Julio Mercado is Dallas' brand-new DEA boss, and he's inherited kilos of trouble. His city is about to be declared a drug disaster zone, but all his narcs seem to care about is snitching on each other.

In his defense, Phelps says he did what any parent would do--none of which was unethical.

Amid cries of foul from numerous underlings, yet another OPR investigation was mounted, but in short order, Phelps was cleared of wrongdoing--a result that only further infuriated the rank-and-file.

Clearly stung by all the criticism of him, Phelps rather shamelessly opened his own OPR-style investigations into the activities of his new Dallas employees. A number of local police officers assigned to DEA task forces around the Dallas-Fort Worth area recall that Phelps contacted them upon his arrival, asking strange questions. "He asked me, 'If I were a fly on the wall, what would I hear your guys saying about the DEA agents?'" recalls one. "He wanted me to rat them out."

Not that there wasn't anything to look into.
In July 1996, the U.S. Attorney's office in Dallas notified several local defense attorneys who were handling drug-bust cases about a serious problem. A DEA chemist in the Dallas office, Anne Castillo, had admitted to falsifying lab reports from February through July 1996. Castillo was subsequently fired, according to DEA officials.

Then on July 18, 1996, Dallas police arrested DEA agent Gary Jackson in a sweep of a North Dallas wife-swapping club. The club, dubbed "The Inner Circle," was located in a modest home on Northmoor Drive, just south of Forest Lane at the Dallas North Tollway. According to the arrest report, DEA Agent Jackson "did then and there knowingly engage in an act, namely of deviate sexual intercourse by contact between any part of the genitals of Gary Alan Jackson and the mouth of Robin Carol Avalos." (Avalos, who is not a DEA agent, was also arrested and charged with public lewdness, a misdemeanor, according to court records. The case is pending.)

Ten people were arrested that night--another four, posing as swinging couples, were DPD vice officers. Public lewdness charges are pending against Jackson with the Dallas County DA's office. The DEA says the incident is still under investigation. Jackson has pleaded innocent; his attorney, Dan Hagood, denies that Mr. Jackson committed any criminal act.

Jackson wasn't the only Dallas agent caught with his pants down, so to speak. According to five DEA agents--including one who works closely with the offending agent--one Dallas agent, dressed only in his skivvies, allegedly chased a confidential informant around her hotel room in late 1996. (Six months later, another informant reportedly lodged a similar complaint against the same agent.) DEA officials decline comment except to say the incident is under investigation.

Then there's the tale of the Dallas division manager who was accused of sexual harassment by a female employee in the Oklahoma City office. Following an internal investigation, the manager was demoted two government "grades" in rank and pay, though his title remains the same. Asked about the incident, Mercado is cryptic: "My ASACs have had their problems," he says.

Phelps didn't just offend his own men, though--he went for the local cops, too. Out at D/FW Airport, Phelps unilaterally decided to change the way the highly successful skynarcs operated. "In his defense, it was a new regime coming in, and he had his own ideas that he wanted to try," says a Dallas police sergeant connected with the task force. Among the ideas was Phelps' notion that the skynarcs were relying too heavily on airline employees for tips.

"He wanted us to go back to walking the airport, looking for suspects," recalls another task force member, a DPD narcotics detective. "To watch the flights and wait when people deplaned--like we did it in the dark ages. He didn't like us relying on ticket agents. There were a lot of comments about [ticket] agents making too much money.

"The problem with that is, you wind up focusing on the minorities," the detective adds. "You can't help it. There are a million white guys out here, and they all look alike. That's what's nice about the computer. Working cold, it's the minorities you tend to notice. The others are just too hard to pick up."

Airport stats fell significantly. Although currency seizures had been declining gradually since 1992, drug seizures at the airport had remained pretty steady--more than 2,000 pounds a year of marijuana and more than 200 pounds of cocaine.

By 1996, airport stats were lousy; drug seizures were down 75 percent from the previous year, and money seizures were down 50 percent. (The number of cocaine seizures did get an unexpected boost when a routine maintenance check turned up 100 bricks of cocaine packed into the electrical paneling of an American Airlines jet hangared in Dallas.) The decrease was so startling that in January 1997, Dallas police chief Click asked his deputy narcotics chief, Roger Duncan, to write an internal memo explaining the plunge.

Although Duncan's January 14 memo lays the primary blame on NAFTA--"since the inception of [NAFTA], many of these organizations prefer vehicular transportation"--many involved agreed privately that declining morale and the changes Phelps had initiated in the program were also devastating. (Phelps says the only morale problems at the airport were due to malcontents--the same ones, he says, who are now singing to the Observer.)

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