Serpent on the Rock (5 page)

Paton started shouting, accusing Henry of being insubordinate. But Henry cut him off.

“Listen, Lee, you don't know what you're talking about. Stop yelling at me.”

“I'll yell at you if I want to,” Paton screamed. “You work for me!”

“Lee, go fuck yourself!” Henry yelled, and he slammed down the phone.

Things are really starting to fall apart
, Henry thought. The shelter department desperately needed somebody in charge before it got worse. And to withstand political pressure like that, Henry knew one thing for sure: It had better be somebody pretty damned ethical.

James Darr, the head of the tax shelter department at Josephthal & Company, burst into his spacious office just two blocks from Wall Street, a look of absolute terror on his face. His cheeks were drained of color, almost matching the lightest shades in his wavy, prematurely graying hair.

Waiting in a chair in front of Darr's desk was Herb Jacobi, the general counsel of First Eastern Corporation, a Josephthal client. Jacobi had arrived earlier that day in the summer of 1978 to speak with Darr about a new tax shelter his company wanted to sell. Darr had been called out of their meeting to speak with his bosses. Now, half an hour later, Jacobi looked up in surprise as Darr rushed into the room.

Their eyes locked. “Herb, you have to help me!” Darr pleaded.

Darr spoke quickly, seeming fearful that his chance to talk might end any second. Some Josephthal executives were about to call Jacobi into another office, Darr said. They might ask some questions about some payments from First Eastern.

“You have to tell them that First Eastern is interested in doing a leveraged lease airplane tax shelter,” Darr said.

Jacobi had no idea what Darr was talking about. First Eastern wasn't doing an airplane deal.

“I'll do no such thing,” Jacobi replied.

Darr pleaded with Jacobi, begging for him to say there was such a deal in the works.

It was a critical moment for Darr. Josephthal had just caught him improperly taking money from tax shelter promoters. From the people who needed his approval to sell their deals. From people like Matthew Antell, Jacobi's boss at First Eastern.

Someone had slipped Josephthal executives copies of the checks Darr received from First Eastern and another client, Rothchild Reserve International. Lawyers from Josephthal's law firm, Guggenheimer & Untermyer, were investigating. The lawyers had learned that over two months, Darr had deposited $80,000 from clients into his personal account, more than his annual salary. Even the timing seemed suspicious: Within weeks of depositing the checks, Darr purchased a new house in Stamford, Connecticut.*

Already the lawyers had interviewed a number of people connected to Darr. His supervisors and the professional staff members of the tax shel* Darr acknowledges receiving the money but denies it was improper. He also denies doing anything unethical during his career. See Notes and Sources.

ter department—Neil Sinclair, Stuart Ober, and David Orr—had been questioned. All of them had been shown copies of the checks and were asked what they knew about them. For the most part, they were simply stunned.

Despite his job as First Eastern's general counsel, Jacobi also knew nothing about the payments. Antell was too clever and was not the type to brag about such things. All Jacobi knew from Antell was that First Eastern, a Massachusetts real estate company, needed Darr's help to sell its tax shelters through Josephthal.

Time was running out. Darr again pleaded with Jacobi to cover for him. Gradually Jacobi came to sense what had happened and became concerned. He didn't care about Darr, but he did worry about First Eastern. Many of the same securities laws that dictated what had to be disclosed about stock offerings also governed tax shelters. Even in private deals, the law required that investors be told about every penny paid to advisers and consultants on the deals. Under the law, even an improper payment had to be disclosed. And no payments to Darr had been revealed in any of the offering documents for partnerships First Eastern sold. Some of the deals already were not doing well. First Eastern could get into trouble, and Josephthal could get dragged into the mess.

Before Darr could finish, Jacobi was asked into another office. Without introducing themselves, two grim-faced lawyers started hammering him with questions. Whom did he work for? What was his job? And what did First Eastern have to do with airplanes?

“Nothing,” Jacobi said. “But Matt Antell has always been interested in airplanes.” His answer was true. The credenza behind Antell's desk was loaded with airplane brochures. But planes were his love—his business was real estate. Still, Jacobi knew his answer gave Darr just enough confirmation to back up whatever he was trying to pull. No one asked directly about the payments.

The interview dwindled to an end. Jacobi walked out of the room, back to the tax shelter department through Josephthal's marble halls. He walked into Darr's corner office and closed the door. Darr still looked a wreck.

“Herb, I've never done this before,” Darr said, still sounding frightened. “I'll never do it again.”

Darr looked back down at his desk. “My God, I'm in trouble,” he said.

Jacobi stared at Darr as he poured out his fears. He doubted that Darr had done it only once. But no matter. Jacobi knew this guy's professional life was at a crossroads. Regardless of what happened, Darr would probably never be in a position to take money from clients again.

JAMES J. DARR scratched his way onto Wall Street from modest roots. The only son of Gene and Dottie Darr, he was born in December 1945, just ahead of the first wave of baby boomers. His parents lived a hardscrabble existence, raising their son in the rural, blue-collar country of West Boylston, Massachusetts. In 1948, Gene took a sales job with the Brown Shoe Company, maker of such popular brands as Buster Brown and Naturalizer. The work kept him on the road for days at a time, as he tried to persuade shoe stores to stock his brands. The hefty travel schedule, with Gene clocking as many as a million and a half miles driving from town to town, took its toll on his marriage. Eventually, when Jim Darr was a young man, his parents divorced.

Despite the difficulties at home, Darr excelled academically at West Boylston High School, where he was named a member of the National Honor Society. The ninety-three other students in Darr's class reflected the town's population—working-class whites and mostly second-generation Irish Catholics. Darr was known as a cheerful fellow with an infectious smile and an endless appetite for jokes.

After high school, Darr fit right in at nearby Holy Cross, an all-male college run by the Catholic Jesuits. Most of his classmates were like the blue-collar kids from West Boylston. The student rebellions budding across the country in the late 1960s were still distant static for the students there; many remained committed to military service. The school held an annual military ball, and Darr, who received a scholarship from the Air Force Reserve Officer Training Corps, helped organize the event.

After graduating in 1968, Darr was commissioned a second lieutenant in the air force and within two months was posted as a logistics officer at the Hill Air Force Base in Utah, where parts and maintenance were provided for F-4 jet fighters and other sophisticated weaponry.

In July 1972, Darr was released from active duty. With his education and military service completed, he took his first tentative steps toward a career in business. He accepted a job in Boston as a headhunter for Management Recruiters. Each day, he sat in a close-quarters bull pen, soliciting companies in the hopes of placing midlevel executives in jobs. It was high pressure—Darr was paid mostly on commission, making money only if he was successful. But Darr was good at the job.

Living in Boston, Darr frequently took the short drive to visit his parents. He remained closest with his mother, Dottie, a feisty woman who doted on her only son. Since her divorce, Dottie had made her living as a champion bowler, giving lessons down at West Boylston Bowl. She wrote a column on ten-pin bowling for the
Worcester Telegram & Gazette
. Most Sunday nights, she traveled to Worcester to play in a league at the Lincoln Lanes.

There she met Richard Bailey Sr., a widower and factory worker with New England High Carbon Wire. The two began to bowl together, and after a whirlwind courtship, they married. Richard had three children, and the two youngest, Ginny and Tommy, still lived at home. If Darr approved of the new members of his family, he didn't show it. Although he clearly loved his mother, Darr treated her blue-collar bowling crowd with a haughty contempt. Often for his visits home, he wore a sharp suit and tie; his mother's neighbors could feel the disdain for their blue jeans and work shirts.

At the same time, Darr was developing his own social life outside of West Boylston. He dated Diane Casey, a teacher in the Quincy public schools, and in July 1974, they married. By then, through contacts he developed in business, Darr had grown fascinated with real estate as a great means of making a quick buck. He began pushing investment ideas on his family.

In August 1975, Darr persuaded his new stepfather, a man of Yankee caution who feared financial risk, to invest in a parcel of raw land in Texas. Darr promised his stepfather that the investment would bring huge profits. He said he had a hot tip that the adjoining property was scheduled for development. That, he said, should make the value of the neighboring land skyrocket. If Richard and Dottie bought the land, Darr told them, they would be able to flip it quickly at an inflated price.

Delighted with Darr's hot tip, Richard and Dottie borrowed money to invest in parcel 37 of a property called Deerwood North in Texas. Darr was so confident in the investment that he persuaded them to use the expected profits to buy more land in Wolfeboro, New Hampshire, by taking out more loans. Richard felt uncomfortable—he had never had that much debt in his life. But he figured his stepson knew what he was doing.

Disaster hit almost immediately. Richard's union went on strike; five months later, the wire company shut the factory for good. The development in Texas—the one Darr had promised would bring huge profits— didn't work out. The money needed to pay for the New Hampshire property never materialized.

Richard, dismayed by the mounting financial troubles, clung to the hope that the wire company would reopen. Finally he suffered a nervous breakdown, and his eldest son, Richard Jr., admitted him to the psychiatric ward of St. Vincent's Hospital. Dottie walked out on her new husband that day. On returning from the hospital, Richard Jr. ran into his stepmother heading out the door. She had an armful of her husband's belongings, including his first wife's silver and china sets and a wedding present from his children. Richard Jr. thrust his hands in his pockets out of fear that he would strike Dottie and ordered her to put back everything that was not hers. He watched her until she walked out of the front door for the last time.

Dottie soon divorced Richard. In the settlement, they split ownership of the land investments Darr had recommended. Richard senior soon recovered from his breakdown and returned home. He continued to pay off his debt on the land, a small bit at a time, for much of the rest of his life.

In the mid-1970s, Wall Street was a place of turmoil and fear. After an incredible run of huge profits and wild speculation during the 1960s, the securities industry was paying a heavy price. Scores of investment houses that expanded too rapidly in good times simply went bust or merged. The Arab oil embargo in 1973, followed by the deregulation of commission rates two years later, created the harshest business environment for the industry since the Great Depression. The heady confidence and easy money created by rising markets were gone. Many of the young people hoping to make their fortunes on Wall Street were simply a few years too late.

That was the environment in which Darr arrived on Wall Street in June 1976. He got his start by grabbing the industry's lowest professional rung, as a stockbroker trainee with Merrill Lynch & Company. The firm hired him to work in Boston but immediately shipped him to Merrill's New York headquarters for two months of training.

Darr breezed through most of the topics easily by dint of his natural intellect. Although the class had its share of studious trainees, he gravitated toward a group who also caught on quickly. They were the ones itching to head out to a branch and start selling. Evenings among these trainees centered on bar-hopping and occasional marijuana parties. Many in the group struck up long-term friendships, and Darr was no exception.

At one Merrill-sponsored cocktail party, Darr met Wally Allen, a native of Enterprise, Alabama, who had joined the training program after a short career in the real estate mortgage business. The two stayed at the same hotel on Manhattan's East Side and became fast friends.

One night, the two gathered in Allen's room before another evening's carousing and started swapping stories about their backgrounds. Allen mentioned that he served with the army in the Seventh Psychological Operations Group, an intelligence unit based in Okinawa, Japan. The work he did as an analyst was classified, but Allen did not think it was very impressive. His biggest responsibility was acting as custodian of classified documents. But the biggest advantage of the detail, Allen said, was that it kept him out of Vietnam.

Well, Darr said, he
had
served in Vietnam. And like Allen, he worked in the intelligence business. In fact, the entire time he was in Southeast Asia, he always dressed as a civilian. Allen got the picture: Darr worked with some high-level intelligence group, perhaps the Central Intelligence Agency. Allen was surprised someone in that line of work was so open about it but figured Darr was trying to impress him.

It would be several years before Allen realized that everything Darr said that night was a lie. He had never been in Vietnam. He had never even worked with an intelligence division. There weren't many spies handling maintenance detail in Utah. It would prove to be just the first layer in Darr's self-created mythology.