Cooper
I spent 2 years working for a world-class scam artist while employed at the Executive Life Insurance Company in west Los Angeles in 1986. The company was run by Fred Carr who had taken it over in 1974 and brought it back from the edge of oblivion. He had managed to turn things around with an influx of cash from his close friend Michael Milken and by offering investors a series of annuity products that guaranteed an annual return of 12 to 14 percent. Typical returns at that time for similar products from other companies ranged from 1 to 3 percent. In addition, Carr paid commissions and provided perks to insurance brokers and sales people that were unmatched by any other company. In 10 years the company's net assets had gone from bankruptcy to $19 billion and it became the largest insurance company in California.
Fred Carr created unique products that violated the spirit of insurance industry regulatory constraints but technically were still legal. Carr was buying risky junk bonds rather than the traditional conservative investments required of insurance companies. The California State Insurance Commissioner eventually put in place legislation that outlawed some of his investment strategies but it was usually 18 months too late and Fred Carr simply issued new products to maneuver around any new legislation before it became effective. His GIC (Guaranteed Investment Contracts) products made good on their promised returns and outperformed everybody else on Wall Street. Somehow Carr was picking winners out of junk bonds with uncanny regularity. He was being hailed as a genius by some while others warned investors that junk bonds were called "junk" for a reason and claimed that something was amiss.
All the while, Fred Carr was in cahoots with Michael Milken who was in cahoots with Ivan Boesky. Boesky would leak planned mergers and acquisitions to Milken. Milken in turn would issue high-yield junk bonds that would benefit dramatically from the pending deals. Carr and Tom Spiegel of Columbia Savings and Loan made it possible for Milken to quickly raise the massive amounts of money required for leveraged buy outs. Carr's company was involved in 90% of Milken's firm's underwritings. When deals closed, the junk bonds purchased by Carr enabled him to make good on his guarantees.
Fred Carr came from Wall Street where he operated an investment fund with questionable tactics that had gone from rags-to-riches-to-rags. Executive Life was destined to be the sequel. There were less than 35 employees when Carr bought his way in as the CEO. Carr ran Executive life in a manner designed to keep things under wraps. He soon appointed one of the 35, his secretary, as President of the company. The employee population grew to over 1,000 and the former secretary was in way over her head. Her major contribution was to require management candidates to submit written samples to be evaluated by a handwriting analyst.
The management team totaled less than 20 and included the President, a few Vice Presidents and the rest were department heads. The management team never met; neither with Carr nor with each other. It was a 19-billion dollar company with no plans, no budgets, no goals and no internal reporting of any kind. Employees received over-the-top benefits, annual bonuses, lavish expense accounts, salaries 25% above market, and everyone knew better than dare to rock the boat.
Executive life was a publicly traded company and the largest insurance company in California. Despite this, Fred Carr refused to produce an annual financial statement one year and no one did a damn thing about it. There was never even a single peep out of the Security and Exchange Commission, the Insurance Commissioner, the shareholders or the Wall Street Journal. There were too many people making too much money for anyone to have the desire or the balls to blow the whistle.
The financial statement was never produced because a few billion dollars had gone unaccounted for. The missing money was the result of a new business system that had been developed and installed in-house without adequate testing. Employees soon discovered the easiest way to process monies received with new business applications was to park the funds in a suspense account that served as the financial equivalent to a black hole.
On average, $50,000,000 in checks would arrive with new policy applications every week via the U.S. Postal Service. Rather than use a lockbox to transfer the cash immediately, one of the entry level mail room clerks every Monday would gather the prior week's checks, drive to the bank using his own car, and with $50,000,000 sitting next to him on the front seat, hit the drive-thru along the way for an Egg-McMuffin. This antiquated approach resulted in lost interest amounting to $10,000,000 each year.
In Fred Carr's private office, wire transfers amounting to hundreds of millions of dollars, to and from off-shore accounts, were processed and passed along daily. None of these transactions were entered into, or captured by any corporate system or recording mechanism. Outside auditors from the IRS, the SEC and the State's Insurance Commissioner never saw the inside of Fred Carr's private office.
Carr had also made it known to all that any contact with policy holders was to be discouraged. This was an out-of-sight-out-of-mind approach that theorized if all contact could be avoided, it reduced the possibility that policy holders might cancel their business. It was rare that any material was ever mailed to policy holders and few incoming calls to policy servicing areas were ever answered. You could hear the phones ringing constantly.
In 1989 the junk bond market collapsed when Milken and others were charged with insider trading, racketeering and lying their asses off about junk bond default rates. Many Wall Street figures along with Boesky, Milken and Spiegel were convicted, fined huge amounts, banned from the financial world for life, and/or sent to jail. Countless investors, retirees and some of the nation's largest pension funds lost hundreds of billions of dollars. Executive Life went under and Carr was removed when regulators took over the company. Compared to the rest of the bastards, Fred Carr made a clean getaway. Rudy Giuliani swore publicly several times that he would nail Carr but it never came to pass. Milken ratted out everybody to reduce his sentence but he never implicated his own brother Lowell or Fred Carr as part of his plea agreement.
While I was working for Executive Life, I made my first visit to New York City. Executive Life had a small insurance business operating on Long Island and I went there with one of my analysts named Cooper to help them deal with the flawed new business system. Cooper was one of the people working for me that had figured out how to locate and retrieve the few billion dollars that had vanished. The problem had been fixed in California and now it was time to bail out the business on Long Island that relied on the same system.
Cooper was an over-sized Texan who looked part-rhino and part-NFL defensive tackle. Despite his looks he was terrified of everything. There were a lot of hopelessly insecure and frightened people working at Executive Life, equally as troubled as Cooper, that kept their heads down, collected their over-inflated salaries and bonuses and didn't ask any questions. I had 12 analysts working for me and half of them had been seeing a shrink for years. I had no direct involvement in finding the missing billions. Cooper was part of a team of analysts that had figured it out. The only reason I went with him to New York was that he couldn't handle going by himself. I found it amusing that we had to fly first class because those were the only seats on the plane that Cooper could fit into.
The Executive Life Insurance Company of New York had around 40 employees and was situated way out on Long Island far from New York City. The locals were glad to have Cooper there to resolve the vanishing money dilemma. We were there for a full week with me as Cooper's baby sitter spending the bulk of my time twiddling my thumbs. It wasn't until Thursday that I was able to talk Cooper into taking the train into the dreaded city for a nice dinner. He reluctantly boarded the train with me in the late afternoon and hunkered down taking up two seats. A half hour later we stopped somewhere in Jamaica, a neighborhood in the borough of Queens, where some idiot tried to rob the train.
The first indication there was something out of the ordinary taking place was when a grizzled character came running full speed down the center of the train clutching a cloth bag full of cash with a couple transit workers in hot pursuit. New Yorkers being New Yorkers, came out of their seats to tackle, pummel, dog pile and subdue the robber. Several passengers continued to sit on the guy until the police arrived. Cooper was badly shaken by this and wanted to go back to Long Island. The only reason he agreed to continue on into the city was that I refused to go back with him.
When we finally arrived at Grand Central Station and made our way out onto the street, we went into the nearest bar. The robbery and its aftermath had delayed us and it was now nearly 11 p.m. While we drank a beer I quizzed the bartender about local restaurants. I told him I wanted the best Italian meal in the neighborhood and the price was of no concern since we were going to expense it. He drew a map on a cocktail napkin and we walked 5 blocks to the place he recommended. The place turned out to have an entrance consisting of a plain unmarked door at street level on the exterior of a tall building. There was no sign, nor were there any windows that we could see into. The walk from the bar to the restaurant had been traumatic for Cooper. It was definitely not a part of the city in which to take a midnight stroll. I wasn't concerned mainly due to Cooper's size. I felt it highly unlikely that anyone would consider messing with such a hulk. No one would ever suspect that he was completely defenseless. Cooper's outward appearance was as deceptive and misleading as Milken and Carr's fraudulent shell game.
Inside the door was a nice looking place with about 40 tables and most of them empty. Once we were seated a waiter came to our table and asked for our orders. I told him we hadn't had a chance to look at a menu. The waiter said the restaurant didn't have one. They would prepare whatever we wanted. I wasn't expecting this and asked for a minute to mull things over.
Cooper was going to order spaghetti and meatballs and keep under the radar. I wanted a veal chop since that was usually the most expensive thing that you could order in most Italian restaurants. When the waiter returned I told him what we wanted; and then just for the hell of it, I made up something else that I had never eaten before or even heard of.
I gave the waiter a complete bullshit story about a dish my grandfather supposedly used to make for me when I was a little kid. I claimed it was only a vague memory at this point but as best as I could remember, it was a small bread roll about the size of a Twinkie that was stuffed with anchovies and gorgonzola, deep fried to where the exterior was crispy and served with a ladle of Bolognaise sauce. The waiter listened closely to my bogus story, then said, "Yeah, we make that."