5: Paragraph 1 At the same time the events I've described were
happening to me at Hutton Trust, someone else was having a similar
experience at another company incorporated in Delaware. Like me he was
a senior executive at a subsidiary of a national conglomerate and a
shareholder in the conglomerate, but unlike me he was the CEO of the sub
because he'd started the smaller company and sold it to the
conglomerate, and his block of the parent's stock was significant. Like
me he was dissatisfied with the asinine and illegal way the conglomerate
was operating and how it was forcing him to operate the sub, and he'd
been telling the national press about it.
5: Paragraph 2 By the summer of 1986 he'd given the conglomerate an
ultimatum with three alternatives: Either let him run the sub the way
it should be run or buy him out so he could leave, or else he'd sue
them. After that his story is vastly different from mine, but then he
was H. Ross Perot, the conglomerate was GM, and his sub was EDS.
5: Paragraph 3 GM did buy Perot's GM stock back, and he resigned
from EDS and promised to quit criticizing GM, but GM paid him so many
millions of dollars that its shareholders sued GM and Perot, calling the
payment "hushmail." The Chancery Court has ruled twice in the matter,
and the Delaware Supreme Court once, and they're agreed that GM's board
acted properly in paying Perot to get out because his grousing was
interfering with the way the board was trying to run GM. If it wasn't
extortion for him to give GM his ultimatum, and the courts have ruled it
wasn't, then it couldn't have been extortion for me to give Hutton the
same ultimatum.
5: Paragraph 4 Another situation was shaping up in 1986 that also
led to a civil RICO suit for violation of the federal securities laws
and for extortion: In 1986 Carl C. Icahn started buying more stock in
Viacom International, Inc., and threatened to take the company over; in
May Viacom bought back its stock from him, for $79.50 per share when it
was trading at $62, and he promised not to buy any more Viacom stock for
eleven years. Then Viacom sued him for extorting this "greenmail" from
it, the federal court in New York dismissed the suit, and the appeals
court affirmed, saying Viacom hadn't been damaged because what it got
from Icahn was worth what it paid.
5: Paragraph 5 In its published opinion the district court discussed
the difference between "extortion" and "hard bargaining" and concluded
that it's not extortion if the person demanding the payment has a right
to assert the legal claim he's offering to release in exchange for the
payment -- Icahn had the right to try to take Viacom over, and he could
release that right in exchange for Viacom's payment. I had a right to
sue Hutton for firing me and for ruining my reputation by involving me
in its criminal activities, and I could release that claim the same way
anyone hurt in a car accident can settle his claim against the driver or
his insurance carrier.
5: Paragraph 6 Of course those cases were decided within the past
year or two, so when I filed my case in 1987, there were no precedents
with such similar facts. I'd like to take credit for behaving so much
like the big boys in 1986, but the truth is I wasn't clever enough or
experienced enough to have dealt with Hutton the way I did without the
expert advice I was receiving, especially that from Dave Garrett, an
expert in trust banking, and Rod Ward, an expert in corporation law.
Because Hutton had been their client before I met them, however, and
their relationship with me grew out of that relationship with Hutton,
they could not represent either one of us in our litigation.
5: Paragraph 7 One reason I say Ward is so smart it's scary is that
one day in autumn 1985 I was in his office telling him what was
happening at Hutton Trust, and he said, "You know if you have to sue
them, I won't be able to represent you." At that point I was so busy
fighting alligators I'd forgotten about draining the swamp, and that
possibility had never even crossed my mind, but I suddenly saw that I
might, indeed, end up suing Hutton, and all the big lawyers would be on
their side. But the silver lining to that dark cloud also appeared to
me, so I answered, "Yes, but you won't be able to represent them,
either." And that's the way it played out a couple of years later.
5: Paragraph 8 In early 1987, while I was still looking for a lawyer
to sue Hutton for me, I got another one of those nasty shocks that made
me nervous about going up against Hutton: The tv news shows were
talking about Iranscam, and I noticed on the ABC news one night (I don't
pay much attention to news, but 'Jeopardy!' comes on that channel at the
end of the national news) that the IBC statements they were showing were
monthly statements from a Hutton & Co. account. Like a light bulb going
on over my head in a cartoon, a lot of things I'd seen and heard in
dealing with IDP in late 1984 clicked into place, and I realized I'd
been mixed up in Iranscam.
5: Paragraph 9 I was really worried then that when I sued Hutton
they would accuse me of some criminal violation for having dealt with
IDP, and if I got into a pissing contest with Hutton, I was going to be
at a distinct disadvantage, so I decided I had to act first. I wrote to
the 'Wall Street Journal' reporter who'd reported my firing, telling him
what I knew about IDP and asking if he thought it was part of Iranscam
or was I just being paranoid; I got a phone call a few days later saying
his sources indicated I was onto the real thing. Then I wrote to the
Senate Select Committee on Secret Military Assistance for Iran and the
Nicaraguan Opposition telling everything I knew about IDP and what I'd
done with them; a few days later I got a phone call from one of that
committee's staff attorneys checking to see if I had any more
information but saying because of the nature of their investigation they
wouldn't be able to tell me what came of the leads I gave them.
5: Paragraph 10 At about the same time, I'd tried to file a criminal
RICO complaint with the federal prosecutor in Wilmington, because one of
the lawyers I'd consulted about representing me was a former federal
prosecutor and said the documents I had were sufficient to support an
indictment against both Hutton and Malarkey, and I should let the
government handle the litigation, because it would be all over the
country and take a lot of money. But all U. S. Attorney Bill Carpenter
did was send an FBI special agent to talk to me, and he kept nodding off
to sleep while I was trying to talk to him about the banking violations
at Hutton Trust; when I mentioned Iranscam, however, he perked up, and
some days later he came back with his supervisor and asked some more
questions about it. That's how I know I didn't just imagine that IDP
was part of Iranscam.
5: Paragraph 11 When Skadden Arps couldn't represent Hutton against
me because of its conflict of interest, Hutton hired Morris, Nichols,
Arsht & Tunnell; the grown-up lawyer on the case was Thomas Reed Hunt
Jr., and the associate who did the scut work was Brett D. Fallon. I'd
had vanishingly little practical experience of civil litigation, and I
learned a great deal from seeing them work; I wouldn't realize it until
later when I saw how bad some of the other lawyers in town are, but in
their dealings with me they exemplified the highest standards the bar
sets for itself.
5: Paragraph 12 Which is not to say they didn't put up a good fight,
but they fought clean and fair, and it never got personal. Even when
Hunt told me they were not only going to have the case dismissed but
also have the court order me to pay their costs and attorneys' fees, he
was a perfect gentleman, and I admired his style. I answered that the
most they could do was drive me into bankruptcy, and then I'd load my
dogs and my clothes in the car, leave the bank to foreclose on the
house, and move in with my parents in Mississippi -- since the kids have
moved out, they have three bedrooms and two baths with no one to use
them, and there's a motel-sized pool in the back yard, so it wouldn't be
too hard a life.
5: Paragraph 13 We futzed around with the litigation for nearly two
years, and in March 1989 Judge Joseph J. Longobardi dismissed my
complaint for lack of standing, saying I wasn't directly injured by the
RICO conspiracy I alleged, and that calls for a little discussion of the
RICO statute.
5: Paragraph 14 Congress made the "Racketeer Influenced and Corrupt
Organizations" chapter part of the federal criminal code, effective 15
October 1970, to be able to prosecute organized crime for using
legitimate businesses as fronts or money laundries for the proceeds of
criminal activity. It defines "pattern of racketeering activity" to be
at least two felony violations of certain state or federal statutes
committed by the same person within 10 years, and at least one act has
to have been after this law went into effect. The statute makes it a
crime to use money from such racketeering activity to start, buy, or run
a business engaged in interstate commerce or to conspire with somebody
else to do so.
5: Paragraph 15 Besides being a criminal law, the statute also
provides that anybody "injured in his business or property" by a
violation of the RICO statute can sue in federal court and "shall
recover threefold the damages he sustains and the cost of the suit,
including a reasonable attorney's fee." The so-called "predicate acts"
that form the pattern of racketeering activity include mail and wire
fraud ("wire" usually means "telephone"), embezzling from union funds
(which some of the pension funds were), and securities fraud.
5: Paragraph 16 I said in my complaint that Hutton Group had set up
Hutton Trust to allow Hutton Group to collect trustees' fees from the
same accounts it was collecting brokerage commissions from, through
Hutton & Co., but that Hutton Group never made or let Hutton Trust
perform the trustees' duties to earn the fees, and that violated the
RICO statute. I said that they hired me and the other employees by
making us think Hutton Trust was a legitimate company when it wasn't,
and that was fraud on us in furtherance of their RICO conspiracy against
the trust clients, and firing me to keep me from answering the bank
examiners' questions injured me, and therefore I'd been injured in my
business or property by their RICO violation, and I was entitled to
recover. Judge Longobardi didn't agree.
5: Paragraph 17 I appealed the dismissal to the federal appeals
court, which sits in Philadelphia, and served the notice of appeal on
Hunt, but then Hutton switched lawyers. That was probably a practical
rather than a tactical decision -- Hutton had been bought by Shearson
Lehman in 1988, and in fact I'd filed a suit in Chancery Court
complaining, among other things, that Shearson didn't pay us
shareholders enough for our Hutton stock in their merger because of
Hutton's legal liabilities, which Shearson bought along with Hutton's
assets -- because Richards, Layton & Finger, the firm that replaced
Morris Nichols, had been working for Shearson for some time. Replacing
Morris Nichols was a strategic error on Hutton's part, though.
5: Paragraph 18 Although we were litigating a federal claim in
federal court, they assigned the case to Anne C. Foster, a lawyer with
virtually no experience in federal court who wasn't even admitted to
practice in the federal courts yet -- most of her experience was in
Chancery Court, in cases alleging breach of the corporate directors'
fiduciary duties to the shareholders, where all the corporation has to
prove is it had a business reason for doing what it did, and it wins.
She has never seemed to grasp the idea that in a RICO suit it doesn't
matter why you did it: If you did it, you're guilty. But it probably
didn't matter what she thought, because Hutton was always an extremely
sexist organization (and Shearson seems to be upholding that tradition),
and they would never pay much attention to anything a woman said anyhow
-- that was always my problem with Hutton: I couldn't get their
attention because they've never to this day taken me seriously.
5: Paragraph 19 There are no trials in appellate court: Both sides
submit written briefs, and the court may hold oral argument, but the
hearing is just for argument, no testimony or evidence. In this case
the court didn't ask for oral argument; we sent in our briefs, and in
September 1989 the court issued a published opinion reversing the
dismissal and saying I did so have standing to sue Hutton under RICO.
Given the appellate court's opinion on the law, all I had to do was
prove the facts I'd alleged in my complaint, and I had to win.
5: Paragraph 20 Any reasonable defendant would have settled the case
right then, but not Hutton. Two years later, in September 1991, we
finally went to trial; not only had Hutton kept sniping at me and
squabbling about stuff that didn't matter, but Longobardi had been so
cranky to me as to border on hostility.
5: Paragraph 21 Take the famous forged U-4, for example: In the
fall of 1985, when I was trying to find another job either inside Hutton
or outside it, managers of several Hutton & Co. units were talking to me
about coming to work for them, but to share in commissions I'd have to
have a "Series 7" license. By then my relationship with Abbes was
rather brittle -- because he'd asked me to quit, and I'd not only
refused but also told several Hutton & Co. "heavy hitter" AEs who owed
me favors, and they'd told Abbes they didn't want me fired because I was
helping them so much -- so I sent a memo to Lynch asking him if I could
be licensed, and he said I could and forwarded it to the Hutton & Co.
department that handled licensing.
5: Paragraph 22 They not only registered me for the exam but also
sent me the materials to study for it, as well as the Form U-4 that is
the application to be a "registered representative," which is what an AE
is and what you have to be to get paid a brokerage commission. You also
have to be employed by a member of the Stock Exchange, which Hutton &
Co. was, but Hutton Group wasn't, and of course Hutton Trust wasn't.
The form had a part the applicant was supposed to fill in, with name,
address, employer's name and address, and recent employment history in
it, and then there was a part the employer was supposed to fill in and
sign; above where the applicant was supposed to sign it recited, among
other things, that the applicant agreed to binding arbitration, under
the NYSE rules, of any dispute between the applicant and the employer.
5: Paragraph 23 The instructions said fill it in in black ink and
print, and we couldn't find a black pen anywhere at Hutton Trust, so
Abbes told me to fill it in in blue ink and then make a photocopy and
sign that as the original; he also told me to fill in the part he was
supposed to do, and when I said the employer was supposed to do that
part, he said he was doing it, by having his employee (me) do it, and he
was right, so I did. I made the photocopy, and he and I signed it, then
I sent it to Hutton in New York.
5: Paragraph 24 After I filed suit, Hutton moved to dismiss on the
grounds that I'd agreed to binding arbitration, and they submitted a
copy of the U-4 they'd sent to the securities authorities when they
registered me. But, lo and behold, where I had accurately printed
Hutton Trust's name and address in the block for my employer, someone at
Hutton in New York had whited that out and written in Hutton & Co.'s
name and address. I still had the original blue-ink version, so I
figured I had Hutton by the short hairs: They'd just produced evidence
they lied to the securities authorities by mail and telephone, and that
was mail and wire fraud, actionable under RICO. But Longobardi keeps
saying that I was equally at fault in falsifying the U-4 because I
filled in the employer's section!
5: Paragraph 25 There's also the matter of unemployment benefits:
Hutton Trust's bylaws defined me as a senior corporate officer and
provided that a senior officer could be fired, with or without cause,
only by a three-fifths vote of the board of directors. (Abbes kept
asking me to resign because he didn't want to have the directors vote on
it; that's how he'd gotten rid of Butler, and then Abbes changed the old
board minutes to make it look like Butler hadn't held the offices it
required a board vote to terminate.) When I was fired, I filed for
unemployment benefits, and Hutton didn't answer the claim; I submitted
the newspaper clippings where Hutton said I was fired for making
improper demands, and the unemployment office made written findings that
didn't amount to cause under Delaware law, so I collected unemployment
for much of 1986.
5: Paragraph 26 After I filed suit, Hutton also moved to dismiss on
the grounds that I'd been fired for cause, and it submitted minutes of a
board meeting ratifying my termination for cause but not saying that the
vote was more than a simple majority. Given the bylaws requiring a
supermajority vote and the ruling of the unemployment office, which
Hutton didn't appeal when it had the chance, Hutton's position had to be
rejected as a matter of law, but Longobardi has always treated it as an
open question whether I was fired for cause, as Hutton says, or to keep
me from talking to the bank examiners, as I say. I could give you more
examples of how Longobardi, who's now chief judge for the district, has
sided with Hutton to give me a hard time, but you get the idea.
5: Paragraph 27 The trial took most of two days: 30 September and 1
October 1991. I testified the first day, and my cross examination
continued into the second day, then Hutton put on four witnesses: one of
Hutton's inside lawyers who was still working for Shearson, Abbes,
Hitchcock, and Shapiro. Not only did they not contradict my
allegations, they actually testified that they were true in every
material aspect!
5: Paragraph 28 There were many comical moments: Hitchcock, trying
as usual to wimp out from under any responsibility, testified to not
having known then or not remembering now most of what I asked him, and
Abbes testified to not knowing who had issued his pay checks. While I'd
been testifying, I'd several times tried to introduce a subject, like
Lockwood's tantrum when he fired Butler, and Foster had objected, and
Longobardi had ruled it out; then her witnesses got on the stand and
testified to it for me. The way Longobardi fawned all over Shapiro
would have been funny if it weren't so pathetic: The only thing more
disgusting than having to watch a federal judge suck up to anybody that
much is having the guy he's sucking up to be your opponent's star
witness.
5: Paragraph 29 I was suspicious of my good fortune when the first
three witnesses not only didn't counter my evidence but actually
supported my case, but then Shapiro took the stand and did so much to
help me that I considered whether I was dreaming, and the alarm clock
would go off any minute for me to get up and go to the real trial.
Malarkey was dead by then, and I'd figured there was no way to prove who
was responsible for his lying to the press -- saying there was no truth
to my charges when his own reports documented everything I was saying --
so I hadn't even included any defamation claims in my complaint, but the
appellate court had ruled that "loss of earnings, benefits, and
reputation constitute self-evident injury as in any standard wrongful
discharge action." My reputation had certainly been injured by his
making me out to be a liar, but I doubted I'd be able to blame Hutton
for it -- I'd expected Hutton to be smart enough to say Malarkey must
have done that on his own, so Hutton wasn't liable to me for it.
5: Paragraph 30 But Shapiro testified -- voluntarily, on direct
examination, in answer to Foster's questions, and before I even started
to cross examine him -- that he was the one who suggested that Malarkey
tell the reporters that! That admission meant Hutton was liable for the
deliberate injury to my reputation, because one of the federal civil
procedure rules says that if you prove something at trial that you
didn't put in your complaint, it shall (not "may" but "shall") be
treated as if you did include it in your complaint. That was like
Christmas coming early, but then it got even better.
5: Paragraph 31 Shapiro had testified on direct examination that
when Malarkey issued his 1986 audit report on Hutton Trust, it showed
the same problems that had been described in the 1985 report, what
Shapiro helpfully described as the kind of problems you'd expect from
having brokerage people trying to run a bank. I'd never seen the 1986
report, and I hadn't asked for it during discovery because it was
written after I'd been fired, so I knew Longobardi would rule I couldn't
have it, and I'd hate like the devil to give either him or my opponents
the satisfaction of keeping me from getting something I want. But I
knew the federal evidence rules pretty well, and one of them says if a
witness looks at a document to refresh his recollection before
testifying, you get to see it.
5: Paragraph 32 So I asked Shapiro if he'd reviewed any documents in
preparation for testifying, and Bingo! He admitted to reviewing the
commissioner's 1986 report, I asked for it, and Longobardi said they had
to let me see it; Foster objected and kept dithering about it being too
late for me to make a request for Hutton to produce documents, but that
just showed she didn't understand the rules of evidence. Moments like
that made the trial truly memorable.
5: Paragraph 33 Neither Hutton nor I had asked to have a jury for
the trial: I didn't, because I thought the breaches of fiduciary duty,
both the trustee's duties and the directors' duties, were too technical
for many jurors to care about, and I wasn't sure a jury would see me as
a sympathetic plaintiff; you'd have to ask Hutton why they didn't want a
jury. Besides, a jury comes back with a verdict, and you're pretty much
stuck with it, but when you have the judge decide the case, he has to
issue an opinion setting forth his reasons, and if you appeal his
ruling, the appellate court goes over his reasoning as well as his
result. And whatever his shortcomings of intellect and temperament,
Longobardi used to be a vice chancellor and so must have a solid
background in both types of fiduciary breach.
5: Paragraph 34 At the end of the evidence on 1 October, he gave us
an expedited schedule for filing our written arguments because, he said,
he wanted us all "to deal with this while it's hot and fresh in our
minds." The last brief was submitted on 7 December 1991; as I write
this, in June 1992, we're still waiting for him to deliver the verdict.
5: Paragraph 35 I know that he'll have to give us a decision sooner
or later, and then one or both of us may appeal it, so this litigation
may drag on for several more years, but it will eventually be over, and
I'll be able to get on with my life. In the hope that this year will
see the end of this case, which has cluttered up my present and future
for more than six years, I've written the story now, for two reasons:
Personally, when the case finally ends, I don't want to have to think
about it anymore; politically, this information should be stirred into
the mix upon which we'll base our electoral decisions in November.