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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