Serpent on the Rock (69 page)

254:
The marketing video for the Prudential-Bache Energy Income Fund II was obtained by the author.

254–56:
The description of Pete Theo's presentation to Prudential-Bache brokers comes from a June 28, 1985, script prepared for those sales lectures. The total marketing misrepresentation is described in Goldberg,
Prudential-Bache's $1.3 Billion Energy Income Limited Partnership Oil Scam
.

256–57:
Dempsey's recommendation to puff up the distributions was made in a July 2, 1985, letter to Matthew Chanin at Prudential Insurance. Chanin's acceptance of those terms, and the other requirements he imposed, from a July 16, 1985, letter to Anton Rice.

258:
Dempsey's concern about his ability to “finesse” the $500,000 shortfall was described in a July 23, 1985, memo to Files and Rice. Although Dempsey instructed the readers to destroy the memo after reading it, a copy of it was obtained by the author.

Also, see Dempsey's testimony of March 30 and April 1, 1993, in
In Re: Prudential-Bache Energy Income Partnerships Securities Litigation
. The author also referred to Dempsey's November 1991 deposition in
In Re: Prudential-Bache Energy Growth Funds
, cited above. Those records, which are not publicly available, were obtained by the author.

A copy of the July 1985 “$uperbroker” comic book was obtained by the author.

259:
Alan Myer's limerick from a 1985 copy of
Energy Digest
. Barbara Gutherie's letter of complaint to Ball about the “$uperbroker” comic book was described on June 22, 1993, in part 1 of Paltrow's energy income series in the
Los Angeles Times
.

259:
The October 17, 1985, meeting between Chanin and executives from the Direct Investment Group is described in handwritten notes from the meeting, as well as a typed record for the files by James C. Sweeney, written on October 30, 1985. Also, see the March 29–30, 1993, deposition of Matthew J. Chanin, cited above.

260:
Darr's hunting relationship with Tony Rice as well as his failure to pay for hunting trips and the $900 rifle are in part from Rice's testimony to the SEC. Also, in that testimony, Rice describes some details of his car trip with Darr in which they discussed First South.

261:
Details of Darr's second loan from First South and his purchase of First South stock in part from Darr's 1991 testimony to the SEC. Also, the author obtained a copy of the second mortgage, which was publicly recorded in Stamford.

261–62:
The $800,000 shortfall in distributions for the fourth quarter of 1985 is described in a January 6, 1986, memorandum from Mark Files to Anton Rice and A. B. Dempsey. Also, see Files's deposition of June 4, 1993, cited above. Details of the oil market collapse from
USA Today
, “Chaos Climbs as Oil Prices Keep Sliding,” January 22, 1986;
Time
, February 3, 1986.

262–63:
The January 23, 1986, conversation between Sweeney and Chanin is described in a memo of that date from Sweeney to Joe DeFur, Bill Pittman, and Paul Proscia. Also, see the March 29–30, 1993, deposition of Matthew J. Chanin, cited above.

263:
Al Dempsey's conversations with Pittman and other Direct Investment Group executives a few days after Chanin's decision is described in a February 4, 1986, memo from Dempsey to Graham, Rice, and Files. That memo quotes certain statements from Pittman directly.

264:
The May 1986 fact sheet on Prudential-Bache Energy Income Series III describing the program as “A Proven Producer” was obtained by the author. The statements that the energy income partnerships were ideal replacements for certificates of deposit were made in a wide range of sales materials. In the time frame mentioned in this chapter, the author referred to the February/March edition of
Energy Digest
.

265:
The investor numbers as of 1986 in the income funds from Goldberg's
Prudential-Bache's $1.3 Billion Energy Income Limited Partnership Oil Scam
.

The author obtained an internal Prudential-Bache document that listed the expected attendees for the 1986 national sales forum, “A Commitment to Excellence.”

268:
Darr's expectation that he would be able to take Sherman's and then Ball's job based on a number of confidential interviews and, in part, Darr's testimony to the SEC.

CHAPTER 12

269–70:
Darr says he always paid for these expenses out of his pocket. However, the bills from the limousine service suggest otherwise. The author has obtained certain of Harrison Freedman's account statements with Smith Limousine, which describe in detail the passengers, travel time, pickup and drop-off sites, and total cost for various trips. Although Harrison marked the trips of some passengers as personal, Darr's trips were not so marked. The bills were stamped as “paid” by Harrison Freedman Associates. Darr has contended that he used the limousines only for business purposes. The author leaves it to the reader's judgment whether such expenditures, in a city with many inexpensive car services and thousands of taxis, were a reasonable use of partnership money.

270:
The trip on the
Queen Elizabeth 2
is described in sales material from 1986 titled “Harrison Freedman Associates and American Capital Partners Invites You to an Atlantic Crossing on the
Queen Elizabeth 2
.”

It was also described in detail by Tillie Tillman, a broker on the trip, in his sworn statement in
First
v.
Prudential-Bache
.

272–73:
The author obtained a copy of Dr. Schieffer's letter to Harrison Freedman, as well as those of more than a dozen other investors in Bessemer–Key West. The author also referred to the 1981 investor list for the deal.

273–75:
Tillman's experience with Mike Walters is based, in part, on Tillman's deposition in
First
v.
Prudential-Bache
.

275–76:
Mandt has signed a sworn affidavit, dated August 27, 1992, stating under penalty of perjury that she was compelled out of fear for her job to submit to the requests of Clark and Sherman. Her statement of claim, which she reaffirms in her sworn statement, says that Sherman and/or Clark engaged in sexual relations with her. The statement of claim can be found in the “record on appeal” in the
Mandt
case cited above.

277:
The author obtained a copy of Hoffstaedterr's September 24, 1986, cable to Clifton Harrison.

278:
The confrontation of Prudential-Bache by the German government was partly described in
Edward M. Strasser et al.
v.
Prudential Securities et al
. The case is filed under index number 35124/91 in the Supreme Court of the State of New York. Harrison's decision to take a large fee from Bessemer–Key West when there was no cash for distributions from his testimony in
First
v.
Prudential-Bache
, cited above.

278–79:
The signing ceremony and background for the Tax Reform Act of 1986 are described in Showdown at Gucci Gulch, by Jeffrey H. Birnbaum and Alan S. Murray. For additional details of the signing ceremony, the author relied on “President Signs New Tax Bill,”
New York Times
, October 22, 1986.

The quotes from Reagan's speech are from
Speaking My Mind: Selected Speeches
, by Ronald Reagan.

280–84:
The negotiations between Harrison and the Prudential-Bache legal department are described, in part, in Harrison's deposition in
First
v.
Prudential-Bache
. Also, the author has obtained the correspondence on this matter between Harrison and the legal department from November 1986 until 1988. These include letters to Harrison from Joseph Vallo, assistant general counsel of Prudential-Bache, dated November 13 and 24, 1986, January 2, 1987; from Vallo to Gayle Gordon of Harrison Freedman, dated March 23, April 7, 1987. Also, it includes letters to Vallo from Donna Webb, president of Harrison Freedman Associates, dated December 1, 1986; January 16, March 23, April 1, April 8, 1987; a December 9, 1986 letter to Harrison from Kevin McKay, the firm's deputy general counsel; and letters to Harrison from Joel Davidson, dated November 6 and November 7, 1986, and June 1, 1988. Those are the critical letters among about forty such documents relied on by the author.

282:
The failure of Prudential-Bache to obtain the $2 million owed by Harrison, and Schechter's description of that failure as “an administrative oversight,” are described, in part, in
Strasser
v.
Prudential
, cited above.

282–84:
The deposition of Harrison by Charles Cox is taken verbatim from the transcript of that encounter in the case
McNulty
v.
Prudential-Bache
, cited above.

284:
Tillman's conversations with Diestel are described, in part, in his deposition referenced above.

CHAPTER 13

285:
In this chapter, the author incorporated information from the sworn testimony of a range of individuals in the case
In Re: Prudential-Bache Energy Growth Funds Securities Litigation
, cited above. Charles Patterson, taken February 19–20, 1991; Al Dempsey, taken November 5–8, 1991; Bill Webb, taken December 3–6, 1991; Pete Theo, taken January 14–16, 1992; Bill Pittman, taken February 10–12, 1992; and John Barron Clancy, taken February 14, 1992. Those records, which were obtained by the author, are not publicly available.

285–87:
The November 11, 1986, meeting about the growth fund between Rice and the executives in the Direct Investment Group is described in a memo of that date from Rice to Dempsey.

287:
The early sales performance of the energy growth fund is from a president's report by John Graham to the board of directors of Graham Resources for 1986.

288:
An undated copy of “Harding's Highlights,” describing the growth fund, was obtained by the author.

288:
A transcript of Higbee's presentation to brokers at the Southeast regional conference was obtained by the author.

A copy of the growth fund sales script for Prudential-Bache brokers in the Southwest was obtained by the author.

289:
Patterson's belief that the growth fund paid $10 million more for the First City loans than bidders would have is described in Patterson's February 4, 1987, memorandum to senior officials at First City.

290:
Terms of the HRB loan are described in numerous documents, including Patterson's testimony, cited above. Also, see the November 27, 1990, testimony of Chris J. O'Mara, a senior vice-president of First City, in the case
Gallagher et al.
v.
Graham Energy et al
., civil action number 89–4296, filed in the U.S. District Court for the Eastern District of Louisiana. Again, the case was settled and the depositions are not publicly available. Also, see the testimony of Al Dempsey in the above-cited case.

Finally, the transaction is described in detail in the December 1991 edition of
GFL News
, a newsletter for growth fund investors suing Prudential-Bache and Graham Resources.

290:
A copy of the summer 1987 edition of
Energy Digest
was obtained by the author.

292:
Through his lawyer, Storaska denies ever having done anything improper. The author again makes reference to “In the Matter of Prudential Securities,” the order instituting public proceedings, making findings, and imposing sanctions. Also, see the above-referenced “The Large Firm Project,” a May 1994 report by the SEC. Neither document names Storaska, but his business practices are criticized with enough identifying detail to make it clear that the government is criticizing him. Also, see “Prudential's Firm Within a Firm,”
New York Times
, May 25, 1993.

292–93:
Storaska's trades on June 12, 1987, are described in the June 17 memo by Grose. The author also obtained confirmation slips for those trades to the accounts in question.

293:
Storaska's subsequent purchase of the energy growth fund, which was then canceled, comes from documents in the account of Eddy Phillips, a Storaska customer.

295:
The problem with the distributions for the energy income partnerships is demonstrated in the quarterly reports,
Prudential-Bache Energy Income Partnerships Cash Distributions
, which were obtained by the author.

296:
Darr's attempts to sell the Prudential-Bache interest in the Graham partnerships for his own personal profit are described in Rice's testimony to the SEC, cited above.

296:
The July 23, 1987, instructions from Darr that Graham Resources should structure their deals to ensure that Direct Investment Group personnel received higher pay are described in part in a memo to the files written by Al Dempsey on that date.

296–97:
The concern expressed about the distributions by the growth fund is described in the minutes to an October 27, 1987, management committee meeting at Graham Resources.

297:
The Maple Gulf Coast deal is described in Al Dempsey's November 6, 1991, deposition in
In Re:
Prudential-Bache Energy Growth Funds Securities Litigation
, cited above.

Also, see a March 2, 1988, memorandum from Ed Trahan, a member of the growth fund investment group, to the other members of the committee. That document, in reference to the convertible preferred stock proceeds, says “used fund origination fee prepaid interest and first principal installment on Utah reserve loan on PBEGF.” In other words, the proceeds from the preferred stock purchased by the growth fund were used to immediately pay off other obligations to the growth fund.

Terms of the Maple Gulf Coast deal are also described in the December 1991 edition of
GFL News
, a newsletter for energy growth investors suing Prudential-Bache.