INSIDE JOB
The Looting of Americans
Savings and Loans
By Stephen Pizzo,
Mary Fricker
and Paul Muolo
CHAPTER EIGHTEEN
The Looting of Americans
Savings and Loans
By Stephen Pizzo,
Mary Fricker
and Paul Muolo
CHAPTER EIGHTEEN
The Last Squeezing of the
Grapes
Don Dixon had stepped down at Vernon after the FHLB issued its cease and desist
order. He no longer participated in the thrift's day-to-day activities, but he still controlled Vernon's subsidiary Dondi Financial. Though gone from the
office, his presence continued to be felt in the vault. After clearing out at Vernon,
Don Dixon began to cash in his Southern California empire. Since Vernon
Savings would no longer be paying the bills, something certainly had to be done
with all his homes there: the Solano Beach house, the Del Mar house, and the Rancho Santa Fe home that he was building. He tried to find someone to buy
the Solano Beach house (the only one of the three that Vernon Savings was not on the hook for). Jack Atkinson, who regulators said borrowed (with his affiliates) over $56.2 million from Vernon, told an FHLB examiner he paid the Solano
Beach rent for a while. So did John Riddle, a developer who bank records showed
had borrowed about $10 million from Vernon.
Our old friend Charles Bazarian showed up next, renting the home for
several months during 1986. Bazarian actually made two offers to buy the home
from its owners after Dixon stopped making the monthly payments. In March,
Bazarian offered $1.75 million, and he said Paris Savings and Loan (in North
Dallas around the corner from Vernon Savings) had agreed to finance the purchase.
However, Dixon's man Friday in California said Dixon told him the Bazarian offer was bogus, intended simply to buy time for Dixon.1
Bazarian's heart attack that year sent Dixon scrambling for another "buyer,"
but Bazarian came back in September with another offer, $1.45 million. Paris Savings backed out of the deal, however, when they read in the National Thrift news that Bazarian had been indicted in September for the Florida Center Bank scam with Renda and Rapp. Eventually Dixon lost the home.
As for the Del Mar house, in June 1986 Dixon negotiated its sale to a company owned by Bruce West, another major Vernon borrower. An FSLIC lawsuit revealed tiiat Dixon arranged to have Vernon loan West $2.8 million
to buy the house, but first Dixon removed the expensive artwork, for which
Vernon had paid $900,000.2 After the sale of the Del Mar house the Dixons
continued to occupy it for about six months, paying West's company, Lawton
Industries, $7,100 a month rent. During that time the Dixons abandoned hope
of moving into the Rancho Santa Fe mansion, under construction a few miles away, and in December 1986 the Dixons moved into a home in nearby Laguna
Beach that was owned by Jack Franks, a California loan broker who would later be indicted with Tom Nevis at State/Corvallis.3
In July Dixon held an auction at Symbolic Motors in La Jolla and sold 19
vintage cars. Eight of them belonged to him, he said, including a classic HispanoSuiza,
a stunning 1910 Duesenberg, and a 1936 Mercedes. Regulators said the auction grossed $2.3 million, of which Dixon pocketed $1.8 million. Symbolic
Motors paid all the auction fees, and it (and, therefore, Vernon Savings) lost $204,000 on the auction.
After Dixon withdrew from Vernon Savings, some of his loyal cadre must
have known their days were numbered. In August 1986 they made some strategic
moves for what they apparently hoped would be a clean getaway. Their
bonus and "bean" commissions, over a million dollars of which was being
held in bonus accounts at Vernon Savings, would be forfeited if they quit (or
if the thrift were seized). So, the FSLIC charged, they took out personal loans
in the exact amounts contained in their bonus accounts and never made a
single payment on the loans. In effect, they withdrew the money from their bonus accounts by defaulting on the loans. Attorneys for the FSLIC would
later tell a federal judge of their amazement at the boldness displayed by the Vernon executives:
But even as it became increasingly difficult to continue the cover-up and
as the investigator's net began to tighten, the Senior Officers schemed
one last desperate maneuver to divert another $1,211,792 into their own
pockets. . . .
The persistence and boldness of the Senior Officers in putting this last scheme
into effect, after the commencement of a special investigation by the FHLB,
is truly breath-taking.
Appearing later for depositions, in response to the attorney's charges, all of the
senior officers refused to answer questions. (By press time, three had been indicted on bank fraud charges, two of whom had pleaded guilty.)
By December 1986, the dozens of examiners sniffing around in Vernon's
books began to piece together a frightening picture. What emerged was a $1.7
billion financial institution in worse shape than the Alamo after the smoke
cleared. Dead and dying properties and loans littered Vernon's portfolio. Vernon assets—office buildings, shopping centers, condo projects—hemorrhaged before
their eyes. At the same time new casualties staggered in the door every time the examiners glanced up. Losses mounted by the hour. Regulators started calling
the thrift "Vermin Savings." Roy Green, president of the Dallas FHLB, told
congressional investigators that Vernon was the worst-run, worst-managed debacle
he'd ever seen in the thrift industry.
Vernon Savings had reported a $17 million negative net worth in November
1986. A month later, as examiners got a better handle on the situation, that
figure rose to $350 million. Then regulators discovered that Vernon had sold more than $449 million in loans to other thrifts, to get the loans off of Vernon's
books, and had promised to buy many of the loans back if the borrowers ever
defaulted. That meant Vernon was still on the hook for those loans, but if Vernon were ever liquidated by the FSLIC and unable to uphold its end of the
participation agreements, thrifts around the country would take direct losses
every time one of the loans they had bought from Vernon turned sour. The
health of a number of S&Ls around the country depended upon Vernon's
survival.
In December 1986 regulators decided to seek a consent-to-merger agreement
from Vernon.4 The agreement would impose certain restrictions on management
and authorize the FSLIC to arrange a merger or sale of the thrift. It also would
give regulators the right to replace Vernon's directors and officers.
Dixon saw control of Vernon Savings slipping away from him, and he didn't
intend to give up his thrift without a fight. He tried to contact Representative
Jim Wright.5 When Wright didn't return his call, he got in touch with Representative
Tony Coelho and Coelho called Wright's right-hand man John Paul
Mack,6 who got Wright to call Dixon.7 Wright later told congressional investigators
that Dixon said, "Look, they are getting ready to put me . . . and all
the stockholders completely out of business. ... If I can be given a week, I have located a source of income, a source of loans, financing in Louisiana . . .
a person who will take over all the nonperforming notes and provide capital to continue and redo our operation here, if they will just give me that time." Dixon
asked Wright to intercede for him with Gray, and near Christmas 1986 Wright
called Gray at home in California.
According to Wright, he said, "Ed. I don't know anything about Vernon
Savings and Loan. I don't know if it's valid or not. I don't know if it's
meritorious. But the man claims he's being kicked out of business. He's got
a week or three or four days that he can save it and avoid foreclosure. Why
don't you look into it?"
Gray told Wright he thought there must be a misunderstanding. Only the Bank Board could authorize closing an institution and no such authorization had been given. He agreed to find out what was going on.
Later Gray would lament over the Christmas call: "I have done things as
a results of his [Wright's] calls that I would not have done and never did
before."
But Gray kept his promise and called Roy Green at the FHLB in Dallas. Green said regulators planned to seek a consent-to-merger agreement, not a
closing, and Gray and Green called Mack to explain the difference. They told Mack a consent-to-merger agreement wouldn't affect the Louisiana business- man's ability to invest in Vernon, and Gray said if there was an investor foolish enough to commit $300 million to a massively insolvent institution, the Bank
Board would certainly be interested.
On January 2 the Dallas FHLB received four proposals to invest in Vernon
and rejected them all. In the case of the Louisiana group, it proposed to put up
no cash whatsoever.
Jim Wright was elevated to the post of speaker of the House of Representatives,
the third most powerful post in government, in January 1987. Gray's
recap bill then was truly in the hands of a powerful hostile force. Roy Green
and Joe Selby decided to take a crack at Wright next. They knew better than
anyone else what was yet to come in Texas, and they felt Wright had to be made
to understand that their examiners were only doing what needed to be done.
The examiners were not victimizing innocent constituents. Until Wright understood
the situation they felt he would continue to punish the Bank Board by
failing to support the critically needed recap bill. "I wanted the speaker to understand exactly what was going on in Texas," Green said. Selby wasn't so
sure the meeting would do any good. Some thought Wright's actions grew more
out of self-interest than out of ignorance of the facts. But Selby reluctantly agreed
to accompany Green.
Ed Gray said he was not invited to attend the February 10 meeting because
Wright didn't want him there. The six who did go included Green, Selby,
and William Black, who was the FSLIC's aggressive young deputy director. Wright invited his Texas developer friend and partner George Mallick, George's
son Michael, and others to observe the meeting. Wright had asked Mallick
to write a report on the cost of cleaning up all the insolvent S&Ls and the
reasons for the problems, and Mallick was presenting his completed report
today.8 Black later told us he and the other regulators were astounded to see
the Mallicks and the others in the room. He said their presence made it virtually
impossible to discuss highly confidential regulatory matters openly with
Wright.
Wright trusted Mallick's views. He and Mallick had been partners since the 1970's, according to published accounts, and Wright's wife, Betty, received $18,000 a year as an employee of a firm they jointly owned. A Justice Department
official told the Washington Times the relationship between Wright
and the Mallicks appeared to be "a classic gratuities case . . . official acts prompted by financial favors," and it later became one focus of an ethics probe
of the speaker.
The February 1987 meeting in the speaker's office began with Roy Green
and Joe Selby explaining the serious problems they faced in Texas. Green told Wright that the innuendos about gestapo tactics in Texas were nonsense. Regulators
were just doing their jobs.
Wright was unmoved. If they were so smart, Wright wanted to know, why
couldn't the FSLIC handle these problems more creatively? He felt the FSLIC
was forcing thrifts into insolvency by requiring them to take huge write-downs on property they owned.
"Why can't you guys work out some kind of deals with these people?" Wright
wanted to know.
There's disagreement on just who brought up Vernon at the meeting. Wright
claimed he didn't. Black said he most certainly did, others said Green did. One
thing was clear—Wright was furious with Gray, whom he felt had lied to him
about Vernon.
"When I talk to the head of a federal agency and he tells me something,
you know, I believe him," Black quoted Wright as saying. "And I asked Gray
when they were going to shut down Vernon Savings and Loan and he personally
assured me that they were not going to do that, and then I discover that you
did just exactly that, and the very same day."
Black realized that the speaker just didn't understand the difference between
a consent-to-merger agreement and a seizure. Black was an articulate, liberal Democrat in his late thirties. A striking man,
with a full head of red hair and a red beard, he was well versed on the FSLIC's
growing crisis. Unlike Gray, there was nothing folksy about Black. He was
professional and blunt.
"You don't seem to understand what's going on down there," Black said to
the speaker.
"I don't understand what's going on down there? " Wright boomed, his face turning bright red. "I'm the speaker of the House, goddamn it. Goddamn it, I
listened to you people and now you're going to listen to me. You're talking
semantics to me, jargon, and I don't like it."9 [BFD,you were the crooked speaker of the crooked house,just another parasite POS. D.C]
Wright complained bitterly that it was Ed Gray who didn't know what he was doing, especially in Texas. Black, choosing his words more carefully this
time, tried to explain to Wright that Vernon was hopelessly insolvent, that it would cost hundreds of millions of the FSLIC's dollars—maybe as much as a
billion —just to clean up after Don Dixon.
Wright turned to Joe Selby.
"You're the guy who's carrying the big hammer down there. They're scared
of you," Wright said, cocking an angry eye at Selby. Selby wasn't about to get
into a shouting match with Wright, so he just didn't reply. (Friends later said Selby told them he was afraid of the speaker.) The meeting lasted about an hour,
but Wright remained unmoved and nothing was accomplished. Two weeks after
the meeting, Roy Green threw in the towel and resigned from the Dallas Bank
Board. He later denied that his resignation had anything to do with his meeting
with Wright.
The meeting with Green and Selby was good background for Wright for what happened six weeks later. On March 27, 1987, the inevitable could be
delayed no longer and the FHLBB ordered that Vernon Savings be closed. When
the extent of the damage at Vernon began to leak out in the press, the seizure became a major embarrassment to the speaker. His press secretary quickly issued
a statement:
"The Speaker has no personal knowledge one way or other of this or any
other individual savings and loan. . . . The Speaker's aim from the beginning
has been to make sure that depositors are protected and that sound and salvageable
private businesses are not forced into bankruptcy or foreclosure whenever that can be avoided."
A full-fledged damage-control operation swung into action to protect the new speaker from himself. Representative Frank Annunzio (D-III)10 rushed to Wright's side and told the Washington Post, "If this [the closing of Vernon] is an attempt to embarrass Jim Wright then Mr. Gray is lucky that the Speaker is an advocate for the homeless because after June, when Mr. Gray is out of a job
(Gray's term as FHLBB chairman was due to expire in June 1987) he may be
sleeping on a grate." [Typical jackass talking out his ass,about things he was clueless about DC]
Regulators went on the offensive. They seized thrift after thrift in Texas in
the months that followed the closure of Vernon. But it wasn't the end, not by
a long shot. They began the task of dismantling the rogue thrifts one piece at a
time, dissecting them, like a mortician would dissect a cadaver to determine the cause of death, reading out the list of maladies and malignancies as they were
found. In Vernon's case the list was a long one, just part of which was a long
list of loans FSLIC compiled that were in default at the time of the takeover. For us some of the names were familiar ones: John Atkinson and related companies,
$56.2 million; Dixon-related companies, $44.9 million; Larry Vineyard,
$16.3 million; John B. Anderson, $11.7 million; John Riddle, $9.7 million;
Tom Gaubert, $6.76 million; Bruce West, $4.85 million; Charles Bazarian and
related companies, $4.6 million; Frank Domingues, $995,000; Durward Curlee,
$502,600; Jack Franks and related entities, $300,000; Tom Nevis, amount unspecified.
In a case where staggering figures and tall tales were the order of the day,
it was hard to pick one figure that summed up Vernon, but if we had to choose one it would be this; By the time Vernon failed on March 20, 1987, an unbelievable
96 percent of all its outstanding loans were in default. 96 percent!
Virtually every loan Vernon had made was a bad loan.11
On April 27, 1987, the FSLIC filed a civil racketeering lawsuit against
Dixon, Dondi Financial, and a baker's dozen of Vernon former officers, charging
that they had looted Vernon of more than $540 million. The suit alleged,
among other things, that they had made loans of up to $90 million each to
friends and business associates without, the suit said, any "reasonable basis
for concluding the loans were collectible." At the time the civil suit was the
largest in the FSLIC's history. Then regulators faced the long and messy job of trying to clean up the books, repay depositors, and dispose of Vernon's
over encumbered real estate in a Texas market that had gone bust. Cleaning
up Vernon would ultimately cost $1.3 billion. Later Vernon CEO Woody F. Lemons was indicted for bank fraud and two of the six senior officers named
in the FSLIC suit pleaded guilty to bank fraud. Spokesmen said the investigation was continuing.
The day after the FSLIC sued Dixon, et al, Speaker Wright and the House
Banking Committee Chairman St Germain did a public about-face and. in what
The New York Times characterized as "a startling reversal," agreed to support
the $15 billion recap bill. Wright later said his sudden decision had nothing to do with Vernon Savings. He said Secretary of the Treasury James Baker had
met him in Fort Worth on April 24 and personally asked him to support the $15 billion bill. [What a lying sack of shit DC]
While the FSLIC was filing its half-billion-dollar lawsuit, Dixon was going
into his lame-bird routine and declaring bankruptcy. He claimed to have lost $100 million and to be fiat broke, and he warned creditors that they "couldn't
get blood out of a turnip. " He estimated his income in 1987 would be a modest
$104,500, compared to $1.9 million in 1986 and $2.9 million in 1985. Dixon
appeared at a bankruptcy court hearing in June 1987 in Southern California with Dana clinging nervously to his arm. When the judge questioned him about
the extravagant life-style he had led while he controlled Vernon Savings, Dixon
tried to paint a picture of prudence. He left spectators shaking their heads when
he insisted that his Ferrari was not an extravagance.
"It was a family Ferrari," he told the court. How so? Well, he explained,
because it had an automatic transmission. Laughter spread throughout the court- room. As Dixon answered the bankruptcy court judge's questions, he glanced
out into the audience, where he spotted a familiar face, Dallas reporter Byron Harris, who had closely covered Dixon's rise and fall. Dixon smirked, as if to
say "What a pain in the ass, huh?" Dana, on the other hand, looked terrified
by the whole public spectacle. She held tightly to Don's arm as they sat at the
witness table and afterward in the hall as they passed the phalanx of reporters
and television cameras.
The "family" Ferrari was not the only asset Dixon's 85 creditors wanted to
get their hands on. There were the custom-made shotguns, now valued at $25,000 apiece, and Dana's $75,000 diamond solitaire ring. And the $31,000
worth of French wines Dixon had picked up on his European tours. All were
listed in the bankruptcy filings.
In an attempt to gauge the depth and breadth of Dixon's five-year spending
binge, his own attorney compiled a list of about 400 people and 150 banks and
S&Ls Dixon had done business with ("every one he'd ever driven by," quipped
an associate) who might need to be notified about any action taken in his
bankruptcy case. On the list were many names familiar to us: Larry Vineyard,
Tyrell Barker, Jack Atkinson, former U.S. Secretary of the Treasury John Connally,
Ben Barnes (former lieutenant governor of Texas), Robert Ferrante, Jack
Franks, John Riddle, Bruce West, Charles Bazarian and his company, CB
Financial. There were also several familiar savings and loans; Sunbelt, Key,
Paris, and Vernon.
And there on the list was R. B. Tanner, 71, founder of Vernon Savings.
Dixon continued to promise Tanner he would pay him the more than $2 million
that Dixon still owed him for Vernon Savings and that the Tanners had counted
on for their retirement, but it was hard to see where the money would come
from.
"We are hurting terrifically," Mrs. Tanner told us, and R.B.'s health hadn't been the same since Vernon's collapse. But they found strength through doing
mission work for their church. "R.B. lived a life of integrity," Mrs. Tanner said
proudly, and that was something, at least, that Don Dixon could not take from
them. Months later the Tanners were on television, praying for Don Dixon's
soul.
Bad as things were, Vernon wasn't an exception in Dallas, it was the rule. FBI officials scoffed at Federal Home Loan Bank Board statements that the
losses were attributable to the oil recession. Vernon, for example, was already
in trouble in 1983, over two years before oil prices collapsed. Government
auditors and Justice Department investigators estimated that there were $15
billion in losses in institutions in the Dallas area that were under criminal
investigation. In Houston half the failed institutions there were under investigation
as well. Every time investigators looked at a failed thrift, they found
fraud.
"My god," an overwhelmed FBI agent said to us, "the only thing that is ever going to get me out of here is the statute of limitations." (The statute of
limitations for bank fraud is five years.)
"This is the biggest Keystone Cops debacle to happen to U.S. financial
institutions since the Great Depression," one veteran thrift executive, hired by
the FSLIC to help untangle the mess, told The Wall Street Journal. "The failure on the regulatory side is every bit equal to the failures committed by the other
side."
"If you know the Vernon story," a FSLIC attorney told us, "you know three percent of what happened in Texas.
"
HUGE FRAUD PROBE
OF DALLAS THRIFTS
Thus read newspaper headlines across the United States in mid-August 1987. The U.S. Department of Justice had convened a special task force of 20 FBI
agents, two assistant U.S. attorneys, four IRS agents, 14 Justice Department
lawyers and special prosecutors, and at least one federal grand jury. They seized
the records of about 400 players in the Dallas S&L game, involved in 25 to 35
thrifts, and they announced that the largest white-collar crime probe of its type
in U.S. history was under way. Their investigation, they said, could take from
two to five years to complete.
The Dallas Times Herald obtained a copy of the list of 400 people whose
records had been seized while investigators repeatedly stressed that seizure of
a person's records did not indicate that person himself was under investigation.
On the list were many names familiar to us: Jack Atkinson, Tyrell Barker,
Herman Beebe, Mitchell Brown, Durward Curlee, Don and Dana Dixon, Jack Franks, Tom Gaubert, Craig Hall, Morton Hopkins, Ed McBirney, Tom
Nevis, John Riddle, Larry Vineyard, Jarrett Woods. The list also included some
heavyweight Texans, including Richard Strauss, the son of Robert Strauss, the former national Democratic Party chairman; Ben Barnes; John Connally; former Texas Savings and Loan Commissioner L. Linton Bowman, III; and Gene
Philips, president of Southmark, a $10 billion Dallas-based investment company.
An eerie silence fell over what had been a mecca for wild, free-wheeling
S&L action.
Many suspected the task force investigation was no more than a temporary
inconvenience for Texans. As Molly Ivins, columnist for the Dallas Times
Herald, once said, "When they crap out, Texans are very good natured about
it and just start over with something else. It's the game they like ..."
Texas differed only in scale from what we had discovered virtually everywhere else in the country, even in places where the only oil being pumped
was at the corner gas station. Texas had attracted almost every swindler in the country who was traveling the thrift circuit because Texas thrifts wheeled and
dealed like no others in the nation. Texas, we had discovered, was the most glaring example of how ultraliberal state thrift regulations, coupled with new
federal powers and FSLIC deposit insurance, produced a machine that sucked
in deposits from across the nation and channeled them into a network of excess,
fraud, and corruption the likes of which had no equal in the history of this nation.
CHAPTER NINETEEN
The Godfather
We had spent several months investigating the Texas savings and loan industry
when a source slipped us a startling document. It was a copy of a series of secret
reports prepared in 1985 for the comptroller of the currency.1 The report had
been ordered by the comptroller in order to "determine the breadth of Herman Beebe's influence or control over financial institutions." We knew of Beebe's
involvement in banking through his credit life insurance business. We also knew
he had bankrolled Dixon and Barker when they bought Vernon and State/
Lubbock and he had loaned money to McBirney to buy an airplane for Sunbelt
Savings. But Beebe's interest in financial institutions apparently went far deeper
than that.
The 22-page report listed over 100 banks and savings and loans that the comptroller's investigators suspected were either directly or indirectly controlled by Beebe or over whom he had some kind of influence. Listed among the thrifts they suspected Beebe of controlling were, of course, Vernon and State/Lubbock.
The report also outlined a complex structure of personal relationships, corporate
shells, and stock partnerships that secretly underlaid ownership of dozens more
institutions throughout Texas, Louisiana, Colorado, California, Mississippi,
Ohio, and Oklahoma. And beneath it all, the report alleged. was the guiding
hand of Herman K. Beebe. When we scanned the list of thrifts and banks, we
saw many that we knew had failed or were on the verge of insolvency. Suddenly
Herman Beebe appeared to be in the class of Mario Renda and Charles Bazarian.
If the report was correct, Herman Beebe was a veritable godfather of thrifts and
banks.2
Herman Beebe in 1987 was 60 years old. For over 20 years he had been
quietly manipulating financial institutions for his own benefit and the benefit of a close-knit circle of influential friends. We learned that Beebe was a business
associate of the most powerful men in Louisiana and Texas, and we heard the rumors that he was also associated with one of the Mafia's most powerful godfathers,
Carlos Marcello.
His influence in banking circles was so pervasive by the mid-1980s that he could be connected in some way to almost every dying bank or savings and loan in Texas and Louisiana, yet few people had ever heard his name—that is until U.S. Attorney Joe Cage set out to change all that. The confrontation between Joe Cage and Herman Beebe was a clash played out in Louisiana courtrooms between 1985 and 1988. It would match in significance Mike Manning's pursuit of Mario Renda.
Herman Beebe grew up in Rapides Parish in central Louisiana. Beebe was a common name in the Arkansas, Louisiana, and Texas area, and Herman came from solid rural stock. In 1943 he entered Northwestern State University in Natchitoches, just a few miles from home, and swept the floors of Caldwell Hall for his room and board. But World War II intervened, and he had to give up school for Navy shipboard duty in the Pacific. After the war he finished college at Louisiana State University in Baton Rouge, and the same year, 1949, he married Mary. They would have four children: Easter Bunny, Pamela, Ruth Anastasia, and Herman, Jr. Beebe had majored in agricultural education, and he worked as an assistant county agent in northern Louisiana until called into the Navy reserves during the Korean War. While in the Navy he decided to sell insurance when he got out.
In 1956 he moved back to Rapides Parish and within two years he was vice president of Savings Life Insurance Company in Alexandria (eventually one of the largest mortgage life insurance companies in Louisiana). In 1961 he started his own company, investing in motels, mostly Holiday Inns. He originally called his company American Motel Industries, but gradually his investments spread from motels to insurance to nursing homes and finally banking. American Motel Industries became simply AMI, Inc. Over the next 25 years he would build AMI into a multimillion-dollar conglomerate only to see it crumble as U.S. Attorney Joe Cage probed Beebe's business dealings and bombarded him with indictments and back-to-back investigations.
Whatever Horatio Alger elements there may have been in Beebe's success story, investigators said he joined the dark side early. In January 1965 the Securities and Exchange Commission accused Beebe and a partner of withholding important information when they tried to sell AMI stock.3
Beebe shrugged off the SEC judgment and went right back to building his empire. Nearly two years later, in October 1966, he made a decision that would change his life. It would also change the fortunes of more than 100 banks and thrifts over the next 20 years. In 1966 Herman Beebe bought his first bank, Bossier Bank & Trust, in Bossier City, Louisiana. As AMI had become the cornerstone of his business empire, so Bossier Bank & Trust would become the cornerstone of his banking empire. On a roll, he parlayed that purchase into eight more banks in Louisiana, Oklahoma, and Texas. Beebe had come up with a way to create his own captive customer base for his insurance company. By owning his own banks Beebe could require the banks' prospective borrowers to buy ami's credit life insurance. No insurance, no loan, though it might not be so crudely put.
Beebe quickly became one of Louisiana's major employers and a one-man conglomerate. Soon he was in demand. The mayor of Shreveport, Louisiana, 120 miles northwest of Alexandria, tirelessly wooed him, even attending AMI board meetings. He urged Beebe to consider the benefits of basing his company in Shreveport. Beebe agreed—after all. his bank. Bossier Bank & Trust, was in Bossier City, a suburb just across the Red River from Shreveport. In 1971 he made the move. For the next 14 years he would work and live in Shreveport, 200 miles due east of Dallas.
Even as Beebe's star was rising in Louisiana, he was getting some unasked for attention outside the state. Two thousand miles away, on the West Coast, the San Diego police were looking into Beebe's growing contacts there and notified the Metropolitan Crime Commission in New Orleans. The San Diego authorities reported that they had discovered that Beebe was negotiating to purchase a casino. His partners in the deal were familiar to the San Diego police, who considered them undesirables.
About the same time the rumors began to circulate that Beebe was "connected" in some way to Carlos Marcello, the powerful New Orleans Mafia boss. Among Beebe's growing businesses were his nursing homes. Carlos Marcello liked nursing homes too. In fact, in 1966 he had been arrested in a New York restaurant with East Coast Mafia boss Carlo Gambino and Florida boss Santo Trafficante, and he had told authorities he was in New York to arrange financing for a nursing home. Aaron Kohn, who was on the Metropolitan Crime Commission at that time, said one of Marcello's "messenger-boy attorneys" was seen serving as a courier between Marcello and Beebe in the mid-1970's.4 Later Beebe's attorney would tell us vehemently that Beebe absolutely did not have any association with Carlos Marcello or any organized crime figure.5
Whatever relationships might have been developed underground. Beebe was forging powerful political connections above ground. In the early 1970's he and former Texas Lieutenant Governor Ben Barnes developed a complex business association, the tentacles of which would be found 15 years later entwined in the Texas thrift crisis.
When Ben Barnes was only 22 he was elected to the Texas House of Representatives. For 11 years he was one of Texas's most up-and-coming young politicians. In 1968 he was nominated for lieutenant governor and became the first candidate in Texas history to receive two million votes. He was lieutenant governor from 1968 to 1972, but his political career ended after his name was involved in a bank and stock fraud scandal.
In 1971 a group of Texas banks were looted by a network of businessmen who borrowed money from the banks and used it to buy and sell stock from firms that belonged to Texas businessman Frank Sharp.6 Ben Barnes had owned stock in one of the companies under investigation by the SEC, according to the Texas Observer, and he had had loans at Dallas Bank & Trust, owned by Sharp (Barnes and Beebe later bought the bank). Though Barnes was never indicted, the Texas media speculated that his involvement may have raised questions in the voters' minds. He placed third in the 1972 race for the Democratic gubernatorial nomination.
In July 1973 Beebe and Barnes began to form banking and insurance associations,7 and by mid-1976 they controlled or had major influence over 19 banks and savings and loans in Texas and Louisiana.
Dallas, where Beebe's Savings Life had an office, was the center of the pair's business activity together. They often held their meetings in a North Dallas apartment, and it was sometime during 1976, Beebe later said, that Ben Barnes introduced Beebe to aggressive young Dallas developer Don Dixon.
Financially, Beebe and Barnes did very well together. The Dallas Morning News reported that by 1976 Beebe claimed a net worth of $8.2 million, and Barnes' prospects had certainly improved—from a net worth of $100,000 when he left the political arena in 1972 to $5.4 million in 1976. Unnoticed, they quietly went about the business of amassing a banking and insurance empire. Unnoticed, that was, until August 29, 1976, when Dallas Morning News reporters Earl Golz and Dave McNeely shattered the silence:
"A multimillion dollar looting of state banks, with links to political figures and possibly to organized crime, could cause several state banks in Texas to fail unless severe corrective measures are taken, according to informed sources."
The gist of the stories was that a network of 14 businessmen had borrowed money to buy Texas banks and thrifts, used those banks and thrifts to get loans to buy others, and so on, in pyramid fashion. Then, once they had acquired the institutions, they had used depositors' money to make loans to themselves and their friends.8 Among the men named in the story were Herman Beebe and Ben Barnes.
Aside from the financial wheeling and dealing outlined in their Dallas Morning News series, Golz, and McNeely revealed disturbing information about some of the men in the network they said officials believed were looting state banks.9 Beebe, they said, had "drawn the interest of several federal investigative agencies, which have reported that he has had associations with individuals who have organized crime connections."
Again the allegation: "One agency has reported that Beebe has had frequent contact with one of the personal attorneys of reputed New Orleans Mafia boss Carlos Marcello." And;
"Usually reliable federal sources report that Bossier Bank & Trust is suspected of being a conduit for funds skimmed by organized crime from Las Vegas gambling receipts and placed in foreign bank numbered accounts."
Two of the men named in the Morning News series, Carroll Kelly and David Wylie, would later get financing from Beebe to take over Continental Savings and Loan in Houston, according to court documents. A Houston dentist (who was a former investor in two thrifts merged to form Continental) said in an affidavit that one of the men's former partners told him New Orleans Mafia boss Carlos Marcello controlled Continental Savings through Beebe.10 Officials with Continental Savings denied the institution had anything to do with anybody in organized crime. (Continental Savings failed in October 1988.)
Ben Barnes was in Reno, Nevada, negotiating to build a Holiday Inn at Lake Tahoe, when the 1976 Dallas Morning News series began. He was livid. and with great fanfare and bluster ("I am sick and fired of having my personal business affairs subjected to continuous harassment. My family and I have endured enough persecution from the awesome power of a giant newspaper") he sued the Morning News for $20 million.
Within a few days Beebe followed with a $12 million suit. But for all their threats, the cases never came to court. After a lot of jawboning attorneys for the defense said Barnes and Beebe abandoned their monetary demands in return for the newspaper's promise that it would not release any of the information it had collected on them and would seal the files. Barnes told us he did not pursue his suit because he could not show he had been damaged financially by the story.
But that was by no means the end of the story. A House subcommittee,11 chaired by Representative Fernand St Germain (D-R.I.), held hearings in San Antonio later that year (1976) to investigate the closing of Citizens State Bank in Carrizo Springs and what became known as the rent-a-bank scandal. The hearings dragged up all the dirt again and added more.12 A former executive vice president of Citizens State Bank testified at the hearing that an associate had attended a meeting with Beebe and Harper and later told him "that Beebe was supposedly connected with the Mafia. " Beebe denied the rumor.
In the documents filed as part of the 1976 congressional hearings was a letter from loan broker Donald E. Luna to Barnes and Beebe about a loan Luna was arranging for an associate of theirs. We remembered Don Luna: Ten years after he wrote this letter to Barnes and Beebe, he would be indicted with Cardaseia at Flushing Federal for allegedly extorting $1.75 million from a Swiss developer. (Sometime during those ten years, federal authorities said, Luna had been convicted of running a confidence scam.) Cardaseia was cleared of the charge and Luna was awaiting trial as this book went to press.
As with the congressional hearings on brokered deposits involving Mario Renda, the Citizens State Bank hearings in 1976 had virtually no impact. Beebe continued to build up AML Inc. , from his corporate headquarters in Shreveport. But the people of Shreveport began to notice that Herman Beebe had changed. In 1979, saying he needed to devote more time to his business, he stepped down as chairman of the board of Bossier Bank & Trust (though he maintained his ownership) and seemed to withdraw from the mainstream of daily commerce. He stopped going to civic and social functions in Shreveport, and he sank into the anonymity of corporate AML Inc. He spent his days doing million-dollar deals concluded in a matter of minutes and sealed with a handshake. His habit was to rise before dawn and work late.
An associate later described to us Beebe's way of doing business: "He just kind of walked on the edge of fire, just defying people. He lived by the sword and he died by the sword. But I don't think he was a crook. I do think he violated federal banking laws and savings and loan laws, as most people do who do a lot of creative things, so he was guilty of that, sure."
Beebe adopted a jet-setting life-style, flying out of nearby Shreveport Municipal Airport for business meetings around the country or taking an entourage by limousine to Dallas, which was a straight three-hour shot west on Interstate 20 from Shreveport. When he wasn't engrossed in business he was at home with his family at their private compound near AMI headquarters, a woodsy secluded colony of stately Southern mansions, pine trees, and vast gracious lawns. Beebe's home in the family compound was described in the Shreveport Times as an 11,000-square-foot, $1 million Colonial mansion complete with swimming pool, tennis courts, and private pond. There were seven bedrooms, 24-karat-gold-leaf chandeliers from Spain, separate barbecue and smokehouse, bronze-trimmed winding staircase in the foyer, murals on the dining-room walls, and a six-car garage. There were also separate, more modest houses for the Beebe children —in the half-million-dollar range.
Beebe maintained a second home at La Costa Country Club in Southern California. La Costa was built by Rapp's buddy Moe Dalitz and others in the mid-1960s with $97 million from the Teamsters Central States Pension Fund. Beebe had owned property there for 17 years and was an established member of an important social and business circle.13 Most notably, Pete Brewton reported in the Houston Post, he was a business partner with Scott Susalla, whose father, Edward D. "Fast Eddie" Susalla, was a general partner in La Costa.14 Beebe and Susalla owned a loan brokerage and real estate firm called TLC (Texas, Louisiana, California). Susalla also worked with Don Dixon on condo deals in the La Costa area. (In 1985 Scott Susalla would plead guilty to possession of cocaine in one of the biggest drug busts in Southern California history. Federal authorities had accused him and about 100 others of importing a large percentage of Peru's cocaine into the United States. )
But Beebe's primary interests were still in Louisiana and Texas, where he continued to expand. When Congress announced that it intended to deregulate thrifts—taking the first step with the Depository Institutions Deregulation and Monetary Control Act of 1980—Beebe immediately saw the possibilities. Real estate in Texas was red-hot, and deregulated thrifts could make more commercial real estate loans than ever before, with fewer restrictions than ever before. Beebe began to "diversify," investing in more S&Ls, and he helped his friends do the same. Word got around that anyone who needed money to get control of a thrift should see Beebe.
"He was the man," said an FBI agent later. "Herman was the man to see," a thrift regulator agreed. Thus, Beebe became known to a handful of the observant as "the Godfather of Texas Savings and Loans."
Among the authorized visitors to AMI headquarters and the Beebe family compound during this time was Don Dixon, who had become a close family friend and with whom Beebe had made several investments, including a Holiday Inn in Shreveport. Dixon, about ten years younger than Beebe, had adopted the older man as a paternal role model, even calling Beebe "Papaw." (Some people would later speculate that Dixon's high-living life-style at Vernon was just an attempt to outperk his mentor, Papaw.) Dixon brought his friend Tyrell Barker into the Beebe clan.
Later U.S. Attorney Joe Cage said, "Beebe created Barker and Dixon for his benefit, their benefit, everybody's benefit but the American taxpayers. " Both Dixon's and Barker's thrifts sold Beebe's credit life insurance policies to their borrowers. Beebe's right-hand man at AMI, Dale Anderson, later said that AMI netted $2. 5 million in two years through Vernon's sales alone. For a time Beebe even kept a two-room suite in the Vernon Savings building. Anderson explained how it worked:
"We were very careful about how we worded it. If a borrower said he'd talk to his own insurance man, we'd say, 'Fine. That's probably where you need to get your loan.' "
Beebe, Dixon, and Barker also networked with the burgeoning S&L community in Texas, arranging millions of dollars in loans for themselves, loans that regulators would later claim weren't always repaid.
"Basically it all boiled down to back scratching," said the U.S. attorney who later prosecuted Barker. Tom Nevis's testimony, about a time when Barker approached him for a loan, showed how the back scratching worked:
"He (Barker) said, 'You owe me a loan. Try to get me a loan.' ... I never crossed Barker. . . . Barker was always saying, 'You do this and I'll help you out.' ... He done a lot of that."15
A deal negotiated with a Beebe-controlled bank or savings and loan, according to former Beebe associates, might work something like this: Someone who wanted a real estate development loan would be required to borrow more than he needed and to use the excess as Beebe directed (to pay off a loan that Beebe owed or that was owed to him, or to buy stock in a Beebe bank). And once the development was completed, a Beebe associate might buy it with another (overfunded) loan from a Beebe-controlled institution. The whole process resembled a Ponzi scheme (that could only last as long as real estate values were climbing).
"What happened was that people who came to us for money had to buy something," a Beebe associate told the Dallas Morning News.
Beebe built a number of important relationships, each serving a particular need, each giving Beebe access to an important arena. With Barnes, Beebe was plugged into old-Texas banking, insurance, and political circles. With Dixon and Barker, he was part of the wild-'n'-crazy thrift owners of Dallas.16 With Louisiana Governor Edwin Edwards and Judge Edmund Reggie, Beebe would gain entry into the highest circles of political power in Louisiana.
Edwin Edwards was an ambitious politician, and beginning in 1954 he would
hold political office in Louisiana for almost 30 years. He started as a city councilman
in Crowley and subsequently served in the Louisiana Senate and the
U.S. House of Representatives. He was governor of the state of Louisiana from
1972 to 1980, took a break for one term, and served again from 1984 to 1988.
Until he lost his bid in 1988 for an unprecedented fourth term as governor, he
had a campaign record of 16-0.
Edwards was a flamboyant gambling man, a self-admitted "proud and egotistical person" who reportedly used to boast that the only way he could lose an election was "to be caught in bed with either a dead girl or a live boy." He gambled in Las Vegas under aliases like T. Wong, and U.S. Attorney Joe Cage said Edwards and Beebe traveled together to Las Vegas and Southern California. For two years during Edwards's four-year sabbatical from the governorship (1980 to 1984) he was on Beebe's payroll, earning $100,000 a year working for AML (Later Cage would say the accommodation seemed to exhibit "the hallmark of influence peddling.")
When Edwards was governor of Louisiana his administration became embroiled in the federal government's pursuit of Carlos Marcello, boss of the New Orleans Mafia. In 1981 Charles Roemer, then Edwards's commissioner of administration, and Marcello were convicted of federal charges of racketeering. The prosecution played in court some tapes they had made in 1979 of Marcello's conversations with associates. On the tapes Marcello said, "Man, I know better than you. man, 'bout them politicians. , . . Edmund [referring to Edwin Edwards) and me all right, but I can't see him every day. . . . He's the strongest sonofabitchin' governor we ever had. He fuck with women and play dice, but won't drink. How do you like dat?" Edwards's lieutenant governor in 1979 was James Fitzmorris. Marcello was recorded as saying, "Fitzmorris? All he can do is ask a favor. He ain't worth a shit."17
Dallas Morning News reporters Bill Lodge and Allen Pusey reported that at this same time Marcello was a borrower at Beebe-controlled Pontchartrain State Bank near New Orleans. James McKigney, Pontchartrain's president, testified 18 that Pontchartrain had lent money to Marcello. Marcello's son Joseph, and several corporations connected with Marcello. McKigney replaced Beebe as president of Beebe's Bossier Bank & Trust when Beebe resigned in 1979.19 Marcello attorney Anthony J. Graffagnino20 was a director in 1983 of Sunbelt Life Insurance Co., which had its headquarters in Beebe's Shreveport office (another Sunbelt director was Governor Edwards's commissioner of financial institutions, who supervised state-chartered banks and savings and loans).
Edwards' close associate Judge Edmund Reggie was a former Crowley city
judge in the town where Edwards had once practiced law. Some observers felt Reggie may have been the real power behind Edwards, that it was Reggie who
pulled the governor's strings. He was Edwards's personal attorney, served as
his executive counsel while he was governor, and headed up Edwards's transition
team when he resumed the governorship in 1984. Reggie also was a
close personal friend of Senator Ted Kennedy and had been Louisiana campaign
manager of John Kennedy's 1960 campaign.21
Judge Reggie was a Louisiana power broker. And he was both a banker and a thrift owner. He owned the National Bank of Bossier City, in the same Shreveport suburb as Beebe's Bossier Bank & Trust.-- He started Acadia Savings and Loan in Crowley in 1957 and had been a director ever since. And he and Beebe owned stock together in several financial institutions. Reggie told us they had been friends for about 30 years, and they were associates in nursing homes, insurance companies, and real estate ventures. Investigators for the comptroller of the currency said several of Judge Reggie's real estate projects were financed by Beebe banks, and Reggie's banks made loans to Beebe-related entities.
Herman Beebe had positioned himself at the vortex of each of these separate but interlocking circles of influence—the Ben Barnes, Dixon/Barker, and Edwards/Reggie axes. By the end of 1981 Beebe was a man to be reckoned with. Beebe was prepared to use everything he had learned over the years about banking and newly deregulated thrifts to build potentially the most powerful and corrupt banking network ever seen in the U.S.
Through the years Cage had worked on several cases of financial fraud and, unfortunately for Herman Beebe, he had developed a keen interest in white collar crime. He liked to quote a line from an old Woody Guthrie song ("Pretty Boy Floyd") that went:
As through this world I've rambled, I've seen lots of funny men. Some will rob you with a six-gun, some with a fountain pen.
Joe Cage was to white-collar swindlers what Elliot Ness was to bootleggers. It was (and remains) rare to find a U.S. attorney familiar with the ways and methods of the professional white collar criminal, their intricate paper trails and byzantine multimillion-dollar frauds. Untangling the deals is in itself an art, and explaining them to a jury of twelve honest men and women borders on the miraculous. But Cage found the cases both challenging and fascinating, and when he moved to Shreveport in 1982 he ran up against the Dr. Moriarity of his career—Herman K. Beebe.
When Cage arrived in Shreveport a white-collar fraud case was already in the early stages. It involved a smooth and wealthy French businessman who lived in Texas, Albert Prevot, who was accused of defrauding the Small Business Administration by getting SBA loans and then diverting the money to his own uses. Assigned to work with Cage on the case was FBI Special Agent C Ellis Blount.
Blount became Cage's indispensable right-hand man. He had a background in business law and shared Cage's interest in white-collar crime. They actually liked the challenge of wading through thousands of documents to piece together complex business transactions designed specifically to leave a cold trail. They developed a close working relationship, and eventually the two of them together would bring down the Beebe empire.
Cage and Blount worked through the months on the Prevot case, and as they tightened the screws Prevot decided to try to make a deal. He offered to tell Cage what he knew about Shreveport businessman Herman Beebe, who was, he said, involved in all kinds of illegal activities. Cage said he was interested, and by September 1982 he had two plea agreements in the Prevot case and enough information about Beebe's affairs to justify empaneling a federal grand jury. What Cage had stumbled onto was Beebe's maze of business relationships with banks and corporations.In November, Cage convened the grand jury and he and Blount went to work unraveling Beebe's tangled affairs for the jurors.
"We'd have, say, 10 issues, trying to get them resolved with the grand jury, and in solving those 10, 15 more would come up," Cage told us later. It was like trying to nail jelly to the wall. Beebe's business deals were five dimensional. They went in every direction, and in every direction Cage said he saw transactions that worried him. He discovered that many banks and thrifts in Louisiana and surrounding states had participations and take-out agreements (interlocking financial arrangements) with Beebe's Bossier Bank & Trust, and Cage began to fear for the integrity—and safety—of the area's banking system. Cage and Blount alone handled all the grand jury documents, all the witnesses. They worked long hours, determined to get to the bottom of the complicated case. As Cage called witnesses to testify before the grand jury, word of the investigation trickled back to Beebe. Cradually, tension grew in the Beebe camp.
At first Beebe just tried to shrug it off. 1983 should have been one of the best years of his life. He was flush with what seemed like an endless supply of money from numerous financial institutions, institutions whose owners or officers were in place because Herman Beebe had put them there. He embarked upon an expansion program. In April he broke ground on a $12 million seven story glass office building in his AMI complex that became known around town as the AMI Tower. Shreveport people called it an ivory tower because it was "out in the middle of nowhere." On the top floor were four palatial offices, one at each corner, where Beebe and his top echelon of officers directed a fast-paced operation that employed almost 6,000 people, over 1,000 of whom lived and worked in the Shreveport area. AMI had 17 subsidiaries and connections with 14 other companies, with after-tax income of over $4 million and assets of $155 million.
In March 1984 a mutual friend arranged for Beebe"s now ex-wife, Mary, to visit the Reagans at their Santa Barbara ranch, near her own second home in Santa Barbara, and the public relations blitz was on. The Shreveport Times ran a full-page article in March 1984, most of it a fawning account of her visit written by Mary, along with pictures of her standing with President Ronald Reagan and Mrs. Reagan at their ranch. It made its point—Beebe had friends who had friends in vervy high places.
Across town from the AMI Tower, in a plain corner office on the third floor of the Federal Building,1 Cage and Blount were spending hundreds of hours combing through evidence and laying their trap. Cage became so convinced that Beebe was a danger to the banking and thrift community that he personally conducted the Beebe investigation. The grand jury was meeting once a week in Alexandria, over 100 miles south of Shreveport, so Cage was absent from his Shreveport office for days at a time. Under his personal direction the grand jury heard 150 witnesses and stayed in session for two years. Cage and Blount methodically formed a cordon around Beebe and AMI, and then they closed in step by step. On Halloween 1984, Beebe was indicted, along with three AMI officers and the CEO of Bossier Bank & Trust. They were charged with 21 counts of fraud.
Beebe was accused of having an AMI subsidiary illegally borrow $1 million from the Small Business Administration in a series of complex transactions that had taken place on New Year's Eve 1980. He was also accused of having Bossier Bank & Trust loan $1.85 million to Albert Prevot (the French businessman whose plea agreement spawned the empaneling of the Beebe grand jury), who then passed it through four corporations and on to AMI, thus allowing Beebe to avoid regulations against banks making loans to their owners. In response to a defense motion the judge separated the charges into two trials —the SBA case and the Bossier Bank case.
Beebe maintained an ominous silence in the wake of the indictments, but AMI, Inc., came out swinging, releasing a strong statement in defense of the five accused men.
"They [the accusations) are the product of an investigation by a U.S. attorney and an FBI agent who for more than two years have demonstrated the desire to obtain an indictment at any cost." The accused high-powered defense team of 15 attorneys included flamboyant attorney Richard "Racehorse" Haynes of Houston and Camille Gravel, who was one of Louisiana's leading criminal defense lawyers, an advisor to Governor Edwin Edwards and Judge Reggie's best friend.
The Beebe children, who had heretofore stayed out of the public eye, fell in behind their father. Though the children were grown and Mary and Herman were divorced, the Beebes remained a close family. Beebe's son, Herman, Jr., and Beebe's two sons-in-law worked for him. Throughout the two-year grand jury investigation, they had all believed it would come to nothing.
"I am a human being and I make a lot of mistakes," daughter Pam told reporters, "and my daddy does, too, but I know he would never set out to harm or deceive somebody or take anything that didn't belong to him." [LOL DC]
Daughter Easter Bunny's husband, David, was one of the accused (though charges against him were later dropped).
"It was almost comical," said Bunny in her Louisiana drawl, "to think David could be indicted. Anybody who knows David would think, 'not sweet little David.' We are just thankful Camille Gravel, defense attorney was available. He is the kindest, most caring person. We must have looked to him like two little lost lambs." [They love to lay it on thick! lol DC]
Many of the 1,000-plus AMI employees in Shreveport took personal offense at the attack on their employer. They held prayer meetings in the AMI Tower and turned out at important times to show support for their boss. The grumbling against Cage had begun.
"The ones [AMI employees] I've talked to," said an employee, "wondered what Mr. Cage has against our boss. It seems so personal, like a vendetta. We wondered why the government is spending so much money to go after one man. "
When the first trial began in January 1985, Beebe's family and friends, including ex-wife Mary, faithfully took their places on wooden benches in the courtroom at the Federal Building in Shreveport. During breaks they huddled in small groups, speaking in quiet tones, exchanging subdued smiles, obviously under tremendous strain. Outside the courtroom the whole town of Shreveport waited to see what would happen to one of Shreveport's best-known citizens.
Within a few days the prosecution and the defense rested their cases and the judge sent the jury out to deliberate. On January 17, 1985, the jurors came back in with a verdict. All eyes in the standing-room-only courtroom were on Judge Tom Stagg when at 1:10 p.m. he read the jury's decision: Guilty. The jury had found Beebe guilty of the overall charge of defrauding the SBA. They did not find him guilty, however, of several specific charges of lying or benefiting from the loans. Beebe was sentenced to 200 hours community service and ordered to pay a $21,000 fine and $1 million in restitution.
With hardly time to catch their breaths, the attorneys, defendants, family, friends, and reporters gathered on February 4 in a courtroom in Lafayette, Louisiana, 200 miles south of Shreveport. There the second half of the trial, dealing with the Bossier Bank charges, was to be held. Cage charged that Beebe had defrauded his Bossier Bank & Trust by having the bank make a loan to Albert Prevot that was secretly routed to AMI. Cage said the purpose of the transaction, which took place on New Year's Eve 1980, was to improve the looks of AMI's balance sheet at the end of the year. Then Beebe returned the money, via Prevot, to Bossier Bank. Beebe was again represented by Camille Gravel, a distinguished white-haired Southern gentleman who sounded like a Baptist preacher in the courtroom.
"Herman Beebe is a builder," thundered Gravel, "the kind of man that has helped to build this country. He has risen from the red clay hills of north Louisiana to the position he now occupies as a leader of the business community. . . . Any conviction of any of the defendants in this case carries with it a life sentence. Mr. Beebe's career as a prominent and successful businessman would be over. The blight of a conviction would stain him for the rest of his life."
Gravel told the jury that whatever loans Mr. Beebe received were in the course of legitimate business. The loans had all been repaid. Besides, what was illegal about trying to make your financial statement look better at the end of the year? Where was the harm?
Cage was unmoved. "It wasn't a legitimate loan, merely a true and classic sham loan to a person who agreed to do a favor."
But this time Cage did not prevail. It took the jury 50 minutes to acquit Beebe of all charges. They just could not believe Beebe had intended to defraud his own bank. When Judge Tom Stagg read the verdict the courtroom erupted in shouts of joy. Beebe seemed stunned and declined comment, but Mary Beebe said emotionally, "I'm so grateful. I don't know what to say. I really am so thankful. So grateful to God, so grateful to the lawyers and the judge and so grateful to the jury." Someone in the background yelled about a phone call to the governor. Smiling supporters hugged each other and pumped every friendly hand. A disappointed Joe Cage led his team from the courtroom without a word. The score stood even at one-to-one. Cage went back to his office, and he and Blount started all over again, spreading out the deals, looking at the connections, following the money. Three months later, on June 4, Cage convened a second grand jury to investigate Herman Beebe.
Cage's onslaught took its toll on Beebe. He began to have difficulty finding people willing to do business with him. He was a convicted felon ,convicted of loan fraud. He found it increasingly difficult to borrow money. His name, and the names of his companies, became like red flags when a bank examiner found them on a list of loans. Many of the officials of the 200 to 300 banks and savings and loans that he typically did business with were called to testify before the grand jury, and many of them decided Beebe was just too hot to handle. They stopped associating with him.
Beebe, a man who had lived a very private life in recent years, suddenly found himself and his business affairs laid open to public view, "My company was leveraged, like so many companies are," he explained to Shreveport Times reporter Linda Farrar. "And the turn the investigation took just cut my credit off totally. I had no choice but to start liquidating. I just had so much bad publicity ... it had just pretty well done away with my opportunity to make a living. ... It just went downhill in a hell of a hurry."
Loss of insurance business was especially difficult for Beebe to sustain because it had been an important source for the cash flow his other businesses required. He began what appeared to be a liquidation of the Beebe empire. Eventually financial institutions, even those with ties to Beebe, were forced to foreclose on most of his holdings (including the AMI Tower), and he sold whatever was not mortgaged to the hilt. But federal investigators said he had put many of his assets into his children's names, and they believed he continued to control still more investments through third parties.
Cage and Blount proceeded to prepare the new case against Beebe. Their investigation drew the attention of other federal agencies. Two conferences were held, in Baton Rouge, Louisiana, and Memphis, Tennessee, between federal prosecutors and state and federal regulators, and between April and June 1985 the comptroller of the currency prepared the series of secret reports on Beebe's banking activities that first clued us in to the scope of Beebe's influence. After we obtained a copy of the reports, federal officials told us that while the documents might contain minor errors, they stood behind them as a fair and accurate assessment of Beebe's influence in banking and savings and loan circles in 1985.
Compiled independently of Cage's investigation, the reports revealed 12 national banks that could "in some way be controlled or influenced by Beebe." Key Beebe figures at those banks included Edmund Reggie and Don Dixon, the reports said. Listed, too, was Harvey McLean, who owned Palmer National Bank in Washington, D.C., and who had a multimillion-dollar line of credit at Bossier Bank & Trust. McLean was also a director of Paris Savings and Loan, which Dixon associates had said was Dixon's "junk S&L."
The comptroller of the currency report then listed 13 national banks that Beebe might "exert some influence over." Listed as being the link between Beebe and some of these banks were Ed McBirney (owner of Sunbelt Savings), Jarrett Woods (owner of Western Savings)2, Carroll Kelly (part of the network exposed by the failure of Citizens State Bank in 1976 and now an owner of Continental Savings in Houston), and Tyrell Barker.
The OCC study listed 55 state banks (in Arkansas, Florida, Louisiana, Mississippi, and Texas) and 29 savings and loans (in Colorado, California, Louisiana, Mississippi, Ohio, Oklahoma, and Texas) "controlled by Beebe and his associates. ..." Among the S&Ls listed were Key, Continental, Mercury, Paris, State/Lubbock, Sunbelt, Vernon, and Western. Among the people mentioned as a Beebe-bank associate was Rex Cauble, described in the report as "a convicted drug dealer who has had massive debt at Bossier Bank & Trust." Cauble owed two other Beebe-related banks $1.5 million and owned stock in two others. (See Appendix A for full, unedited OCC report.)
One hundred and nine banks and thrifts had been pinpointed by the comptroller of the currency's investigators as having a tight enough relationship with Beebe to be worthy of serious concern. The report so worried the comptroller that it was brought to the attention of Attorney General Ed Meese, the FSLIC, and the FDIC at a joint meeting of the Justice Department's new Bank Fraud Working Group. They realized that with Beebe's extended network of influence, he could shift fraudulent deals not only from institution to institution but from regulatory system to regulatory system—which would make him almost impossible to stop. A loan he wanted to hide could be structured through federally regulated or state-regulated thrifts, banks, and insurance companies all over the country.
The information in the OCC report would not have startled U.S. Attorney Joe Cage and FBI Special Agent Ellis Blount had they known of it, but it was not shared with them. On their own they forged steadily ahead, presenting documents, evidence, and witnesses to the second Beebe grand jury.
Joe Cage's hot breath got to be too much for Beebe and suddenly in late 1985 he packed up and moved from Shreveport to Dallas to start a new life. "I left town," Beebe said later, "because the atmosphere was such that I just felt like it would be very difficult to—" He interrupted himself and then continued, "It's not difficult for me to make a living. I could make a living on the Sahara Desert. But I had to get to an atmosphere that was at least better than where I was."
Beebe started life in Dallas on a high note by marrying his girlfriend from Shreveport. Ostensibly, they were building a new life together from scratch, and 1986 was a hard year to get started. S&Ls were dropping like flies—that summer Dixon resigned from Vernon, McBirney resigned from Sunbelt, and Barker was indicted—and the atmosphere in North Dallas, where Beebe had an office, was one of deepening gloom. The runaway real estate development craze had resulted in such a glut that shopping centers and condos stood vacant all over town. Dallas had about 38 million square feet of unused office space (equivalent to 17 Empire State Buildings). Dallas reporter Byron Harris said of 1986, "The silence of deals not being made was deafening." Still Beebe somehow always seemed to have money. With his empire in shambles, where was he getting it?
"If you're interested in Beebe, you should be interested in Southmark," a source told us one day. "Have you seen the transcripts of Southmarks casino licensing hearings in Las Vegas? I think you'd find them interesting."
We had found this Dallas-based company in some of our other thrift investigations. Now we were to learn that Southmark had made nearly $30 million in loans to Beebe (and Beebe related companies) after his conviction. Altogether, Southmark conducted nearly $90 million in business deals with Beebe. Some of the business was paid for in Southmark stock. The company's 1985 10-K showed that Herman Beebe held nearly 62 percent of Southmark's Series E Preferred stock. (FSLIC later charged that Beebe used some of that stock to pay off a loan he had at Edmund Reggie's Acadia Savings and Loan.)
Southmark was a "Forbes 500" company based in Dallas and run by Gene
Phillips, a calculating, tough negotiator, described by competitors as one of the most astute real estate men in the country. He was of medium height and build,
sandy-colored hair, not particularly imposing. But he took a hard-nosed, structured
approach to deals that awed people on the other side of the negotiating table. Phillips was a chemical engineer who had been bitten by the real estate
bug. BusinessWeek reported that in 1973, when Phillips was 35, he had dealt
his way right into bankruptcy in South Carolina. To pay off his debts he went
to work for one of his larger creditors and later bought the company. In 1978
he tried to buy a bank in Georgia, but the comptroller of the currency blocked
the purchase because Phillips, he said, had not told the truth on his application.
But, true to form. Phillips still made $2 million on a $4 million investment
when he sold the bank shares he had bought before his application was denied.
Then in 1979 he and his partner. New York city attorney William Friedman, began to buy up the stock of a defunct Dallas real estate investment trust. By 1981 they had acquired control, and five years and about 35 acquisitions later, they had built Southmark into a publicly traded financial services company with 27,000 employees (including subsidiaries) and nearly $10 billion in assets. Southmark's extraordinary increase in assets attracted a lot of attention, and Phillips's eagerness to take unorthodox risks raised eyebrows. Forbes magazine said he and Friedman ran Southmark more like their own private investment company than a big public corporation. For example, when one of Phillips's own companies was called upon to repay a construction loan, Phillips sold the company to Southmark and let Southmark repay the loan. The deal cost Southmark $9.5 million. Pressed to explain Southmark's willingness to take on the debt, a Southmark officer told reporters the venture "looked like an attractive project."
After thrifts were deregulated, Phillips hurriedly searched for one to finance his acquisitions. In 1983 Southmark acquired San Jacinto Savings, and for three years the S&L was under Phillips's control. But in 1986 worried regulators ordered the S&L to stop funding Southmarks purchases, and Phillips had to rely on another favored way to raise cash. That year he raised $950 million through Drexel Burnham Lambert. In fact, much of Southmarks explosion in assets, according to SEC filings, was financed by junk bonds marketed for Phillips by his close friend Michael Milken, Drexel Burnham Lambert's junk bond king. {Forbes reported Drexel Burnham made well over $50 million in fees by financing Southmark and its subsidiaries.) When Phillips borrowed money,' he took more than he needed and used the extra to invest in other companies' junk bonds being marketed by Milken—a common practice of many of Drexel Burnham favorite customers. (The practice bore a disturbing resemblance to the cash-for trash deals, where a thrift borrower was required to take more money than he wanted and to use the excess to buy a piece of junk property from the thrift. One year, The Wall Street Journal reported, Drexel raised $450 million for Southmark, and Phillips used all of it to buy other junk bonds Drexel was promoting.)4 Southmark became the largest real estate-based conglomerate financed by Milken.5 It may also have been one of the most complex. Even seasoned Wall Street analysts admitted to reporters they couldn't figure out the company's maze and layers of debt. What they did know, however, was that Southmark had a lot of debt coming due all at once in the early 1990s.
That outstanding debt didn't seem to phase Phillips. Records showed that Southmark paid him over $1 million in 1988. He and his wife owned a $1 million condominium on Wilshire Boulevard in Los Angeles and a $10 million estate in Dallas (previously owned by Lamar Hunt and, then, James Ling). He traveled in a $3.5 million DC-9 that used to belong to singer Kenny Rogers.
Perhaps it was his hunger for cash that sent Southmark to the gaming tables, a move that unwittingly exposed the company's close ties to Herman Beebe. Whatever the reason, the afternoon of November 5, 1986, found Phillips, Friedman, and their attorney sitting at attention before the Nevada Gaming Control Board. The commission's job was to make sure no one with criminal associations or backgrounds got a casino license. Southmark owned the land where the Silver City Casino in Las Vegas was located and had worked out an agreement with the owners of the casino that Southmark could collect a percentage of the casino's gambling revenues if the gaming control board approved.
But from the opening of the session it became clear that what the gaming control board wanted to talk about was Herman Beebe. As soon as the board had dispensed with preliminaries, one member got to the point:
"Mr. Phillips, could you please describe first of all how the relationship, business relationship or otherwise, with Mr. Beebe came about occurring? Secondly, how it's evolved and, if you would, what the current relationship with Mr. Beebe is?"
Phillips said that in 1984, shortly before Beebe was indicted, he and Beebe had reached an agreement for Southmark to purchase Beebe's nursing homes for almost $100 million. Beebe owned 62 nursing homes in five states with over 6,500 beds.
Then, Phillips said, before they could close the deal Beebe "ran into severe financial difficulties" (a euphemism for Beebe's indictment and the resulting fallout) and Southmark, Phillips contended, had to loan him money to keep him afloat. Otherwise, Phillips said, Beebe might have gone into receivership and the contract between Phillips and Beebe would have been voided. Phillips assured the gaming control board that Southmark would have had nothing to do with Beebe after his indictment had it not been for Phillips's desire to consummate the purchase of the nursing homes.
"Obviously, " said Phillips, "Mr. Beebe would not be the appropriate or suitable type of individual to have an ongoing relationship with."
But, the commission member persisted, ". . . you loaned Mr. Beebe an additional $29.6 million in a total of five other loans and made three other purchases from Mr. Beebe, all after the date of his conviction." He enumerated the transactions: February, $500,000 loan; April, $14.2 million nursing-home purchase; May, $1 million purchase and $2.5? million loan; June, $1 million loan; August, $25.5 million loan; and December ("almost a year after his conviction on fraud and wire fraud and other charges"), a $7 million purchase of Beebe's Savings Life insurance Company.
"Now, that adds up to $29.6 million 6 in loans after the man was convicted," the commission member concluded. Then he got to the crux of the commission's concern. "Mr. Beebe . . . had a $700,000 7 restitution levied [as a result of his 1985 conviction]. Would you know whether Mr. Beebe paid his fine with proceeds of loans from your companies?" and again: "It appears that (Southmark's loans to Beebe] were for the benefit of Mr. Beebe, to keep his head above water, in a business sense, so that he could continue operating even after he had been convicted of federal charges."
Phillips and Friedman stood their ground.8 They readily admitted that for a time they were propping Beebe up. They said they even tried to get control of Bossier Bank & Trust. But all of those transactions were part of the original nursing-home purchase agreement, made before Beebe was indicted, or were attempts to keep him in business until they could conclude the deal. And all the loans they made to Beebe, they said, had been repaid with the exception of $1 million.
Phillips's explanations evidently satisfied the gaming control board, and after a lengthy discussion of other topics, such as Phillips's 1973 bankruptcy, the board approved Southmark's request. And there our interest in Southmark might have ended, except for the fact that the company had shown up in some of our earlier investigations. We went back to our files and began compiling a list of Southmark's appearances. Time and time again the company had turned up at the end of our investigation of a failed thrift. Southmark would appear, most often, in the role of scavenger, acquiring the troubled assets of those who had contributed to the failure of the institution. We had found, for example, Southmark or a Southmark subsidiary acquiring assets formerly owned by Mario Renda, Robert Ferrante, Morris Shenker, John B Anderson, and Tom Nevis. Now many of these deals were further confirmed by Phillips's testimony before the gaming control board:
Southmarks Pratt Hotel division acquired the Palace Hotel and Casino project in Puerto Rico, which investigators told us was being developed by Mario Renda and Robert Ferrante until their empires crumbled; Southmark bought the Double Diamond A. Ranch near Reno that had belonged to Tom Nevis;9 Southmark bought some of Morris Shenker's stock in the Dunes Hotel and Casino when Shenker and John Anderson fell on hard times and tried to buy control of the casino but lost out to a Japanese group; Southmark tried to buy Eureka Federal Savings" liens against Anderson secured by his Maxim Hotel and Casino; Southmark tried to fund the purchase of the Aladdin Hotel and Casino by Harry Wood, a Shreveport native who ran the Dunes's junket operations;10 Southmarks S&L subsidiary, San Jacinto Savings, got media attention when it tried to buy troubled Continental Savings in Houston (Beebe had bankrolled Carroll Kelly and David Wylie in their purchase of Continental).11 And, finally, we discovered on a 1988 trip to Shreveport that Southmark now owned the AMI Tower.
Then there were the "coincidences. " For example, Southmark's 10-K showed Southmark owned 37 percent of Pratt Hotel Corporation,12 and in 1986 Pratt was trying to buy Resorts International (which had opened Atlantic City's first casino and which was building the $525 million Taj Mahal casino hotel there). Funny, we thought. We'd just learned from Cage that Judge Edmund Reggie had been a $10,000-a-month consultant for Resorts International for about a year. When we checked with Reggie, he said the two events were unrelated.
Then we found Southmarks fingerprints at Silverado Savings and Loan in Denver.13 Neil Bush, son of then Vice President George Bush, became director on Silverado's board in 1985 but resigned just days after his father was nominated
in 1988 as the Republican candidate for president and just three months before Silverado was forced by regulators to establish nearly $200 million in loan loss
reserves to cushion the thrift from expected losses on shaky deals. Neil Bush
said he resigned for personal reasons. Others said his resignation was to spare
his father the embarrassment of Silverado Savings' condition. (Silverado collapsed
in late 1988.) After all, one of George Bush's jobs as vice president during Ronald
Reagan's first term had been to chair the Bush Task Group on Regulation of
Financial Services. (The group was part of Ronald Reagan's deregulation apparatus.
It died a quiet death in August 1983 after accomplishing very little. )14
After we had collected all of this information about Southmark, we asked ourselves what it meant, that Southmark, a giant corporation, had turned up in investigations that we had thought at the outset were entirely unrelated. A disturbingly large number of our trails led to Southmark in one way or another. The company appeared to be a major player in the network of people we had been tracking—often there to pick up the pieces whenever one of our thrift pirates hit rough water. Apparently someone else was wondering as well. When the Dallas Times Herald printed the list of the 400 individuals whose records were subpoenaed by the Justice Department's fraud task force in 1987, Gene Phillips was among them. Southmark itself began to show up on the business pages of daily newspapers, as Phillips and Friedman were increasingly forced to deny that Southmark was in deep trouble. Its Houston thrift, San Jacinto, was put under a supervisory order in 1988 and forced to take almost $140 million in write-downs. Regulators forced Southmark to remove two of its three directors from San Jacinto's board, and in early 1989, under pressure from Southmark investors and directors, Phillips and Friedman resigned from their positions at Southmark.
The Southmark puzzle was one of those black holes into which a reporter could disappear and never be heard from again. One normally reliable source even told us he had phone records showing that a real estate broker who had close dealings with both Southmark and Carlos Marcello had also made phone calls to Major General John Singlaub, of Contra-gate fame. We were intrigued, but we had a deadline to meet and we had to leave the further unraveling of Southmark for later. But we had discovered a powerful player in the thrift game and we had learned who it was that had kept Beebe afloat after Cage convicted him. Thanks to associates like Southmark, Beebe was not ever likely to be down and out.
next
Round Three
His influence in banking circles was so pervasive by the mid-1980s that he could be connected in some way to almost every dying bank or savings and loan in Texas and Louisiana, yet few people had ever heard his name—that is until U.S. Attorney Joe Cage set out to change all that. The confrontation between Joe Cage and Herman Beebe was a clash played out in Louisiana courtrooms between 1985 and 1988. It would match in significance Mike Manning's pursuit of Mario Renda.
Herman Beebe grew up in Rapides Parish in central Louisiana. Beebe was a common name in the Arkansas, Louisiana, and Texas area, and Herman came from solid rural stock. In 1943 he entered Northwestern State University in Natchitoches, just a few miles from home, and swept the floors of Caldwell Hall for his room and board. But World War II intervened, and he had to give up school for Navy shipboard duty in the Pacific. After the war he finished college at Louisiana State University in Baton Rouge, and the same year, 1949, he married Mary. They would have four children: Easter Bunny, Pamela, Ruth Anastasia, and Herman, Jr. Beebe had majored in agricultural education, and he worked as an assistant county agent in northern Louisiana until called into the Navy reserves during the Korean War. While in the Navy he decided to sell insurance when he got out.
In 1956 he moved back to Rapides Parish and within two years he was vice president of Savings Life Insurance Company in Alexandria (eventually one of the largest mortgage life insurance companies in Louisiana). In 1961 he started his own company, investing in motels, mostly Holiday Inns. He originally called his company American Motel Industries, but gradually his investments spread from motels to insurance to nursing homes and finally banking. American Motel Industries became simply AMI, Inc. Over the next 25 years he would build AMI into a multimillion-dollar conglomerate only to see it crumble as U.S. Attorney Joe Cage probed Beebe's business dealings and bombarded him with indictments and back-to-back investigations.
Whatever Horatio Alger elements there may have been in Beebe's success story, investigators said he joined the dark side early. In January 1965 the Securities and Exchange Commission accused Beebe and a partner of withholding important information when they tried to sell AMI stock.3
Beebe shrugged off the SEC judgment and went right back to building his empire. Nearly two years later, in October 1966, he made a decision that would change his life. It would also change the fortunes of more than 100 banks and thrifts over the next 20 years. In 1966 Herman Beebe bought his first bank, Bossier Bank & Trust, in Bossier City, Louisiana. As AMI had become the cornerstone of his business empire, so Bossier Bank & Trust would become the cornerstone of his banking empire. On a roll, he parlayed that purchase into eight more banks in Louisiana, Oklahoma, and Texas. Beebe had come up with a way to create his own captive customer base for his insurance company. By owning his own banks Beebe could require the banks' prospective borrowers to buy ami's credit life insurance. No insurance, no loan, though it might not be so crudely put.
Beebe quickly became one of Louisiana's major employers and a one-man conglomerate. Soon he was in demand. The mayor of Shreveport, Louisiana, 120 miles northwest of Alexandria, tirelessly wooed him, even attending AMI board meetings. He urged Beebe to consider the benefits of basing his company in Shreveport. Beebe agreed—after all. his bank. Bossier Bank & Trust, was in Bossier City, a suburb just across the Red River from Shreveport. In 1971 he made the move. For the next 14 years he would work and live in Shreveport, 200 miles due east of Dallas.
Even as Beebe's star was rising in Louisiana, he was getting some unasked for attention outside the state. Two thousand miles away, on the West Coast, the San Diego police were looking into Beebe's growing contacts there and notified the Metropolitan Crime Commission in New Orleans. The San Diego authorities reported that they had discovered that Beebe was negotiating to purchase a casino. His partners in the deal were familiar to the San Diego police, who considered them undesirables.
About the same time the rumors began to circulate that Beebe was "connected" in some way to Carlos Marcello, the powerful New Orleans Mafia boss. Among Beebe's growing businesses were his nursing homes. Carlos Marcello liked nursing homes too. In fact, in 1966 he had been arrested in a New York restaurant with East Coast Mafia boss Carlo Gambino and Florida boss Santo Trafficante, and he had told authorities he was in New York to arrange financing for a nursing home. Aaron Kohn, who was on the Metropolitan Crime Commission at that time, said one of Marcello's "messenger-boy attorneys" was seen serving as a courier between Marcello and Beebe in the mid-1970's.4 Later Beebe's attorney would tell us vehemently that Beebe absolutely did not have any association with Carlos Marcello or any organized crime figure.5
Whatever relationships might have been developed underground. Beebe was forging powerful political connections above ground. In the early 1970's he and former Texas Lieutenant Governor Ben Barnes developed a complex business association, the tentacles of which would be found 15 years later entwined in the Texas thrift crisis.
When Ben Barnes was only 22 he was elected to the Texas House of Representatives. For 11 years he was one of Texas's most up-and-coming young politicians. In 1968 he was nominated for lieutenant governor and became the first candidate in Texas history to receive two million votes. He was lieutenant governor from 1968 to 1972, but his political career ended after his name was involved in a bank and stock fraud scandal.
In 1971 a group of Texas banks were looted by a network of businessmen who borrowed money from the banks and used it to buy and sell stock from firms that belonged to Texas businessman Frank Sharp.6 Ben Barnes had owned stock in one of the companies under investigation by the SEC, according to the Texas Observer, and he had had loans at Dallas Bank & Trust, owned by Sharp (Barnes and Beebe later bought the bank). Though Barnes was never indicted, the Texas media speculated that his involvement may have raised questions in the voters' minds. He placed third in the 1972 race for the Democratic gubernatorial nomination.
In July 1973 Beebe and Barnes began to form banking and insurance associations,7 and by mid-1976 they controlled or had major influence over 19 banks and savings and loans in Texas and Louisiana.
Dallas, where Beebe's Savings Life had an office, was the center of the pair's business activity together. They often held their meetings in a North Dallas apartment, and it was sometime during 1976, Beebe later said, that Ben Barnes introduced Beebe to aggressive young Dallas developer Don Dixon.
Financially, Beebe and Barnes did very well together. The Dallas Morning News reported that by 1976 Beebe claimed a net worth of $8.2 million, and Barnes' prospects had certainly improved—from a net worth of $100,000 when he left the political arena in 1972 to $5.4 million in 1976. Unnoticed, they quietly went about the business of amassing a banking and insurance empire. Unnoticed, that was, until August 29, 1976, when Dallas Morning News reporters Earl Golz and Dave McNeely shattered the silence:
PYRAMID SCHEME,
UNSECURED LOANS
POSE THREAT TO
SEVERAL
STATE BANKS
So read the main headline on the Golz/McNeely series. The lead paragraph
of their story could have run almost unchanged in any Dallas newspaper during
the savings and loan crisis ten years later: "A multimillion dollar looting of state banks, with links to political figures and possibly to organized crime, could cause several state banks in Texas to fail unless severe corrective measures are taken, according to informed sources."
The gist of the stories was that a network of 14 businessmen had borrowed money to buy Texas banks and thrifts, used those banks and thrifts to get loans to buy others, and so on, in pyramid fashion. Then, once they had acquired the institutions, they had used depositors' money to make loans to themselves and their friends.8 Among the men named in the story were Herman Beebe and Ben Barnes.
Aside from the financial wheeling and dealing outlined in their Dallas Morning News series, Golz, and McNeely revealed disturbing information about some of the men in the network they said officials believed were looting state banks.9 Beebe, they said, had "drawn the interest of several federal investigative agencies, which have reported that he has had associations with individuals who have organized crime connections."
Again the allegation: "One agency has reported that Beebe has had frequent contact with one of the personal attorneys of reputed New Orleans Mafia boss Carlos Marcello." And;
"Usually reliable federal sources report that Bossier Bank & Trust is suspected of being a conduit for funds skimmed by organized crime from Las Vegas gambling receipts and placed in foreign bank numbered accounts."
Two of the men named in the Morning News series, Carroll Kelly and David Wylie, would later get financing from Beebe to take over Continental Savings and Loan in Houston, according to court documents. A Houston dentist (who was a former investor in two thrifts merged to form Continental) said in an affidavit that one of the men's former partners told him New Orleans Mafia boss Carlos Marcello controlled Continental Savings through Beebe.10 Officials with Continental Savings denied the institution had anything to do with anybody in organized crime. (Continental Savings failed in October 1988.)
Ben Barnes was in Reno, Nevada, negotiating to build a Holiday Inn at Lake Tahoe, when the 1976 Dallas Morning News series began. He was livid. and with great fanfare and bluster ("I am sick and fired of having my personal business affairs subjected to continuous harassment. My family and I have endured enough persecution from the awesome power of a giant newspaper") he sued the Morning News for $20 million.
Within a few days Beebe followed with a $12 million suit. But for all their threats, the cases never came to court. After a lot of jawboning attorneys for the defense said Barnes and Beebe abandoned their monetary demands in return for the newspaper's promise that it would not release any of the information it had collected on them and would seal the files. Barnes told us he did not pursue his suit because he could not show he had been damaged financially by the story.
But that was by no means the end of the story. A House subcommittee,11 chaired by Representative Fernand St Germain (D-R.I.), held hearings in San Antonio later that year (1976) to investigate the closing of Citizens State Bank in Carrizo Springs and what became known as the rent-a-bank scandal. The hearings dragged up all the dirt again and added more.12 A former executive vice president of Citizens State Bank testified at the hearing that an associate had attended a meeting with Beebe and Harper and later told him "that Beebe was supposedly connected with the Mafia. " Beebe denied the rumor.
In the documents filed as part of the 1976 congressional hearings was a letter from loan broker Donald E. Luna to Barnes and Beebe about a loan Luna was arranging for an associate of theirs. We remembered Don Luna: Ten years after he wrote this letter to Barnes and Beebe, he would be indicted with Cardaseia at Flushing Federal for allegedly extorting $1.75 million from a Swiss developer. (Sometime during those ten years, federal authorities said, Luna had been convicted of running a confidence scam.) Cardaseia was cleared of the charge and Luna was awaiting trial as this book went to press.
As with the congressional hearings on brokered deposits involving Mario Renda, the Citizens State Bank hearings in 1976 had virtually no impact. Beebe continued to build up AML Inc. , from his corporate headquarters in Shreveport. But the people of Shreveport began to notice that Herman Beebe had changed. In 1979, saying he needed to devote more time to his business, he stepped down as chairman of the board of Bossier Bank & Trust (though he maintained his ownership) and seemed to withdraw from the mainstream of daily commerce. He stopped going to civic and social functions in Shreveport, and he sank into the anonymity of corporate AML Inc. He spent his days doing million-dollar deals concluded in a matter of minutes and sealed with a handshake. His habit was to rise before dawn and work late.
An associate later described to us Beebe's way of doing business: "He just kind of walked on the edge of fire, just defying people. He lived by the sword and he died by the sword. But I don't think he was a crook. I do think he violated federal banking laws and savings and loan laws, as most people do who do a lot of creative things, so he was guilty of that, sure."
Beebe adopted a jet-setting life-style, flying out of nearby Shreveport Municipal Airport for business meetings around the country or taking an entourage by limousine to Dallas, which was a straight three-hour shot west on Interstate 20 from Shreveport. When he wasn't engrossed in business he was at home with his family at their private compound near AMI headquarters, a woodsy secluded colony of stately Southern mansions, pine trees, and vast gracious lawns. Beebe's home in the family compound was described in the Shreveport Times as an 11,000-square-foot, $1 million Colonial mansion complete with swimming pool, tennis courts, and private pond. There were seven bedrooms, 24-karat-gold-leaf chandeliers from Spain, separate barbecue and smokehouse, bronze-trimmed winding staircase in the foyer, murals on the dining-room walls, and a six-car garage. There were also separate, more modest houses for the Beebe children —in the half-million-dollar range.
Beebe maintained a second home at La Costa Country Club in Southern California. La Costa was built by Rapp's buddy Moe Dalitz and others in the mid-1960s with $97 million from the Teamsters Central States Pension Fund. Beebe had owned property there for 17 years and was an established member of an important social and business circle.13 Most notably, Pete Brewton reported in the Houston Post, he was a business partner with Scott Susalla, whose father, Edward D. "Fast Eddie" Susalla, was a general partner in La Costa.14 Beebe and Susalla owned a loan brokerage and real estate firm called TLC (Texas, Louisiana, California). Susalla also worked with Don Dixon on condo deals in the La Costa area. (In 1985 Scott Susalla would plead guilty to possession of cocaine in one of the biggest drug busts in Southern California history. Federal authorities had accused him and about 100 others of importing a large percentage of Peru's cocaine into the United States. )
But Beebe's primary interests were still in Louisiana and Texas, where he continued to expand. When Congress announced that it intended to deregulate thrifts—taking the first step with the Depository Institutions Deregulation and Monetary Control Act of 1980—Beebe immediately saw the possibilities. Real estate in Texas was red-hot, and deregulated thrifts could make more commercial real estate loans than ever before, with fewer restrictions than ever before. Beebe began to "diversify," investing in more S&Ls, and he helped his friends do the same. Word got around that anyone who needed money to get control of a thrift should see Beebe.
"He was the man," said an FBI agent later. "Herman was the man to see," a thrift regulator agreed. Thus, Beebe became known to a handful of the observant as "the Godfather of Texas Savings and Loans."
Among the authorized visitors to AMI headquarters and the Beebe family compound during this time was Don Dixon, who had become a close family friend and with whom Beebe had made several investments, including a Holiday Inn in Shreveport. Dixon, about ten years younger than Beebe, had adopted the older man as a paternal role model, even calling Beebe "Papaw." (Some people would later speculate that Dixon's high-living life-style at Vernon was just an attempt to outperk his mentor, Papaw.) Dixon brought his friend Tyrell Barker into the Beebe clan.
Later U.S. Attorney Joe Cage said, "Beebe created Barker and Dixon for his benefit, their benefit, everybody's benefit but the American taxpayers. " Both Dixon's and Barker's thrifts sold Beebe's credit life insurance policies to their borrowers. Beebe's right-hand man at AMI, Dale Anderson, later said that AMI netted $2. 5 million in two years through Vernon's sales alone. For a time Beebe even kept a two-room suite in the Vernon Savings building. Anderson explained how it worked:
"We were very careful about how we worded it. If a borrower said he'd talk to his own insurance man, we'd say, 'Fine. That's probably where you need to get your loan.' "
Beebe, Dixon, and Barker also networked with the burgeoning S&L community in Texas, arranging millions of dollars in loans for themselves, loans that regulators would later claim weren't always repaid.
"Basically it all boiled down to back scratching," said the U.S. attorney who later prosecuted Barker. Tom Nevis's testimony, about a time when Barker approached him for a loan, showed how the back scratching worked:
"He (Barker) said, 'You owe me a loan. Try to get me a loan.' ... I never crossed Barker. . . . Barker was always saying, 'You do this and I'll help you out.' ... He done a lot of that."15
A deal negotiated with a Beebe-controlled bank or savings and loan, according to former Beebe associates, might work something like this: Someone who wanted a real estate development loan would be required to borrow more than he needed and to use the excess as Beebe directed (to pay off a loan that Beebe owed or that was owed to him, or to buy stock in a Beebe bank). And once the development was completed, a Beebe associate might buy it with another (overfunded) loan from a Beebe-controlled institution. The whole process resembled a Ponzi scheme (that could only last as long as real estate values were climbing).
"What happened was that people who came to us for money had to buy something," a Beebe associate told the Dallas Morning News.
Beebe built a number of important relationships, each serving a particular need, each giving Beebe access to an important arena. With Barnes, Beebe was plugged into old-Texas banking, insurance, and political circles. With Dixon and Barker, he was part of the wild-'n'-crazy thrift owners of Dallas.16 With Louisiana Governor Edwin Edwards and Judge Edmund Reggie, Beebe would gain entry into the highest circles of political power in Louisiana.
Edwards was a flamboyant gambling man, a self-admitted "proud and egotistical person" who reportedly used to boast that the only way he could lose an election was "to be caught in bed with either a dead girl or a live boy." He gambled in Las Vegas under aliases like T. Wong, and U.S. Attorney Joe Cage said Edwards and Beebe traveled together to Las Vegas and Southern California. For two years during Edwards's four-year sabbatical from the governorship (1980 to 1984) he was on Beebe's payroll, earning $100,000 a year working for AML (Later Cage would say the accommodation seemed to exhibit "the hallmark of influence peddling.")
When Edwards was governor of Louisiana his administration became embroiled in the federal government's pursuit of Carlos Marcello, boss of the New Orleans Mafia. In 1981 Charles Roemer, then Edwards's commissioner of administration, and Marcello were convicted of federal charges of racketeering. The prosecution played in court some tapes they had made in 1979 of Marcello's conversations with associates. On the tapes Marcello said, "Man, I know better than you. man, 'bout them politicians. , . . Edmund [referring to Edwin Edwards) and me all right, but I can't see him every day. . . . He's the strongest sonofabitchin' governor we ever had. He fuck with women and play dice, but won't drink. How do you like dat?" Edwards's lieutenant governor in 1979 was James Fitzmorris. Marcello was recorded as saying, "Fitzmorris? All he can do is ask a favor. He ain't worth a shit."17
Dallas Morning News reporters Bill Lodge and Allen Pusey reported that at this same time Marcello was a borrower at Beebe-controlled Pontchartrain State Bank near New Orleans. James McKigney, Pontchartrain's president, testified 18 that Pontchartrain had lent money to Marcello. Marcello's son Joseph, and several corporations connected with Marcello. McKigney replaced Beebe as president of Beebe's Bossier Bank & Trust when Beebe resigned in 1979.19 Marcello attorney Anthony J. Graffagnino20 was a director in 1983 of Sunbelt Life Insurance Co., which had its headquarters in Beebe's Shreveport office (another Sunbelt director was Governor Edwards's commissioner of financial institutions, who supervised state-chartered banks and savings and loans).
Judge Reggie was a Louisiana power broker. And he was both a banker and a thrift owner. He owned the National Bank of Bossier City, in the same Shreveport suburb as Beebe's Bossier Bank & Trust.-- He started Acadia Savings and Loan in Crowley in 1957 and had been a director ever since. And he and Beebe owned stock together in several financial institutions. Reggie told us they had been friends for about 30 years, and they were associates in nursing homes, insurance companies, and real estate ventures. Investigators for the comptroller of the currency said several of Judge Reggie's real estate projects were financed by Beebe banks, and Reggie's banks made loans to Beebe-related entities.
Herman Beebe had positioned himself at the vortex of each of these separate but interlocking circles of influence—the Ben Barnes, Dixon/Barker, and Edwards/Reggie axes. By the end of 1981 Beebe was a man to be reckoned with. Beebe was prepared to use everything he had learned over the years about banking and newly deregulated thrifts to build potentially the most powerful and corrupt banking network ever seen in the U.S.
CHAPTER TWENTY
Beebe Gets Caged
On January 8, 1982—just two days before Dixon took control at Vernon Savings
in Texas—Joe Cage was sworn in as a U.S. attorney and assigned to the Shreveport
office. Cage grew up in Monroe, about 100 miles due east of Shreveport
in northern Louisiana, and throughout his high school career he was an outstanding athlete. When he was a sophomore,in spite of the fact that the school had no track team,he threw the javelin 203 feet, a U.S. record at the time. He served a tour of duty in the Marine Corps, returned to college, and at one
time aspired to become an FBI agent. Instead he became a practicing attorney
and spent the next ten years as a prosecutor in U.S. attorneys' offices and in
private practice. In January 1982 President Ronald Reagan appointed him U.S.
attorney, and he and his family moved to Shreveport. Through the years Cage had worked on several cases of financial fraud and, unfortunately for Herman Beebe, he had developed a keen interest in white collar crime. He liked to quote a line from an old Woody Guthrie song ("Pretty Boy Floyd") that went:
As through this world I've rambled, I've seen lots of funny men. Some will rob you with a six-gun, some with a fountain pen.
Joe Cage was to white-collar swindlers what Elliot Ness was to bootleggers. It was (and remains) rare to find a U.S. attorney familiar with the ways and methods of the professional white collar criminal, their intricate paper trails and byzantine multimillion-dollar frauds. Untangling the deals is in itself an art, and explaining them to a jury of twelve honest men and women borders on the miraculous. But Cage found the cases both challenging and fascinating, and when he moved to Shreveport in 1982 he ran up against the Dr. Moriarity of his career—Herman K. Beebe.
When Cage arrived in Shreveport a white-collar fraud case was already in the early stages. It involved a smooth and wealthy French businessman who lived in Texas, Albert Prevot, who was accused of defrauding the Small Business Administration by getting SBA loans and then diverting the money to his own uses. Assigned to work with Cage on the case was FBI Special Agent C Ellis Blount.
Blount became Cage's indispensable right-hand man. He had a background in business law and shared Cage's interest in white-collar crime. They actually liked the challenge of wading through thousands of documents to piece together complex business transactions designed specifically to leave a cold trail. They developed a close working relationship, and eventually the two of them together would bring down the Beebe empire.
Cage and Blount worked through the months on the Prevot case, and as they tightened the screws Prevot decided to try to make a deal. He offered to tell Cage what he knew about Shreveport businessman Herman Beebe, who was, he said, involved in all kinds of illegal activities. Cage said he was interested, and by September 1982 he had two plea agreements in the Prevot case and enough information about Beebe's affairs to justify empaneling a federal grand jury. What Cage had stumbled onto was Beebe's maze of business relationships with banks and corporations.In November, Cage convened the grand jury and he and Blount went to work unraveling Beebe's tangled affairs for the jurors.
"We'd have, say, 10 issues, trying to get them resolved with the grand jury, and in solving those 10, 15 more would come up," Cage told us later. It was like trying to nail jelly to the wall. Beebe's business deals were five dimensional. They went in every direction, and in every direction Cage said he saw transactions that worried him. He discovered that many banks and thrifts in Louisiana and surrounding states had participations and take-out agreements (interlocking financial arrangements) with Beebe's Bossier Bank & Trust, and Cage began to fear for the integrity—and safety—of the area's banking system. Cage and Blount alone handled all the grand jury documents, all the witnesses. They worked long hours, determined to get to the bottom of the complicated case. As Cage called witnesses to testify before the grand jury, word of the investigation trickled back to Beebe. Cradually, tension grew in the Beebe camp.
At first Beebe just tried to shrug it off. 1983 should have been one of the best years of his life. He was flush with what seemed like an endless supply of money from numerous financial institutions, institutions whose owners or officers were in place because Herman Beebe had put them there. He embarked upon an expansion program. In April he broke ground on a $12 million seven story glass office building in his AMI complex that became known around town as the AMI Tower. Shreveport people called it an ivory tower because it was "out in the middle of nowhere." On the top floor were four palatial offices, one at each corner, where Beebe and his top echelon of officers directed a fast-paced operation that employed almost 6,000 people, over 1,000 of whom lived and worked in the Shreveport area. AMI had 17 subsidiaries and connections with 14 other companies, with after-tax income of over $4 million and assets of $155 million.
In March 1984 a mutual friend arranged for Beebe"s now ex-wife, Mary, to visit the Reagans at their Santa Barbara ranch, near her own second home in Santa Barbara, and the public relations blitz was on. The Shreveport Times ran a full-page article in March 1984, most of it a fawning account of her visit written by Mary, along with pictures of her standing with President Ronald Reagan and Mrs. Reagan at their ranch. It made its point—Beebe had friends who had friends in vervy high places.
Across town from the AMI Tower, in a plain corner office on the third floor of the Federal Building,1 Cage and Blount were spending hundreds of hours combing through evidence and laying their trap. Cage became so convinced that Beebe was a danger to the banking and thrift community that he personally conducted the Beebe investigation. The grand jury was meeting once a week in Alexandria, over 100 miles south of Shreveport, so Cage was absent from his Shreveport office for days at a time. Under his personal direction the grand jury heard 150 witnesses and stayed in session for two years. Cage and Blount methodically formed a cordon around Beebe and AMI, and then they closed in step by step. On Halloween 1984, Beebe was indicted, along with three AMI officers and the CEO of Bossier Bank & Trust. They were charged with 21 counts of fraud.
Beebe was accused of having an AMI subsidiary illegally borrow $1 million from the Small Business Administration in a series of complex transactions that had taken place on New Year's Eve 1980. He was also accused of having Bossier Bank & Trust loan $1.85 million to Albert Prevot (the French businessman whose plea agreement spawned the empaneling of the Beebe grand jury), who then passed it through four corporations and on to AMI, thus allowing Beebe to avoid regulations against banks making loans to their owners. In response to a defense motion the judge separated the charges into two trials —the SBA case and the Bossier Bank case.
Beebe maintained an ominous silence in the wake of the indictments, but AMI, Inc., came out swinging, releasing a strong statement in defense of the five accused men.
"They [the accusations) are the product of an investigation by a U.S. attorney and an FBI agent who for more than two years have demonstrated the desire to obtain an indictment at any cost." The accused high-powered defense team of 15 attorneys included flamboyant attorney Richard "Racehorse" Haynes of Houston and Camille Gravel, who was one of Louisiana's leading criminal defense lawyers, an advisor to Governor Edwin Edwards and Judge Reggie's best friend.
The Beebe children, who had heretofore stayed out of the public eye, fell in behind their father. Though the children were grown and Mary and Herman were divorced, the Beebes remained a close family. Beebe's son, Herman, Jr., and Beebe's two sons-in-law worked for him. Throughout the two-year grand jury investigation, they had all believed it would come to nothing.
"I am a human being and I make a lot of mistakes," daughter Pam told reporters, "and my daddy does, too, but I know he would never set out to harm or deceive somebody or take anything that didn't belong to him." [LOL DC]
Daughter Easter Bunny's husband, David, was one of the accused (though charges against him were later dropped).
"It was almost comical," said Bunny in her Louisiana drawl, "to think David could be indicted. Anybody who knows David would think, 'not sweet little David.' We are just thankful Camille Gravel, defense attorney was available. He is the kindest, most caring person. We must have looked to him like two little lost lambs." [They love to lay it on thick! lol DC]
Many of the 1,000-plus AMI employees in Shreveport took personal offense at the attack on their employer. They held prayer meetings in the AMI Tower and turned out at important times to show support for their boss. The grumbling against Cage had begun.
"The ones [AMI employees] I've talked to," said an employee, "wondered what Mr. Cage has against our boss. It seems so personal, like a vendetta. We wondered why the government is spending so much money to go after one man. "
When the first trial began in January 1985, Beebe's family and friends, including ex-wife Mary, faithfully took their places on wooden benches in the courtroom at the Federal Building in Shreveport. During breaks they huddled in small groups, speaking in quiet tones, exchanging subdued smiles, obviously under tremendous strain. Outside the courtroom the whole town of Shreveport waited to see what would happen to one of Shreveport's best-known citizens.
Within a few days the prosecution and the defense rested their cases and the judge sent the jury out to deliberate. On January 17, 1985, the jurors came back in with a verdict. All eyes in the standing-room-only courtroom were on Judge Tom Stagg when at 1:10 p.m. he read the jury's decision: Guilty. The jury had found Beebe guilty of the overall charge of defrauding the SBA. They did not find him guilty, however, of several specific charges of lying or benefiting from the loans. Beebe was sentenced to 200 hours community service and ordered to pay a $21,000 fine and $1 million in restitution.
With hardly time to catch their breaths, the attorneys, defendants, family, friends, and reporters gathered on February 4 in a courtroom in Lafayette, Louisiana, 200 miles south of Shreveport. There the second half of the trial, dealing with the Bossier Bank charges, was to be held. Cage charged that Beebe had defrauded his Bossier Bank & Trust by having the bank make a loan to Albert Prevot that was secretly routed to AMI. Cage said the purpose of the transaction, which took place on New Year's Eve 1980, was to improve the looks of AMI's balance sheet at the end of the year. Then Beebe returned the money, via Prevot, to Bossier Bank. Beebe was again represented by Camille Gravel, a distinguished white-haired Southern gentleman who sounded like a Baptist preacher in the courtroom.
"Herman Beebe is a builder," thundered Gravel, "the kind of man that has helped to build this country. He has risen from the red clay hills of north Louisiana to the position he now occupies as a leader of the business community. . . . Any conviction of any of the defendants in this case carries with it a life sentence. Mr. Beebe's career as a prominent and successful businessman would be over. The blight of a conviction would stain him for the rest of his life."
Gravel told the jury that whatever loans Mr. Beebe received were in the course of legitimate business. The loans had all been repaid. Besides, what was illegal about trying to make your financial statement look better at the end of the year? Where was the harm?
Cage was unmoved. "It wasn't a legitimate loan, merely a true and classic sham loan to a person who agreed to do a favor."
But this time Cage did not prevail. It took the jury 50 minutes to acquit Beebe of all charges. They just could not believe Beebe had intended to defraud his own bank. When Judge Tom Stagg read the verdict the courtroom erupted in shouts of joy. Beebe seemed stunned and declined comment, but Mary Beebe said emotionally, "I'm so grateful. I don't know what to say. I really am so thankful. So grateful to God, so grateful to the lawyers and the judge and so grateful to the jury." Someone in the background yelled about a phone call to the governor. Smiling supporters hugged each other and pumped every friendly hand. A disappointed Joe Cage led his team from the courtroom without a word. The score stood even at one-to-one. Cage went back to his office, and he and Blount started all over again, spreading out the deals, looking at the connections, following the money. Three months later, on June 4, Cage convened a second grand jury to investigate Herman Beebe.
Cage's onslaught took its toll on Beebe. He began to have difficulty finding people willing to do business with him. He was a convicted felon ,convicted of loan fraud. He found it increasingly difficult to borrow money. His name, and the names of his companies, became like red flags when a bank examiner found them on a list of loans. Many of the officials of the 200 to 300 banks and savings and loans that he typically did business with were called to testify before the grand jury, and many of them decided Beebe was just too hot to handle. They stopped associating with him.
Beebe, a man who had lived a very private life in recent years, suddenly found himself and his business affairs laid open to public view, "My company was leveraged, like so many companies are," he explained to Shreveport Times reporter Linda Farrar. "And the turn the investigation took just cut my credit off totally. I had no choice but to start liquidating. I just had so much bad publicity ... it had just pretty well done away with my opportunity to make a living. ... It just went downhill in a hell of a hurry."
Loss of insurance business was especially difficult for Beebe to sustain because it had been an important source for the cash flow his other businesses required. He began what appeared to be a liquidation of the Beebe empire. Eventually financial institutions, even those with ties to Beebe, were forced to foreclose on most of his holdings (including the AMI Tower), and he sold whatever was not mortgaged to the hilt. But federal investigators said he had put many of his assets into his children's names, and they believed he continued to control still more investments through third parties.
Cage and Blount proceeded to prepare the new case against Beebe. Their investigation drew the attention of other federal agencies. Two conferences were held, in Baton Rouge, Louisiana, and Memphis, Tennessee, between federal prosecutors and state and federal regulators, and between April and June 1985 the comptroller of the currency prepared the series of secret reports on Beebe's banking activities that first clued us in to the scope of Beebe's influence. After we obtained a copy of the reports, federal officials told us that while the documents might contain minor errors, they stood behind them as a fair and accurate assessment of Beebe's influence in banking and savings and loan circles in 1985.
Compiled independently of Cage's investigation, the reports revealed 12 national banks that could "in some way be controlled or influenced by Beebe." Key Beebe figures at those banks included Edmund Reggie and Don Dixon, the reports said. Listed, too, was Harvey McLean, who owned Palmer National Bank in Washington, D.C., and who had a multimillion-dollar line of credit at Bossier Bank & Trust. McLean was also a director of Paris Savings and Loan, which Dixon associates had said was Dixon's "junk S&L."
The comptroller of the currency report then listed 13 national banks that Beebe might "exert some influence over." Listed as being the link between Beebe and some of these banks were Ed McBirney (owner of Sunbelt Savings), Jarrett Woods (owner of Western Savings)2, Carroll Kelly (part of the network exposed by the failure of Citizens State Bank in 1976 and now an owner of Continental Savings in Houston), and Tyrell Barker.
The OCC study listed 55 state banks (in Arkansas, Florida, Louisiana, Mississippi, and Texas) and 29 savings and loans (in Colorado, California, Louisiana, Mississippi, Ohio, Oklahoma, and Texas) "controlled by Beebe and his associates. ..." Among the S&Ls listed were Key, Continental, Mercury, Paris, State/Lubbock, Sunbelt, Vernon, and Western. Among the people mentioned as a Beebe-bank associate was Rex Cauble, described in the report as "a convicted drug dealer who has had massive debt at Bossier Bank & Trust." Cauble owed two other Beebe-related banks $1.5 million and owned stock in two others. (See Appendix A for full, unedited OCC report.)
One hundred and nine banks and thrifts had been pinpointed by the comptroller of the currency's investigators as having a tight enough relationship with Beebe to be worthy of serious concern. The report so worried the comptroller that it was brought to the attention of Attorney General Ed Meese, the FSLIC, and the FDIC at a joint meeting of the Justice Department's new Bank Fraud Working Group. They realized that with Beebe's extended network of influence, he could shift fraudulent deals not only from institution to institution but from regulatory system to regulatory system—which would make him almost impossible to stop. A loan he wanted to hide could be structured through federally regulated or state-regulated thrifts, banks, and insurance companies all over the country.
The information in the OCC report would not have startled U.S. Attorney Joe Cage and FBI Special Agent Ellis Blount had they known of it, but it was not shared with them. On their own they forged steadily ahead, presenting documents, evidence, and witnesses to the second Beebe grand jury.
Joe Cage's hot breath got to be too much for Beebe and suddenly in late 1985 he packed up and moved from Shreveport to Dallas to start a new life. "I left town," Beebe said later, "because the atmosphere was such that I just felt like it would be very difficult to—" He interrupted himself and then continued, "It's not difficult for me to make a living. I could make a living on the Sahara Desert. But I had to get to an atmosphere that was at least better than where I was."
Beebe started life in Dallas on a high note by marrying his girlfriend from Shreveport. Ostensibly, they were building a new life together from scratch, and 1986 was a hard year to get started. S&Ls were dropping like flies—that summer Dixon resigned from Vernon, McBirney resigned from Sunbelt, and Barker was indicted—and the atmosphere in North Dallas, where Beebe had an office, was one of deepening gloom. The runaway real estate development craze had resulted in such a glut that shopping centers and condos stood vacant all over town. Dallas had about 38 million square feet of unused office space (equivalent to 17 Empire State Buildings). Dallas reporter Byron Harris said of 1986, "The silence of deals not being made was deafening." Still Beebe somehow always seemed to have money. With his empire in shambles, where was he getting it?
"If you're interested in Beebe, you should be interested in Southmark," a source told us one day. "Have you seen the transcripts of Southmarks casino licensing hearings in Las Vegas? I think you'd find them interesting."
We had found this Dallas-based company in some of our other thrift investigations. Now we were to learn that Southmark had made nearly $30 million in loans to Beebe (and Beebe related companies) after his conviction. Altogether, Southmark conducted nearly $90 million in business deals with Beebe. Some of the business was paid for in Southmark stock. The company's 1985 10-K showed that Herman Beebe held nearly 62 percent of Southmark's Series E Preferred stock. (FSLIC later charged that Beebe used some of that stock to pay off a loan he had at Edmund Reggie's Acadia Savings and Loan.)
Then in 1979 he and his partner. New York city attorney William Friedman, began to buy up the stock of a defunct Dallas real estate investment trust. By 1981 they had acquired control, and five years and about 35 acquisitions later, they had built Southmark into a publicly traded financial services company with 27,000 employees (including subsidiaries) and nearly $10 billion in assets. Southmark's extraordinary increase in assets attracted a lot of attention, and Phillips's eagerness to take unorthodox risks raised eyebrows. Forbes magazine said he and Friedman ran Southmark more like their own private investment company than a big public corporation. For example, when one of Phillips's own companies was called upon to repay a construction loan, Phillips sold the company to Southmark and let Southmark repay the loan. The deal cost Southmark $9.5 million. Pressed to explain Southmark's willingness to take on the debt, a Southmark officer told reporters the venture "looked like an attractive project."
After thrifts were deregulated, Phillips hurriedly searched for one to finance his acquisitions. In 1983 Southmark acquired San Jacinto Savings, and for three years the S&L was under Phillips's control. But in 1986 worried regulators ordered the S&L to stop funding Southmarks purchases, and Phillips had to rely on another favored way to raise cash. That year he raised $950 million through Drexel Burnham Lambert. In fact, much of Southmarks explosion in assets, according to SEC filings, was financed by junk bonds marketed for Phillips by his close friend Michael Milken, Drexel Burnham Lambert's junk bond king. {Forbes reported Drexel Burnham made well over $50 million in fees by financing Southmark and its subsidiaries.) When Phillips borrowed money,' he took more than he needed and used the extra to invest in other companies' junk bonds being marketed by Milken—a common practice of many of Drexel Burnham favorite customers. (The practice bore a disturbing resemblance to the cash-for trash deals, where a thrift borrower was required to take more money than he wanted and to use the excess to buy a piece of junk property from the thrift. One year, The Wall Street Journal reported, Drexel raised $450 million for Southmark, and Phillips used all of it to buy other junk bonds Drexel was promoting.)4 Southmark became the largest real estate-based conglomerate financed by Milken.5 It may also have been one of the most complex. Even seasoned Wall Street analysts admitted to reporters they couldn't figure out the company's maze and layers of debt. What they did know, however, was that Southmark had a lot of debt coming due all at once in the early 1990s.
That outstanding debt didn't seem to phase Phillips. Records showed that Southmark paid him over $1 million in 1988. He and his wife owned a $1 million condominium on Wilshire Boulevard in Los Angeles and a $10 million estate in Dallas (previously owned by Lamar Hunt and, then, James Ling). He traveled in a $3.5 million DC-9 that used to belong to singer Kenny Rogers.
Perhaps it was his hunger for cash that sent Southmark to the gaming tables, a move that unwittingly exposed the company's close ties to Herman Beebe. Whatever the reason, the afternoon of November 5, 1986, found Phillips, Friedman, and their attorney sitting at attention before the Nevada Gaming Control Board. The commission's job was to make sure no one with criminal associations or backgrounds got a casino license. Southmark owned the land where the Silver City Casino in Las Vegas was located and had worked out an agreement with the owners of the casino that Southmark could collect a percentage of the casino's gambling revenues if the gaming control board approved.
But from the opening of the session it became clear that what the gaming control board wanted to talk about was Herman Beebe. As soon as the board had dispensed with preliminaries, one member got to the point:
"Mr. Phillips, could you please describe first of all how the relationship, business relationship or otherwise, with Mr. Beebe came about occurring? Secondly, how it's evolved and, if you would, what the current relationship with Mr. Beebe is?"
Phillips said that in 1984, shortly before Beebe was indicted, he and Beebe had reached an agreement for Southmark to purchase Beebe's nursing homes for almost $100 million. Beebe owned 62 nursing homes in five states with over 6,500 beds.
Then, Phillips said, before they could close the deal Beebe "ran into severe financial difficulties" (a euphemism for Beebe's indictment and the resulting fallout) and Southmark, Phillips contended, had to loan him money to keep him afloat. Otherwise, Phillips said, Beebe might have gone into receivership and the contract between Phillips and Beebe would have been voided. Phillips assured the gaming control board that Southmark would have had nothing to do with Beebe after his indictment had it not been for Phillips's desire to consummate the purchase of the nursing homes.
"Obviously, " said Phillips, "Mr. Beebe would not be the appropriate or suitable type of individual to have an ongoing relationship with."
But, the commission member persisted, ". . . you loaned Mr. Beebe an additional $29.6 million in a total of five other loans and made three other purchases from Mr. Beebe, all after the date of his conviction." He enumerated the transactions: February, $500,000 loan; April, $14.2 million nursing-home purchase; May, $1 million purchase and $2.5? million loan; June, $1 million loan; August, $25.5 million loan; and December ("almost a year after his conviction on fraud and wire fraud and other charges"), a $7 million purchase of Beebe's Savings Life insurance Company.
"Now, that adds up to $29.6 million 6 in loans after the man was convicted," the commission member concluded. Then he got to the crux of the commission's concern. "Mr. Beebe . . . had a $700,000 7 restitution levied [as a result of his 1985 conviction]. Would you know whether Mr. Beebe paid his fine with proceeds of loans from your companies?" and again: "It appears that (Southmark's loans to Beebe] were for the benefit of Mr. Beebe, to keep his head above water, in a business sense, so that he could continue operating even after he had been convicted of federal charges."
Phillips and Friedman stood their ground.8 They readily admitted that for a time they were propping Beebe up. They said they even tried to get control of Bossier Bank & Trust. But all of those transactions were part of the original nursing-home purchase agreement, made before Beebe was indicted, or were attempts to keep him in business until they could conclude the deal. And all the loans they made to Beebe, they said, had been repaid with the exception of $1 million.
Phillips's explanations evidently satisfied the gaming control board, and after a lengthy discussion of other topics, such as Phillips's 1973 bankruptcy, the board approved Southmark's request. And there our interest in Southmark might have ended, except for the fact that the company had shown up in some of our earlier investigations. We went back to our files and began compiling a list of Southmark's appearances. Time and time again the company had turned up at the end of our investigation of a failed thrift. Southmark would appear, most often, in the role of scavenger, acquiring the troubled assets of those who had contributed to the failure of the institution. We had found, for example, Southmark or a Southmark subsidiary acquiring assets formerly owned by Mario Renda, Robert Ferrante, Morris Shenker, John B Anderson, and Tom Nevis. Now many of these deals were further confirmed by Phillips's testimony before the gaming control board:
Southmarks Pratt Hotel division acquired the Palace Hotel and Casino project in Puerto Rico, which investigators told us was being developed by Mario Renda and Robert Ferrante until their empires crumbled; Southmark bought the Double Diamond A. Ranch near Reno that had belonged to Tom Nevis;9 Southmark bought some of Morris Shenker's stock in the Dunes Hotel and Casino when Shenker and John Anderson fell on hard times and tried to buy control of the casino but lost out to a Japanese group; Southmark tried to buy Eureka Federal Savings" liens against Anderson secured by his Maxim Hotel and Casino; Southmark tried to fund the purchase of the Aladdin Hotel and Casino by Harry Wood, a Shreveport native who ran the Dunes's junket operations;10 Southmarks S&L subsidiary, San Jacinto Savings, got media attention when it tried to buy troubled Continental Savings in Houston (Beebe had bankrolled Carroll Kelly and David Wylie in their purchase of Continental).11 And, finally, we discovered on a 1988 trip to Shreveport that Southmark now owned the AMI Tower.
Then there were the "coincidences. " For example, Southmark's 10-K showed Southmark owned 37 percent of Pratt Hotel Corporation,12 and in 1986 Pratt was trying to buy Resorts International (which had opened Atlantic City's first casino and which was building the $525 million Taj Mahal casino hotel there). Funny, we thought. We'd just learned from Cage that Judge Edmund Reggie had been a $10,000-a-month consultant for Resorts International for about a year. When we checked with Reggie, he said the two events were unrelated.
After we had collected all of this information about Southmark, we asked ourselves what it meant, that Southmark, a giant corporation, had turned up in investigations that we had thought at the outset were entirely unrelated. A disturbingly large number of our trails led to Southmark in one way or another. The company appeared to be a major player in the network of people we had been tracking—often there to pick up the pieces whenever one of our thrift pirates hit rough water. Apparently someone else was wondering as well. When the Dallas Times Herald printed the list of the 400 individuals whose records were subpoenaed by the Justice Department's fraud task force in 1987, Gene Phillips was among them. Southmark itself began to show up on the business pages of daily newspapers, as Phillips and Friedman were increasingly forced to deny that Southmark was in deep trouble. Its Houston thrift, San Jacinto, was put under a supervisory order in 1988 and forced to take almost $140 million in write-downs. Regulators forced Southmark to remove two of its three directors from San Jacinto's board, and in early 1989, under pressure from Southmark investors and directors, Phillips and Friedman resigned from their positions at Southmark.
The Southmark puzzle was one of those black holes into which a reporter could disappear and never be heard from again. One normally reliable source even told us he had phone records showing that a real estate broker who had close dealings with both Southmark and Carlos Marcello had also made phone calls to Major General John Singlaub, of Contra-gate fame. We were intrigued, but we had a deadline to meet and we had to leave the further unraveling of Southmark for later. But we had discovered a powerful player in the thrift game and we had learned who it was that had kept Beebe afloat after Cage convicted him. Thanks to associates like Southmark, Beebe was not ever likely to be down and out.
next
Round Three
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