4: Paragraph 31 By January Abbes was trying to get me to quit, and he started removing my t.i.tles and duties, and under the corporate bylaws he didn't have the authority to do that without a vote of the board of directors. In February I gave Hutton's inside lawyers an ultimatum offering them their choice of three alternatives: One, Hutton could straighten out Hutton Trust and let us start handling the trusts the way we were supposed to, so no one would get into trouble with the authorities. Two, Hutton could pay me $500,000 and give me a release, saying I wasn't responsible for what had been going on there, and I'd resign and stop talking to the press and anybody else except under subpoena; I thought that was enough to support me until I lived down having worked at Hutton Trust and found another job. Three, I'd sue Hutton and get the court to rule I wasn't responsible for the illegalities at Hutton Trust.

4: Paragraph 32 Then at the beginning of March the bank examiners showed up for their annual audit. On Wednesday, 5 March, John Smith, who was the examiner heading the audit and one I knew from earlier audits, told me they'd want to talk to me the next day; about 2:30 the next afternoon, he phoned me to come to our gla.s.s-walled conference room, and I went. I'd hardly sat down and given my name and job t.i.tle when Hitchc.o.c.k, who was skittering up and down the hall watching what was going on in the conference room, stuck his head in the door and asked me to step out in the hall; he told me I was not allowed to talk to the examiners without him, and he was too busy to be present that day -- yeah, too busy not letting anyone talk to the examiners. I asked if I should tell them, and he said he would, so I went down the hall to my office.

4: Paragraph 33 A few minutes later Smith walked into my office, handed me a slip of paper with a Dover phone number, and told me to call the bank commissioner's office and make an appointment, because they had to talk to me, especially in light of what had just happened. As luck would have it, I was scheduled to be in Dover the next day to be sworn into the bar, so I called and made an appointment for the afternoon of Friday, 7 March.

4: Paragraph 34 By then it was after 3:00 o'clock. The examiners packed up and left about 4:00 o'clock, and a few minutes later Hitchc.o.c.k phoned and asked me to come to Abbes's office; I knew Abbes was going to fire me, and he did, telling me to pack up and be out by the close of business that day.

4: Paragraph 35 When Butler had left Hutton Trust -- by which I mean the day he actually left, although he'd been given notice a month or more before -- he'd had a falling out with Lockwood, and Lockwood had made a scene, shouting in the hall and ordering Butler off the premises immediately; it had upset everyone, and then we'd held up Butler's last paycheck, and he'd gone to the state labor board and to a lawyer, and it'd been a mess, both legally and from the employee relations standpoint. I'd always teased Abbes that when it came time to fire me, I expected him to handle it better than that, and he did.

4: Paragraph 36 With the help of my secretary and tax clerk, I packed up my stuff, then I went home and telephoned the 'Wall Street Journal' to tell them what had happened. They ran several stories about it over the next weeks, and the local newspaper picked it up, as did the national wire services. Judge Oberdorfer had put Commissioner Malarkey's 1985 audit report in the court record, so it was a public record then, and I gave copies to the reporters who asked for it; they wouldn't have printed my allegations about the mishandling of trusts at Hutton if they hadn't seen the evidence, and that report was the most comprehensive part of the evidence.

4: Paragraph 37 On 18 April the 'Wall Street Journal' reported that Abbes and Hitchc.o.c.k had resigned, but for personal reasons and not because of my accusations, and that Malarkey said he hadn't found "any evidence that the unit mishandled trust a.s.sets or violated fiduciary obligations." That was remarkable enough, given that his own report from the year before had listed specific instances of mishandling and fiduciary breaches, but a few weeks later, in "the late spring or early summer of '86," he delivered to Hutton Trust the report of the 1986 audit, the one he'd been conducting when I was fired, and it reported that the same problems cited the year before still existed! But the two audit reports were confidential, so Malarkey could stand up at his press conference and say in public there was no truth to my charges, when his own reports, delivered before and after the press conference, proved what I was saying.

4: Paragraph 38 I'd been taught in law school that a civil lawyer's main function is to avoid litigation, to get cases to settle without going to trial. So I wrote some letters to Hutton asking them to settle my legal claims against them without making me file suit. In a letter dated 22 September 1986, Hutton's new legal vp Stephen J. Friedman called my "demands" extortion and said they were looking into having me disbarred in every jurisdiction where I was admitted to practice law.

4: Paragraph 39 I tried for months to hire a lawyer to represent me, but no one would, and then one of my mentors told me the word was out, and I wouldn't be able to find any lawyer who would sue Hutton for me.

So on 31 August 1987 I filed a civil RICO suit against Hutton Group, Hutton & Co., and Hutton Trust in federal court in Wilmington, and I filed it 'pro se', which means for myself, without any attorney representing me.

4: Paragraph 40 I hadn't known much about RICO before 1987, but I'd done enough research to know that was the legal theory I wanted to use: Because I lived in Delaware and all three Hutton ent.i.ties were Delaware corporations, there wasn't diversity of citizenship, so I couldn't go to federal court unless I raised a federal question, and the RICO statute was federal, so it provided jurisdiction. Also, that statute required the court to award me three times whatever damages I proved I had suffered, plus court costs and attorney's fees.

CHAPTER V. Tilting at windmills for fun and profit

5: Paragraph 1 At the same time the events I've described were happening to me at Hutton Trust, someone else was having a similar experience at another company incorporated in Delaware. Like me he was a senior executive at a subsidiary of a national conglomerate and a shareholder in the conglomerate, but unlike me he was the CEO of the sub because he'd started the smaller company and sold it to the conglomerate, and his block of the parent's stock was significant. Like me he was dissatisfied with the asinine and illegal way the conglomerate was operating and how it was forcing him to operate the sub, and he'd been telling the national press about it.

5: Paragraph 2 By the summer of 1986 he'd given the conglomerate an ultimatum with three alternatives: Either let him run the sub the way it should be run or buy him out so he could leave, or else he'd sue them. After that his story is vastly different from mine, but then he was H. Ross Perot, the conglomerate was GM, and his sub was EDS.

5: Paragraph 3 GM did buy Perot's GM stock back, and he resigned from EDS and promised to quit criticizing GM, but GM paid him so many millions of dollars that its shareholders sued GM and Perot, calling the payment "hushmail." The Chancery Court has ruled twice in the matter, and the Delaware Supreme Court once, and they're agreed that GM's board acted properly in paying Perot to get out because his grousing was interfering with the way the board was trying to run GM. If it wasn't extortion for him to give GM his ultimatum, and the courts have ruled it wasn't, then it couldn't have been extortion for me to give Hutton the same ultimatum.

5: Paragraph 4 Another situation was shaping up in 1986 that also led to a civil RICO suit for violation of the federal securities laws and for extortion: In 1986 Carl C. Icahn started buying more stock in Viacom International, Inc., and threatened to take the company over; in May Viacom bought back its stock from him, for $79.50 per share when it was trading at $62, and he promised not to buy any more Viacom stock for eleven years. Then Viacom sued him for extorting this "greenmail" from it, the federal court in New York dismissed the suit, and the appeals court affirmed, saying Viacom hadn't been damaged because what it got from Icahn was worth what it paid.

5: Paragraph 5 In its published opinion the district court discussed the difference between "extortion" and "hard bargaining" and concluded that it's not extortion if the person demanding the payment has a right to a.s.sert the legal claim he's offering to release in exchange for the payment -- Icahn had the right to try to take Viacom over, and he could release that right in exchange for Viacom's payment. I had a right to sue Hutton for firing me and for ruining my reputation by involving me in its criminal activities, and I could release that claim the same way anyone hurt in a car accident can settle his claim against the driver or his insurance carrier.

5: Paragraph 6 Of course those cases were decided within the past year or two, so when I filed my case in 1987, there were no precedents with such similar facts. I'd like to take credit for behaving so much like the big boys in 1986, but the truth is I wasn't clever enough or experienced enough to have dealt with Hutton the way I did without the expert advice I was receiving, especially that from Dave Garrett, an expert in trust banking, and Rod Ward, an expert in corporation law.

Because Hutton had been their client before I met them, however, and their relationship with me grew out of that relationship with Hutton, they could not represent either one of us in our litigation.

5: Paragraph 7 One reason I say Ward is so smart it's scary is that one day in autumn 1985 I was in his office telling him what was happening at Hutton Trust, and he said, "You know if you have to sue them, I won't be able to represent you." At that point I was so busy fighting alligators I'd forgotten about draining the swamp, and that possibility had never even crossed my mind, but I suddenly saw that I might, indeed, end up suing Hutton, and all the big lawyers would be on their side. But the silver lining to that dark cloud also appeared to me, so I answered, "Yes, but you won't be able to represent them, either." And that's the way it played out a couple of years later.

5: Paragraph 8 In early 1987, while I was still looking for a lawyer to sue Hutton for me, I got another one of those nasty shocks that made me nervous about going up against Hutton: The tv news shows were talking about Iranscam, and I noticed on the ABC news one night (I don't pay much attention to news, but 'Jeopardy!' comes on that channel at the end of the national news) that the IBC statements they were showing were monthly statements from a Hutton & Co. account. Like a light bulb going on over my head in a cartoon, a lot of things I'd seen and heard in dealing with IDP in late 1984 clicked into place, and I realized I'd been mixed up in Iranscam.

5: Paragraph 9 I was really worried then that when I sued Hutton they would accuse me of some criminal violation for having dealt with IDP, and if I got into a p.i.s.sing contest with Hutton, I was going to be at a distinct disadvantage, so I decided I had to act first. I wrote to the 'Wall Street Journal' reporter who'd reported my firing, telling him what I knew about IDP and asking if he thought it was part of Iranscam or was I just being paranoid; I got a phone call a few days later saying his sources indicated I was onto the real thing. Then I wrote to the Senate Select Committee on Secret Military a.s.sistance for Iran and the Nicaraguan Opposition telling everything I knew about IDP and what I'd done with them; a few days later I got a phone call from one of that committee's staff attorneys checking to see if I had any more information but saying because of the nature of their investigation they wouldn't be able to tell me what came of the leads I gave them.

5: Paragraph 10 At about the same time, I'd tried to file a criminal RICO complaint with the federal prosecutor in Wilmington, because one of the lawyers I'd consulted about representing me was a former federal prosecutor and said the doc.u.ments I had were sufficient to support an indictment against both Hutton and Malarkey, and I should let the government handle the litigation, because it would be all over the country and take a lot of money. But all U. S. Attorney Bill Carpenter did was send an FBI special agent to talk to me, and he kept nodding off to sleep while I was trying to talk to him about the banking violations at Hutton Trust; when I mentioned Iranscam, however, he perked up, and some days later he came back with his supervisor and asked some more questions about it. That's how I know I didn't just imagine that IDP was part of Iranscam.

5: Paragraph 11 When Skadden Arps couldn't represent Hutton against me because of its conflict of interest, Hutton hired Morris, Nichols, Arsht & Tunnell; the grown-up lawyer on the case was Thomas Reed Hunt Jr., and the a.s.sociate who did the scut work was Brett D. Fallon. I'd had vanishingly little practical experience of civil litigation, and I learned a great deal from seeing them work; I wouldn't realize it until later when I saw how bad some of the other lawyers in town are, but in their dealings with me they exemplified the highest standards the bar sets for itself.

5: Paragraph 12 Which is not to say they didn't put up a good fight, but they fought clean and fair, and it never got personal. Even when Hunt told me they were not only going to have the case dismissed but also have the court order me to pay their costs and attorneys' fees, he was a perfect gentleman, and I admired his style. I answered that the most they could do was drive me into bankruptcy, and then I'd load my dogs and my clothes in the car, leave the bank to foreclose on the house, and move in with my parents in Mississippi -- since the kids have moved out, they have three bedrooms and two baths with no one to use them, and there's a motel-sized pool in the back yard, so it wouldn't be too hard a life.

5: Paragraph 13 We futzed around with the litigation for nearly two years, and in March 1989 Judge Joseph J. Longobardi dismissed my complaint for lack of standing, saying I wasn't directly injured by the RICO conspiracy I alleged, and that calls for a little discussion of the RICO statute.

5: Paragraph 14 Congress made the "Racketeer Influenced and Corrupt Organizations" chapter part of the federal criminal code, effective 15 October 1970, to be able to prosecute organized crime for using legitimate businesses as fronts or money laundries for the proceeds of criminal activity. It defines "pattern of racketeering activity" to be at least two felony violations of certain state or federal statutes committed by the same person within 10 years, and at least one act has to have been after this law went into effect. The statute makes it a crime to use money from such racketeering activity to start, buy, or run a business engaged in interstate commerce or to conspire with somebody else to do so.

5: Paragraph 15 Besides being a criminal law, the statute also provides that anybody "injured in his business or property" by a violation of the RICO statute can sue in federal court and "shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee." The so-called "predicate acts"

that form the pattern of racketeering activity include mail and wire fraud ("wire" usually means "telephone"), embezzling from union funds (which some of the pension funds were), and securities fraud.

5: Paragraph 16 I said in my complaint that Hutton Group had set up Hutton Trust to allow Hutton Group to collect trustees' fees from the same accounts it was collecting brokerage commissions from, through Hutton & Co., but that Hutton Group never made or let Hutton Trust perform the trustees' duties to earn the fees, and that violated the RICO statute. I said that they hired me and the other employees by making us think Hutton Trust was a legitimate company when it wasn't, and that was fraud on us in furtherance of their RICO conspiracy against the trust clients, and firing me to keep me from answering the bank examiners' questions injured me, and therefore I'd been injured in my business or property by their RICO violation, and I was ent.i.tled to recover. Judge Longobardi didn't agree.

5: Paragraph 17 I appealed the dismissal to the federal appeals court, which sits in Philadelphia, and served the notice of appeal on Hunt, but then Hutton switched lawyers. That was probably a practical rather than a tactical decision -- Hutton had been bought by Shearson Lehman in 1988, and in fact I'd filed a suit in Chancery Court complaining, among other things, that Shearson didn't pay us shareholders enough for our Hutton stock in their merger because of Hutton's legal liabilities, which Shearson bought along with Hutton's a.s.sets -- because Richards, Layton & Finger, the firm that replaced Morris Nichols, had been working for Shearson for some time. Replacing Morris Nichols was a strategic error on Hutton's part, though.

5: Paragraph 18 Although we were litigating a federal claim in federal court, they a.s.signed the case to Anne C. Foster, a lawyer with virtually no experience in federal court who wasn't even admitted to practice in the federal courts yet -- most of her experience was in Chancery Court, in cases alleging breach of the corporate directors'

fiduciary duties to the shareholders, where all the corporation has to prove is it had a business reason for doing what it did, and it wins.

She has never seemed to grasp the idea that in a RICO suit it doesn't matter why you did it: If you did it, you're guilty. But it probably didn't matter what she thought, because Hutton was always an extremely s.e.xist organization (and Shearson seems to be upholding that tradition), and they would never pay much attention to anything a woman said anyhow -- that was always my problem with Hutton: I couldn't get their attention because they've never to this day taken me seriously.

5: Paragraph 19 There are no trials in appellate court: Both sides submit written briefs, and the court may hold oral argument, but the hearing is just for argument, no testimony or evidence. In this case the court didn't ask for oral argument; we sent in our briefs, and in September 1989 the court issued a published opinion reversing the dismissal and saying I did so have standing to sue Hutton under RICO.

Given the appellate court's opinion on the law, all I had to do was prove the facts I'd alleged in my complaint, and I had to win.

5: Paragraph 20 Any reasonable defendant would have settled the case right then, but not Hutton. Two years later, in September 1991, we finally went to trial; not only had Hutton kept sniping at me and squabbling about stuff that didn't matter, but Longobardi had been so cranky to me as to border on hostility.

5: Paragraph 21 Take the famous forged U-4, for example: In the fall of 1985, when I was trying to find another job either inside Hutton or outside it, managers of several Hutton & Co. units were talking to me about coming to work for them, but to share in commissions I'd have to have a "Series 7" license. By then my relationship with Abbes was rather brittle -- because he'd asked me to quit, and I'd not only refused but also told several Hutton & Co. "heavy hitter" AEs who owed me favors, and they'd told Abbes they didn't want me fired because I was helping them so much -- so I sent a memo to Lynch asking him if I could be licensed, and he said I could and forwarded it to the Hutton & Co.

department that handled licensing.

5: Paragraph 22 They not only registered me for the exam but also sent me the materials to study for it, as well as the Form U-4 that is the application to be a "registered representative," which is what an AE is and what you have to be to get paid a brokerage commission. You also have to be employed by a member of the Stock Exchange, which Hutton & Co. was, but Hutton Group wasn't, and of course Hutton Trust wasn't.

The form had a part the applicant was supposed to fill in, with name, address, employer's name and address, and recent employment history in it, and then there was a part the employer was supposed to fill in and sign; above where the applicant was supposed to sign it recited, among other things, that the applicant agreed to binding arbitration, under the NYSE rules, of any dispute between the applicant and the employer.

5: Paragraph 23 The instructions said fill it in in black ink and print, and we couldn't find a black pen anywhere at Hutton Trust, so Abbes told me to fill it in in blue ink and then make a photocopy and sign that as the original; he also told me to fill in the part he was supposed to do, and when I said the employer was supposed to do that part, he said he was doing it, by having his employee (me) do it, and he was right, so I did. I made the photocopy, and he and I signed it, then I sent it to Hutton in New York.

5: Paragraph 24 After I filed suit, Hutton moved to dismiss on the grounds that I'd agreed to binding arbitration, and they submitted a copy of the U-4 they'd sent to the securities authorities when they registered me. But, lo and behold, where I had accurately printed Hutton Trust's name and address in the block for my employer, someone at Hutton in New York had whited that out and written in Hutton & Co.'s name and address. I still had the original blue-ink version, so I figured I had Hutton by the short hairs: They'd just produced evidence they lied to the securities authorities by mail and telephone, and that was mail and wire fraud, actionable under RICO. But Longobardi keeps saying that I was equally at fault in falsifying the U-4 because I filled in the employer's section!

5: Paragraph 25 There's also the matter of unemployment benefits: Hutton Trust's bylaws defined me as a senior corporate officer and provided that a senior officer could be fired, with or without cause, only by a three-fifths vote of the board of directors. (Abbes kept asking me to resign because he didn't want to have the directors vote on it; that's how he'd gotten rid of Butler, and then Abbes changed the old board minutes to make it look like Butler hadn't held the offices it required a board vote to terminate.) When I was fired, I filed for unemployment benefits, and Hutton didn't answer the claim; I submitted the newspaper clippings where Hutton said I was fired for making improper demands, and the unemployment office made written findings that didn't amount to cause under Delaware law, so I collected unemployment for much of 1986.

5: Paragraph 26 After I filed suit, Hutton also moved to dismiss on the grounds that I'd been fired for cause, and it submitted minutes of a board meeting ratifying my termination for cause but not saying that the vote was more than a simple majority. Given the bylaws requiring a supermajority vote and the ruling of the unemployment office, which Hutton didn't appeal when it had the chance, Hutton's position had to be rejected as a matter of law, but Longobardi has always treated it as an open question whether I was fired for cause, as Hutton says, or to keep me from talking to the bank examiners, as I say. I could give you more examples of how Longobardi, who's now chief judge for the district, has sided with Hutton to give me a hard time, but you get the idea.

5: Paragraph 27 The trial took most of two days: 30 September and 1 October 1991. I testified the first day, and my cross examination continued into the second day, then Hutton put on four witnesses: one of Hutton's inside lawyers who was still working for Shearson, Abbes, Hitchc.o.c.k, and Shapiro. Not only did they not contradict my allegations, they actually testified that they were true in every material aspect!

5: Paragraph 28 There were many comical moments: Hitchc.o.c.k, trying as usual to wimp out from under any responsibility, testified to not having known then or not remembering now most of what I asked him, and Abbes testified to not knowing who had issued his pay checks. While I'd been testifying, I'd several times tried to introduce a subject, like Lockwood's tantrum when he fired Butler, and Foster had objected, and Longobardi had ruled it out; then her witnesses got on the stand and testified to it for me. The way Longobardi fawned all over Shapiro would have been funny if it weren't so pathetic: The only thing more disgusting than having to watch a federal judge suck up to anybody that much is having the guy he's sucking up to be your opponent's star witness.

5: Paragraph 29 I was suspicious of my good fortune when the first three witnesses not only didn't counter my evidence but actually supported my case, but then Shapiro took the stand and did so much to help me that I considered whether I was dreaming, and the alarm clock would go off any minute for me to get up and go to the real trial.

Malarkey was dead by then, and I'd figured there was no way to prove who was responsible for his lying to the press -- saying there was no truth to my charges when his own reports doc.u.mented everything I was saying -- so I hadn't even included any defamation claims in my complaint, but the appellate court had ruled that "loss of earnings, benefits, and reputation const.i.tute self-evident injury as in any standard wrongful discharge action." My reputation had certainly been injured by his making me out to be a liar, but I doubted I'd be able to blame Hutton for it -- I'd expected Hutton to be smart enough to say Malarkey must have done that on his own, so Hutton wasn't liable to me for it.

5: Paragraph 30 But Shapiro testified -- voluntarily, on direct examination, in answer to Foster's questions, and before I even started to cross examine him -- that he was the one who suggested that Malarkey tell the reporters that! That admission meant Hutton was liable for the deliberate injury to my reputation, because one of the federal civil procedure rules says that if you prove something at trial that you didn't put in your complaint, it shall (not "may" but "shall") be treated as if you did include it in your complaint. That was like Christmas coming early, but then it got even better.

5: Paragraph 31 Shapiro had testified on direct examination that when Malarkey issued his 1986 audit report on Hutton Trust, it showed the same problems that had been described in the 1985 report, what Shapiro helpfully described as the kind of problems you'd expect from having brokerage people trying to run a bank. I'd never seen the 1986 report, and I hadn't asked for it during discovery because it was written after I'd been fired, so I knew Longobardi would rule I couldn't have it, and I'd hate like the devil to give either him or my opponents the satisfaction of keeping me from getting something I want. But I knew the federal evidence rules pretty well, and one of them says if a witness looks at a doc.u.ment to refresh his recollection before testifying, you get to see it.

5: Paragraph 32 So I asked Shapiro if he'd reviewed any doc.u.ments in preparation for testifying, and Bingo! He admitted to reviewing the commissioner's 1986 report, I asked for it, and Longobardi said they had to let me see it; Foster objected and kept dithering about it being too late for me to make a request for Hutton to produce doc.u.ments, but that just showed she didn't understand the rules of evidence. Moments like that made the trial truly memorable.

5: Paragraph 33 Neither Hutton nor I had asked to have a jury for the trial: I didn't, because I thought the breaches of fiduciary duty, both the trustee's duties and the directors' duties, were too technical for many jurors to care about, and I wasn't sure a jury would see me as a sympathetic plaintiff; you'd have to ask Hutton why they didn't want a jury. Besides, a jury comes back with a verdict, and you're pretty much stuck with it, but when you have the judge decide the case, he has to issue an opinion setting forth his reasons, and if you appeal his ruling, the appellate court goes over his reasoning as well as his result. And whatever his shortcomings of intellect and temperament, Longobardi used to be a vice chancellor and so must have a solid background in both types of fiduciary breach.