The Project Gutenberg eBook ofDiamond DustThis ebook is for the use of anyone anywhere in the United States and most other parts of the world at no cost and with almost no restrictions whatsoever. You may copy it, give it away or re-use it under the terms of the Project Gutenberg License included with this ebook or online atwww.gutenberg.org. If you are not located in the United States, you will have to check the laws of the country where you are located before using this eBook.*** This is a COPYRIGHTED Project Gutenberg eBook. Details Below. ****** Please follow the copyright guidelines in this file. ***Title: Diamond DustAuthor: K. Kay ShearinRelease date: March 1, 2005 [eBook #7773]Most recently updated: August 13, 2012Language: English*** START OF THE PROJECT GUTENBERG EBOOK DIAMOND DUST ***
This ebook is for the use of anyone anywhere in the United States and most other parts of the world at no cost and with almost no restrictions whatsoever. You may copy it, give it away or re-use it under the terms of the Project Gutenberg License included with this ebook or online atwww.gutenberg.org. If you are not located in the United States, you will have to check the laws of the country where you are located before using this eBook.
*** This is a COPYRIGHTED Project Gutenberg eBook. Details Below. ****** Please follow the copyright guidelines in this file. ***
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*** Please follow the copyright guidelines in this file. ***
Title: Diamond DustAuthor: K. Kay ShearinRelease date: March 1, 2005 [eBook #7773]Most recently updated: August 13, 2012Language: English
Title: Diamond Dust
Author: K. Kay Shearin
Author: K. Kay Shearin
Release date: March 1, 2005 [eBook #7773]Most recently updated: August 13, 2012
Language: English
*** START OF THE PROJECT GUTENBERG EBOOK DIAMOND DUST ***
by K. Kay Shearin
(c) K. Kay Shearin 1992 Contact: ks24@georgetown.edu
0: Paragraph 1 I didn't do very much research for this book — mostly I looked up spellings or dates in a dictionary or my 1972 'Funk & Wagnall's New Encyclopedia', but I also reviewed documents I wrote or received that described events at the time — because it's an account of what I've seen and experienced myself. Where I've repeated something someone else told me, I've tried to identify that source and the circumstantial evidence that makes me believe it, and I haven't included anything that I don't affirmatively think is true.
0: Paragraph 2 Many of the things I've said here are unflattering to someone, but nothing here is actionable defamation, partly because what I've said is true and partly because it's already been published in transcripts of in-court testimony that are public records. Nobody put me up to writing this, and I can't imagine very many people could be happy that I have, but I wanted the catharsis of packaging these memories into a bundle so I can walk away from it and get on with my life.
0: Paragraph 3 Nearly thirty years ago a mentor said to me, "There are two kinds of people in the world: those who get ulcers and those who give them to others., Which do you want to be?" It took me some years to master the technique, but now I usually manage to get aggravations out of my system instead of brooding on them. Oysters can turn their irritants into pearls, and I'd like to salvage some pearls of wisdom from mine.
0: Paragraph 4 Many of my attitudes were shaped by my mother's sister. My mother's abuse made any healthy relationship between us impossible, so for about ten years from my parents' divorce when I was thirteen, Aunt Ruth was in many ways my real parent. She was amoral and apolitical and a lot like "Auntie Mame," and she taught me to evaluate things for myself and to measure them against my own standards and experience. If she were still alive, she'd be proud of me for writing a book, but she wouldn't understand that it's payment of a moral debt.
0: Paragraph 5 My late Aunt Frances would, though. My father's mother died when I was an infant, so her youngest sister filled the place of a grandmother for me. She was famous within the family for putting the words on people, and her words were often unsuitable for polite society. From her I learned to call a spade a blankety blankety spade and to stand up to anyone who had done me or mine wrong. One of my warmest memories is of the time I blessed Aunt Frances out for an insensitive remark she had made about my father in front of him, and she admitted she had been out of line. That was the rite of passage that marked my arrival into adulthood.
0: Paragraph 6 I believe most problems between people result from a failure to communicate. On the theory that "If you're not part of the solution, you're part of the problem," this book is my effort to communicate.
K. Kay ShearinElsmere, DelawareJune 1992
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1: Paragraph 1 Delaware is the opposite of the old cliche: not much to visit, but a great place to live. To Amtrak passengers in the northeast corridor, it's a station between Baltimore and Philadelphia; to drivers on Interstate 95, it's not even a wide place in the road between Washington and New York; to its residents, it's one of the best-kept secrets around — a pearl not to be cast before swinish outsiders.
1: Paragraph 2 As nearly as anyone knows, the state's population is somewhere around 700,000. Although it's the second smallest state in area and has only three counties, there is a marked polarity between the relatively urbanized northern tip of the state, where most of the population is concentrated in Wilmington, and what they often call "slower Delaware," usually defined as "below the [Chesapeake & Delaware] canal."
1: Paragraph 3 Someone seeking a symbol of Wilmington to put on souvenirs — in case anyone would ever want a souvenir of Wilmington — would probably pick the equestrian statue of Declaration of Independence signer Caesar Rodney that usually stands in Rodney Square, a grassy one-block plaza in the middle of town. He was the hero who had gone home to die but returned to Independence Hall to cast the tie-breaking vote in the Delaware delegation in favor of the Declaration; we're still arguing about whether he died of cancer or syphilis.
1: Paragraph 4 They took his statue down a year or so ago to fix it, and its massive plinth looks like a ruin standing across the street from the Hotel du Pont that takes up most of the block on the west of the Square. The block east of the Square is occupied by the Public Building housing the state trial courts for the county. Facing the Square on its south is the public library, and on its north is the headquarters of Wilmington Trust Company, the favorite bank of the duPont family and E. I. du Pont de Nemours & Company, Inc. Standing in Rodney Square, you're physically less than five miles from New Jersey, ten from Pennsylvania, and fifteen from Maryland, but in most ways you're in a different world.
1: Paragraph 5 Until about two decades ago the duPonts ran Delaware as a company town, and they ran a tight ship. For example, once upon a time du Pont wanted to hire a high-level executive; a candidate and his family passed muster, and he was offered the position. He said the only problem with moving to Delaware was that his daughter was taking ice skating lessons and hoped someday to qualify for the Olympics, and there was no teacher of that caliber in Delaware. Today there are, at the two Olympic-sized rinks down the road from Wilmington in Newark; one is where Calla Urbanski and Rocky Marvel trained for the 1992 Winter Olympics.
1: Paragraph 6 I heard that story in 1974 from the people who interviewed me for a job on the professional staff of the University of Delaware, whose main campus is in Newark. Their theme was that Delaware was, and would remain, the kind of place where I would want to be, because du Pont would always exert its influence to insure that Delaware was the kind of place the kind of people it wanted to attract would want to live.
1: Paragraph 7 They also explained to me that U. of D. was a private, not a public, school because if it were public it would be subject to the federal anti-segregation laws, and nobody wanted that. So in an arrangement that may be unique, and which is often called "semi-private," instead of making the school the state university and having the legislature appropriate money from the general treasury for it, each year the General Assembly votes for a voluntary donation to the private school, on behalf of the taxpayers of Delaware, out of the treasury.
1: Paragraph 8 Partly because of its small size, and partly because of du Pont's historic paternalism, Delaware in general, and Wilmington in particular, don't suffer today from the problems that plague so many parts of our country, especially the major cities. And the problems Delaware does have are largely the result of du Pont's abdication of that r le, leaving the kind of power vacuum that inevitably attracts scoundrels to public office.
1: Paragraph 9 Delaware's economy is, of course, the product of that political situation. Du Pont is by far the greatest economic power in the state, but Hercules Incorporated and ICI Americas Inc. are players, too, especially in Wilmington. Downstate is agricultural, except for the summer shore resorts, just north of the border with Maryland, at the other end of the ferry from Cape May, New Jersey. Peaches and other fruit were a big cash crop early in this century, but a blight killed most of the orchards, some of which are still standing, eerily beautiful, like rows of surreal black skeletons. Today much of the country's scrapple is made in Delaware, but the main agribusiness is the "chicken factories" where poultry is processed and packaged for supermarkets — some people will tell you lower Delaware is God's country, but many will tell you it's Frank Purdue's.
1: Paragraph 10 Although there is a big Air Force base in Dover, the federal government is a relatively minor economic force, so federal pork barrels don't influence Delaware politics much. State and local governments don't employ a lot of people, and many government employees, even some of the highest elected officials, are allowed to have private employment at the same time, so political pigs have access to slop from other sources, not just the public trough. The office of Attorney General, for example, is established in the state constitution; the AG heads the Department of Justice, is elected in a statewide election every four years, and stands third in line to become governor if something happens to the governor, the lieutenant governor, and the secretary of state. The AG can invalidate state statutes simply by issuing a written opinion, and no criminal complaint can even be filed, much less prosecuted, without the AG's approval; in short, as Delaware's lawyer, the AG has complete control over all legal processes that involve the state government.
1: Paragraph 11 Incumbent AG Charles M. Oberly III, first elected in 1982, shortly started publishing a newsletter as a private business. Questions were raised as to whether that was ethical or even lawful, but Oberly exercised his power to rule it was okay. That's what they mean by, "There's no excuse for losing if you're keeping score." Today that newsletter, which reports the rulings in some cases in Delaware courts, is written by Deputy AGs and typed by secretaries in the Dept. of Justice, both in the course of their public employment. But the subscription money goes to Oberly personally, and although the quality of the newsletter is poor, compared to competing publications, the subscription price is lower, too, because Oberly doesn't have the same production costs as his competitors, and some of his subscribers have told me they see it as legal insurance — they've noticed the Dept. of Justice is more attentive to the needs of subscribers, and they more often enjoy favorable results in legal proceedings, than nonsubscribers.
1: Paragraph 12 Oberly has rejected offers to purchase his newsletter business for more than it's worth, because he wants to keep that ostensibly legitimate mechanism for collecting money from the citizens he's pledged to serve. You get what you pay for. That story was told to me by several persons, including some of the competing publishers, who had offered to buy Oberly out, while I was working for them, but many other elected officers have lucrative private sidelines. The county Recorder of Deeds and Register of Wills, for example, both have private law practices besides those elective, salaried positions that provide them offices and staffs in the public buildings in Wilmington.
1: Paragraph 13 So does the Public Defender, who is appointed, not elected. Lawrence M. Sullivan has been Delaware's PD for more than twenty years, and most indigent criminal defendants in state court are represented by one of his deputy PDs, who also have private law practices on the side. The poor quality of these representations have been an open scandal for years: In 1981, in an opinion in 'Waters v. State', published at 440 'Atlantic Reporter' 2d 321, the Delaware Supreme Court took Sullivan to task for trying to shirk responsibility for the inadequacy of the legal services he provided. It has been traditional for the PDs to divert defendants who can come up with any money, usually from their families, to their private practices; a very few indigent defendants, usually repeat offenders who learned the first time around how much help the PD is, demand and get independent lawyers appointed and paid by the court.
1: Paragraph 14 The defendants stuck with the PD are often worse off than if they had no lawyer at all, because they rely on the bum advice they get from a lawyer who gets paid the same salary no matter how much or little time he spends on their case and resents taking the time away from his private practice, where he can bill by the hour. Take the case of Susan J. Scott, for example: On 20 September 1986 she fatally shot her live-in boyfriend who had been violently assaulting her for the five years they had been together. She was arrested, charged in Delaware Superior Court with first-degree murder and possession of a deadly weapon during the commission of a felony.
1: Paragraph 15 She was represented by one PD for about a year, and then he left the PD's office, so her case was assigned to another deputy PD named Duane D. Werb. Although he knew there was evidence supporting Scott's self-defense claim, Werb advised her that the "battered woman defense" wouldn't fly in Delaware, that there wasn't enough evidence to prove self defense at trial, that proving self defense couldn't clear her of the lesser included offense of manslaughter, and that if she pled guilty to manslaughter she would receive a sentence of three and a half to seven years in prison. So on 26 May 1988, a week before her trial was supposed to start, Scott took Werb's advice and pled guilty to manslaughter; she was sentenced to twenty-five years in prison.
1: Paragraph 16 Then Scott's family managed to scrape up the money to hire New Orleans lawyer Richard Ducote, with a national reputation for representing battered women, to try to get her sentence reduced. On 19 July 1989 Judge John E. Babiarz Jr., who had accepted Scott's guilty plea and sentenced her, reversed her conviction in a written opinion ruling that Werb had committed legal malpractice by giving her advice that was blatantly wrong on three separate points of law. The two charges against her were reinstated, and Scott's trial was scheduled for 16 October. That morning the deputy AG offered another plea agreement: If she would plead guilty to manslaughter, she would be sentenced to three years, which was how long she'd been in maximum security by then. So she pled guilty and was immediately released from prison.
1: Paragraph 17 Scott wanted to sue the PD for legal malpractice, and Ducote was willing to represent her in that suit, but he had trouble finding a member of the Delaware bar willing to go up against the PD, and he had to have a Delaware lawyer to act as local counsel because he wasn't licensed to practice law here. He finally asked the Delaware ACLU for help, but all they did was give him my name; I agreed to be local counsel in the case, and that's why I came to know about it.
1: Paragraph 18 On 15 August 1991 we filed Scott's civil complaint in Superior Court, against Sullivan and Werb. Remember that the prosecutor in the criminal case had been the AG and that a Superior Court judge had already ruled the PD committed legal malpractice. Now the AG appeared on behalf of the PD, because the AG is the lawyer who represents all state employees, and Superior Court Judge Vincent J. Poppiti summarily dismissed the complaint: He ruled that because Scott had pled guilty to manslaughter, the same as she did on Werb's advice, she could not have been harmed by any wrong advice he gave her! That dismissal was recently affirmed by the Delaware Supreme Court.
1: Paragraph 19 That story illustrates not only the incestuous (if not downright masturbatory) nature of Delaware's criminal justice system but also the distinctive feature of Delaware civil litigation: Most participants in civil litigation are from out of state, and they have to pay featherbedding Delaware lawyers to hold the courthouse doors open for them.
1: Paragraph 20 A couple of years ago the American Bar Association rated Delaware as fourth in the country in the number of lawyers per capita, and that's true as far as the numbers go, but it gives a false impression: Many of the lawyers in Delaware are employed in companies other than law firms, so they're not available for hire by other clients; many of the lawyers working in banks or other companies are not admitted to the Delaware bar, so they couldn't go into private practice anyhow. Unlike many states, Delaware no longer cuts lawyers from other states any slack in getting into the Delaware bar, and every candidate for admission has to take the same bar exam and perform the same clerkship, no matter how long the person may have been a lawyer (or even a judge) elsewhere. This anti-carpetbagger rule was made by the all-lawyer state Supreme Court, not the nearly lawyer-free legislature (now 1 of 21 senators; 1 of 41 representatives), and ensures that there won't be too many lawyers (about 1900 now) compared to the amount of business, but it has the effect of decreasing competition, and I firmly believe that free-market competition is always good and is what made this country great.
1: Paragraph 21 In many places, the lawyers who make the most money are the ones who do personal injury litigation — that's why you see so many commercials for that kind of business wherever lawyers are allowed to advertise on television. PI lawyers usually work for a contingency fee (often a third of the amount recovered), meaning they get paid only if they win, and the plaintiff doesn't pay any up-front legal fees. That's why there's too much litigation in this country: No matter how bogus the suits are, a lawyer who files enough of them will sometimes hit the jackpot; defendants often settle for nuisance value to avoid the humongous legal expenses they will incur even if they end up winning, and it doesn't cost plaintiffs anything to sue, so if they lose they're not out anything, and if they win they come out ahead.
1: Paragraph 22 In Delaware it's not like that. The big-ticket legal cases here are not over personal injuries but over corporation law, and we have a special court for litigating corporation cases, the Chancery Court. Chancery or equity court started in England in the late 1300s and over the centuries developed a separate structure similar to that of the so-called law courts, and certain types of cases became associated with one or the other. By the time America was settled, it was established that criminal prosecutions and civil suits for money damages were legal cases, while probate, adoptions, and civil suits for injunctions were equity cases. One of the main distinctions between them was that there were no juries in chancery.
1: Paragraph 23 A trustee is a person who has agreed to hold or manage property for someone else's benefit, and anything to do with trusts is within the equity court's jurisdiction. The idea of a corporation is that its directors are trustees for its stockholders, managing the money they paid for their shares for their benefit, so any litigation over corporate affairs is a chancery case.
1: Paragraph 24 The federal District Courts have both legal and equitable jurisdiction, but only in cases where there is federal jurisdiction over the subject matter, of course, and most states have similarly combined the two courts into one, although some states maintain a distinction between the law division and equity division of the court. In Delaware the Superior Court has jurisdiction over cases that are legal only and the Chancery Court has jurisdiction over every case where either the subject matter or the relief sought includes any equitable component.
1: Paragraph 25 So in Delaware if you want to sue your neighbor for the cost of fixing your garage when he overshot his driveway and smashed into it, you do that in Superior Court; if you want to enjoin him from driving across your property in the future, you do that in Chancery; and if you want to do both in one suit, you have to do that in Chancery, too, because the Chancery Court has jurisdiction over legal claims related to equitable claims, but the Superior Court doesn't have jurisdiction over equitable claims related to legal ones.
1: Paragraph 26 The Chancery Court now has five judges: Chancellor William T. Allen, who is rated one of the best chancellors in living memory, and four vice chancellors of varying lesser ability. Most of the cases that come to them involve either trusts or corporations, and there are no juries, so they make all the decisions in every case, and that gives them an awful lot of experience. Unfortunately it's like what John F. Kennedy said about the difference between ten years of experience and one year of experience ten times: They keep getting cases that are exactly the same except for the name of the corporation. I often wonder why they're still writing opinions from scratch when they come to the same result and take so long; they have word processors, so they should load standard paragraphs and then do their opinions by selecting from a menu.
1: Paragraph 27 There are, after all, only two possible rulings on a motion for anything — it's either granted, or it's denied — and the recurring issues have well established standards the court is required to consider. Probably the most frequent issue they decide is the motion for preliminary injunction: Every time the Wall Street Journal says there's going to be a tender offer for a company, at least one of its stockholders files a class action to enjoin the deal. There are three points a party has to prove to get a preliminary injunction, so the Chancery Court should have a one-page preliminary injunction opinion form that has, for each of those three questions, a "no" box and a "yes" box with a blank next to it for the judge to fill in the fact that proved that point. Then the word processor could spit out the standardized preliminary injunction opinion with those customizations — "You may have already won a preliminary injunction, Plaintiff Insert Name Here" — and citations to the latest precedents on each point.
1: Paragraph 28 So why don't they do that, if it would be easier and faster? Because the big legal business in Delaware is corporation litigation, and nobody here wants to streamline the process and so cut down on the profits from it. Most lawyers in Wilmington (which is the bulk of the lawyers in Delaware, using that word in several different senses) are or want to be local counsel for out-of-state lawyers in corporation cases; the ethics rules governing lawyers say they can't split fees except in the same proportions they split the work, and the only work local counsel can usually claim to do is supply the expertise on local practice and precedents. Because the procedural rules in Superior Court are very similar to those of the federal courts, and the Chancery Court rules are virtually identical to the federal rules, lawyers from anywhere in the country already know as much as they need to about local practice here, so all that's left for local counsel to do is provide gossip about the judge or other lawyers in the case and citations to prior opinions that have not been published in the national reporters. So Chancery Court issues tons of opinions that aren't published, say the same thing over and over again, and give local counsel the right to claim a large percentage of the fee for reviewing pertinent opinions.
1: Paragraph 29 Delaware is the corporation capital, and some writers have said corporation whore, of the country: More corporations are chartered here than in all the other states put together, and Delaware actively encourages that with its laws governing corporate affairs and taxes. When you're going to sue a corporation, you have a choice about where to do it, and one of the choices is always a court in the state where the corporation is chartered, whether it does any business there or not. So most corporations can be sued in Delaware because they're incorporated here.
1: Paragraph 30 Until November 1991 everybody knew a corporation could always sue somebody else in the state where the corporation plaintiff was chartered, but then the Superior Court handed down a decision throwing out a case filed by a Delaware corporation against a whole slew of insurance companies for not covering claims against the plaintiff for hazardous waste dumps. The Chancery Court would never have made a ruling like that, and the lawyers here are hopping and howling at the prospect of losing the chance to be local counsel in some of those cases — they're trying to get the legislature to pass a law guaranteeing the "right" of a Delaware corporation to drag defendants into Delaware courts whenever they want to.
1: Paragraph 31 Remember that most Delaware lawyers want to be local counsel in corporate cases, and a lawyer who goes up against corporations will be blacklisted and never be hired to represent corporations. A plaintiff in a personal injury suit sues whoever did the injury, but in effect the suit is usually against an insurance company — in a car accident case, it's the auto insurance; in a medical malpractice case, its the doctor's professional insurance; in a product liability or slip-and-fall case, it's the casualty insurance; and in tender-offer cases, it's the directors' E&O insurance — so insurance companies pay the lawyers in many cases. The bottom line is that a person in Delaware who wants to file a personal injury suit can't usually find a good lawyer here to do it, because the lawyers don't want to go up against the insurance companies and run the risk of never being hired by those companies in the future.
1: Paragraph 32 The United States was founded on the idea of individuals' rights, but in Delaware corporations count for more than people do now. Take the top state officials: The governor and lieutenant governor are elected separately, so we can, and recently did, have a governor who was a Republican and a lieutenant who was a Democrat. The governor appoints the Secretary of State, who regulates corporations — entities that contribute lots of money to campaigns but can't vote and usually aren't in Delaware anyhow. If something happens to incapacitate the governor and lieutenant governor, the Secretary of State becomes governor; if something happens to him, the AG elected by the people becomes governor. That shows that Delaware puts the interests of corporations ahead of the interests of voting individuals. Thomas Jefferson and Abraham Lincoln must be spinning in their graves.
1: Paragraph 33 My civil procedure professor used to joke about the "lawyers' full-employment act," and nowhere does that concept command more respect than in Delaware. Non-Delaware lawyers working inside companies here usually don't bother to apply for admission to the Delaware bar, and swell its ranks, because the Bar Association and every other privilege extended to lawyers is equally open to lawyers working, but not admitted to practice, here. One reason there are never very many lawyers in the General Assembly is that there are not enough lawyer to spare — you can make a lot more money double-billing clients in Wilmington than driving down to Dover to sit in the legislature.
1: Paragraph 34 Ever since 'Marbury v. Madison' it's been accepted that the judiciary can overrule the executive, but in the federal system Congress can usually overrule the Supreme Court legislatively. But in Delaware if the legislature passes a law that disfavors lawyers or that lawyers disfavor, the AG invalidates it; so, contrary to the theory of tripartite government with checks and balances, we have a member of the executive exercising ultimate control over the legislature. Spin, Tom. Spin, Abe. Spin, spin, spin.
1: Paragraph 35 One novel aspect to the old-boy network in Delaware is that it's easier here for a woman to become a judge than a senior partner in a big law firm. Although there has not yet been a female justice on the Supreme Court, there are women on the benches of the other courts. With two notable exceptions, they are mostly women who had been with largish local firms long enough that the firms faced the prospect of making them senior partners, and that wouldn't do; so the senior partners used their influence to have the women appointed judges, because Delaware is a state where judges are appointed, not elected. The two exceptions are Vice Chancellor Carolyn Berger, whose husband Fred S. Silverman is AG Oberly's right-hand-man and actually runs the Dept. of Justice, and Judge Jane R. Roth, who is now on the bench of the Third Circuit federal appellate court but was until recently one of the federal District Court judges here and whose husband is Delaware's Republican in the U. S. Senate, William V. Roth Jr.
1: Paragraph 36 So the legal system in Delaware is like a medieval fiefdom. He who pays the piper calls the tune, and here that's the out-of-state corporations and their lawyers. The citizens are in the same predicament as the serfs when itinerant knights employed by absentee overlords rampaged across the land, destroying crops, herds, and sometimes the villeins themselves while fighting each other over esoteric points of honor nobody ever explained to the peasants because it had nothing to do with them anyhow.
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2: Paragraph 1 A people gets the kind of government it deserves and deserves the kind of government it gets. If you believe in karma, you have to wonder what evil deeds Delawareans committed in former lives to deserve the kind of government they've got.
2: Paragraph 2 Although parts of the story were told to me by various people, the following account of what happened in 1966 and 1976 is taken mostly from Joseph Donald Craven's 1978 book 'All Honorable Men'. There are many parallels between this book about what happened to me at E. F. Hutton and that book about what happened to him in the antiwar movement in Delaware.
2: Paragraph 3 Craven was a lawyer who was elected AG in 1954, the only Democrat to win that office between 1912 and 1974. Despite having been a stalwart Democrat from childhood, by 1966 Craven realized that, no matter whether the players labeled themselves Republicans or Democrats, in Delaware there was only one political party, and that was the Establishment. So he helped start the Constitution Party to run antiwar candidates for the U. S. Senate and House in that year's election. AG David P. Buckson and both Senators then were Republicans, and the Congressman and Governor were Democrats.
2: Paragraph 4 At that time Delaware had no provision for independent candidates or write-in votes, so the only way a person could be a candidate was to be nominated by a political party. Under the law in effect since 1955, to rate a place on the ballot for its nominee a party had to submit petitions signed by 500 citizens of one county and 250 citizens each of the other two counties; that's what minority parties had been doing for a decade to be on statewide ballots, but none of their candidates had gotten as many as 500 votes, so they hadn't been a real threat to the Establishment.
2: Paragraph 5 In March the Constitution Party put an announcement in the newspaper and started collecting signatures door-to-door. In May the Democrats introduced in the General Assembly a bill changing the law to require any new political party to submit signatures of 50 citizens of each senatorial district, and each of those signers had to be registered to vote but not registered as a member of any other political party. There were then only four categories for registration: Democrat, Republican, Independent, and Decline; so the signatories had to be registered as Independents or Declines.
2: Paragraph 6 The last date for changing registrations that year was 23 July. The General Assembly Would adjourn on 17 June, and the state constitution provided that no bill could become law after the Assembly adjourned unless the Governor signed it within 30 days of the adjournment. The senate passed the bill on 6 June, and the house on 16 June; the Governor didn't sign it until 21 July, which was 34 days after the legislature adjourned and only 2 days before the deadline to change registrations.
2: Paragraph 7 Of course the Constitution Party did not have enough signatures of voters not registered as Democrats or Republicans, so the elections clerks refused to include its candidates on the ballots. The Party sued those clerks in Superior Court, which kicked the case upstairs to the state Supreme Court; although by law the AG is required to represent all public officers, in this suit the clerks were represented by William S. Potter who happened to be Delaware's Democratic National Committeeman, and he had also been the lawyer who had won the earlier case ruling that the AG had to represent public officers, so he must have known what he was doing was illegal.
2: Paragraph 8 There were three justices on the panel that heard the case: Chief Justice Wolcott was a friend of Potter's and a former partner in Potter's firm who was appointed by the former governor, the same Democrat who had appointed Justice Carey and was a close friend of Lyndon Johnson's, and Justice Herrman had been appointed by the Democrat who was then governor. On 14 October the court ruled unanimously against the Constitution Party and never addressed the fact that the bill under which the clerks rejected the Party's petitions hadn't ever become law because the governor waited too long to sign it.
2: Paragraph 9 It was too late by then to appeal that decision to the U. S. Supreme Court before the 8 November election. The polls showed the Republicans' incumbent candidates for Senator and AG leading, and the Democrats' incumbent candidate for Representative was ahead of the Republican. On 28 October the Constitution Party publicly asked its supporters to vote for the Republican candidates. The Republicans won all six statewide offices by the largest margins in Delaware's history, ten times what the Democrats' majorities had been in 1960. Ironically enough, in sending that message to the supposedly warmongering Democrats, Delawareans elected to Congress a Republican who campaigned on a platform that LBJ had not been warlike enough in Vietnam: now-Senator Roth.
2: Paragraph 10 In October 1968 the U. S. Supreme Court invalidated as unconstitutional an Ohio statute that prevented write-in votes and required all parties except the two major ones to submit petitions to get a candidate on the ballot. In 1974 the U. S. Supreme Court invalidated as unconstitutional a California statute that kept an independent candidate from being on a ballot without a political party's endorsement. Those rulings ['Williams v. Rhodes', 393 U.S. 23 (1968); 'Storer v. Brown', 415 U.S. 724 (1974)] meant Delaware's whole election law, in effect since 1955, was unconstitutional.
2: Paragraph 11 Sordid as it is — and that was just the, you should pardon the expression, high points of what happened — that story by itself might not prove how the Establishment pulls together to disenfranchise Delawareans, but then it happened again:
2: Paragraph 12 In the spring of 1976 Joseph F. McInerney was unsuccessful in getting the Democrats' nomination for the U. S. Senate, so he started the Delaware Party, and in May it nominated him and other candidates for that November's election. In June the General Assembly passed, and the Democratic governor signed, a bill changing the law so as to make it harder for the Delaware Party to get its candidates on the ballot. The Party then asked Democratic AG Richard R. Wier Jr. for a ruling on the constitutionality of that law, and on August 30 he issued a written opinion to the state election commissioner citing 'Williams' and 'Storer' and ruling the new law valid; remember that in Delaware the AG's opinions have the force of law.
2: Paragraph 13 On 31 August McInerney sued the election commissioner and other officials, in federal court in Wilmington, to put him on the ballot as the nominee of the Delaware Party. AG Wier, representing the defendants, conceded without argument that the new Delaware statute was unconstitutional. On September 14 the federal court invalidated the statute and ordered the elections officials to put McInerney on the ballot. Two years later AG Wier ran for re-election, and that's where Craven's book ended.
2: Paragraph 14 In the 1982 election, two Democrats were elected who figure prominently in this book: Oberly became AG by a margin of 1177 votes over the Republican, with the American Party candidate and the Libertarian Party candidate totaling 1565 votes, and Thomas R. Carper became the Congressman, with Roth elected to the Senate.
2: Paragraph 15 That was around the time Carper divorced his first wife. I haven't heard any rumor that he beats his current wife, but several people who were their neighbors have told me he used to beat his first wife, and in their written settlement agreement he paid extra for her promise not to mention it anymore, and they said they knew that from their own observations and from what she told them. During the 1990 campaign, Carper's opponents' campaign managers told me that was true and that they had documentation that as early as his college days he beat up on the women he dated before he was married.
2: Paragraph 16 When I was checking dates for this section, I couldn't find the date of that divorce, so I called the public library in Wilmington and asked. That library's research desk is superlative — they take inquiries over the phone, and they've often answered such obscure trivia questions for me that I was almost embarrassed to ask them. After researching the question for most of a day, they called back to say Carper's divorce was between 1982 and 1984, but they couldn't find any reference to it anywhere, and they'd even called the local newspaper.
2: Paragraph 17 I hadn't really cared at first, but that made me start wondering: 'Who's Who' includes divorce dates in its listings (mine's in there), everybody knows Carper's been divorced, he's held high federal office since 1982, and he's already announced he's the Democratic candidate for governor this year, so he's a public figure whose biographical statistics are in the public domain — why the mystery? So I called his office here and asked what year he divorced his first wife, and his staff got all bent out of shape. They asked for my name, and I wouldn't give it, but I told them I was a registered voter who wanted to know. That drove them crazier. When one of them asked why I wanted to know, I said it was biographical info for an article I'm writing about the candidates in this year's election. Not only wouldn't they tell me when the divorce was, but then they wouldn't even talk to me anymore and said I couldn't talk to anyone but Carper's press secretary in Washington! Now I'm very curious about what Carper is trying to hide.
2: Paragraph 18 Anyhow, in 1986 Oberly was re-elected AG with 915 votes more than the Republican, and American Party candidate David S. DeRiemer got 1133 votes. DeRiemer is a colorful character, a businessman from the southern part of the state who feels so strongly about his rights that in 1988 he went to jail rather than agree the state could require him to have its permission, in the form of a driver's license, to drive a car. He's not a lawyer, and he doesn't drive anymore. His platform was to do away with the Federal Reserve Bank, but he never explained how Delaware's AG could affect the Federal Reserve; he has himself told me all the federal courts in the country are illegal because they're supposed to be the judicial branch, but they've gone over to the executive branch, as evidenced by the fact that they all have U. S. flags with gold fringes around them, and only the executive branch is allowed to have gold fringes on its flags.
2: Paragraph 19 After the 1986 election, DeRiemer joined the Libertarian Party, and he wanted to be its AG candidate in 1990. I didn't know about that in late 1989 when the Delaware Libertarian Party asked me to be its AG candidate, and I'd already agreed before I found out. Meanwhile, Oberly had decided to run for a third term: No Delaware AG had ever run for a third term, although nothing in the state constitution or laws forbids it; before Oberly, the only three who had run for a second term were: Buckson, who cashed in on the 1966 Republican landslide; Wier, who lost to Richard S. Gebelein in 1978; and Gebelein, who lost to Oberly in 1982 and is now a Superior Court judge.
2: Paragraph 20 In the grand tradition of Delaware politics, where the Establishment closes ranks against outsiders of any political persuasion, Oberly played both ends against the middle by cutting deals with both the Democrats and the Republicans to get re-elected. I heard each of the following stories from more than one member of the old guard of the respective party, who resented the way Oberly used the power of his office to preempt their parties out from under them, as well as from various lawyers and reporters who were outside observers.
2: Paragraph 21 Delaware law limits a governor to two four-year terms. In 1988 Republican Michael Castle was re-elected, and Republican Dale E. Wolf was elected lieutenant governor. The lt. governor had been Democrat S. B. "Landslide" Woo, so called because he won by a handful of votes on the recount of the 1984 election, but in 1988 he ran against Roth for the Senate.
2: Paragraph 22 Delaware has some fairly specific campaign-financing laws on its books, but like many sections of the Delaware Code, those statutes are considered unconstitutional, and therefore unenforceable, except when Oberly wants to convict a potential political rival. He is on record calling those statutes invalid insofar as they limit the amount he, as a candidate, can spend on his campaign. One provision prohibits campaign contributions of more than $1000 to statewide candidates.
2: Paragraph 23 In 1988 Castle's campaign committee had more than enough money for his re-election, but Wolf's didn't have enough for his harder-fought campaign, so Castle's committee covered some of Wolf's campaign expenditures, and the Democrat Wolf beat filed a complaint for violation of that provision. You know who enforces those laws: AG Oberly. He had spent the past couple of years convicting the Democrats who had controlled the state party of picayune violations of the contribution laws, so they were forced out of politics and, in one or two cases, went to jail. Now the Democrats wanted him to turn that same law against Wolf, who was being groomed to be the Republicans' candidate for governor in 1992.
2: Paragraph 24 The deal Oberly made with the Republicans was that he would clear Wolf of those charges, and the Republicans would run a nonviable candidate for AG in 1990, and if Wolf became governor in 1992 he would appoint Oberly a judge. After the Republicans did indeed nominate a stalking horse, Wilmington lawyer F. L. Peter Stone, on 1 May 1990 Oberly issued an opinion clearing Wolf. How the Democrats did howl! But the funniest part is that Wolf's other political problems caught up with him, and the Republicans dumped him and nominated Realtor B. Gary Scott. And Buckson got thrown off the bench of the Family Court for running for it without first resigning.
2: Paragraph 25 One of the reasons I believe that story is it fits all the circumstantial evidence. There's no question Oberly has admitted publicly he wants to be a judge when he leaves the AG's office. Had the Republicans wanted their AG candidate elected in 1990, Gov. Castle could have appointed Oberly a judge in 1989 and then appointed a Republican to fill out the term, and that Republican would have come into the 1990 campaign as an incumbent and surely have won re-election. But the charges against Wolf were still pending, and more Delaware voters are registered as Democrats than as Republicans: They would have resented Oberly's selling them out, if he dismissed those charges on his way out or the new AG dismissed them on the way in, and so voted against Wolf as a backlash. Nor is there any other reasonable explanation for nominating Stone, who is a nice guy but doesn't know which end is up; there were Republicans who had not only sufficient legal experience but also the required public relations skills: They should have nominated DAG M. Jane Brady to run against Oberly instead of against Senator Joseph R. Biden.
2: Paragraph 26 The deal Oberly made with the Democrats was he would help Carper oust the existing state party leaders, and if Carper was elected governor in 1992 he would appoint Oberly a judge. The Democrats were mad at Oberly for prosecuting party leaders, some for petty campaign financing violations and others for drunk driving. When Oberly was himself arrested for drunk driving, however, he had the charges dropped, and when his chief deputy Silverman was charged with hit-and-run, they'd had those charges dropped, too. Carper couldn't have taken over the party if Oberly hadn't cleared the way for him: The criminal prosecutions not only removed some major players but also intimidated everyone who was left. You could have made a fortune selling Maalox to Delaware Democrats between 1988 and 1990. Wilmington plumber Daniel D. Rappa made a valiant, but doomed, last-ditch effort by running against Carper in the 1990 primary.
2: Paragraph 27 No sketch of Delaware's political scene would be complete without some mention of the media situation: There is no television station in Delaware, and there are no competing newspapers. Most people have cable tv, and there's only one carrier serving each area; downstate gets broadcast channels from Salisbury MD, and Wilmington gets the Philadelphia PA channels and the NJ PBS channel. The ABC and PBS stations in Philly have studios in Wilmington, but Delaware and southern New Jersey get short shrift in the coverage on all Philly stations. (Northern Jersey gets just as little coverage from the New York City stations that supposedly serve it.) With an antenna in Wilmington you can pick up the Baltimore channels.
2: Paragraph 28 The cable carrier in Wilmington is Heritage, and downstate it's mostly Storer. The utilities commission that set the terms with the carriers sold out the citizenry by not providing for free public access. There's only leased access, and Heritage keeps raising its rates and downgrading its production services, thus decreasing access.
2: Paragraph 29 There's only one daily newspaper left in Wilmington, the 'News Journal' owned by Gannett, and the 'Delaware State News' is published in Dover. There are several radio stations around the state, and they're the best source of local Delaware news.
2: Paragraph 30 The 'News Journal' is the handmaiden of the Establishment and generally manipulates its coverage to present the party line. During the 1990 campaign it endorsed Oberly and mostly ignored my candidacy except for an occasional deliberate distortion of the facts. The PBS station reneged on its promise to include me in its candidates' debate, apparently on Oberly's instructions, and the ABC station refused to let me debate Oberly and Stone, but after I complained to the FCC, the station put me on for an equal amount of time weeks later. Storer refused to accept my commercials until the FCC told them the law required them to, but they still refused to sell me the time slots I wanted. The radio stations were unfailingly cooperative, and WILM was unexpectedly supportive. At a candidates' debate sponsored by a radio station in Dover I met the president of Delaware's chapter of NOW, and he endorsed me on the air after the debate. In May 1991 I ran into him, and he said afterward Oberly called him and said as AG he could make things bad for NOW for endorsing me. I was flattered.
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3: Paragraph 1 In early 1984 I was living in Maryland and working as a tax law editor at the Bureau of National Affairs, an employee-owned publishing house in Washington originally related to 'U.S. News & World Report', but I was looking for another job; I liked the one I had, but it didn't pay enough. One of the people I'd sent a r sum was David J. Garrett, a partner at the Wilmington law firm Potter, Anderson & Corroon, who had led a seminar I'd taken on estate and gift taxation.
3: Paragraph 2 At work one day I got a phone call from a man who said he was Paul Butler with E. F. Hutton Trust Company, and I might be interested in a job he had open. In those days, when Hutton talked, people still listened. Butler said he'd had lunch with Garrett, who told him I was looking for a job, and the one at Hutton wasn't the kind I'd talked to Garrett about, but he'd like to tell me about it. We discussed it a little, and when he invited me to Wilmington for an interview, I accepted.
3: Paragraph 3 At the interview, Butler outlined the Trust Company's history: After some months of handling only pension trusts, the Trust Company wanted to get into personal trusts, so it had hired Butler away from one of the local banks to head the personal trust department; he'd come on board the beginning of 1984 and had been trying to hire two people to work for him: one to stay inside and mostly draft documents, which is what they were considering me for, and one to travel around the country teaching Hutton's brokerage house employees about trusts. In a year or so they might add an office on the West Coast, and in about three years Butler would be retiring; I figured that would give me time to learn what I needed to from Butler, and I'd either get to run the West Coast Office or get his job when he left. What they were proposing was a new concept in personal trusts, and I really liked the idea of getting in on the ground floor of that, but with such a big company behind us that we could afford to do it right.
3: Paragraph 4 At that interview I met Jay Abbes, the Trust Company's CEO, and I may have met Bill Hitchcock, its president and COO. I felt uncomfortable with Abbes; at first I thought he'd taken a dislike to me, but then I decided it was Butler he was down on, and I'd just wandered into the firing line.
3: Paragraph 5 They offered me the job, with a salary I probably couldn't have refused even if I hadn't liked the job so much, and I accepted, to start work a few weeks later on 30 April. I gave notice at BNA and started a Wilmington realtor looking for a house. On my next-to-last day of work at BNA, they threw me a going-away party, and I got home in one of those mixed moods: touched by how happy my BNA friends were for me and sad to be leaving them but excited about the prospects at Hutton.
3: Paragraph 6 There was a message on my answering machine from Abbes asking me when I'd been planning to start work, telling me Butler was leaving in a reorganization that would eliminate the job he'd hired me for, and saying we could discuss it when I got to Wilmington. Fat chance! I felt like I'd been punched in the stomach, and I couldn't wait that long to know whether I still had a job at Hutton, so I called Abbes back right then. He kept talking around most of what I wanted to know, but he did confirm that I still had a job, on the same terms, but that it would be a different job: Butler would be staying on for a few months, but then I'd be in charge of personal trusts; and I'd still come on as assistant corporate secretary, but when Butler left I'd succeed him as secretary.
3: Paragraph 7 So from the first day I reported to work at Hutton, I already knew there was a lot of internal political stuff going on behind the scenes, and I kept my eyes and ears open in self defense. I learned overlapping parts of the following story from Abbes, Hitchcock, and the Trust Company's other directors, from Hutton people in New York and around the country, from Wilmington lawyers in several of the firms hired to charter the Trust Company, from the Delaware bank examiners who audited the Trust Company, from the documents setting up Hutton Trust Company and Hutton Bank that Hitchcock showed me, and from the Trust Company's corporate records that were turned over to me when I became secretary.
3: Paragraph 8 The entity most people thought of as E. F. Hutton, the one that advertised in the commercials about people listening, was the brokerage firm whose real name was E. F. Hutton & Co. Inc. It was a Delaware corporation all of whose stock was owned by E. F. Hutton Group Inc., a Delaware holding company whose stock was publicly owned and traded on the New York Stock Exchange. So if you bought Hutton stock, you were buying shares of Group, but if you bought stock through a Hutton office, it was Hutton & Co. that was your broker.
3: Paragraph 9 Hutton Group also owned some other corporations, including E. F. Hutton Life Insurance Company and some investment managers and funds. The chairman of Hutton Group's board of directors was Robert Fomon, and the president of Hutton & Co. was Scott Pierce, who was then-VP George Bush's brother-in-law.
3: Paragraph 10 Much of the money in this country is in pension plans, most of them now "qualified plans" under the federal pension laws known as "ERISA." That money isn't tied up, out of circulation, though — it's invested in everything from real estate and mutual funds to race horses and precious gems. Managing those investments and doing the paperwork for both pay-ins and pay-outs is also big business, because the fees for management and administration are usually a percentage of the amount in the fund, and even a small percent of a billion dollars is a lot of money.
3: Paragraph 11 By the early 1980s Hutton, like the other financial institutions, derived a significant portion of its income from pension funds, either as fees for managing the investments by deciding what stocks or bonds to buy or as commissions for being the broker that actually traded the securities. It's a conflict of interests, prohibited by law, for the same entity to manage the investments and get a brokerage commission, for the same reasons it's now illegal for a Justice of the Peace's salary to be a percentage of the traffic fines the JP imposes.
3: Paragraph 12 What happens in many companies is that a few, usually senior management, employees are the trustees for the fund, so they make the investment decisions, and the fund has a broker who buys and sells as directed by the trustees. That's the theory, at least, but what often happens is the committee of trustees don't know enough, or have enough time outside of their work, to make investment decisions, so they take the broker's advice, and that's not necessarily bad. But to keep the brokers honest, trustees with good sense often deal with several brokers and play them off against each other, and that's free-market competition and good for everyone except the greedier brokers.
3: Paragraph 13 What Hutton wanted was to become trustee for the pension funds, so it could collect the trustee's fee for managing the investments, and hire only itself as broker, so it could continue to collect the brokerage commission on every transaction. It's like the way they used to catch monkeys for zoos, where they would cut holes, a tad bigger than a grown monkey's paw, in coconuts, empty them out, put some dried rice inside, and chain them to a tree trunk; at night the monkeys would come, reach inside for the rice, not be able to get their fists out, and be sitting there with their paws stuck in the coconuts in the morning, when the hunters would come throw a net over them. The monkeys were too greedy to let go of the rice even to get free, and Hutton was too greedy to let go of the brokerage commissions even to get the larger trustees' fees.
3: Paragraph 14 So someone came up with the brilliant idea to set up a separate Hutton entity to be trustee of the pension funds, and collect fees for that, and put all the brokerage through Hutton & Co. That entity would be E. F. Hutton Trust Company, and to be able to act as trustee it would have to be some kind of bank. Hutton explored incorporating a bank in several states, but the first few didn't have the right combination of state laws and susceptible officials. Then Hutton looked at Delaware, which was offering some tax and legal incentives to lure companies to Wilmington; you may remember that some credit card companies moved their headquarters to Delaware then to take advantage of those incentives and Delaware's statutes allowing special-purpose banks and unlimited interest rates.
3: Paragraph 15 Hutton hired about five different Wilmington law firms, one after another, to charter its bank, but the first four (including Potter, Anderson & Corroon and, as someone told me, Richards, Layton & Finger and maybe Prickett, Jones, Elliott, Kristol & Schnee) were unsuccessful: some because they filed the application, but it was denied, and some because the other banks they represented objected, so they withdrew from filing Hutton's application. I heard that of those four, only Potter Anderson returned Hutton's retainer; the others kept what they'd been paid even though they failed to charter the bank.
3: Paragraph 16 Then Hutton hired the Wilmington office of Skadden, Arps, Slate, Meagher & Flom, by some measures the biggest law firm in the country, and certainly preeminent in corporation law. Two of Skadden's senior partners were Rodman Ward Jr. and Irving S. Shapiro. Ward is a formidable lawyer who coauthors one of the leading treatises on corporation law; he's also an interesting person, but he's so smart he sees what's coming so many moves ahead of where you are that it's scary sometimes. Shapiro is either a fool or senile, but he used to be du Pont's CEO, so he's an 800-pound gorilla in Delaware; if you want to see what the Second Coming will be like, just watch how everybody here acts around Shapiro. His value at Skadden is not his minimal ability as a lawyer but his clout with the authorities.
3: Paragraph 17 Shapiro first got the other banks in town, and their Delaware Bankers' Association, to back off in their opposition to letting Hutton in, and then he got Delaware's Bank Commissioner John E. Malarkey to grant Hutton two applications: one for a bank and the second for the Trust Company. Hutton Bank never did much, but Hutton considered using it in several packages that didn't get off the drawing board; we discussed such plans as having it lend money to customers who would then use that money to buy stock or insurance from Hutton, either directly or through trusts at Hutton, for example.
3: Paragraph 18 The Bank's affairs were handled by its two officers: the Trust Company's president Hitchcock and Richard Roeder at Hutton in New York. Hitchcock showed me the papers setting up the Bank, and Roeder and I had some discussions about it, but I didn't pry into the matter, because it wasn't my problem. I do remember that what business the Bank did was a few loans to some Hutton VIPs, but there were some legal irregularities about the situation, and a major reason we didn't do more with the Bank was that if it got active those defects might come to the attention of the regulatory authorities when they audited. Some of the irregularities had to do with doing business before the law was changed to allow it, and when the law was changed, it didn't cover Hutton Bank, but I'll come back to that later.
3: Paragraph 19 Once Shapiro got the Trust Company chartered as a Delaware limited-purpose trust company in July 1982, other Skadden lawyers prepared the usual corporate start-up documents and turned them over to Hutton. From then on, Hutton would call Skadden only when Hutton got into trouble with Commissioner Malarkey and couldn't get out of it without Shapiro's influence.
3: Paragraph 20 Hutton hired Hitchcock to be nominal head of the Trust Company; he had worked for State Street Bank in Boston for a long time, and Hutton brought in an outsider to be president so it would look as if the Trust Company was separate from the brokerage firm. In fact, though, as vice-chairman of its board James C. Lockwood was in charge of the Trust Company. Lockwood was the head of Hutton & Co.'s Consulting Services Division, a group that mostly charged fees for advising people which investment managers to hire: If the manager hired was a Hutton subsidiary, then Hutton got the management fee, and if the manager was not a Hutton affiliate, it brokered the investments through Hutton, so Hutton got the brokerage commissions. It was CSD's relationships with the pension funds that sparked the idea of the Trust Company, and Lockwood was responsible for it. He and two of his CSD executives, John Ellis and Len Reinhart, were on the Trust Company's board of directors by the time I got there.
3: Paragraph 21 Lockwood and the rest of CSD would come to Wilmington to share space with the Trust Company, and they would both move into offices in a new building on the Market Street Mall next to the Grand Opera House the day I started work in 1984, but when the Trust Company started in summer 1982 it was just Hitchcock and a few female clerical employees. He selected a software system called SEI and started accepting pension trusts.
3: Paragraph 22 Under the governing laws, regulations, and guidelines, as a trustee the Trust Company had to make both investment decisions and pay-out decisions in the best interests of the trust's beneficiaries, but Hutton never intended for the Trust Company to make those decisions, so no mechanisms were ever set up for them. Instead, once an account executive from the brokerage firm would sign a trust client up with the Trust Company, the Trust Company would make whatever investments and distributions that AE told it to: That violated the laws requiring a trustee to exercise responsibility for the trust and also the laws against self-dealing.
3: Paragraph 23 Hutton had picked Hitchcock thinking he was too wimpy to give Lockwood any back-talk but experienced enough to run the operation — they were only half right: Hitchcock lacked the intestinal fortitude to do anything but follow orders, and without experienced bankers making the management decisions, he was useless. Lockwood lacked the banking experience to know what bank operations were supposed to look like, so he couldn't direct Hitchcock in enough detail, and then Lockwood suddenly fell sick — I think it was a heart attack, but then he had prostate trouble, and he was incapacitated for many, many months — and nearly died; when it was feared he would die, or at least never be able to work again, it was necessary to put someone else in charge of the Trust Company.
3: Paragraph 24 So Hutton promoted Abbes, who had been on the board since the beginning; he replaced Lockwood as vice-chairman and CEO on 12 October 1983, Hitchcock remained president and COO, and Thomas P. Lynch of Hutton Group remained chairman. Abbes was a company man in every respect, so he followed Hutton's policy of not telling anyone more than he had to: In Hutton's world, managers didn't let subordinates know what was going on so they couldn't demand a piece of the action for carrying out the schemes, and they didn't put anything in the record that would expose their superiors to liability; when there was a problem, the middle-level manager would take the fall, and whatever higher-ups he was protecting would make sure he had a soft place to fall, often as a consultant to one of the investment management firms Hutton dealt with, if it wasn't possible to move him someplace else within Hutton itself.
3: Paragraph 25 Hutton Trust was never anything but a fa ade of a trust company — there was no substance to it, and not even much form. It performed no personnel functions, for example, and had no operational bank accounts and no petty cash. When an employee was hired, Hutton & Co.'s forms for a brokerage firm employee were completed and forwarded to New York, and then the person went on the payroll and was paid on Hutton & Co. checks. All reimbursements and employee benefits came from Hutton & Co.
3: Paragraph 26 Each of Hutton & Co.'s branch offices had a coded office i.d. number comprising one letter [out of eleven or twelve possibilities] designating the geographical region and two digits identifying the specific office, and that code was used as an address for telexes as well as an administrative identifier. The Trust Company was treated as a branch office of Hutton & Co. with the code V48, because we were office #48 in the national region; that's what went on all our personnel and payroll records. Hutton's brokerage office in Wilmington was coded A81, because it was office #81 in the Atlantic region; it was a satellite of the Philadelphia office coded A09. There were two brokerage offices in Washington DC, coded C16 and C18 because they were in the Central region, C20 was in Alexandria VA, and C32 was in Bethesda MD.
3: Paragraph 27 Hutton Trust rented a couple of safe deposit boxes and opened three checking accounts, but those weren't operating accounts — they were for payment of trust distributions. So when someone was supposed to get a pension payment from a fund trusteed at Hutton Trust, Hutton & Co. would deposit enough money in one of those accounts to cover the payment, and Hutton Trust would cut a check to the pensioner, but not necessarily in that order. Where would Hutton & Co. get the money? Out of the pension fund, of course. Wasn't Hutton Trust the trustee and supposed to be holding the fund? Of course that's what was supposed to be happening, but in fact Hutton & Co. never let Hutton Trust near any money except to launder the pay-outs, and that's what's wrong with this picture.
3: Paragraph 28 When Hitchcock set up the Trust Company's computerized accounting system, it was designed to track what happened in the brokerage firm's computerized system, but there was no electronic connection between the two. SEI is a perfectly good trust banking software system used by many banks, including some of the best in Wilmington; it has all the capability any trustee needs, but it's only as good as a user programs it to be, and Hitchcock didn't program it to do much of what it could, and that requires some explanation.
3: Paragraph 29 For every brokerage customer at Hutton & Co. there was an account in the firm's computer to track the trades. That computer account included the customer's name, address, and social security number as well as the office's code, the AE's code, and the account number; it could be accessed from a Hutton terminal anywhere in the world, but only the AE could authorize trades in the account. Whenever a trust account was opened at Hutton Trust, Hitchcock's clerks would set up an SEI account under the same number as the brokerage account and enter whatever information they were given about the assets in the trust. If there were assets that weren't securities — such as gemstones, real estate deeds, or promissory notes — they might be listed in the SEI account, but of course they would not be included in the brokerage account. When securities were bought or sold in the brokerage account, Hutton Trust would usually get notice of the trade, and Hitchcock's clerks would keyboard that information into the SEI account. But if assets other than securities were sold, there was no way for the Trust Company to know, because that didn't go through the brokerage firm's computer, so the assets wouldn't be removed from the SEI account; and if anything was bought outside of the brokerage account, including mutual funds that kept their own accounts, the brokerage firm's computer would report the pay-out of funds, and the SEI account would track that, but whatever assets were bought with the funds would never appear in either account, so according to our records part of the trust's value would have simply disappeared.
3: Paragraph 30 The important point is that there never were any assets at the Trust Company. All the assets were in the brokerage accounts at Hutton & Co., and all the Trust Company ever had was the phantom SEI accounts supposedly reflecting whatever happened in the brokerage accounts. The companies the trusts belonged to got monthly statements from the brokerage firm and monthly statements from the Trust Company, and if they didn't match, the customers were likely to complain to their AEs, who would usually complain to the Trust Company.
3: Paragraph 31 The monthly statements from SEI were printed in bulk by SEI and delivered to us in boxes, and Hutton & Co. sent us copies of the monthly brokerage statement in each account that was coded as a trust account. After the AEs started complaining, when there were discrepancies between the two statements Hitchcock and his clerks would white-out the parts of the SEI statements that didn't match and type in the information from the brokerage statement, because they knew whatever the brokerage statement said was what had actually happened in the account. But they changed only the paper statements and never put the changes in the computer!
3: Paragraph 32 It doesn't take an Einstein to figure out that once the two statements for a trust got out of sync, they would stay that way until at least one of the computerized accounts was changed to bring them back into agreement, but that concept seems to have been beyond everyone at the Trust Company. By the time I got there in spring 1984, it was taking about a week each month to white-out and retype the SEI statements for the month, and that's a week with everyone in the operations dept. working all day and half the night and most of the weekend, which added up to a lot of overtime.
3: Paragraph 33 There was also the problem, actually several problems, that the Trust Company wasn't keeping any tax records. For one thing, even though the pension trusts were exempt from paying income tax, they still had to file information returns about their transactions each year, and you have to keep track of the tax basis of a pension trust's assets, because at some point you end up distributing those assets, and you have to know what they're worth for tax purposes then. But the Trust Company wasn't keeping those records, and the customers kept complaining they couldn't get the information for their annual Forms 5500.
3: Paragraph 34 A second aspect of the problem was that Hutton Trust had about a dozen "collective funds" that were like mutual funds in that the assets from a lot of separate pension plans would be pooled and invested, and the profits would be prorated among the participating plans. Those were perfectly legal entities, authorized by the Internal Revenue Code and called "pooled income funds," and they're tax-exempt, but they have to file information tax returns every year so the IRS can make sure they're complying with all the applicable ERISA and tax laws. But Hutton had never filed any tax returns for any of its collective funds because neither Hitchcock nor anyone else at Hutton knew they were supposed to.
3: Paragraph 35 The third part of the problem didn't appear until we started doing personal trusts, and that was that non-pension trusts have to file tax returns every year and pay taxes on their profits. So just as any individual or corporate taxpayer has to, a non-ERISA trust has to keep track of its tax basis for assets and report not only its income from its investments but also its capital gain on the sale of those assets. And Hitchcock hadn't activated the fields to keep track of the tax basis and fair market value of trust assets, because that information didn't appear in the brokerage firm's computer.
3: Paragraph 36 Compounding that was the fact that a trust usually has "income beneficiaries," who get the income for some definite or indefinite period of time, and "remaindermen," who get what's left at the end of that period. A trustee is required by law to keep track of the trust's capital and income separately, because the trust's beneficiaries have different interests, with the income beneficiaries entitled to the income and the remaindermen entitled to the capital. The fiduciary accounting is worse than the London 'Sunday Times' crossword puzzle, and it's absolutely impossible without the records, but Hitchcock hadn't activated the required data fields in SEI, and neither he nor any of his clerks knew how to keep the records.
3: Paragraph 37 The complexity of the record-keeping and tax-reporting is a large part of the reason fiduciaries get paid such juicy trustees' fees, but somehow that concept had escaped the rocket scientists at Hutton, too. Another reason for the fees is that trustees have to make some hard decisions about distributing money from trusts: Many trust documents give the trustees a lot of discretion about making both investments and pay-outs, and if you've ever been in the middle of a family squabble over a legacy you can appreciate that trustees earn their fees. But Hutton skipped over those difficulties by letting the AE on each account make all the investment and pay-out decisions, so all Hutton Trust had to do to "earn" its fee was white-out and retype the statements.