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Title: Diamond Dust

Author: K. Kay Shearin

Posting Date: August 13, 2012 [EBook #7773]
Release Date: March, 2005
First Posted: May 16, 2003

Language: English

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*** START OF THIS PROJECT GUTENBERG EBOOK DIAMOND DUST ***














DIAMOND DUST


by K. Kay Shearin


(c) K. Kay Shearin 1992
Contact:  ks24@georgetown.edu

FOREWORD


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 Shearin
Elsmere, Delaware
June 1992


---

CHAPTER  I.  The lay of the land

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.


---

CHAPTER  II.  The best politicians money can buy

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.


---

CHAPTER  III.  The chits hit the fan

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.

3: Paragraph 38     Three unrelated examples will show you why I often
felt as if I was working in a Three Stooges comedy instead of a bank:

3: Paragraph 39     Congressman James T. Broyhill of North Carolina had
his share of the money from selling his family's furniture business that
he needed to put in a blind trust to avoid conflicts of interest in
voting on legislation.  Federal regulations cover such trusts and
require annual reports, and because such a trust isn't a qualified plan
under ERISA, it was considered a personal trust at Hutton Trust.  When
Broyhill's money came in, Butler decided to avoid any appearance of
self-dealing between Hutton Trust and Hutton & Co. by putting it in a
non-Hutton mutual fund; Butler chose one, and the AE executed the trade
by paying the money out of the brokerage account to the mutual fund, and
that was the last we heard of it.  Several months later, after Butler
was gone from the Trust Company, the AE and Broyhill's lawyer started
bugging me to submit the required report, and I couldn't find the assets
-- I found Butler's note in the file saying which mutual fund he had
picked, but when I asked that mutual fund, they denied having any
account in either Broyhill's name or Hutton Trust's.  I finally
submitted the report anyway -- after all, as far as Broyhill was
concerned the trust was deaf and dumb as well as blind, and it was easy
to find out what dividends the fund had paid since the date the money
disappeared in that direction -- and things were quiet for several
months until Broyhill decided he wanted to move the trust somewhere else
because we weren't cooperative enough about providing information about
it.  It took several weeks, but the AE finally found the account at the
mutual fund, under Hutton & Co.'s name, closed it, and turned the
proceeds over to Broyhill's lawyer.  What's really funny, or scary, is
when the AE found the account at the mutual fund, it was one of three in
Hutton & Co.'s name with no indication of what customer they belonged
to, and he just left the other two sitting there.

3: Paragraph 40     Mr. & Mrs. Burchard were a retired couple in about
their 80s, each of whom had a trust, and most of the assets in the
trusts were shares in a bank (I think it was in Illinois, but it might
have been somewhere else in the Midwest) that Mrs. Burchard's father had
founded and Mr. Burchard had been president of.  They had retired to
Arizona, and an AE in Hutton's Mesa office talked them into moving their
trusts to Hutton Trust so he could sell the stock and use the proceeds
to buy them some annuities from Hutton Life Insurance; the commissions
AEs got for selling Hutton insurance were even higher than their
brokerage commissions.  By the time I found out about the trusts, the AE
had already sold the stock, and when I told him annuities were an
improper investment for the Burchards, he told me not to worry -- the
insurance company wouldn't issue annuities on people their age, so he
was going to sell them annuities on their son's life, and when they died
the son would inherit and sell the policies and invest in something
else, and the AE would collect a commission on each transaction!  That
struck me as an archetypical example of "churning" an account, which
means repeatedly liquidating investments and reinvesting the assets to
collect commissions on the new investments.  I got into trouble with
Abbes for it, but I went over the AE's head to his branch office
manager, and the BOM did keep the AE from tying the assets up in
insurance.  For some reason, every few months the two Burchard trusts
would pop up as exceptions in another internal audit, and I'd get a
phone call from some Hutton employee somewhere in the country, and I'd
explain what happened, and that person wouldn't bother me about it
again.  Then one day I got a phone call from a bank officer at the
Illinois bank whose stock they'd owned; when the bank had gone to hold
its annual stockholders' meeting, the Burchards hadn't voted the stock,
and without it the bank didn't have a quorum, because between them
they'd owned the majority of the stock.  So the bank president had
phoned the Burchards and found out what the AE had done and was doing,
and he threatened to sue on behalf of the Burchards.  I don't know how
that situation finally came out, but I've often wondered.

3: Paragraph 41     Mary Alice Anthony had left a trust for her two sons
and their children, and an AE in Hutton's Hyannis MA office talked one
of the sons, Julian Kaiser, into moving "his" half of the trust to
Hutton by promising Kaiser to pay him as much of the trust's income as
he wanted.  The trust document provided for pay-outs to Kaiser, who was
a doctor, or his children if they needed them, and "need" was determined
under Connecticut law.  Kaiser's children appeared to need the money
more than he did, especially as we found in the computer about four
brokerage accounts in his name with substantial stock holdings in them,
but the AE kept paying Kaiser all the income, and Abbes and Hitchcock
kept letting him, although I kept putting memos in the file saying that
was wrong, and the bank examiners kept saying in their audit reports it
was wrong.  In February 1986 one of Kaiser's children wrote to Hutton
Group's then-CEO threatening to sue for the mishandling of the trust,
but I never heard how that came out, either.

3: Paragraph 42     Those three situations -- involving trusts worth
more than a million dollars and trustees' fees of tens of thousands --
are just the kind of problems any rational person would expect from not
having any mechanism for Hutton Trust to track trust assets or supervise
investments or distributions, but Hutton still shrugs them off as
"typical back-office problems in a new venture" according to Shapiro's
testimony on 1 October 1991.

3: Paragraph 43     Besides the comic relief, Hutton also provided some
romantic interest:  One of the CSD units was Hutton Portfolio
Management, and it was headed by Greg Phipps, whom I found very
attractive, but when I not too subtly let him know I was interested, he
rather more subtly let me know he wasn't, so I didn't embarrass either
one of us by pushing it.  For the most part, Hutton employees didn't
have much class -- which isn't to say they weren't great to work with
and fun to party with, because they were, and the people were part of
what I really loved about working there -- but Phipps used an Imari cup
for his tea, even when he was alone in his office, you know what I mean?
Once when we went to Hutton headquarters in New York to meet with some
customers about bringing a big trust in, he took me on a walking tour
around Wall Street, including Trinity Church and the Stock Exchange, and
told me their history.

3: Paragraph 44     HPM, the program he ran, supervised AEs who had
qualified to act as investment managers, instead of brokers, for their
customers' Hutton accounts.  So if an account was signed up for HPM, the
AE made the buy-sell decisions and executed the trades but received a
fee that was a percentage of the account's value instead of commissions
on each transaction.  Phipps handpicked the AEs who got into the program
and supervised their training and their performance, and it was a class
act all the way.

3: Paragraph 45     One of the times he had me speak to a group of
HPMers about using trusts and the Trust Company was in Washington DC on
20 September 1984.  It was one of those several-day affairs including
training sessions and field trips, and one of the trips the day I was
there was to the Capitol to meet one of Delaware's Senators and ride the
little train under the building.  But when we got to the Capitol,
there'd been a bombing in Lebanon or someplace, and the Senators were
taking turns being briefed in the little dome-of-silence room that
doesn't hold very many at a time, and the Senator couldn't make it, so
he'd asked Congressman Carper to meet with us instead.

3: Paragraph 46     I'd never taken much of an interest in politics, and
although I'd moved to Delaware on 30 June and had recently registered to
vote, I didn't yet know the name of our only Representative, but I did
know we had only one.  When he finally showed up in the small room where
we were having soft drinks and cookies, he had his notebook under his
arm, and I swear I thought the name on it was "Crapper," but I soon
picked up that it was actually Carper.

3: Paragraph 47     He made conversation with the group, much of it
about finances -- we'd just heard a lecture at the Federal Reserve --
and there was some kidding that the HPMers were from other states, so he
was wasting his electioneering on them, and I said, "Well, I'm
registered to vote in Delaware," and Carper joked, "Then I'll ignore
these men and just talk to you."  A little later, after he was told I
was one of Hutton Trust's officers, Carper drew me a little aside and
started explaining why he was having trouble getting the legislation we
wanted through the Banking Committee.  At first I didn't have the
faintest idea what he was talking about, but the way you find things out
is by listening, so I did.  When I got back I talked to Hitchcock about
it, and he told me Carper was trying to get federal legislation passed
that would extend to Hutton Trust and Hutton Bank -- because they had
been chartered outside the period to which the "non-bank bank"
legislation applied -- and then I was able to make sense of what Carper
had said about grandfathering.

3: Paragraph 48     That was around the same time that Hutton Trust
acquired a new personal trust client, a corporation named International
Development Programs Inc., the chairman of whose board was Wilbur Mills.
An AE named John Jennison, in Hutton's C18 office in D.C. where Perry
Bacon was BOM, had a client named Barton F. Walker Jr., who was
president of Walker & Walker Associates, Inc., in Maryland and one of
IDP's principals, so Walker had brought IDP to Jennison.  IDP's
president was Thomas M. Owen, whose phone numbers were in Virginia, and
its lawyer was Francis L. Jung, who was also general counsel to American
Pacific Trading Co. in D.C.  The chairman of AmPac's board was Conrad K.
Hausman, who was also one of IDP's principals.  The other two IDP
principals I dealt with were E. Doug Ward, executive vp of Astrotech
International Corp. in Pennsylvania, and Daniel Craig, president of
Norsud Corp. in California.

3: Paragraph 49     The companies these IDPers headed manufactured
aircraft, and maybe tanks, guns, and other war toys -- they had mostly
been pilots in WWII and/or the Korean Conflict, and Hausman had worked
for Alexander Haig in Vietnam and then at the White House.  Owen had
been on LBJ's re-election committee, and he told some of the best war
stories I ever heard: some about the parties his cousin Tallulah
Bankhead used to throw, some about his misadventures as a pilot during
the war, some about LBJ, and all of them hilarious.

3: Paragraph 50     IDP's 'raison d' tre' was to borrow money from the
pension funds of companies that manufactured industrial, agricultural,
and defensive equipment (which we took to mean aircraft, tanks, guns,
and related paraphernalia), invest it in U. S. Treasury notes, and lend
the interest to developing Third-World nations (mostly in the Middle
East and Central America) that would use the money to buy industrial,
agricultural, and defensive equipment (wink, nudge), probably from the
companies that had anted up their pension funds.  They explained to us
that this was all part of President Reagan's plan to cut back on foreign
aid from the U.S. government and get the private sector more involved;
they said they had the required approvals and gave us phone numbers at
the State Dept. and White House to check them out, but Abbes forbade me
to do any checking:  He said the only checking would be by Hutton &
Co.'s president Pierce through Barbara Bush to her husband the VP, and
then later he told me we had not just their approval but their
encouragement.

3: Paragraph 51     But the reason IDP had come to the Trust Company
then, as they told us, was that they couldn't pry any money loose from
the pension funds -- remember I said that's where most of the investment
money in the country is, but the trustees have to meet the high
standards the law imposes on fiduciaries -- so they'd gone looking for
money overseas and found some:  The royal family of Saudi Arabia had a
lot of money to invest but couldn't be seen to do so because of the
Islamic prohibition against usury, so they had created something called
the Crusader Trust, run by one of the big Swiss banks fronting for them.
The Crusader Trust was willing to lend IDP $100 million for some number
of years I've forgotten now, but the Swiss bank insisted on having an
American financial institution hold the bag, and IDP had been up one
side of Wall Street and down the other and been turned down everywhere.
Then Bush asked Pierce to have Hutton do it, and Fomon agreed and told
Abbes to take care of it.  It was, of course, a personal trust, so it
fell squarely in my lap, and I had most of the dealings with IDP.

3: Paragraph 52     The last week of October 1984 I had to go to Basel,
Switzerland, on rather short notice to meet with Owen, Hausman, Walker,
Ward, Craig, and someone from the Swiss bank, and that's when I finally
saw the printout of how the transaction was supposed to work.  There
were two kinds of problems with it:  One was that the bank wanted Hutton
to sign as the one liable for paying the interest for the term of the
loan and paying back the principal in Swiss francs at the end, so we
would in effect be guaranteeing not only the interest rate on Treasuries
but also the exchange rate, and we wouldn't; the other was that there
were so many finders' fees and up-front points to be paid to the various
players that it would take every bit of income from the Treasuries,
compounded by being repeatedly reinvested over the term of the loan, to
get the principal back to the amount to be repaid, and that didn't leave
anything to pay the income taxes with.  When I pointed that out, Owen
said, "But we don't want to pay any income taxes," and I said, "Nobody
wants to pay income taxes, but how do you expect to get out of it?"  So
they put me on the telephone to Mills -- whom they always referred to as
"the Chairman" with such reverence that Abbes tried teasing them once by
referring to Fomon the same way, but they were not amused -- back in the
States to find out what the story was on taxes.  That was the only time
I ever talked to him, and he didn't have any idea how to get out of the
taxes, either, but he said he'd get the guys there working on it.

3: Paragraph 53     While I was in Basel -- I went on Saturday the 27th
and came back on Halloween of 1984 -- IDP took very good care of me, and
except for when I went back to my hotel to sleep and a couple of hours
the last afternoon when I walked around town, I was always with one of
more of them.  One evening Owen wanted to drive to Zurich for dinner at
the Dolder Grand Hotel, so three of us went with him -- that's a whole
story of its own, with Owen driving like Barney Oldfield on the autobahn
and me falling back on my college German to navigate from an outdated
map in the dark!  While we were at the Dolder, Owen told us about the
last time he'd been there, when he'd run into the exiled Shah of Iran
and they'd talked about the good old days.

3: Paragraph 54     One day we drove across the corners of Germany and
France on a little sightseeing excursion whose purpose seemed to be to
let me see everybody's passports when we crossed the borders.  They'd
been hinting pretty hard that Hausman was CIA, but I kept acting like I
hadn't caught on, and a day or so later Walker finally took me to brunch
alone and just told me, but the two things I learned from their
passports were that Hausman did, indeed, carry a diplomatic passport and
that most of them, especially Owen and Walker, had been in and out of
Iran a lot of times over the past year or so.

3: Paragraph 55     One evening when I got back to my hotel after
dinner, there were some urgent messages from Abbes to call back, so I
did, and because of the time difference he was still in the office.  He
got one of Hutton & Co.'s lawyers in New York on the phone with us to
read us the riot act for my being there when the last thing the Legal
Dept. had told me on Friday was not to go -- they kept referring to
IDP's plans as "gun-running" and wanting us to drop IDP as a client, but
all we did was quit telling them stuff that was only upsetting them --
but Bacon and Abbes had both told me later on Friday to go anyhow, with
authority from Pierce and Fomon, and Jennison bought my ticket and wired
me the money for traveler's checks.  I'll always cherish the part of
that phone conversation when Abbes asked the lawyer what they were
afraid of, and he answered that after turning my head by getting me away
from my own turf and into exotic surroundings IDP might get me to agree
to something, to Hutton's detriment, that I wouldn't agree to at home;
Abbes said, "If you think that, you don't know Kay very well!"  Abbes
knew, from trying to himself, it's virtually impossible to get me to do
anything I don't intend to, and it really touched me to know he had so
much faith in me, because by then I had a lot of regard for him, and I
still do.

3: Paragraph 56     Some months later we started to realize why the
Legal Dept. had been so hot about IDP when it hit the papers that Hutton
had been involved in the money-laundering scheme the media called "the
pizza connection."  IDP kept talking to us for months about doing a
deal, but nothing ever came of it.

3: Paragraph 57     Then on 2 May 1985 Pierce entered Hutton & Co.'s
guilty plea to 2000 counts of federal mail and wire fraud in what came
to be referred to as "the check-kiting."  Too much has been written
about that for me to have to describe it here; suffice it to say that
Hutton had for several years taken advantage of the float on checking
accounts by drawing checks to customers on accounts in banks at the
other end of the country from where the customers were and then
depositing the money to cover the checks later.  Many of the AEs were
shaken that Hutton had been doing anything so blatantly against both the
law and the customers' interests, but I was surprised they were
surprised, because it was the same thing Hutton was still doing through
the Trust Company, and it was in keeping with everything I'd seen of the
way Hutton was run.

3: Paragraph 58     Hutton was fined $2 million and agreed to pay up to
$8 million in restitution to the banks, but Abbes and the other Hutton
higher-ups I dealt with laughed that off as "chump change" compared to
the amount Hutton had gained from it.  They were, however, concerned
that VP Bush was pissed off at the political flak he was taking for
protecting Hutton, so they decided to hire a prominent Democrat to
repair the political fences; they ended up paying former AG Griffin Bell
about $2.5 million to handle the damage control.  I can't help wondering
if all the members of Congress who were shouting so loud then for
someone at Hutton to go to jail would feel the same way now that their
own check-kiting at the House bank has come to light.  And if Carper
hadn't known all along that what Hutton was doing was pretty shady, he
has to have known it by the summer of 1985, but he kept trying to help
Hutton get more favorable treatment under the federal banking laws.

3: Paragraph 59     Do you remember in "My Fair Lady" when Professor
Higgins said, "The French don't care what they do, as long as they
pronounce it correctly"?  That's Hutton all over -- they didn't care
that they broke the law, but they got all bent out of shape that the
media reported they did.  Here's Shapiro's October 1991 testimony about
the check-kiting and related scandals:  "Hutton had had a very bad press
because of some federal charges, and they were very sensitive about
adverse publicity."  "Hutton had had a series of bad newspaper notices
and was very sensitive to criticism in the press."  Apparently the only
lesson Hutton learned was that federal felony charges are bad publicity.
Other than that, Mrs. Lincoln, how did you like the play?


---

CHAPTER  IV.  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.


---

CHAPTER  V.  Tilting at windmills for fun and profit

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.










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