Chapter 4 A crock of malarkey

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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