3: Paragraph 38 Three unrelated examples will show you why I often felt as if I was working in a Three Stooges comedy instead of a bank:
3: Paragraph 39 Congressman James T. Broyhill of North Carolina had his share of the money from selling his family's furniture business that he needed to put in a blind trust to avoid conflicts of interest in voting on legislation. Federal regulations cover such trusts and require annual reports, and because such a trust isn't a qualified plan under ERISA, it was considered a personal trust at Hutton Trust. When Broyhill's money came in, Butler decided to avoid any appearance of self-dealing between Hutton Trust and Hutton & Co. by putting it in a non-Hutton mutual fund; Butler chose one, and the AE executed the trade by paying the money out of the brokerage account to the mutual fund, and that was the last we heard of it. Several months later, after Butler was gone from the Trust Company, the AE and Broyhill's lawyer started bugging me to submit the required report, and I couldn't find the assets — I found Butler's note in the file saying which mutual fund he had picked, but when I asked that mutual fund, they denied having any account in either Broyhill's name or Hutton Trust's. I finally submitted the report anyway — after all, as far as Broyhill was concerned the trust was deaf and dumb as well as blind, and it was easy to find out what dividends the fund had paid since the date the money disappeared in that direction — and things were quiet for several months until Broyhill decided he wanted to move the trust somewhere else because we weren't cooperative enough about providing information about it. It took several weeks, but the AE finally found the account at the mutual fund, under Hutton & Co.'s name, closed it, and turned the proceeds over to Broyhill's lawyer. What's really funny, or scary, is when the AE found the account at the mutual fund, it was one of three in Hutton & Co.'s name with no indication of what customer they belonged to, and he just left the other two sitting there.
3: Paragraph 40 Mr. & Mrs. Burchard were a retired couple in about their 80s, each of whom had a trust, and most of the assets in the trusts were shares in a bank (I think it was in Illinois, but it might have been somewhere else in the Midwest) that Mrs. Burchard's father had founded and Mr. Burchard had been president of. They had retired to Arizona, and an AE in Hutton's Mesa office talked them into moving their trusts to Hutton Trust so he could sell the stock and use the proceeds to buy them some annuities from Hutton Life Insurance; the commissions AEs got for selling Hutton insurance were even higher than their brokerage commissions. By the time I found out about the trusts, the AE had already sold the stock, and when I told him annuities were an improper investment for the Burchards, he told me not to worry — the insurance company wouldn't issue annuities on people their age, so he was going to sell them annuities on their son's life, and when they died the son would inherit and sell the policies and invest in something else, and the AE would collect a commission on each transaction! That struck me as an archetypical example of "churning" an account, which means repeatedly liquidating investments and reinvesting the assets to collect commissions on the new investments. I got into trouble with Abbes for it, but I went over the AE's head to his branch office manager, and the BOM did keep the AE from tying the assets up in insurance. For some reason, every few months the two Burchard trusts would pop up as exceptions in another internal audit, and I'd get a phone call from some Hutton employee somewhere in the country, and I'd explain what happened, and that person wouldn't bother me about it again. Then one day I got a phone call from a bank officer at the Illinois bank whose stock they'd owned; when the bank had gone to hold its annual stockholders' meeting, the Burchards hadn't voted the stock, and without it the bank didn't have a quorum, because between them they'd owned the majority of the stock. So the bank president had phoned the Burchards and found out what the AE had done and was doing, and he threatened to sue on behalf of the Burchards. I don't know how that situation finally came out, but I've often wondered.
3: Paragraph 41 Mary Alice Anthony had left a trust for her two sons and their children, and an AE in Hutton's Hyannis MA office talked one of the sons, Julian Kaiser, into moving "his" half of the trust to Hutton by promising Kaiser to pay him as much of the trust's income as he wanted. The trust document provided for pay-outs to Kaiser, who was a doctor, or his children if they needed them, and "need" was determined under Connecticut law. Kaiser's children appeared to need the money more than he did, especially as we found in the computer about four brokerage accounts in his name with substantial stock holdings in them, but the AE kept paying Kaiser all the income, and Abbes and Hitchcock kept letting him, although I kept putting memos in the file saying that was wrong, and the bank examiners kept saying in their audit reports it was wrong. In February 1986 one of Kaiser's children wrote to Hutton Group's then-CEO threatening to sue for the mishandling of the trust, but I never heard how that came out, either.
3: Paragraph 42 Those three situations — involving trusts worth more than a million dollars and trustees' fees of tens of thousands — are just the kind of problems any rational person would expect from not having any mechanism for Hutton Trust to track trust assets or supervise investments or distributions, but Hutton still shrugs them off as "typical back-office problems in a new venture" according to Shapiro's testimony on 1 October 1991.
3: Paragraph 43 Besides the comic relief, Hutton also provided some romantic interest: One of the CSD units was Hutton Portfolio Management, and it was headed by Greg Phipps, whom I found very attractive, but when I not too subtly let him know I was interested, he rather more subtly let me know he wasn't, so I didn't embarrass either one of us by pushing it. For the most part, Hutton employees didn't have much class — which isn't to say they weren't great to work with and fun to party with, because they were, and the people were part of what I really loved about working there — but Phipps used an Imari cup for his tea, even when he was alone in his office, you know what I mean? Once when we went to Hutton headquarters in New York to meet with some customers about bringing a big trust in, he took me on a walking tour around Wall Street, including Trinity Church and the Stock Exchange, and told me their history.
3: Paragraph 44 HPM, the program he ran, supervised AEs who had qualified to act as investment managers, instead of brokers, for their customers' Hutton accounts. So if an account was signed up for HPM, the AE made the buy-sell decisions and executed the trades but received a fee that was a percentage of the account's value instead of commissions on each transaction. Phipps handpicked the AEs who got into the program and supervised their training and their performance, and it was a class act all the way.
3: Paragraph 45 One of the times he had me speak to a group of HPMers about using trusts and the Trust Company was in Washington DC on 20 September 1984. It was one of those several-day affairs including training sessions and field trips, and one of the trips the day I was there was to the Capitol to meet one of Delaware's Senators and ride the little train under the building. But when we got to the Capitol, there'd been a bombing in Lebanon or someplace, and the Senators were taking turns being briefed in the little dome-of-silence room that doesn't hold very many at a time, and the Senator couldn't make it, so he'd asked Congressman Carper to meet with us instead.
3: Paragraph 46 I'd never taken much of an interest in politics, and although I'd moved to Delaware on 30 June and had recently registered to vote, I didn't yet know the name of our only Representative, but I did know we had only one. When he finally showed up in the small room where we were having soft drinks and cookies, he had his notebook under his arm, and I swear I thought the name on it was "Crapper," but I soon picked up that it was actually Carper.
3: Paragraph 47 He made conversation with the group, much of it about finances — we'd just heard a lecture at the Federal Reserve — and there was some kidding that the HPMers were from other states, so he was wasting his electioneering on them, and I said, "Well, I'm registered to vote in Delaware," and Carper joked, "Then I'll ignore these men and just talk to you." A little later, after he was told I was one of Hutton Trust's officers, Carper drew me a little aside and started explaining why he was having trouble getting the legislation we wanted through the Banking Committee. At first I didn't have the faintest idea what he was talking about, but the way you find things out is by listening, so I did. When I got back I talked to Hitchcock about it, and he told me Carper was trying to get federal legislation passed that would extend to Hutton Trust and Hutton Bank — because they had been chartered outside the period to which the "non-bank bank" legislation applied — and then I was able to make sense of what Carper had said about grandfathering.
3: Paragraph 48 That was around the same time that Hutton Trust acquired a new personal trust client, a corporation named International Development Programs Inc., the chairman of whose board was Wilbur Mills. An AE named John Jennison, in Hutton's C18 office in D.C. where Perry Bacon was BOM, had a client named Barton F. Walker Jr., who was president of Walker & Walker Associates, Inc., in Maryland and one of IDP's principals, so Walker had brought IDP to Jennison. IDP's president was Thomas M. Owen, whose phone numbers were in Virginia, and its lawyer was Francis L. Jung, who was also general counsel to American Pacific Trading Co. in D.C. The chairman of AmPac's board was Conrad K. Hausman, who was also one of IDP's principals. The other two IDP principals I dealt with were E. Doug Ward, executive vp of Astrotech International Corp. in Pennsylvania, and Daniel Craig, president of Norsud Corp. in California.
3: Paragraph 49 The companies these IDPers headed manufactured aircraft, and maybe tanks, guns, and other war toys — they had mostly been pilots in WWII and/or the Korean Conflict, and Hausman had worked for Alexander Haig in Vietnam and then at the White House. Owen had been on LBJ's re-election committee, and he told some of the best war stories I ever heard: some about the parties his cousin Tallulah Bankhead used to throw, some about his misadventures as a pilot during the war, some about LBJ, and all of them hilarious.
3: Paragraph 50 IDP's 'raison d' tre' was to borrow money from the pension funds of companies that manufactured industrial, agricultural, and defensive equipment (which we took to mean aircraft, tanks, guns, and related paraphernalia), invest it in U. S. Treasury notes, and lend the interest to developing Third-World nations (mostly in the Middle East and Central America) that would use the money to buy industrial, agricultural, and defensive equipment (wink, nudge), probably from the companies that had anted up their pension funds. They explained to us that this was all part of President Reagan's plan to cut back on foreign aid from the U.S. government and get the private sector more involved; they said they had the required approvals and gave us phone numbers at the State Dept. and White House to check them out, but Abbes forbade me to do any checking: He said the only checking would be by Hutton & Co.'s president Pierce through Barbara Bush to her husband the VP, and then later he told me we had not just their approval but their encouragement.
3: Paragraph 51 But the reason IDP had come to the Trust Company then, as they told us, was that they couldn't pry any money loose from the pension funds — remember I said that's where most of the investment money in the country is, but the trustees have to meet the high standards the law imposes on fiduciaries — so they'd gone looking for money overseas and found some: The royal family of Saudi Arabia had a lot of money to invest but couldn't be seen to do so because of the Islamic prohibition against usury, so they had created something called the Crusader Trust, run by one of the big Swiss banks fronting for them. The Crusader Trust was willing to lend IDP $100 million for some number of years I've forgotten now, but the Swiss bank insisted on having an American financial institution hold the bag, and IDP had been up one side of Wall Street and down the other and been turned down everywhere. Then Bush asked Pierce to have Hutton do it, and Fomon agreed and told Abbes to take care of it. It was, of course, a personal trust, so it fell squarely in my lap, and I had most of the dealings with IDP.
3: Paragraph 52 The last week of October 1984 I had to go to Basel, Switzerland, on rather short notice to meet with Owen, Hausman, Walker, Ward, Craig, and someone from the Swiss bank, and that's when I finally saw the printout of how the transaction was supposed to work. There were two kinds of problems with it: One was that the bank wanted Hutton to sign as the one liable for paying the interest for the term of the loan and paying back the principal in Swiss francs at the end, so we would in effect be guaranteeing not only the interest rate on Treasuries but also the exchange rate, and we wouldn't; the other was that there were so many finders' fees and up-front points to be paid to the various players that it would take every bit of income from the Treasuries, compounded by being repeatedly reinvested over the term of the loan, to get the principal back to the amount to be repaid, and that didn't leave anything to pay the income taxes with. When I pointed that out, Owen said, "But we don't want to pay any income taxes," and I said, "Nobody wants to pay income taxes, but how do you expect to get out of it?" So they put me on the telephone to Mills — whom they always referred to as "the Chairman" with such reverence that Abbes tried teasing them once by referring to Fomon the same way, but they were not amused — back in the States to find out what the story was on taxes. That was the only time I ever talked to him, and he didn't have any idea how to get out of the taxes, either, but he said he'd get the guys there working on it.
3: Paragraph 53 While I was in Basel — I went on Saturday the 27th and came back on Halloween of 1984 — IDP took very good care of me, and except for when I went back to my hotel to sleep and a couple of hours the last afternoon when I walked around town, I was always with one of more of them. One evening Owen wanted to drive to Zurich for dinner at the Dolder Grand Hotel, so three of us went with him — that's a whole story of its own, with Owen driving like Barney Oldfield on the autobahn and me falling back on my college German to navigate from an outdated map in the dark! While we were at the Dolder, Owen told us about the last time he'd been there, when he'd run into the exiled Shah of Iran and they'd talked about the good old days.
3: Paragraph 54 One day we drove across the corners of Germany and France on a little sightseeing excursion whose purpose seemed to be to let me see everybody's passports when we crossed the borders. They'd been hinting pretty hard that Hausman was CIA, but I kept acting like I hadn't caught on, and a day or so later Walker finally took me to brunch alone and just told me, but the two things I learned from their passports were that Hausman did, indeed, carry a diplomatic passport and that most of them, especially Owen and Walker, had been in and out of Iran a lot of times over the past year or so.
3: Paragraph 55 One evening when I got back to my hotel after dinner, there were some urgent messages from Abbes to call back, so I did, and because of the time difference he was still in the office. He got one of Hutton & Co.'s lawyers in New York on the phone with us to read us the riot act for my being there when the last thing the Legal Dept. had told me on Friday was not to go — they kept referring to IDP's plans as "gun-running" and wanting us to drop IDP as a client, but all we did was quit telling them stuff that was only upsetting them — but Bacon and Abbes had both told me later on Friday to go anyhow, with authority from Pierce and Fomon, and Jennison bought my ticket and wired me the money for traveler's checks. I'll always cherish the part of that phone conversation when Abbes asked the lawyer what they were afraid of, and he answered that after turning my head by getting me away from my own turf and into exotic surroundings IDP might get me to agree to something, to Hutton's detriment, that I wouldn't agree to at home; Abbes said, "If you think that, you don't know Kay very well!" Abbes knew, from trying to himself, it's virtually impossible to get me to do anything I don't intend to, and it really touched me to know he had so much faith in me, because by then I had a lot of regard for him, and I still do.
3: Paragraph 56 Some months later we started to realize why the Legal Dept. had been so hot about IDP when it hit the papers that Hutton had been involved in the money-laundering scheme the media called "the pizza connection." IDP kept talking to us for months about doing a deal, but nothing ever came of it.
3: Paragraph 57 Then on 2 May 1985 Pierce entered Hutton & Co.'s guilty plea to 2000 counts of federal mail and wire fraud in what came to be referred to as "the check-kiting." Too much has been written about that for me to have to describe it here; suffice it to say that Hutton had for several years taken advantage of the float on checking accounts by drawing checks to customers on accounts in banks at the other end of the country from where the customers were and then depositing the money to cover the checks later. Many of the AEs were shaken that Hutton had been doing anything so blatantly against both the law and the customers' interests, but I was surprised they were surprised, because it was the same thing Hutton was still doing through the Trust Company, and it was in keeping with everything I'd seen of the way Hutton was run.
3: Paragraph 58 Hutton was fined $2 million and agreed to pay up to $8 million in restitution to the banks, but Abbes and the other Hutton higher-ups I dealt with laughed that off as "chump change" compared to the amount Hutton had gained from it. They were, however, concerned that VP Bush was pissed off at the political flak he was taking for protecting Hutton, so they decided to hire a prominent Democrat to repair the political fences; they ended up paying former AG Griffin Bell about $2.5 million to handle the damage control. I can't help wondering if all the members of Congress who were shouting so loud then for someone at Hutton to go to jail would feel the same way now that their own check-kiting at the House bank has come to light. And if Carper hadn't known all along that what Hutton was doing was pretty shady, he has to have known it by the summer of 1985, but he kept trying to help Hutton get more favorable treatment under the federal banking laws.
3: Paragraph 59 Do you remember in "My Fair Lady" when Professor Higgins said, "The French don't care what they do, as long as they pronounce it correctly"? That's Hutton all over — they didn't care that they broke the law, but they got all bent out of shape that the media reported they did. Here's Shapiro's October 1991 testimony about the check-kiting and related scandals: "Hutton had had a very bad press because of some federal charges, and they were very sensitive about adverse publicity." "Hutton had had a series of bad newspaper notices and was very sensitive to criticism in the press." Apparently the only lesson Hutton learned was that federal felony charges are bad publicity. Other than that, Mrs. Lincoln, how did you like the play?
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4: Paragraph 1 Meanwhile, back at the ranch, the plot was thickening: Hutton Trust was getting into trouble of its own.
4: Paragraph 2 The day I reported to work at Hutton Trust I was assigned to handle the transfer of assets for the Vietnamese Orphans' Trust: In April 1975 a number of children were being flown out of Vietnam to be adopted in North America and Europe when a hatch blew off the C-5A, so it crashed near Saigon, injuring many of the children permanently. In settlement of the litigation on behalf of the 45 survivors who were adopted in the U.S., Lockheed Aircraft Corporation had paid $13.5 million into a trust to provide compensation and the costs of medical treatment to the children for the rest of their lives.
4: Paragraph 3 The case had been in federal court in D.C., and a lawyer in the D.C. law firm McDermott, Will & Emery was appointed "co-trustee" to oversee the trust. The complicated trust document called for regular meetings of and reports to the children's parents, and the structure was rather like that of a corporation, with the co-trustee as the board of directors and the beneficiaries as stockholders.
4: Paragraph 4 The lawyer who acted as co-trustee was Charles R. Work, and the trustee had been American Security Bank in D.C., the one that advertised it was on the back of a currency bill. When I was doing my thesis on taxation of trusts and estates for my 1983 Master of Laws in Taxation at Georgetown University Law Center, my thesis advisor had been a senior trust officer from American Security, and he taught me just about everything I knew about the practicalities of banks' administering trusts before I came to Hutton.
4: Paragraph 5 An AE from Hutton's C18 brokerage office in D.C., Tom Clark, had persuaded Work to move the trust, which was down to about $2 million because most of the principal had already been paid to the beneficiaries, from American Security to Hutton Trust. Later on I found in the file the misrepresentations Hutton Trust made to the federal judge to get his approval, saying we were qualified to do business in D.C. when we were not qualified to do business anywhere but in Delaware, but all I knew the first day was that Butler told me to make arrangements to receive and invest the assets.
4: Paragraph 6 We were going to put the assets in three accounts and invest each separately to provide diversity of the investment portfolio and because part of the principal was earmarked for the trust's day-to-day operating expenses, but part was for long-term investment to cover pay-outs in the distant future, which would diminish continuously. American Security transferred stock to us, and we sold it and invested the proceeds in other securities; it was when that stock started coming in that I found out our SEI system was not programmed to accept data on market and book values of assets.
4: Paragraph 7 It was also when I had my first of many run-ins with Clark, because after I told Hutton's trading desk to invest the proceeds in the non-Hutton securities Butler had chosen to avoid a conflict of interests, Clark told me he had decided to invest in other, Hutton funds that paid him a commission. Abbes ordered me to bust our trades and honor Clark's orders, and I did; Butler was unhappy about it, but he was a lame duck.
4: Paragraph 8 Clark was one of the most obnoxious people I've ever met, and that was his reputation throughout Hutton. One AE who was, like Clark, such a big-volume salesman he was invited to the prestigious annual national meetings/blow-outs Hutton threw for its "Blue Chip" AEs, told me he had met Clark when he roomed with him at one of those conventions: The AE who was assigned to be Clark's roomie didn't want to be in with him, and this guy, who didn't know Clark but figured he could get along with anybody for a few days, agreed to swap room assignments. He told me that he hadn't believed anybody could be as obnoxious as Clark, and he was disappointed in himself to find out much and how soon Clark got on his nerves.
4: Paragraph 9 What's surprising is that anybody like him could make a living as a salesman, but that he managed to make such a good living selling proves a person can overcome really huge handicaps. At one meeting in Abbes's office in January 1985, which may have been the first time I met Clark in person, we were sitting at a small, round table discussing the trust, when Clark suddenly looked at me and asked, apropos of absolutely nothing, "Are you married?" I never found out why he asked, but I knew it was extremely inappropriate, and Abbes nearly threw himself on the table between us because he thought my temper was about to blow — it's easy to tell when I'm seriously pissed off, because my ears turn red, my jaw muscles tense up, and my voice comes out sort of clipped and grating.
4: Paragraph 10 Hutton Trust was mishandling all the trusts, but the Vietnamese Orphans' Trust became the major bone of contention with the authorities because it had a better paper trail: The parents' committee and the federal court were both actively overseeing its operations, and its documentation was quite explicit about how it was supposed to be handled. I had gone several rounds with Clark and Work in January 1985, and because of those problems and the ones I described in the prior chapter, I was talking to some of Hutton's internal lawyers and AEs about setting up formal procedures for bringing in and managing trusts, but Abbes forbade me to promulgate any formal rules: He said that if we had written rules, we'd have to abide by them, and that he would not allow me to make rules that would interfere with the AEs' ability to keep treating the trust accounts the way they'd been doing.
4: Paragraph 11 In one of our discussions in his office, Abbes asked me what I thought was going to happen if we didn't set up some formal procedures, and I said the worst-case scenario was that the state bank commissioner would cancel our license to do trust business. He said I was supposed to keep it from coming to that, but if it did, we'd tie the commissioner up in litigation for at least three years, probably longer, and during that time we'd still be making money hand over fist, and when we got thrown out of Delaware we'd move to another state and keep going. That was the first time I was really scared at what I'd gotten myself into, and that's when I vowed not to do anything I could be legally liable for when it came time to throw some underlings to the wolves to protect Hutton.
4: Paragraph 12 In May 1985 the bank commissioner issued his annual audit report on Hutton Trust. Besides describing general problems with documentation and listing several specific trusts where there were problems, the cover letter and the text of the report were mostly about the Vietnamese Orphans' Trust. In the report, which was a confidential document not available to anyone except Hutton Trust's management, the commissioner said:
4: Paragraph 13 "Mr. Work is apparently delegating and carrying out his duties as co-trustee in direct violation of the above captioned agreement . . . File correspondence indicates investment policy decisions are being developed and directed primarily by two non-appointed persons, Mr. Thomas Clark, a sales broker for E. F. Hutton Company and the subject trust accounts' transactions, and Mr. Robert Warden, an associate attorney for Mr. Work's law firm. An apparent case of self-dealing and improper delegation of duties is evident when Mr. Work allows Mr. Clark to direct investment policy for the trust as well as take commissions form the sale of trust investments."
4: Paragraph 14 Keep in mind the timing — this report came two weeks after the guilty plea to the check-kiting. By now the white-out and retyping of the monthly reports was taking more than a month, so we had trusts that hadn't received a statement from us since at least February. The bank where Hutton Trust had its three checking accounts refused to let us draw any more pension checks on funds that hadn't been deposited yet, so we moved our accounts to a different Wilmington bank.
4: Paragraph 15 And then Clark popped up with the possibility of getting the co-trustee of the trust for the Vietnamese orphans who had been adopted outside the U. S. to move it to Hutton Trust, too! We were trying to get straight with the commissioner about the mishandling of the one we already had, and he was bringing in another, bigger one he was planning to play just as fast and loose with and so create more problems.
4: Paragraph 16 Then the federal judge in D.C. ordered Hutton to show cause why it shouldn't be removed as trustee in light of the check-kiting. Despite my strenuous objections to Abbes and Hutton's inside lawyers in New York, Hutton represented to the judge that no one at Hutton Trust was involved in the check-kiting, and the two companies were entirely separate. That was enough for the judge, but it didn't happen to be true: The one person who was removed from most of his corporate offices at Hutton Group and Hutton & Co. for his involvement in the check-kiting was Thomas Lynch, who was chairman of Hutton Trust's board of directors. There was also the fact that Commissioner Malarkey had reported that an employee of Hutton & Co. was improperly running the Orphans' Trust. During that summer of 1985, I lay awake a lot of nights looking for a way to keep Hutton Trust out of legal trouble and keep myself from being dragged down, too.
4: Paragraph 17 I'd applied for admission to the Delaware bar and taken the bar exam the end of July, and Rod Ward was my preceptor, so I was frequently discussing with him and with Dave Garrett both Hutton's situation and my own, especially the ethical aspects.
4: Paragraph 18 By the end of September, Hutton Trust was operating with a siege mentality: Hutton Group was interviewing people to replace Abbes and Hitchcock as CEO and president, and several of us vp's, especially Ron Hatton and I, were maneuvering to move up in the shuffle. On 8 October I took a business trip to the Alexandria VA brokerage office, and while I was gone there was a flap about a friend of Hatton's applying for the job of CEO — Abbes had found out Hatton had told his friend, an officer at a bank in, I think, Pennsylvania, about the opening, and Hutton in New York had interviewed him. It was really funny, but the BOM in Alexandria had filled me in on what was happening at Hutton in New York and why, and that wasn't funny: He and many other BOMs around the country had demanded that Fomon replace Abbes and Hitchcock because Hutton Trust wasn't delivering its statements, and the pension trust customers, who were already nervous because of the check-kiting, were starting to bail out of Hutton in droves.
4: Paragraph 19 Abbes and Hitchcock were upset and taking it out on us, and for the first time it wasn't much fun to work at Hutton Trust. As a lawyer I had a particular problem: The ethics rules prohibited my lying to a court, I was Hutton Trust's lawyer, and I knew it had lied to Judge Oberdorfer about Hutton & Co.'s involvement in managing the Orphans' Trust. I decided the ethics rules required me to tell Judge Oberdorfer the truth, but they didn't require me to lose my job if I could help it. (I'd been looking for another job for months, but I never got any offer.)
4: Paragraph 20 First I telephoned the judge's chambers and talked to his clerk; I said I had a copy of a document that bore on how the trust was being managed, and I wanted to send it to the judge, but I needed to know he wouldn't say who gave it to him. The clerk, who was probably right out of law school because he had the arrogance and inflated sense of self-importance you often find in new clerks but seldom in the judges themselves, told me anything they received would be made public, and so would the circumstances under which they received it. So much for the direct approach, but in a way that simplified matters for me, because it meant I didn't have to worry about keeping the commissioner's report confidential, because as soon as the judge got it, he was going to make it public anyhow.
4: Paragraph 21 After several more days of thought, I decided the only kind of person I could trust to carry the report to the judge and not say who gave it to him was a journalist, so I called the 'Washington Post' and talked to a reporter there. After several conversations, in which I did not give my name or any information he could trace me by, some days later I agreed to send him a copy of the report, and he promised to take it directly to Oberdorfer; I believed he would, because any good reporter would naturally take it to the judge first and see what happened — that would make for a better story.
4: Paragraph 22 So I mailed, anonymously, a copy of the bank examiners' report to the reporter and waited to see what would happen, and two things did: First, Hutton bought off the 'Washington Post'! After the 'Post' took the report to the judge and got him worked up, a reporter called Hutton for comment before publishing the story; for about two days Hutton Group's highest officials spent a lot of time on the phone with the 'Post''s owner, and then the 'Post' killed the story. That scared the hell out of me, because I hadn't thought anyone had that much clout, but when the VP's brother-in-law is one of your senior officers, I guess everyone in D.C. listens when you talk.
4: Paragraph 23 The second thing that happened was that on 31 October Oberdorfer issued a notice scheduling a conference for the next week to discuss, among other things, why he hadn't heard about the bank commissioner's report until the reporter showed it to him. The upshot was not only that Hutton lost the European orphans' trust that was coming in, but Work and Hutton were removed as co-trustee and trustee of the one we already had; it was consolidated with the European one all right, but in the hands of the trustees that already had that one.
4: Paragraph 24 Abbes always believed I was the one who leaked the commissioner's report to the 'Post', but he couldn't prove it, and I never admitted it to him. Not that I was ashamed of what I'd done — quite the contrary, as I'd done what the ethics rules required me to do and the corporate bylaws authorized me, as a vp, to do — but once the 'Post' knuckled under to Hutton, I knew the undercurrents were too strong for me to keep rocking that particular boat.
4: Paragraph 25 By December Hutton Group had decided to send someone down to Hutton Trust to whip things into shape, and they chose Ken Simon; he had us hire every accountant and accounting clerk the temp agencies in Wilmington could provide, and then we got some from Philly, too, and we started digging out from under the mountain of overdue statements.
4: Paragraph 26 At Hutton Trust's board of directors meeting on 4 December, I got a nasty surprise: As corporate secretary, I was there taking the minutes, and because of how much trouble we were in, Fomon attended the meeting. At one point he asked how our efforts with "the Congressman" were coming, and Ellis answered that we had Carper "under control," that Phipps was telling him what laws we wanted passed, and it was okay to release the campaign contribution Carper was supposed to get for his help.
4: Paragraph 27 During the 1990 campaign, Carper's opponents showed me his campaign-contribution reports from that period, and they reflected two equal contributions from Hutton; I don't remember now — the amount I think I recall them being was $20,000, but that may have been the total. They told me that when they asked Carper about them, he said the second one was a clerical error, that Hutton had made only one contribution, and he'd later given it back, but when he paid it back it got added to the report instead of subtracted. That, of course, raises the questions of why he gave it back and why he can't tell the difference between adding and subtracting that much money in his checking account records, but with what we know about House banking now and his three bad checks, it's remotely possible.
4: Paragraph 28 But Carper sent me a letter dated 17 February 1987 in which he referred to Phipps as his "friend and supporter," and I know Ellis identified Phipps to Fomon as the bagman who was controlling Carper for Hutton, so I'm left wondering whether Carper is a fool, who didn't know he was being controlled by Phipps, or a liar, who didn't know I knew it.
4: Paragraph 29 Remembering the definition of "honest politician" as one who, once he's bought, stays bought, Carper seems to be an honest politician, and the facts that he's a Democrat and Hutton is a Republican bastion merely reflect the reality that in Delaware party labels don't count for anything, and the Establishment is the only party that does count.
4: Paragraph 30 By February 1986 I was in the position Tom Lehrer described as that of a Christian Scientist with appendicitis: I couldn't afford to quit Hutton Trust until I found another job, and I couldn't get another job because I'd been working for Hutton Trust; if I stayed I might end up in trouble when the authorities found out what Hutton Trust had been doing, and if I left they would certainly blame the illegalities on me when they got caught — I was, after all, the one who'd been sending memos describing them to our directors and lawyers, so I was the only one on record as knowing what was happening.
4: Paragraph 31 By January Abbes was trying to get me to quit, and he started removing my titles and duties, and under the corporate bylaws he didn't have the authority to do that without a vote of the board of directors. In February I gave Hutton's inside lawyers an ultimatum offering them their choice of three alternatives: One, Hutton could straighten out Hutton Trust and let us start handling the trusts the way we were supposed to, so no one would get into trouble with the authorities. Two, Hutton could pay me $500,000 and give me a release, saying I wasn't responsible for what had been going on there, and I'd resign and stop talking to the press and anybody else except under subpoena; I thought that was enough to support me until I lived down having worked at Hutton Trust and found another job. Three, I'd sue Hutton and get the court to rule I wasn't responsible for the illegalities at Hutton Trust.
4: Paragraph 32 Then at the beginning of March the bank examiners showed up for their annual audit. On Wednesday, 5 March, John Smith, who was the examiner heading the audit and one I knew from earlier audits, told me they'd want to talk to me the next day; about 2:30 the next afternoon, he phoned me to come to our glass-walled conference room, and I went. I'd hardly sat down and given my name and job title when Hitchcock, who was skittering up and down the hall watching what was going on in the conference room, stuck his head in the door and asked me to step out in the hall; he told me I was not allowed to talk to the examiners without him, and he was too busy to be present that day — yeah, too busy not letting anyone talk to the examiners. I asked if I should tell them, and he said he would, so I went down the hall to my office.
4: Paragraph 33 A few minutes later Smith walked into my office, handed me a slip of paper with a Dover phone number, and told me to call the bank commissioner's office and make an appointment, because they had to talk to me, especially in light of what had just happened. As luck would have it, I was scheduled to be in Dover the next day to be sworn into the bar, so I called and made an appointment for the afternoon of Friday, 7 March.
4: Paragraph 34 By then it was after 3:00 o'clock. The examiners packed up and left about 4:00 o'clock, and a few minutes later Hitchcock phoned and asked me to come to Abbes's office; I knew Abbes was going to fire me, and he did, telling me to pack up and be out by the close of business that day.
4: Paragraph 35 When Butler had left Hutton Trust — by which I mean the day he actually left, although he'd been given notice a month or more before — he'd had a falling out with Lockwood, and Lockwood had made a scene, shouting in the hall and ordering Butler off the premises immediately; it had upset everyone, and then we'd held up Butler's last paycheck, and he'd gone to the state labor board and to a lawyer, and it'd been a mess, both legally and from the employee relations standpoint. I'd always teased Abbes that when it came time to fire me, I expected him to handle it better than that, and he did.
4: Paragraph 36 With the help of my secretary and tax clerk, I packed up my stuff, then I went home and telephoned the 'Wall Street Journal' to tell them what had happened. They ran several stories about it over the next weeks, and the local newspaper picked it up, as did the national wire services. Judge Oberdorfer had put Commissioner Malarkey's 1985 audit report in the court record, so it was a public record then, and I gave copies to the reporters who asked for it; they wouldn't have printed my allegations about the mishandling of trusts at Hutton if they hadn't seen the evidence, and that report was the most comprehensive part of the evidence.
4: Paragraph 37 On 18 April the 'Wall Street Journal' reported that Abbes and Hitchcock had resigned, but for personal reasons and not because of my accusations, and that Malarkey said he hadn't found "any evidence that the unit mishandled trust assets or violated fiduciary obligations." That was remarkable enough, given that his own report from the year before had listed specific instances of mishandling and fiduciary breaches, but a few weeks later, in "the late spring or early summer of '86," he delivered to Hutton Trust the report of the 1986 audit, the one he'd been conducting when I was fired, and it reported that the same problems cited the year before still existed! But the two audit reports were confidential, so Malarkey could stand up at his press conference and say in public there was no truth to my charges, when his own reports, delivered before and after the press conference, proved what I was saying.
4: Paragraph 38 I'd been taught in law school that a civil lawyer's main function is to avoid litigation, to get cases to settle without going to trial. So I wrote some letters to Hutton asking them to settle my legal claims against them without making me file suit. In a letter dated 22 September 1986, Hutton's new legal vp Stephen J. Friedman called my "demands" extortion and said they were looking into having me disbarred in every jurisdiction where I was admitted to practice law.
4: Paragraph 39 I tried for months to hire a lawyer to represent me, but no one would, and then one of my mentors told me the word was out, and I wouldn't be able to find any lawyer who would sue Hutton for me. So on 31 August 1987 I filed a civil RICO suit against Hutton Group, Hutton & Co., and Hutton Trust in federal court in Wilmington, and I filed it 'pro se', which means for myself, without any attorney representing me.
4: Paragraph 40 I hadn't known much about RICO before 1987, but I'd done enough research to know that was the legal theory I wanted to use: Because I lived in Delaware and all three Hutton entities were Delaware corporations, there wasn't diversity of citizenship, so I couldn't go to federal court unless I raised a federal question, and the RICO statute was federal, so it provided jurisdiction. Also, that statute required the court to award me three times whatever damages I proved I had suffered, plus court costs and attorney's fees.
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5: Paragraph 1 At the same time the events I've described were happening to me at Hutton Trust, someone else was having a similar experience at another company incorporated in Delaware. Like me he was a senior executive at a subsidiary of a national conglomerate and a shareholder in the conglomerate, but unlike me he was the CEO of the sub because he'd started the smaller company and sold it to the conglomerate, and his block of the parent's stock was significant. Like me he was dissatisfied with the asinine and illegal way the conglomerate was operating and how it was forcing him to operate the sub, and he'd been telling the national press about it.
5: Paragraph 2 By the summer of 1986 he'd given the conglomerate an ultimatum with three alternatives: Either let him run the sub the way it should be run or buy him out so he could leave, or else he'd sue them. After that his story is vastly different from mine, but then he was H. Ross Perot, the conglomerate was GM, and his sub was EDS.
5: Paragraph 3 GM did buy Perot's GM stock back, and he resigned from EDS and promised to quit criticizing GM, but GM paid him so many millions of dollars that its shareholders sued GM and Perot, calling the payment "hushmail." The Chancery Court has ruled twice in the matter, and the Delaware Supreme Court once, and they're agreed that GM's board acted properly in paying Perot to get out because his grousing was interfering with the way the board was trying to run GM. If it wasn't extortion for him to give GM his ultimatum, and the courts have ruled it wasn't, then it couldn't have been extortion for me to give Hutton the same ultimatum.
5: Paragraph 4 Another situation was shaping up in 1986 that also led to a civil RICO suit for violation of the federal securities laws and for extortion: In 1986 Carl C. Icahn started buying more stock in Viacom International, Inc., and threatened to take the company over; in May Viacom bought back its stock from him, for $79.50 per share when it was trading at $62, and he promised not to buy any more Viacom stock for eleven years. Then Viacom sued him for extorting this "greenmail" from it, the federal court in New York dismissed the suit, and the appeals court affirmed, saying Viacom hadn't been damaged because what it got from Icahn was worth what it paid.
5: Paragraph 5 In its published opinion the district court discussed the difference between "extortion" and "hard bargaining" and concluded that it's not extortion if the person demanding the payment has a right to assert the legal claim he's offering to release in exchange for the payment — Icahn had the right to try to take Viacom over, and he could release that right in exchange for Viacom's payment. I had a right to sue Hutton for firing me and for ruining my reputation by involving me in its criminal activities, and I could release that claim the same way anyone hurt in a car accident can settle his claim against the driver or his insurance carrier.
5: Paragraph 6 Of course those cases were decided within the past year or two, so when I filed my case in 1987, there were no precedents with such similar facts. I'd like to take credit for behaving so much like the big boys in 1986, but the truth is I wasn't clever enough or experienced enough to have dealt with Hutton the way I did without the expert advice I was receiving, especially that from Dave Garrett, an expert in trust banking, and Rod Ward, an expert in corporation law. Because Hutton had been their client before I met them, however, and their relationship with me grew out of that relationship with Hutton, they could not represent either one of us in our litigation.
5: Paragraph 7 One reason I say Ward is so smart it's scary is that one day in autumn 1985 I was in his office telling him what was happening at Hutton Trust, and he said, "You know if you have to sue them, I won't be able to represent you." At that point I was so busy fighting alligators I'd forgotten about draining the swamp, and that possibility had never even crossed my mind, but I suddenly saw that I might, indeed, end up suing Hutton, and all the big lawyers would be on their side. But the silver lining to that dark cloud also appeared to me, so I answered, "Yes, but you won't be able to represent them, either." And that's the way it played out a couple of years later.
5: Paragraph 8 In early 1987, while I was still looking for a lawyer to sue Hutton for me, I got another one of those nasty shocks that made me nervous about going up against Hutton: The tv news shows were talking about Iranscam, and I noticed on the ABC news one night (I don't pay much attention to news, but 'Jeopardy!' comes on that channel at the end of the national news) that the IBC statements they were showing were monthly statements from a Hutton & Co. account. Like a light bulb going on over my head in a cartoon, a lot of things I'd seen and heard in dealing with IDP in late 1984 clicked into place, and I realized I'd been mixed up in Iranscam.
5: Paragraph 9 I was really worried then that when I sued Hutton they would accuse me of some criminal violation for having dealt with IDP, and if I got into a pissing contest with Hutton, I was going to be at a distinct disadvantage, so I decided I had to act first. I wrote to the 'Wall Street Journal' reporter who'd reported my firing, telling him what I knew about IDP and asking if he thought it was part of Iranscam or was I just being paranoid; I got a phone call a few days later saying his sources indicated I was onto the real thing. Then I wrote to the Senate Select Committee on Secret Military Assistance for Iran and the Nicaraguan Opposition telling everything I knew about IDP and what I'd done with them; a few days later I got a phone call from one of that committee's staff attorneys checking to see if I had any more information but saying because of the nature of their investigation they wouldn't be able to tell me what came of the leads I gave them.
5: Paragraph 10 At about the same time, I'd tried to file a criminal RICO complaint with the federal prosecutor in Wilmington, because one of the lawyers I'd consulted about representing me was a former federal prosecutor and said the documents I had were sufficient to support an indictment against both Hutton and Malarkey, and I should let the government handle the litigation, because it would be all over the country and take a lot of money. But all U. S. Attorney Bill Carpenter did was send an FBI special agent to talk to me, and he kept nodding off to sleep while I was trying to talk to him about the banking violations at Hutton Trust; when I mentioned Iranscam, however, he perked up, and some days later he came back with his supervisor and asked some more questions about it. That's how I know I didn't just imagine that IDP was part of Iranscam.
5: Paragraph 11 When Skadden Arps couldn't represent Hutton against me because of its conflict of interest, Hutton hired Morris, Nichols, Arsht & Tunnell; the grown-up lawyer on the case was Thomas Reed Hunt Jr., and the associate who did the scut work was Brett D. Fallon. I'd had vanishingly little practical experience of civil litigation, and I learned a great deal from seeing them work; I wouldn't realize it until later when I saw how bad some of the other lawyers in town are, but in their dealings with me they exemplified the highest standards the bar sets for itself.
5: Paragraph 12 Which is not to say they didn't put up a good fight, but they fought clean and fair, and it never got personal. Even when Hunt told me they were not only going to have the case dismissed but also have the court order me to pay their costs and attorneys' fees, he was a perfect gentleman, and I admired his style. I answered that the most they could do was drive me into bankruptcy, and then I'd load my dogs and my clothes in the car, leave the bank to foreclose on the house, and move in with my parents in Mississippi — since the kids have moved out, they have three bedrooms and two baths with no one to use them, and there's a motel-sized pool in the back yard, so it wouldn't be too hard a life.
5: Paragraph 13 We futzed around with the litigation for nearly two years, and in March 1989 Judge Joseph J. Longobardi dismissed my complaint for lack of standing, saying I wasn't directly injured by the RICO conspiracy I alleged, and that calls for a little discussion of the RICO statute.
5: Paragraph 14 Congress made the "Racketeer Influenced and Corrupt Organizations" chapter part of the federal criminal code, effective 15 October 1970, to be able to prosecute organized crime for using legitimate businesses as fronts or money laundries for the proceeds of criminal activity. It defines "pattern of racketeering activity" to be at least two felony violations of certain state or federal statutes committed by the same person within 10 years, and at least one act has to have been after this law went into effect. The statute makes it a crime to use money from such racketeering activity to start, buy, or run a business engaged in interstate commerce or to conspire with somebody else to do so.
5: Paragraph 15 Besides being a criminal law, the statute also provides that anybody "injured in his business or property" by a violation of the RICO statute can sue in federal court and "shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee." The so-called "predicate acts" that form the pattern of racketeering activity include mail and wire fraud ("wire" usually means "telephone"), embezzling from union funds (which some of the pension funds were), and securities fraud.
5: Paragraph 16 I said in my complaint that Hutton Group had set up Hutton Trust to allow Hutton Group to collect trustees' fees from the same accounts it was collecting brokerage commissions from, through Hutton & Co., but that Hutton Group never made or let Hutton Trust perform the trustees' duties to earn the fees, and that violated the RICO statute. I said that they hired me and the other employees by making us think Hutton Trust was a legitimate company when it wasn't, and that was fraud on us in furtherance of their RICO conspiracy against the trust clients, and firing me to keep me from answering the bank examiners' questions injured me, and therefore I'd been injured in my business or property by their RICO violation, and I was entitled to recover. Judge Longobardi didn't agree.
5: Paragraph 17 I appealed the dismissal to the federal appeals court, which sits in Philadelphia, and served the notice of appeal on Hunt, but then Hutton switched lawyers. That was probably a practical rather than a tactical decision — Hutton had been bought by Shearson Lehman in 1988, and in fact I'd filed a suit in Chancery Court complaining, among other things, that Shearson didn't pay us shareholders enough for our Hutton stock in their merger because of Hutton's legal liabilities, which Shearson bought along with Hutton's assets — because Richards, Layton & Finger, the firm that replaced Morris Nichols, had been working for Shearson for some time. Replacing Morris Nichols was a strategic error on Hutton's part, though.
5: Paragraph 18 Although we were litigating a federal claim in federal court, they assigned the case to Anne C. Foster, a lawyer with virtually no experience in federal court who wasn't even admitted to practice in the federal courts yet — most of her experience was in Chancery Court, in cases alleging breach of the corporate directors' fiduciary duties to the shareholders, where all the corporation has to prove is it had a business reason for doing what it did, and it wins. She has never seemed to grasp the idea that in a RICO suit it doesn't matter why you did it: If you did it, you're guilty. But it probably didn't matter what she thought, because Hutton was always an extremely sexist organization (and Shearson seems to be upholding that tradition), and they would never pay much attention to anything a woman said anyhow — that was always my problem with Hutton: I couldn't get their attention because they've never to this day taken me seriously.
5: Paragraph 19 There are no trials in appellate court: Both sides submit written briefs, and the court may hold oral argument, but the hearing is just for argument, no testimony or evidence. In this case the court didn't ask for oral argument; we sent in our briefs, and in September 1989 the court issued a published opinion reversing the dismissal and saying I did so have standing to sue Hutton under RICO. Given the appellate court's opinion on the law, all I had to do was prove the facts I'd alleged in my complaint, and I had to win.
5: Paragraph 20 Any reasonable defendant would have settled the case right then, but not Hutton. Two years later, in September 1991, we finally went to trial; not only had Hutton kept sniping at me and squabbling about stuff that didn't matter, but Longobardi had been so cranky to me as to border on hostility.
5: Paragraph 21 Take the famous forged U-4, for example: In the fall of 1985, when I was trying to find another job either inside Hutton or outside it, managers of several Hutton & Co. units were talking to me about coming to work for them, but to share in commissions I'd have to have a "Series 7" license. By then my relationship with Abbes was rather brittle — because he'd asked me to quit, and I'd not only refused but also told several Hutton & Co. "heavy hitter" AEs who owed me favors, and they'd told Abbes they didn't want me fired because I was helping them so much — so I sent a memo to Lynch asking him if I could be licensed, and he said I could and forwarded it to the Hutton & Co. department that handled licensing.
5: Paragraph 22 They not only registered me for the exam but also sent me the materials to study for it, as well as the Form U-4 that is the application to be a "registered representative," which is what an AE is and what you have to be to get paid a brokerage commission. You also have to be employed by a member of the Stock Exchange, which Hutton & Co. was, but Hutton Group wasn't, and of course Hutton Trust wasn't. The form had a part the applicant was supposed to fill in, with name, address, employer's name and address, and recent employment history in it, and then there was a part the employer was supposed to fill in and sign; above where the applicant was supposed to sign it recited, among other things, that the applicant agreed to binding arbitration, under the NYSE rules, of any dispute between the applicant and the employer.
5: Paragraph 23 The instructions said fill it in in black ink and print, and we couldn't find a black pen anywhere at Hutton Trust, so Abbes told me to fill it in in blue ink and then make a photocopy and sign that as the original; he also told me to fill in the part he was supposed to do, and when I said the employer was supposed to do that part, he said he was doing it, by having his employee (me) do it, and he was right, so I did. I made the photocopy, and he and I signed it, then I sent it to Hutton in New York.
5: Paragraph 24 After I filed suit, Hutton moved to dismiss on the grounds that I'd agreed to binding arbitration, and they submitted a copy of the U-4 they'd sent to the securities authorities when they registered me. But, lo and behold, where I had accurately printed Hutton Trust's name and address in the block for my employer, someone at Hutton in New York had whited that out and written in Hutton & Co.'s name and address. I still had the original blue-ink version, so I figured I had Hutton by the short hairs: They'd just produced evidence they lied to the securities authorities by mail and telephone, and that was mail and wire fraud, actionable under RICO. But Longobardi keeps saying that I was equally at fault in falsifying the U-4 because I filled in the employer's section!
5: Paragraph 25 There's also the matter of unemployment benefits: Hutton Trust's bylaws defined me as a senior corporate officer and provided that a senior officer could be fired, with or without cause, only by a three-fifths vote of the board of directors. (Abbes kept asking me to resign because he didn't want to have the directors vote on it; that's how he'd gotten rid of Butler, and then Abbes changed the old board minutes to make it look like Butler hadn't held the offices it required a board vote to terminate.) When I was fired, I filed for unemployment benefits, and Hutton didn't answer the claim; I submitted the newspaper clippings where Hutton said I was fired for making improper demands, and the unemployment office made written findings that didn't amount to cause under Delaware law, so I collected unemployment for much of 1986.
5: Paragraph 26 After I filed suit, Hutton also moved to dismiss on the grounds that I'd been fired for cause, and it submitted minutes of a board meeting ratifying my termination for cause but not saying that the vote was more than a simple majority. Given the bylaws requiring a supermajority vote and the ruling of the unemployment office, which Hutton didn't appeal when it had the chance, Hutton's position had to be rejected as a matter of law, but Longobardi has always treated it as an open question whether I was fired for cause, as Hutton says, or to keep me from talking to the bank examiners, as I say. I could give you more examples of how Longobardi, who's now chief judge for the district, has sided with Hutton to give me a hard time, but you get the idea.
5: Paragraph 27 The trial took most of two days: 30 September and 1 October 1991. I testified the first day, and my cross examination continued into the second day, then Hutton put on four witnesses: one of Hutton's inside lawyers who was still working for Shearson, Abbes, Hitchcock, and Shapiro. Not only did they not contradict my allegations, they actually testified that they were true in every material aspect!
5: Paragraph 28 There were many comical moments: Hitchcock, trying as usual to wimp out from under any responsibility, testified to not having known then or not remembering now most of what I asked him, and Abbes testified to not knowing who had issued his pay checks. While I'd been testifying, I'd several times tried to introduce a subject, like Lockwood's tantrum when he fired Butler, and Foster had objected, and Longobardi had ruled it out; then her witnesses got on the stand and testified to it for me. The way Longobardi fawned all over Shapiro would have been funny if it weren't so pathetic: The only thing more disgusting than having to watch a federal judge suck up to anybody that much is having the guy he's sucking up to be your opponent's star witness.
5: Paragraph 29 I was suspicious of my good fortune when the first three witnesses not only didn't counter my evidence but actually supported my case, but then Shapiro took the stand and did so much to help me that I considered whether I was dreaming, and the alarm clock would go off any minute for me to get up and go to the real trial. Malarkey was dead by then, and I'd figured there was no way to prove who was responsible for his lying to the press — saying there was no truth to my charges when his own reports documented everything I was saying — so I hadn't even included any defamation claims in my complaint, but the appellate court had ruled that "loss of earnings, benefits, and reputation constitute self-evident injury as in any standard wrongful discharge action." My reputation had certainly been injured by his making me out to be a liar, but I doubted I'd be able to blame Hutton for it — I'd expected Hutton to be smart enough to say Malarkey must have done that on his own, so Hutton wasn't liable to me for it.
5: Paragraph 30 But Shapiro testified — voluntarily, on direct examination, in answer to Foster's questions, and before I even started to cross examine him — that he was the one who suggested that Malarkey tell the reporters that! That admission meant Hutton was liable for the deliberate injury to my reputation, because one of the federal civil procedure rules says that if you prove something at trial that you didn't put in your complaint, it shall (not "may" but "shall") be treated as if you did include it in your complaint. That was like Christmas coming early, but then it got even better.
5: Paragraph 31 Shapiro had testified on direct examination that when Malarkey issued his 1986 audit report on Hutton Trust, it showed the same problems that had been described in the 1985 report, what Shapiro helpfully described as the kind of problems you'd expect from having brokerage people trying to run a bank. I'd never seen the 1986 report, and I hadn't asked for it during discovery because it was written after I'd been fired, so I knew Longobardi would rule I couldn't have it, and I'd hate like the devil to give either him or my opponents the satisfaction of keeping me from getting something I want. But I knew the federal evidence rules pretty well, and one of them says if a witness looks at a document to refresh his recollection before testifying, you get to see it.
5: Paragraph 32 So I asked Shapiro if he'd reviewed any documents in preparation for testifying, and Bingo! He admitted to reviewing the commissioner's 1986 report, I asked for it, and Longobardi said they had to let me see it; Foster objected and kept dithering about it being too late for me to make a request for Hutton to produce documents, but that just showed she didn't understand the rules of evidence. Moments like that made the trial truly memorable.
5: Paragraph 33 Neither Hutton nor I had asked to have a jury for the trial: I didn't, because I thought the breaches of fiduciary duty, both the trustee's duties and the directors' duties, were too technical for many jurors to care about, and I wasn't sure a jury would see me as a sympathetic plaintiff; you'd have to ask Hutton why they didn't want a jury. Besides, a jury comes back with a verdict, and you're pretty much stuck with it, but when you have the judge decide the case, he has to issue an opinion setting forth his reasons, and if you appeal his ruling, the appellate court goes over his reasoning as well as his result. And whatever his shortcomings of intellect and temperament, Longobardi used to be a vice chancellor and so must have a solid background in both types of fiduciary breach.
5: Paragraph 34 At the end of the evidence on 1 October, he gave us an expedited schedule for filing our written arguments because, he said, he wanted us all "to deal with this while it's hot and fresh in our minds." The last brief was submitted on 7 December 1991; as I write this, in June 1992, we're still waiting for him to deliver the verdict.
5: Paragraph 35 I know that he'll have to give us a decision sooner or later, and then one or both of us may appeal it, so this litigation may drag on for several more years, but it will eventually be over, and I'll be able to get on with my life. In the hope that this year will see the end of this case, which has cluttered up my present and future for more than six years, I've written the story now, for two reasons: Personally, when the case finally ends, I don't want to have to think about it anymore; politically, this information should be stirred into the mix upon which we'll base our electoral decisions in November.