The Fall of the House of Zeus

by Curtis Wilkie

  Greenlee had worked in the office’s civil division before he was tapped for promotion. After the political move, he became a subject of scorn among some of the assistant attorneys who considered their jobs a career opportunity and served for years regardless of which party held power. They felt they had earned their positions because of their talents and not through their political connections. Greenlee’s mannerisms, which were sometimes petulant, also grated on them. Behind his back, the prosecutors called him Queeg, a reference to the mad captain in The Caine Mutiny.

  Despite Greenlee’s relationship with Lott, he authorized an investigation of the senator’s brother-in-law. But it would have to involve the FBI, and this created another problem.

  · · ·

  A serious schism had developed between the U.S. Attorney’s Office and the local FBI that threatened their ability to work together. The two units responsible for bringing federal cases to trial had simmering differences over both policy and procedure. A more vituperative argument between personalities also existed.

  The bureaucratic clash grew out of post-9/11 activites, when the U.S. Attorney’s Office in Oxford plunged into President Bush’s war on terrorism with enthusiasm. In 2003, Greenlee developed a “Convenience Store Initiative” that targeted scores of Arabs and Muslims operating small gas station–food stores in North Mississippi. To conduct the investigation, Greenlee’s office called upon representatives of the Drug Enforcement Administration (DEA), the Internal Revenue Service’s criminal investigation division, and the Bureau of Alcohol, Tobacco and Firearms (BATF). But agents assigned to the Oxford FBI, considered the key investigatory unit in the region, wound up feeling left out of the loop.

  To the consternation of several agents, they discovered that some of their undercover contacts in the Arab-Muslim community, shopowners who had been cooperating in investigations, had been drawn into the dragnet. Many of the convenience store owners were actually American citizens with Palestinian or Yemeni backgrounds. Though some were believed involved in the sale of Sudafed and other medical products that were used to manufacture illegal methamphetamine, the increasingly popular drug known as crystal meth, few were considered potential terrorists.

  After learning more about Greenlee’s initiative, the FBI agents were angered further when they found that the names of many suspects had been provided to the federal prosecutors by the police department in the small town of Byhalia, whose source was a lone and dubious “confidential informant.”

  Acting on the source’s information, nearly eighty grand jury subpoenas were issued to the Arab Americans. The convenience store owners suffered other adversities. The U.S. Attorney’s Office called for tax investigations of many individuals who had never been suspected of any illegal activity.

  Arguments ensued between the FBI and Greenlee’s office, and the FBI agents eventually challenged decisions made by three men who would later have critical roles in the Scruggs case: Greenlee, Hailman, and Dawson.

  In a confidential report drafted in September 2004 by Hal Neilson, the supervisory senior resident agent in charge of the Oxford office, and endorsed by four of his agents, the U.S. Attorney’s Office in Oxford was accused of deceit and excessive zeal. Neilson’s report said, “It was determined through conversations with DEA and IRS-CID agents that the only individuals targeted by the CSI (Convenience Store Initiative) were of middle eastern descent and the only apparent nexus for investigation was ethnicity.”

  According to the document, when the FBI pointed out, in one meeting with the prosecutors, that the initiative had ignored federal “restrictions regarding the targeting of U.S. citizens,” Hailman had waved off the claim and said these restrictions “did not apply” to the U.S. Attorney’s Office. The report, which was sent to FBI director Robert S. Mueller, also compained that Dawson had tried to base a grand jury probe on a preliminary DEA inquiry that never resulted in a formal investigation.

  “Out of an abundance of caution and in the interest of insuring the civil rights of U.S. persons,” the Oxford FBI agents asked for legal guidance “regarding this situation.”

  The report lay fallow for months.

  In the meantime, the U.S. Attorney’s Office opened its own investigation of Neilson, the top FBI agent in Oxford, in connection with his role in a partnership that owned a building that became the local office for the bureau. Although no formal charges were brought against Neilson at the time, he was accused of hiding his financial interest in the building.

  Neilson’s supervisors subsequently took him off several high-level cases. In March 2006, Neilson filed a second report with the special agent in charge of the FBI in Mississippi appealing for personal safeguards through provisions of the federal Whistleblower Protection Act.

  Knowledge of the feud was quietly confined to the FBI and the federal prosecutors, who had their own office across town. But it simmered.

  The dispute would be deepened by the handling of the Scruggs investigation, and ultimately the two offices would become locked in a miniature version of the nuclear age theory of “mutually assured destruction,” in which fear of retaliation prevents one power with nuclear capability from deploying atomic arsenals against another. In this case, Neilson was being secretly threatened with indictment at the same time he was prepared to level charges of misconduct against the prosecutors. Yet neither side seemed ready to pull the trigger.

  · · ·

  Determined to keep the Oxford FBI office in the dark in the Scruggs case, Greenlee, Hailman, and Dawson drove to Jackson to meet secretly with the state supervisors of the FBI.

  While bypassing the Oxford FBI, the prosecutors were taking the explosive case to FBI personnel in another federal court district where agents had investigated the Paul Minor case and were still smarting over the failure of the U.S. Attorney’s Office in Jackson to seek an indictment against Scruggs.

  The Oxford prosecutors explained that they wanted “absolute operational security,” an undercover effort that would prevent the Oxford FBI from knowing about an investigation in their own backyard. This was, after all, a case involving a lawyer with a national reputation whose brother-in-law was a powerful U.S. senator.

  The Jackson FBI unit detailed Bill Delaney, an agent who had already been working on a criminal case in North Mississippi involving a failed beef processing plant that had cost the state more than $50 million. During the course of the investigation, Delaney had become a familiar figure in the U.S. Attorney’s Office in Oxford, so it was thought no one would suspect a thing.

  Later, two other federal prosecutors, Bob Norman and David San ders, would be brought into the investigation, along with other FBI agents.

  For several months, utter secrecy was stressed. Since the investigation needed a code word, Dawson decided to call it Operation Benchmark. Despite these efforts, word of an investigation involving prominent figures raced up and down Justice Department channels between Mississippi and Washington. Although Operation Benchmark was never formally compromised, its secrets had begun to seep out.

  CHAPTER 13

  In the beginning, it seemed that Operation Benchmark was being governed by Murphy’s Law, the old proposition that if anything can go wrong, it will, indeed, go wrong.

  Using his own equipment, Judge Lackey tried to record a telephone conversation with Balducci in April, but failed to capture anything other than his own preamble, in which he introduced himself, gave the date, and explained whom he would be talking with on the tape. Otherwise there was static and an unhelpful silence.

  Bill Delaney had technical skills and state-of-the-art acoustical devices developed at the FBI center in Quantico, Virginia, so he utilized his own know-how. Delaney met several times with Lackey and established rapport with the judge. At his request, Lackey initiated another call to Balducci—which was successfully recorded—to say that a hearing had been set in the Jones case. Lackey pointed out that he had not yet seen any language from Balducci that could be included in an order. (A document
like this was important to begin developing a criminal case.) Balducci told Lackey the Scruggs Katrina Group had decided not to seek a summary judgment in the case and preferred that the case be sent to arbitration. Following the judge’s wishes, Balducci said he would fax a proposed order compelling arbitration.

  (Murphy’s Law would reassert itself. Though the prosecutors believed the original text of that order came from Scruggs’s partner Sid Backstrom, they could never find a trace of the document in the memory of Backstrom’s computer.)

  On May 4, the investigation finally picked its first fruit. It came in a brief call in which Lackey acknowledged that he had received Balducci’s draft.

  “That was just some thoughts, ideas, and suggestions that I thought I’d put on paper,” Balducci said. “To see if His Honor thought that would look like something he might be interested in.”

  “It does,” Lackey said. “It looks good.” He suggested that Balducci meet with him the following week.

  Delaney was hiding nearby when Balducci arrived at Judge Lackey’s office, and the FBI listening devices were up and running. Lackey betrayed nothing of the trap that had been set; he carried off the deception as if he were a veteran from the cast at Old Vic playhouse. He even had a cheery greeting for Balducci: “Tim-o-fus!” Lackey liked to toy with names. Sometimes he called the younger lawyer “Bal-dooch,” attempting to put an Italian flourish on his pronunciation. The judge occasionally gave odd twists to his own name: “Lacking Style” or “Lackenstein.”

  The pair began with a rambling conversation about the legal profession in Mississippi. Though his practice was largely based on plaintiffs’ cases, Balducci fell back on his ingratiating manner with the conservative judge by criticizing excesses by the plaintiffs’ bar. He described a period when he represented clients in the Fen-phen litigation as “probably the worst time of my life practicing law,” and observed that abuses by others in the handling of these cases had led to the move to put limits on damages. Lackey grunted his approval.

  Balducci bubbled enthusiastically about the progress of his new firm. Without repeating his offer to give the judge “of counsel” status, Balducci talked of his efforts to line up others. So far, he said, he had enlisted several former judges and public officials and found office space in Oxford.

  So many attorneys were moving to Oxford, the judge said, “It’s gonna be Lawyersville.”

  Eventually, it was Lackey who turned to the heart of the matter: the order compelling arbitration in the Jones case. “I’m convinced this thing is going to go to the Supreme Court,” Lackey said.

  Balducci said he doubted the case would go that far because Johnny Jones was “posturing” for a settlement. The Jackson lawyer was “in a bad way” financially, he claimed. “He’s doing back channels, trying to do everything he can to get this thing settled and try to get ’em to pay. And they’ve offered him a damn big pot of money, and, you know, right now he won’t take it.”

  “What kind of offer have they made him?” Lackey asked.

  “They’ve offered him three million.”

  “Good lord!”

  “They’ve offered him three million dollars. He wants six.”

  “What created the rift between them?” the judge asked. “Did Jones just not work?”

  Balducci minimized Jones’s contribution to the Scruggs Katrina Group. “I guess it sounds like I’m being an advocate when I say this, but, shit, he’s the only one that ain’t happy.” He characterized Jones as a lawyer who “always had a real inflated idea about his own value and worth. His pride in authorship of writings and things like that.”

  He suggested that Jones had no real claim. When the Katrina group was formed, Balducci explained, “They said, look, we’re gonna go sue the shit out of State Farm and whoever else ain’t paid” on the Gulf Coast. “We don’t know if we’re going to be successful or not, and we don’t know whose contributions are gonna be the most successful. We don’t know if politics is gonna be the most important, if elbow grease is gonna be the most important, if finance in the litigation is gonna to be the most important, if dumb luck’s gonna be. What we’re gonna do, the five firms sitting here, we gonna agree, at the end of the day, we’re gonna split the money up rather than trying to set percentages on the front end. These five law firms agreed: We’ll see when the money hits, and we’ll decide. And if four out of five of us agree on it, then that’s fair. That’s what they did.”

  Lackey prodded him with monosyllables. “Yeah … Yeah.”

  “So anyway, at the end of the day, when the Katrina group sat down and said: You know, here’s what we think, Johnny. We think you’re entitled to X percentage, and he went off the reservation. He just said: No, hell no. That’s not enough. I’m not gonna take that. Then he started all this business about suing under the agreement.”

  Balducci continued: “I don’t know what you think from looking at it. But, hell, I think the agreement’s pretty clear that it ought to be arbitrated, judge. What do you think?”

  “It does,” Lackey agreed. “It looks like that’s what they agreed to.” Referring to Balducci’s proposed draft of an order, Lackey laughed and said, “I’m not questioning your ability to put it on paper.”

  “Listen,” Balducci responded, “that’s just something to look at.”

  For the first time, Lackey embraced the idea of issuing the order on behalf of Scruggs.

  “If they are satisfied with this order …”

  “Yes sir.”

  “Are they?”

  “That is perfectly in line with what their best-case scenario is,” Balducci assured him.

  “I want to be certain that you’re gonna get credit where credit is due.”

  A grateful Balducci gushed thanks. “My relationship with Dick is such that he and I can talk very privately about these kind of matters, and I have fullest confidence that if the court is inclined to rule in favor, everything will be good.”

  The judge offered a note of caution. “You’re confident that our conferences are …”

  Balducci finished the sentence for him. “Yes sir. I’m one hundred percent confident that everything is in confidence.”

  Lackey asked if Don Barrett, one of the members of the group, knew about the approach Balducci had made. Lackey knew Barrett slightly. “Barrett knows nothing about any of this,” Balducci told the judge. “The only person in the world outside of me and you that had discussed this is me and Dick. They ain’t but three people in the world that have had this conversation, and two of ’em are in this room.”

  Balducci elaborated on his relationship with Scruggs. “He and I—how shall I say it—over the last five or six years, there are bodies buried that he and I know where they are. And my trust in him and his in mine, I’m sure are the same.”

  Lackey laughed. “Well, that’s good.”

  After a few minutes, as Balducci prepared to go, he talked of his pride in his twin sons, and of the way things seemed to be working out for him professionally. “I’m having a great life right now, judge. I’m blessed, I tell you.”

  “That is so good, Tim.”

  As soon as Balducci departed, Lackey called the FBI agent. “William,” the judge said, “this is Lackey. The fella has just left, and it’s interesting what he said. I’m not sure of your opinion what’s the next step I should take.”

  The FBI wanted Lackey to pursue his talks with Balducci. His ex parte contact with the judge had been improper, but stronger evidence was needed to establish a criminal case. Lackey tried a couple of times to call Balducci and failed to reach him. The judge persisted. When he finally found Balducci, he announced himself as “Lackenstein” calling.

  Balducci apologized for failing to return the judge’s earlier calls; he seemed to be cautious about pushing the case further.

  But Lackey had been instructed to link Scruggs more firmly to the request. So he told Balducci, “You know, I never have been involved in anything like this and I guess I just need reassurance
.”

  “Yes sir.”

  “I know you told me this, and I’m satisfied with it,” the judge said. “But I just want to hear you say it again, I guess. You and Scruggs the only ones know anything about this?”

  “Absolutely, judge,” Balducci replied, repeating that only “three folks in this world know that I’ve even seen you. And it’s me and you and him. And that’s it.”

  “Thank you,” Lackey said. “That’s good.”

  Suddenly, Balducci began to retreat. “Listen,” he told the judge. “I don’t want you to do anything you’re uncomfortable with, either. It’s one of those situations where, frankly, I think that the law’s on our side, and I think probably had I never even approached you, we’d probably had the right result for us on this thing.” Balducci stammered and told Lackey again, “I don’t want you to do anything you’re uncomfortable with. I mean it. I respect you too much for that.”

  Twice more, Balducci stressed that Lackey should do nothing if he felt troubled.

  Still, the judge probed. He asked if Scruggs might someday use Lackey’s involvement “for any other purpose.”

  “No, sir,” Balducci said. “He ain’t that way, and let me assure you, as I told you the other day: me and Scruggs, there’s bodies buried along the roadside between the two of us, and even if he were inclined to such—he couldn’t and he wouldn’t.”

  “Well, it’s been bothering me somewhat, and I just wanted to be sure that you and I was on the same page.”

  “Yes, sir. Well, listen again. I don’t mean to make you uncomfortable. I certainly don’t mean to do anything to make you uncomfortable or to bother you, and like I said, if it’s not something that you feel right about then, you know, you do what your heart tells you.”

  Lackey was uncomfortable. That same day, he composed a brief letter recusing himself from the Jones case. Stating that the other two circuit judges in the district had declined to hear the case, Lackey wrote, “I find that it would be in the best interest of all parties if I also declined to sit, therefore we are requesting the Supreme Court to appoint another judge to hear this case.” He faxed copies of the letter to lawyers on the two sides.