Taxman cometh

IRS drops the other shoe on former First Republic bankers

Some of Dallas' highest-profile businessmen, including former Dallas Cowboys owner H. R. Bum Bright, are targets of an Internal Revenue Service probe--which amounts to a double whammy for this famous pack of former bankers.

"I got a letter from them and sent it down to my accounting firm," Bright says, referring to the correspondence he received from the IRS. "I subsequently learned that others had gotten letters too."

The "others" to whom Bright refers are his fellow former directors and officers of the Dallas-based First Republic Bank, a federally insured financial institution that failed in the late 1980s. First Republic's failure, the largest in U.S. history, triggered a $3.6 billion cost to taxpayers and a lawsuit filed by the Federal Deposit Insurance Corporation against the former directors and officers. In addition to Bright, the First Republic roster included: Club Corporation International chairman Robert H. Dedman; former Dallas mayor Jack Evans; former American Bankers Association president Charles Pistor; the late Texas Instruments chairman, Jerry Junkins; the former manager partner of Trammell Crow Companies, J. McDonald Williams; jewelry retailer Donald Zale; and oilman Ray L. Hunt.

For a short while, there was no bigger bank in Texas than First Republic. The institution was born in 1987, with the unexpected merger of Republic Bank and InterFirst, which for decades had been crosstown rivals. But both institutions were shaky and together they collapsed within 14 months of the merger in July 1988. The FDIC assumed control of the bank and ultimately sold its useful assets to what today is known as NationsBank.

In February 1993, the 39 former directors and officers from the failed Dallas bank agreed to pay the FDIC some $17.5 million to settle the suit. The Dallas group's counterparts at a sister Houston financial institution chipped in $4.5 million, making the total deal the largest of its kind in history, a whopping $23 million to get the Feds off their backs.

As the Dallas Observer detailed in a March 25, 1993, cover story, "Splitting the tab," the Dallas directors and officers hammered out the deal among themselves--barring even their own lawyers from the negotiations. After several days they arrived at who was most to blame for the bank failure and who could afford to pony up the most to satisfy the federal prosecutors. Bright put in roughly $1.4 million to the settlement. But, the Observer reported, prominent oil executive Walt Humann refused to chip in a dime--and earned the lasting enmity of some of his peers.

Having paid dearly to get rid of the FDIC three years ago, the directors may have assumed that they had rid themselves of government scrutiny. They'd underestimated the IRS.

Many of the former directors and officers now face questions from the IRS. And the irony of the situation is that the FDIC settlement is precisely what triggered the tax collectors' interest in the wealthy group of businessmen.

Worse, according to two former directors and one lawyer familiar with the investigation, the IRS investigators used that prior settlement as a road map for its current probe. The IRS is examining whether the First Republic directors and officers improperly deducted the settlement payments made to the FDIC, the lawyer says.

Two weeks ago, IRS revenue agent Jeff Bacon contacted the Observer to set up a meeting to discuss the events surrounding the First Republic settlement. The newspaper declined to participate in those talks.

Little love has been lost between government regulators and the Dallas bankers. When the settlement was reached three years ago, the FDIC lawyers complained that the Texans had gotten off too easily. "We settled the case too goddamned cheap," groused one government lawyer at the time. "Those were very rich, very important, and some very self-important people...They don't understand that when you have enormous problems you have to do something about it or quit the bank. It is endemic among directors across the country. But there is a peculiar brand of it in Texas. They don't listen to anybody."

Bright, referring to his war-time military duties, complained three years ago, "I crossed the Rhine River twice. To have our government turn on its citizenry--I am ashed."

But now Bright seems more resigned in his new battle with the Feds.
"I just sent the [IRS] letter on to my accountants," he says. "There was a multitude of technical questions that I was not equipped to answer. I'll let them deal with it.

 
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