done.”
The Young Turk fought on. He was temporarily embarrassed but undeterred. Lloyd, like most CIA security officers, didn’t carry official credentials. And because of this, the attorney said, the SEC had no proof that he was actually who he claimed to be.
What, Lloyd asked, if he could get a document from the CIA director describing the arrangement?
That would probably suffice, the man answered.
Lloyd said that he could produce such a document but it was going to be highly classified and the CIA security staff would want to know where it would be kept. “Can I see your safe?” he asked.
The man stammered. He didn’t have one.
Lloyd stepped out to borrow a phone and called Paul Evans. It was around two o’clock on a Friday afternoon. “Paul, can you do something for me? I want you to find a four-drawer safe that we can use to give to the SEC. And I want you to bring it through the goddamn front door.”
This was an unusual request, Evans said, but he could do it. When?
“About 4:30 when everybody is leaving.”
Evans laughed. A four-drawer safe is a massive thing, weighing more than a thousand pounds. Evans’ staff found one at the headquarters, dropped it onto some piano dollies, and rolled it out to a station wagon, which he drove across the Arlington Memorial Bridge into DC with the rear end riding so low it rub
bed against the tires.
At precisely 4:30 on Friday afternoon, he rolled the safe through the front door of the SEC just as people were leaving for the weekend, and he asked where to find the enforcement department.
Lloyd was sitting with the attorney on the fourth floor when he heard the elevator ding and saw Evans, a huge grin on his face, walking behind four of his men, who were pushing the safe in their direction. “Bring it here,” he said, and waved Evans and the safe into the man’s office, which was small enough that the only wedge of free space aside from his desk, chairs, and file cabinet was in front of his lone window, so that’s where Evans parked the safe.
“Hi, Paul,” Lloyd said. He asked Evans to demonstrate the procedure for opening the dial, which like all Agency safes was protected with a glass cover that prevented users from leaving fingerprints, to make cracking it more difficult. Evans opened the door and pulled out a sheet of paper embossed with the CIA’s logo.
“I want you to read this,” Lloyd said. The document explained the Azorian arrangement in a single paragraph—that Global Marine was working with Hughes Tool, but Hughes Tool was in fact an agent of the Central Intelligence Agency. Once he’d finished, the Young Turk was asked to sign a receipt verifying he’d received it, and then Lloyd locked it back in the safe.
“You are now responsible for this document,” he said. “You just signed for it. We are taking the receipt to headquarters. If anybody asks where that document is, you are the guy that’s got it.”
That Sunday, Easter, the SEC staged a secret meeting at four P.M. to hear the case.
Lloyd brought George Kucera, Azorian’s contracting officer, in case there was a question about the contract’s validity. The two presented their case and were dismissed to wait in the lobby while the commission considered the matter.
