IRRARIES TAMFORD Lance: The Plot Sickens The President's friend is busy smuggling a U.S. bank to the Arabs. A t about ten o'clock the night of St. Patrick's Day some of the world's highest-priced document collators and staplers could be found frantically at work in a grimy first-floor reception room they'd commandeered at the Washington headquarters of the Securities and Exchange Commission. There were six of them-two partners and an associate from the New York law firm of Wachtell. Lipton, Rosen & Katz; a young partner in Clark Clifford's Washington firm; and another Wachtell, Lipton associate and a photocopy-room assistant who had just I flown in from New York to deliver cartons of papers drafted by more lawyers at Wachtell, Lipton's Park Avenue offices, who had been working since Thursday evening. Upstairs on the fourth floor, home of the SEC's enforcement division, the lights in the photocopy room were just going out. An hour earlier two, SEC enforcement division lawyers and two of the lawyers now overseeing the work downstairs had finished another nonstop session that had also begun Thursday, this one a grueling negotiation. Why the rush? Because the lawyers were racing the clock to save an illegal bank take-over for Bert Lance and his Pakistani and Arab associates, while the enforcement division people were racing just as hard to nail Lance and his friends. Incredibly, the documents that the two opposite sides agreed on-and rushed so fast to type, copy, assemble, and file by registered mail- got them both what they wanted. That's the magical, if often unspoken, reality of what's known as an SEC consent decree. In a nutshell, Lance was the key American actor in a plot by a Pakistani banker named Agha Hasan Abedi to take over secretly Financial General Bankshares, a $2.2 billion holding company that con Contributing editor Steven Brill whites a fortnightly column on the law and lawyers. trols banks in New York, Virginia, and the District of Columbia. Abedi planned the take-over through stock purchases by four of his banking clients: the former chief of intelligence of Saudi Arabia: a Kuwaiti businessman; the crown prince of Abu Dhabi: and a millionaire fouryear-old resident of Abu Dhabi. What Lance and Abedi did is a enjoined from further purchases of the stock. At the same time. SEC enforcement division director Stanley Sporkin. already investigating Lance's bank dealings in Georgía, jumped in to see for himself if the Williams Act had been violated. When Financial General's management retained Skadden, Arps and went to court, Clark Clifford, who had represented Lance when he was grilled by the Senate in September, took over the defense not only for Lance but also for Abedi and his four Arab client/investors. With only a small firm and little experience in take-over litigation, Clifford turned to the other of the two take-over specialists (Wachtell, Lipton), reaching out for Lipton with a telephone call one night in the last week in February. Lipton, who later told friends he was flattered and seduced that this legendary Washington insider and pillar of the har had come to him for help, told Clifford he wanted to meet the clients before he took their case. Soon, he had flown to Washington to meet Lance and then Concorded over to London with Clifford to see Abedi. He told Abedi that he and most of his partners were Jewish; Abedi smiled and said he knew and didn't care. And Wachtell, Lipton, Rosen & Katz were retained as co-counsel for Lance, Abedi. Sheikh Kamal Adham, Faisal Saud AlFulaij. Sheikh Zayed Bin Sultan AlNahyan, and Sheikh Mohammed Bin Zayed Al-Nahyan. textbook example of abuses that Congress tried to curb in 1968 with the passage of the Williams Act. The act regulates take-overs by requiring that any person or corporation acquiring more than 5 percent of the stock in a company must file a document called a Schedule 13D. The 13D must declare that he or they. have more than a 5 percent interest. describe who they are and what their sources of money are. and state whether they intend to take over the company. The Williams Act covers people acting together as a group who acquire more than 5 percent, even if individual members of the group each own less than 5 percent. Yet Lance and Abedi had Abedi's four Arab clients buy 4.7 to 4.9 percent each, apparently thinking that this laughably unsubtle end run would avoid the law. Lance himself bought 13,000 shares, or 0.2 percent, through his wife. Other Lance-Abedi allies, solicited in most cases by Lance on Abedi's behalf, bought enough to bring the group's combined holdings up to about 28 percent by early February. No one filed a 13D, nor in fact were the names of the Arab pur.ipton's people quickly saw the absurd. chasers or Abedi's and Lance's roles in the deal revealed. (The stock was bought in the name of an agent.) When the Financial General management got wind of the take-over attempt. they got one of the two law firms that specialize in take-over fights-New York's Skadden, Arps. Slate, Meagher & Flom-to sue in federal court, citing violations of the Williams Act and asking that the "Lance group." as they called it. be ity of Lance and Abedi's claim that they had never acted as a group to acquire more than 5 percent of Financial General-that is, that those four 4.7 to 4.9 percent purchases were just passive investments, that it was a coincidence that all were arranged by Abedi for his clients, and that all those who said Lance had solicited them and talked about a take-over were lying. The Williams Act case against them was rock solid. Photographs by Matthew Ken To the SEC, a consent decree is a victory over wrongdoing; to most businessmen, it's a way to break the law by agreeing not to again. Lipton soon came up with a clever strategy. Before the court hearing on Financial General's request for an injunc tion against any more stock purchases. he'd satisfy the SEC that his clients had corrected their Williams Act violations. Then, the Financial General people— who were also basing their claim on Williams Act violations-wouldn't have anything to go on when they got to court. The key then was to work out a consent decree with the SEC before the brief to the judge in the Financial General injunction hearing was due Saturday morning. March 18. To many, an SEC consent decree would seem to be a rather one-sided kind of plea bargain. Sporkin and his SEC investigators find that Mr. Jones has been violating a securities law such as the Williams Act. After negotiations Jones consents to an injunction in which he admits or denies nothing but promises never to violate the Williams Act in the future. The whole thing seems to be the whitecollar equivalent of making a burglar promise never to do it again. Stanley Sporkin doesn't see it that way. Anyone who has ever talked to Sporkin knows that to him a consent decree is an admission of guilt, though, again, it's not. Why else would they consent if they're not guilty, he frequently argues. Thus, for Sporkin and his staff, particularly top aide Theodore Levine, the possibility that Lipton raised with them in the beginning of March of Lance's entering into a consent decree was a welcome prospect. For months they'd been neckdeep in investigations of Lance's Georgia banking practices. They'd found all kinds of abuses, and all of the SEC people. especially the dizzily self-righteous Levine, had come to make Lance's prosecution an obsession. Still, they were having trouble pinning any of the abuses on a securities law over which the SEC had jurisdiction. (Sporkin has a habit of looking for wrongdoing first and finding jurisdiction later.) Now, in the words of one top SEC enforcement investigator, "we finally had a chance to make this guy kneel and admit wrongdoing and tell the world what kind of guy he really is by signing that paper [the consent decree]." important. Lance's group agreed that Maybe. But Lance and his lawyers saw In short, what Sporkin had not done was make the Lance group undo their Williams Act violations by giving back the stock they'd gathered illegally. This would have been difficult since simply making them sell back the shares would have caused the stock's price to plummet, thereby hurting the innocent shareholders Sporkin is supposed to protect. But he could have required them to stop all new purchases and freeze the stock in some kind of trust, after which it could be purchased by another party interested in making a legal tender offer. In fact, that's exactly what Sporkin❘ tried to get when the negotiations began on February 28. It was the one thing Lipton wouldn't give. As their March 18 deadline neared. Lipton's junior partners pushed Sporkin's people, principally Levine and Ed Herlihy, into marathon sessions, to which they were amenable since they were so eager to get a consent decree out of Lance. On Thursday. March 16, the two sides spent all day and all night together. By Friday morning they'd worked out the language of the consent decree. Back in New York, more Lipton lawyers were busy drafting those belated Schedule 13Ds (required under the Williams Act) that would be part of the decree, while still others drafted the court brief duc Saturday morning. The consent decree had to be appendixed to the 13Ds filed by each of the seven memhers of the Lance group, and both had to be attached to the brief-which is why the SEC reception room was the scene of all that frenzied paper shuffling St. Patrick's night. It must be pointed out that the consent decree Sporkin worked out was unusually broad, and it provided for the protection of those whom the SEC is supposed to protect: innocent shareholders. It called The 13D and the brief should be embarfor Abedi and cohorts to set up a million- rassments to lawyers like Clifford and dollar fund to pay off any shareholders Lipton: against the weight of all evidence who might have sold their shares on the and logic, both papers cling to the incredregular market to the Lance group for $10 ible notion that there never was any to $12 at a time when the Lance group was group. And the brief is filled with misinsecretly making private purchases from terpretations and distortions clothed in large shareholders for $12.50 to $15. More | hysterical language. None of that mattered. What mattered was that Lipton and Clifford's underlings could now go into court the following Wednesday and claim that the consent decree had cleared up any Williams Act violations upon which the Financial General management might have based a claim for the injunction. Now, under the terms of the consent decree, they argued, any plea by the Financial General management for a halt to the Lance group's purchase of more Financial General stock would go against the agreement worked out with the SEC and would hurt the shareholders who'd otherwise get $15 a share if the tender offer stipulated in the consent decree went forward. District Judge Oliver Gasch had not decided as of this writing whether to grant the injunction. But it seemed that even if he was sympathetic to the plea by Skadden. Arps partner Edwin McAmis on behalf of Financial General that the Lance group shouldn't be allowed to proceed with a take-over that had begun illegally, he would still have to deny the injunction and let the tender offer go forward because of the way the SEC consent decree positioned the shareholders to benefit from it. Stanley Sporkin is among the nation's most incorruptible, tough-minded public servants. But he's got a naive blind spot. I've heard him talk about how much he likes many of the top New York and Washington lawyers because of the way they respect the work of the enforcement division and are sympathetic to him and his mandate. That's because when these lawyers come to Sporkin's office, they don't repeat what they tell reporters, anonymously, about how much they dislike him and are outraged by what they claim are his unfair threats, leaks to the press, and other tactics. Instead, they play right to his special perception of morality and of how damaging a consent decree is. Yes, his client has done horrible things, the "good" lawyer concedes. but he's hired me now, Stanley, and I can assure you that he'll sin no more. In fact, the lawyer says, we'll even go through the utter humiliation of a consent decree. And so it goes. The businessman accepts the decree, which makes Sporkin happy and vindicates all the work his dogged staff has done. Yet the businessman, though slightly stigmatized (and less so as more decrees are agreed to), goes unpunished and can remind everyone that he admitted no wrongdoing and signed the decree only to be free of what he claims are Sporkin's gestapo tactics and the high cost of ligitation. This is the ritual that Sporkin allowed in the Bert Lance case. Unless Judge Gasch decides differently. Sporkin may have APRIL 25, 1978 ESQUIRE 21 Abedi covered Lance's $3.4 million in debts with no papers signed and no interest rate worked out--just an agreement to do so later. helped the shareholders, but Lance could be "kneeling" all the way to the bank that his Arab friends will soon control. Lance Notes Beyond suggesting the pitfalls of consent decrees, the Lance-Financial General litigation provides new revelations about President Carter's best friend and former budget director. 1. He violated his pledge to the Senate at his confirmation hearings not to he involved in banking or with old bank associates while in governinent service. The SEC and Financial General complaints both have him meeting for lunch in the spring of 1977 with J.W. Middendorf II, the man who would soon become the chairman of Financial General and Lance's adversary in the Lance-Abedi take-over attempt several months later. Middendorf claimed in his deposition that the meeting was set up so Lance could advise him on acquiring Financial General stock. One of Lance's lawyers, Robert Altman, told me that yes. a meeting had taken place but that it was just a social luncheon arranged by a mutual friend. He neglected to mention that the mutual friend happened to own a big chunk of Financial General stock that Middendorf was after. 2. Abedi, the Pakistani banker with all those Arab clients, bailed Lance out with amazing largess after Lance resigned as budget director. You will remember that when Lance resigned last September. he was widely proclaimed as being close to personal bankruptcy. His poverty didn't last long By October 15, he'd held his first meeting with Abedi, and within two weeks Abedi offered Lance a deal he couldn't refuse. According to Lance's own deposition, in return for this discredited rural Georgia banker's providing Abedi with unspecified advice on American business investments. Abedi immediately paid off Lance's controversial $3.4 million bank loan. There were no papers signed and no interest rate worked out--just an oral agreement to decide all those details later. Also, Abedi agreed to pay Lance what Lance says is a "substantial" annual consulting salary. Lance steadfastly won't say how much, for fear. he says in the deposition, of "embarrassment." but a source close to Lance assures me it's in six figures. Not only that, but Abedi soon introduced Lance to Ghaith Pharaon, one of the wealthy Arabs to whom Abedi provides investment advice and financing, whereupon Pharaon completed the hailing out of Bert Lance by buying his interest in the National Bank of Georgia at a premium price. By the end of the year Lance's financial resurrection was such that we find him buy22 APRIL 25 1978. ESQUIRE Is this the real Bert Lance? ing 13,000 shares of Financial General in his wife's name for $162,000. Briefs Law Boards Scandal It seems that the Educational Testing Service, which administers the Law School Admission Test, took it upon itself to change the exam between July and October 1977. The result: scores were higher on the October and December tests than they've ever been in history. For example. Yale usually has about twenty applicants who get the top score of 800. This year, because of the October and December tests (most applicants take it in October), it has sixty-two candidates scoring 800 and double the number usually scoring over 750. This wouldn't be terribly important if the law schools had known that the postJuly tests were easier. That's the problem. ETS never told anyone. It was only after admissions officers at Yale, Columbia, and Chicago noticed the higher scores and asked ETS about it that ETS admitted the difference. But that was in December, well after places like Georgetown or Harvard began making rolling-admissions decisions. which means that aspiring law students who took the boards in July or in prior years are at a terrible disadvantage. Not only Kennedy to End Justice Patronage? The impending retirement of Senate Judiciary Committee chairman James Eastland and the ascension of Senator Edward Kennedy to the judiciary chair may mean the end of the patronage system for appointing U.S. attorneys and federal district-court judges that got Carter in so much trouble in Philadelphia with the "Marston affair." Eastland, the veteran Mississippian. was champion of the patronage arrangement that allowed Senators from the President's party to pick their own choices for these posts in their respective states. Kennedy has set up a merit selection panel for his Mas sachusetts choices, and a spokesman tells me he favors a no-politics strict-ment selection process for all federal judges and prosecutors. However, it remains to be seen, his spokesman says, whether he'll offend fellow Senators by using his important new post to push for it. Teamster Liberation The Justice Department has assembled a group of organized-crime-force prosecutors from around the country to work full-time on prosecuting corrupt activities in the Teamsters union. The name they have given themselves is the Teamsters Liberation Army. Where's the President's Crime Message? Fifteen months into office. the President has still not issued the comprehensive message on crime, including legisla tive proposals such as gun control, that he promised as a candidate and set as a priority upon taking office. Demoralized Justice Department staffers who have worked on drafts of the message since early 1977. only to see them go off to the White House and never be heard from, are wondering whether the date now promised for its delivery, this May, will come and go as all the others have. Breaking the Code of Silence Lawyers who served as clerks to Supreme Court justices during the early Seventies report that when Watergate re that, but ETS continues to insist, with no "We ranted and raved at ETS." one upset admissions director says, "I can't tell how this hurts admissions procedures all over the country The kids who thought they were early birds by taking the July test really caught a sour worm.” recently for his forthcoming book on the inner workings of the Court, he seemed, in one former clerk's words. "to know as much about how cases were decided and how the justices fought among them. selves as we did.. A lot of inside people, may be even one of the justices, have been telling him things that none of us are supposed to talk about." THE WASHINGTON POST, APRIL 28, 1978 Bid to Take Over Financial General Judge Refuses to Block Lance, Arabs By Jerry Knight Washington Post Staff Writer A U.S. District Court judge yester day refused to block Bert Lance, a group of Arab investors and others ⚫ from their effort to gain control of Financial General Bankshares Inc., the $22 billion Washington bank holding company. At the same time. Judge Oliver Gasch ruled that stockholders who sold shares to the Lance group on the open market, without knowing a bid for control was under way should have a chance to buy back their stock. The offer to rescind the sales must be made before Lance and the Arabs make a public tender offer for the remaining shares of Financial General, Gasch said, in ruling on a civil lawsuit brought by the company seeking to Block any attempts to gain control. Gasch's ruling yesterday on the company's request for a preliminary injunction does not end the case. But Gasch said the company's demand for "broad injunctive relief is not warranted in this case." Financial General officials indicated the company would have little to gain by pursuing the suit further. Lance's own participation in the takeover bid is in doubt, however, following his settlement Wednesday of a Securities and Exchange Commission investigation of his Georgia banking activities. In a letter to the SEC and the comptroller of the currency, Lance said he "will not during at least the next six months be involved in the management or control of any bank." He promised to give regulators 60 days notice if he intends to return to banking. The letter, which was attached to the consent order signed by Lance. was widely interpreted as meaning Lance had agreed to stay out of bank ing for least six months, as part of the settlement. Lance's Washington attorney, Robert Altman, challenged that view yesterday. "Lance is not barred from banking." Altman said The settlement of the SEC complaint, "doesn't limit his right to be involved in this (Financial General) case." Contending the letter was written voluntarily by Lance to keep federal officials apprised of his plans, Altman insisted the six-month absence rom banking was not part of the settlement. "Nothing precludes him from being a member of the offering group" that has announced its intention to seek control of Financial General, Altman added. But when the SEC announced terms of the settlement on Wednesday, Lance's letter was described as a "necessary part of the settlement" by Theodore Levine, associate director of enforcement for the SEC. Levine said any institution controlling a bank was covered by Lance's pledge. When advised of Altman's interpretation yesterday, Edward Herlihy, assistant director of enforcement for the SEC, disagreed strongly. Lance's letter, Herlihy said, "is a voluntary commitment and representation not to do certain things, one of which is to be involved in the management or control of a bank." Levine described the letter as "a voluntary representation which should not be construed as a sanction or a bar, but it was a necessary part of the settlement." Levine added: "We assume he [Lance] is going to live up to his statement... and not break his promise to the government." Both Herlihy and Levine, who played major parts in the Lance investigation, said a bank holding company like Financial General would be considered a bank, as far as Lance's pledge is concerned. Noting that Lance also promised to give the "appropriate federal regulatory agency 60 days advance written notice" if he decides he wants to re turn to banking, Levine said that was "to give regulators time to make a decision of law if he wants to get back into banking." Altman said Lance might decide for financial reasons not to be a member of the group, which is expected to make a tender offer for all the stock of Financial General. Lance, the Arabs and others agreed to make the offer as part of the settlement of a separate SEC investigation of the Financial General situation. The earlier SEC case and Judge Gasch's ruling yesterday said Lance had acted on behalf of a group seeking control of the company. The group includes Eugene Metzger, a Washington attorney; Jackson Stephens, a Little Rock investment banker; Agha Hassan Abedi, president of Bank of Credit and Commerce International of London, and four wealthy Middle Eastern investors. Over a period of several weeks, with Lance, Stephens and Metzger acting as their agents, the four Arabs each acquired about 4.9 percent of the stock in the company; Lance, Stephens and Metzger acquired smaller blocks. Gasch said yesterday that as soon as it acquired 5 percent of the shares the group was required by federal securities law to publicly report its purchases and its intent to exert influence over Financial General. Most of the persons who sold stock to the group were closely associated with Financial General and knew what was going on, Gasch said. Most of the insiders received $2 to $3 per share more than the market price of the shares, he noted. But Gasch said many small investors, who sold their stock on the open market and got no premium, were entitled to relief. He ordered they be given the right to rescind the sales. BANK OF CREDIT AND COMMERCE INTERNATIONAL The mysteries behind Abedi's bank By NIGEL BANCE Iqbaluddin Ahmed was sitting down at the lunchtable at the AIBD meeting in Zürich when the question hit him like a blow in the face: "Are you from that cowboy bank in the Middle East?" asked someone at the same table. That's typical of the remarks commonly made about the astonishing Bank of Credit and Commerce International, the institution that is the talking point at bankers' cocktail parties, the source of gossip at conferences, and the object of speculation in the first-class cabins of planes ferrying bankers out to the Gulf. Ahmed, the chief executive of BCCI's merchant bank, should be used to such questions, for by now BCCI is well aware of its reputation. That reputation is based largely on speculation; on speculation about its unusual management style; on speculation about its reclusive founder and president, Pakistani-born Agha Hasan Abedi; on speculation about its Middle East shareholders; on speculation about its links with Saudi Arabian businessman Dr Ghaith Pharaon, son of an adviser to the late King Faisal; on speculation about its connections with Bert Lance: on speculation that Bank of America wished to divest its shareholding in the bank; and, above all, on speculation concerning its amazing growth. Euromoney has passed on some of that speculation. In our Gulf Banking survey last August we first published a report that Bank of America was considering a withdrawal from BCCI by selling its 24% shareholding. Subsequently, a representative from BCCI, Dildar Rizvi, visited Euromoney's London headquarters to complain about what he termed the inaccuracy of the report. Rizvi claimed that Bank of America planned to retain its shareholding in the bank, and that it was very happy to do so. Bank of America confirmed 76 Euromoney July 1978 that statement. Some months later, however, Bank of America issued a press notice, following a number of stories in the financial press, which said that it intended to divest itself of its interest in BCCI by 1980. Abedi said he had no financial involvement in any BCCI company. What follows is an Investigation into BCCI and into the truth behind the rumours as far as this can be ascertained. While researching the story we talked to many BCCI employees, including an interview that lasted several hours with Agha Hasan Abedi. If Bank of Credit and Commerce Inter national is an unusual bank, its founder and president is even more unusual. "Purity and chastity is the key to our management at BCCI," said Abedi during a rare interview with us at the Inn on the Park hotel in London. In the course of that interview Abedi described BCCI's origins, his unique concept of management, its shareholders, the maze of holding companies and cross-shareholdings that control it, and his relationship with Bert Lance. The bank, claimed Abedi, had loaned Lance a total of $3.6 million while the former US Budget Director liquidated his shareholdings in several US banks. "We were told that Lance wanted to sell his 60% stake in the National Bank of Georgia." As a result, Abedi claimed, he introduced Pharaon, a close friend, to Lance who subsequently sold his 120,460 National Bank of Georgia shares to Pharaon for $2.4 million, or $20 a share. Lance now works on a retainer for ICIC Business and Promotions, a Grand Cayman-based company that is part of BCCI network (see chart of shareholders). the Abedi, 57, the son of a Lucknow landlord, played his master stroke when he foresaw the nationalization of banks in his native Pakistan and used his connections with some of the major ruling families of the Middle East to set up BCCI in 1972. The young Abedi graduated from Lucknow university with a degree in English literature and law, spent 12 years at Habib Bank before forming United Bank of Pakistan. He was president of United Bank for 13 years, and it was then that he made the Middle East connections that are so valuable to him today. He is, he claims, a close friend of Sheikh Zaid, president of the United Arab Emirates. Sheikh Zaid is said to have substantial financial interests in Pakistan. Abedi, in turn, acts as host to the sheikh when he visits Pakistan, accompanying him on shooting and hunting and a great love of the sheikh's -hawking expeditions. BCCI's founder is a lover of Indian classical music and an avid reader of management books who shuns alcohol and publicity. While working in Karachi, for example, he was not a member of the city's smart watering spot that was frequented by ex-president Bhutto and his entourage, the Sind Club, while most senior BCCI employees are members. But his Pakistani friends and employees have assumed an enormous importance in his business life: many of BCCI's senior managers are former United Bank employees, and Abedi continues to poach senior bankers from his native country. BCCI's staff includes, for example, a former governor of the Central Bank of Pakistan and a former governor of the central bank of Bangladesh. More recently, he hired Pakistan's World Bank representative, Iqbaluddin Ahmed, to run his merchant banking arm. With him, Ahmed brought another World Bank executive, Dr Peter Muth. The bank, claimed Abedi, had loaned Lance a total of $3.6 million while the former US Budget Director liquidated his shareholdings in several US banks |