Hide and seek
Over espresso and orange juice, Dallas developer Louis Garfield Reese III huddled with several would-be business partners in a suite in Milan's four-star Excelsior Hotel.
Amid sophisticated chatter about the charms of Florence and Milan, Reese ran through a series of possible real estate deals in Hawaii and Dallas, most notably a plan to purchase the exclusive Mauna Lani Bay Hotel and some surrounding land on Hawaii's Kohala Coast, a deal worth more than $50 million.
Reese had already pitched the project to Ross Perot Jr.'s Hillwood Development Corp. and Tom Hicks' Olympus Realty. Both passed. Now he had some equally big players ready to bite: a delegation of Swiss bank officers led by an executive named Hans Von Helbach--or so Reese thought as he explained how they might make a cool $40 million selling German retirees expensive patio homes on the lava-rock coast.
Von Helbach and his two companions were keenly interested in Reese's background, and they had good reason. In 1992, Reese began a three-year stretch in a federal prison after pleading guilty to defrauding bank regulators and cheating the IRS. From the mid-1980s real estate and savings-and-loan collapse, he still owed roughly $90 million to the Federal Deposit Insurance Corp. and private collection companies that, over the years, had purchased court judgments against him at government auctions. Reese still owes the feds $3.4 million in restitution in his criminal case.
Not to worry, Reese assured Von Helbach. He hadn't let the debts crimp his cash flow. "I'm quite capable of compartmentalizing my problem," Reese said. "I have no creditors that call...My life is as calm and quiet as if I were at sea on a clear morning...It's quite true that I lost hundreds of millions of dollars of their money and my money. But that did not affect my lifestyle."
To be sure, he lives in the same 6,107 square-foot house on a gated four-acre estate in Preston Hollow that he bought in 1982. Through a company owned by his wife, which makes "a million and a half, two million a year," he pulls out enough for "household expenses and the lifestyle," he told the Swiss bankers, and he continues unabated buying large tracts on Dallas' outskirts, subdividing them, and selling them to some of the largest homebuilders in the nation, including Pulte Homes and Centex Homes.
Despite what he described to Von Helbach as his "mid-term vacation" at the Yankton Federal Prison Camp in South Dakota, he moved tens of millions of dollars of real estate into companies and trust funds owned by his wife and three children, and still controls them, he told the group. He bought and renovated dozens of those properties as a pioneer investor in Lower Greenville Avenue and Deep Ellum, Dallas' entertainment zones.
There's offshore money too, he told the small gathering, demonstrating what seemed to be a considerable knowledge of the secretive banking practices of the Cayman Islands and the Isle of Man, an autonomous financial haven located in the Irish Sea. "I have access to my offshore money," he said. "Any amount."
When one of Von Helbach's associates asked whether the federal government or creditors might come after him at any moment, he replied, snapping his fingers, "None of that stuff happens, and if it does happen, believe me, they will tire like that. They will give up almost instantly."
Well, not exactly, Reese was about to learn.
Behind the fake German accent and pretense of noble pedigree, Von Helbach was actually Juval Aviv, a colorful private investigator working for Reese's largest creditor. Instead of being a source of capital for the 50-year-old developer, Aviv was, in fact, a tidal wave of trouble on Reese's calm and quiet sea.
Aviv had been hired by Advantage Capital Group Inc., a Phoenix-based collection company that holds a federal court judgment against Reese for $29 million plus interest that nearly doubles that amount. Reese originally borrowed the money from Western Savings Association, which failed in 1987 at a cost to taxpayers of more than $1 billion.
The Milan meeting, held in August 1997, turned out to be an elaborate sting orchestrated by Advantage Capital to gather leads and evidence to support their theory that Reese has cleverly concealed tens, maybe hundreds of millions of dollars he made flipping land and cheating thrifts in the '80s. In the seven hours of meetings, which were tape-recorded, Reese talked about how he moved assets into family trust funds, ran his real estate business from a prison pay phone, and returned to control his real estate empire, in fact if not in name.
"Lou Reese is brilliant," says Stacey Napp, president of Advantage Capital. "He thinks he's the smartest man in the room, and he usually is. This time, he was a little too smart."
Although the S&L meltdown is more than a dozen years past, creditors still are pursuing a few big cases against developers such as Reese. Napp calls them "the last of the Mohicans." It's a lawyer-intensive game of cat and mouse, pitting those savvy at protecting their assets against some insistent and resourceful collectors.
Most of the '80s high-fliers sought protection from creditors in bankruptcy court long ago. "You see these poor guys who lost it all, then they went bankrupt. That was the red flag about Lou," says Napp. "There was no bankruptcy." In other words, he owed tens of millions, but somehow was still on his financial feet. Sources in Dallas also told Napp he was back in the real estate game--making money, making deals.
Napp, an indefatigable 38-year-old whom one of Reese's lawyers describes as "a pit bull in a skirt," began her pursuit in the deed records room of the dull gray Dallas County Records Building. After months of research, she cataloged what she says is nearly $30 million worth of real estate in an array of business entities and trusts owned by immediate Reese family members--properties that once were in Lou Reese's or his companies' names. Napp was doing her homework in advance of gathering a group of 26 limited partners, half of them from Dallas, who were willing to invest in a unique and narrow business: trying to make '80s land speculators and bank defrauders pony up.
In early 1997, Napp had assembled her group and bid for the Reese debt at a government auction, offering $55,000 for a bundle of court judgments including the $29 million judgment against Reese, which had been reached in federal court in Dallas in 1993. Five years earlier, Western had sued Reese for failing to repay a group of real estate notes, and the judgment wound up as an asset held by the government after the thrift failed. Napp's group was initially outbid by a Banc One subsidiary that was purchasing judgments in bulk, but a few months later Napp bought the Reese debt from the bank for the bargain-basement price of $15,000.
Whatever they can recover is theirs, which is perhaps why Napp's group has been more aggressive than the federal government, which held Reese's debt for four years, didn't recover a dime, and then auctioned the right to collect to the private sector.
The price of the Reese judgment was low because these kinds of debts have gone uncollected for so long they're considered long shots, and the cost of recovering something can get expensive--in this case about $700,000 and counting for lawyers, travel, investigations, and so forth, Napp says.
An early expense was the assistance of Juval Aviv, a New York-based investigator with an internationally checkered reputation. Napp says she first heard of the 52-year-old private eye from a name-dropping lawyer at a conference on offshore banking. At their first meeting, Aviv handed her as his calling card a book, Vengeance, by Canadian author George Jonas, which was a best-seller in 1984 and became a made-for-cable movie, The Sword of Gideon.
Aviv claims to be a former major in Israel's elite Mossad intelligence unit and the head of a hit squad that hunted down and killed the Arab terrorist who murdered 11 Israeli athletes at the 1972 Olympics in Munich. The book and movie recount the squad's supposed exploits under the direction of Aviv, although the Israeli government denies the operation ever existed. Published reports citing unnamed intelligence sources have disputed much of Aviv's background. "It's a résumé virtually impossible to check," Napp says.
Aviv has made international news for much of the past decade as an investigator hired by Pan Am to delve into the 1988 bombing of Flight 103 over Lockerbie, Scotland. He came up with a widely reported theory--later discredited--that a rogue CIA unit played a role in the case. Then there was his federal indictment on charges of defrauding the General Electric Co. with an allegedly false report on terrorism in the Caribbean. He was acquitted of those charges in 1995.
"He is a con man," Napp says. "Which is what it took to get Lou in there talking. Don't trust Juval. Trust the tapes."
Napp says her contacts in Dallas made it clear Reese was pitching the Hawaiian deal around town, and Aviv went to a well-placed commercial real estate broker, Candace Ruben, to make the introduction. "She vouched for his credentials," says Reese, who broke a decade-long policy of not commenting to the press and talked at length about the incident with the Dallas Observer. Aviv also had letterhead and other authentic-looking documents from a real Swiss bank.
Reese invited Aviv to a 634-acre Hawaiian retreat he carved out of a 19,000-acre land deal in the late 1980s and now is turning into an eco-tourism project. "Hans traipsed through the mud in his Gucci tennis shoes. He was kind of ridiculous," Reese says. As the summer was ending, Reese was lured to Milan for the sting--a location Napp had chosen to put Reese at ease and away from the prying eyes of his U.S. creditors.
"Of course, with what they did, I'm totally impressed," says Reese, who learned the truth a few weeks after the sting when a group of Advantage Capital lawyers confronted him at the Admiral's Club at Dallas-Fort Worth International Airport. "I've never seen anything like it in my life."
But as the intervening two and a half years have shown, getting Reese to blab on a secret tape and breaking through his battery of trust funds, transfers, and attorneys are two altogether different tasks.
Building his defense on a claim that he was "puffing" and "exaggerating to make a business deal," in Milan, Reese began a vigorous stand against his creditors in federal court. When several key rulings went against him, he followed others into that last refuge for S&L scoundrels--bankruptcy court--filing for protection from his creditors in February 1998.
Today, he is one ruling short of getting final approval for a reorganization plan that will pay Napp's partnership about $1.5 million, a proposal she opposes and says is not guaranteed to yield anything. "We believe there's been fraud," says Jeffrey Homburger, owner of New York-based Guild Capital Inc. and one of the investors in Napp's group. "There are so many smoking guns; the more we get into this, the more they smoke."
The FDIC, Reese's other big creditor, is supporting the plan, which will settle his criminal restitution debt for $500,000--representing 15 cents on the dollar--and $750,000 for about $17 million worth of failed loans--equal to just over 4 cents on the dollar.
"We did a very extensive search, and we didn't find anything we could attach," says David Barr, an FDIC spokesman in Washington. "It's one thing to say there are assets. It's another thing to get at them overseas, or if they're in a wife's name."
Given the feds' track record, the smallish recovery in the Reese case almost counts as a win. Between 1988 and 1992, the General Accounting Office found, only about 4.5 percent of financial restitution was paid by the white-collar criminals who brought down the S&Ls.
Reese may be impressed with Advantage Capital's enterprise, but he's scornful of the business they're in. "They're vultures," he says. "We have some bottom-feeding opportunists who have come up with an elaborate John Grisham tale, and they need a John Grisham ending to be satisfied."
With two adversaries in a three-year chase, things can turn personal. Napp has a few choice words for Reese as well: "Lou has been hiding behind his twice-indicted attorney. He's a real charmer." (Reese's attorney, Phil Palmer, was indicted and acquitted of bankruptcy fraud and fraud charges related to a penny stock venture. Neither case involved Reese.)
In buttoned-downed Dallas, Reese is anything but a conventional real estate guy. An investor in art-house movie projects--business papers show he backed Kiss of the Spider Woman and Trip to Bountiful--he's been known to retreat to an ashram in California for some Eastern meditation. Still, business associates say, he's as tough and calculating as he needs to be.
"Dallas is full of guys like Lou who love to make deals, and he happens to be better than most," says friend and real estate investor James "Chip" Northrup. "He's been kind of back on his feet lately, and he hasn't lost any of his zest."
Reese seemed to exhibit a certain élan as he boasted in Milan about beating his creditors and holding his own with the government. Now, ironically, that appears to be coming true.
To "Von Helbach," for instance, Reese said of his criminal restitution, which is a debt that cannot be erased in a bankruptcy: "I owe $3 million...and I won't pay 100 cents on the dollar. But I could go in there and settle that for a few hundred thousand dollars and go on about my business."
Which is exactly what he is about to do.
Tanned, relaxed, and casual, Reese arrives for an interview at the Preston Center Starbucks lugging a scuffed leather briefcase and a hand-scribbled list of notes. Dressed in a faded black polo shirt, khakis, and a black rubber Swatch watch he says he bought for $39.95, his black Mephisto shoes are the only hint of money--that and the fact that his house, "Mead Estate," is a few blocks away from this Park Cities crossroads.
Tallish and given over to middle-age spread, he has a ruddy face framed by two shocks of untrimmed gray-white hair. He speaks calmly, slowly, in full sentences--a note-taker's prize.
Reese grew up on Royal Lane, the son of an entrepreneur who won and lost a few times in businesses such as swimming-pool installation. "Sometimes it was chicken, sometimes feathers," he says. There was enough of the former to send Reese to St. Mark's, one of the city's top prep schools, and Vanderbilt, where bad knees put an end to his college football career. After school, where Reese excelled with an ease that tended to amaze his peers, he took off to Europe to write short stories and ride motorcycles. His wild years past, he returned to Dallas and a real estate position arranged by his dad.
Reese was an understudy to developer Harold Shuler in the early 1970s and is credited with revitalizing much of the Greenville Avenue commercial strip and pioneering investment in the Deep Ellum warehouse district just east of downtown.
In 1983, when the two parted ways, Reese came away from their partnership with properties worth $15 million. He continued to invest on Greenville Avenue and moved aggressively into renovating small commercial buildings in Deep Ellum, assembling several complete city blocks. Today, those properties are held in several family businesses, housing such well-known restaurants as Angry Dog, St. Pete's Dancing Marlin, Baker's Ribs, and Monica's Aca y Alla. And he--or rather, his family--is still one of the largest landlords on Lower Greenville Avenue.
In the early '80s, with Texas real estate booming, Reese began getting into far bigger projects, expanding his net worth, as reported on an unaudited financial statement, to $98 million by 1984. He was making deals that required no money down from the borrower, fees paid to the lender out of the original loan, and all of it based on questionable appraisals and faith that a rapidly rising market would continue to balloon. The high-flying S&Ls needed quick deals, and Reese had briefcases full of them.
Describing one venture before the U.S. House banking subcommittee in 1987, Roy Green, former president of the Federal Home Loan Bank Board, testified that Reese bought a 2,100-acre tract off Hulen Street in southwest Fort Worth that "sold six times, sometimes between interrelated parties," inflating its value from $17 million to more than $50 million in less than two years. Reese, practicing what is often referred to as land flipping, was involved in four of the transactions.
In just several days, the Reese's Children's Trust No. 2 sold the property to another Reese affiliate, which then sold it to a third party. The lender on the last sale was Western Savings, which took at least a $30 million loss when the market went sideways.
Napp says Reese pulled tens of millions of dollars out of those transactions and put it somewhere. "That money's never been found," she says. "That's naive," counters Reese, who says he made about $8 million on the Hulen land and often used profits from one deal to repay loans on another.
While most of his peers headed for bankruptcy court in the late '80s, Reese had somehow built enough of a reserve to carry him through. In 1988, for instance, he put together a $73.9 million deal to sell a 19,000-acre sugar plantation on the island of Hawaii. That, too, became surrounded with claims of financial wrongdoing.
As set out in a 1989 lawsuit, Plano-based Stockbridge Corp. accused Reese and two longtime friends of scheming to deprive it of its half of a nearly $10 million profit made from the sale of the land to a Japanese buyer.
Stockbridge claimed Reese, who cooked up the deal on Christmas Eve, understated the true profits on the sale and distributed a $4 million "commission" to James Brand. A longtime friend of Reese's, Brand didn't even hold a real estate license, the suit pointed out. Part of the money was then wired to Prudential Bache's international trading desks in New York and London and used to buy international bearer bonds that were delivered to Brand at his home in Austin. Brand returned the bonds to Reese, who deposited them with various family trusts and corporations, the lawsuit alleged.
Reese denied wrongdoing but admitted in depositions that he transferred the profits around the world to keep them from Stockbridge. He contended that the company was not entitled to more than the $275,000 it received.
Stockbridge said that Reese used a web of companies and trusts to hide assets over the years and that he "employs a variety of fictional entities in an attempt to secret and otherwise insulate the money he derives." It settled the case for an undisclosed sum, and officers refused to return phone calls seeking comment.
In the end, Reese wound up owning a piece of the Hawaii land, 634 acres that a decade ago were transferred to his wife. In Milan, as his hosts ordered up lunch in their perfect Italian, Reese bragged that the plantation deal netted him a total of $21 million.
In 1990, Reese had more to worry about than just civil disputes.
A federal task force investigating corruption in Texas banks and savings associations obtained an indictment in August against Reese and five S&L officers for engaging in a series of "sham transactions" to prop up the balance sheet of Austin-based Lamar Savings Association. Reese says he aided the thrift officers in the scheme in order to obtain a $37 million loan to finance the purchase of 225 acres near DeSoto.
A year later, federal prosecutors in Dallas charged him with violating federal fraud and conspiracy laws by seeking to conceal the profits from the sale of a 19-acre parcel near the intersection of LBJ Freeway and North Central Expressway.
He was accused of conspiring to defraud the IRS on taxes owed on $14.2 million he'd received from the sale, which was financed by Western Savings. The proceeds were wired to a bank in the Cayman Islands, then laundered through a Cayman Islands corporation to a wholly owned subsidiary in Kentucky, which in turn bought a 465-acre horse farm near Lexington, Kentucky. Reese and two other individuals owned the farm. As a result of the multiple transactions, no federal taxes were paid, according to court papers.
Reese's plea bargain, signed that same month, suggests he was also under investigation for banking transactions at thrifts in Louisiana, Colorado, and Oregon. If that weren't enough, as Reese explained on the sting tape, federal prosecutors had one more sword hanging over him.
In April 1989, he had directed his wife, Susan, to take $443,000 from a safe-deposit box, purchase cashier's checks for smaller amounts at 17 different financial institutions, and deposit them in a bank account and a securities account. Reese testified later that his motive was to hide money from his creditors. The government alleged the money-laundering scheme was arranged to avoid federal currency reporting requirements.
As Reese told Aviv in Milan on the sting tape, "I was vulnerable because it was very likely Susan would go to jail...The head of the task force said, 'Mr. Reese, we're tired of messing with you. Either we work out a plea agreement with you today or on Monday we indict your wife.'"
Reese agreed to plead guilty to bank and tax fraud charges, exposing him to a maximum prison sentence of 10 years. He agreed to testify for the government at several trials, including that of Western Savings president Jarrett Woods. Reese says he testified as a government witness at two other trials before his sentencing in February 1992.
"He was as high a flier as I dealt with," recalls Assistant U.S. Attorney Dan Mills, who brought dozens of thrift bandits to trial. "He borrowed money all over the damned place. He borrowed more than $500 million."
At his sentencing hearing, Reese wrote a letter to U.S. District Judge James Nowlin saying that he lost his "moral compass" in the spirit of the times and broke laws in an effort to keep his business afloat. "I should repay my debts, and I will do everything I can to repay as much money as possible," he wrote.
Mills, the prosecutor, says Nowlin was too lenient when he sentenced Reese to five years.
After his sentencing, Reese requested and was twice given extensions of time before being made to report to prison in October 1992. Reese says his father was in ill health, but Napp suspects something else was going on as well. On the sting tape, Reese told Aviv and friends that he did considerable research into offshore banking practices that year.
"He was going away for five years, and he was doing things to make sure the money would be safe and secure until he got back," says Napp. "He needed time to get all the pieces in place."
On the Milan hotel tape, Reese describes the way he has arrayed his assets as "a well-designed oyster." But even with his own words betraying him, it's been a difficult if not impossible shell for creditors to crack.
In a series of agreements filed in public deed records between late 1985, when the real estate crash was fairly evident, to 1990, when jail and criminal penalties loomed, Reese gave his wife separate ownership of much of the land around their house, properties along Greenville Avenue, stocks and bonds, and the rights to the 634 acres in Hawaii he made in the 1988 deal.
Reese and his father both set up several "spendthrift trusts" for Reese's children, an arrangement that makes the kids beneficiaries of the assets but puts control in the hands of a trustee, ostensibly so the young owners don't squander their fortunes. Deed records show that dozens of properties owned by Reese or his web of companies found their way into trust funds set up for his wife or children, or newly formed family-owned companies in which Reese held no ownership.
Take, for instance, 2900 Greenville Ave., a block-long commercial building housing Stan's Blue Note jazz club and several other businesses. It's valued on current tax rolls at $887,000. Deed records show that Harold Shuler bought the property in 1979 and sold it to Louis Reese Inc. in 1985. Reese Inc. in turn sold it two years later to Hammersmith Development Co., another Reese entity. That same year, as creditors filed lawsuits against Reese for sums in the tens of millions, he sold it again, this time to a Reese family trust. In 1994, it was sold to Madison Pacific Development, owned by Reese's wife, which still holds the property.
If anything, the Reese empire as it is currently structured depends much on Susan B. Reese, whom Reese described in the Milan tape as "a very good, loyal person." But, he added, "I would not call Susan a businesswoman."
During his prison stretch, Reese recounted on the tape, his wife developed 1,500 lots while he directed the business over the telephone. "It was very interesting. I'd be on the telephone, and there'd be a line, a line of guys...So pretty soon I feel this tap on my shoulder, and this guy would say, 'Hey motherfucker--get off the phone.'"
As Advantage Capital has pursued Reese into federal court and now bankruptcy court, Reese, his wife, and several close business associates all draw a picture under oath of Susan Reese as the hands-on owner and controller of Madison Pacific, which develops subdivisions, and other Reese businesses. One of Advantage Capital's lawyers, Chris Weil, refers to her sarcastically as "the Renaissance woman."
"I'm just a consultant," Lou Reese says during his coffee-shop interview. "If my wife ran off with the trustee, I'd be left holding nothing."
On the sting tape, Reese said Madison Pacific is his company, he picks the projects, and a partner, Jim Douglas, is cut in to do the day-to-day work, "with the bulldozers, with the builders."
In court, where it really matters, there are people who back up his alternative story under oath. In a 1998 hearing, Douglas, the developer, testified that he and Susan Reese make all the business decisions in their lot-development business. He said he talks to Lou Reese from time to time, but mostly about shrubs and plants. "Lou would ask questions primarily about the landscaping, things like that, and that is all. None of the day-to-day business items," Douglas testified.
Under oath, his wife also says she is the major player, and Lou an occasional advisor in the business.
Several Deep Ellum real estate agents say Susan Reese is very much involved in renting and maintaining family properties from her funky Commerce Street office above Sol's Taco Lounge. A former housewife with no experience in business, she began going into the office in 1992, when her husband went to jail. "I deal with Susan all the time," says Jeff Swaney, a rental agent.
But when it comes to the big picture, the major items, it's not hard to find Lou Reese's hands on the controls. At a mid-May meeting in the Dallas city manager's office, for instance, a steering committee met behind closed doors to talk with city planners about a new land-use proposal for Greenville Avenue. Residents and landowners have been at odds over parking, bar noise, and other issues, and the future of the area is about to be reshaped. The group's sign-in sheet indicated that Susan Reese had been appointed to the panel by Dallas City Council member Veletta Lill. At the meeting, however, Lou Reese signed in next to his wife's name and fairly dominated the discussion in his push to set up public financing for new parking garages. It wasn't his first appearance either, several other members of the panel say. City officials were so familiar with him, they called him "Lou." (As this article was going to press, Councilwoman Lill revoked Susan Reese's appointment to the steering committee, citing "concerns raised about the Reeses.")
"Everybody knows Lou is active," says Barry Annino, another commercial real estate agent.
Reese doesn't deny that, but says, "Expertise is one thing, ownership another." Reese says he was involved as a consultant earlier this year when a partnership that included his family's money purchased a $1.9 million building in Exposition Park. The building houses an artists' colony of apartments and an eclectic mix of galleries and restaurants.
In testimony in his bankruptcy, Reese portrayed himself as someone so broke, it would be hard to see him even making his rent in such a place. He said he earned a $28,800 annual salary and has as his only cash asset a five-gallon jar in his closet containing approximately $800 in change. His wife pays his bills. He has no checking or savings accounts, and instead of the Rolls-Royce he drove in the mid-'80s, his only car now is a blue 1987 Cadillac sedan, he testified.
"Why no checking or savings accounts?" one Advantage Capital lawyer asked Reese on the stand. "Because I owe a jillion dollars," he replied. "Didn't see much point in having an account and having the money put in there and seized."
"So you're trying to make sure your creditors couldn't get to it?" the attorney asked.
Said Reese, "Just trying to get by."
Just how, one might ask, could his fortune slip out of his hands and so conveniently end up in places where it is still at his disposal?
"We got some good legal advice and did some good estate planning," Reese asserts. His attorney, Phil Palmer, says the Reese family assets are beyond the reach of Lou's creditors because "Susan Reese crossed all her t's and dotted her i's."
Texas' notoriously lax debtor laws allow someone like Reese to keep his house, regardless of value. More important in this case, state law sets out a four-year statute of limitations after which it is difficult to go after assets that have been sold, given away, or transferred in any way to avoid payment of debts. For many of the Reese dealings, that time period passed years ago, when the federal government was still holding his bad debts.
Advantage Capital pushed Reese to pay up after the sting, and he responded with a deal. According to both sides, his first offer was $75,000 and a cut on the movie rights to the story of how he was set up.
Napp declined, went to the federal courthouse to renew legal collection efforts and, in the early going, won several rounds. U.S. Magistrate Jane Boyle ruled that the tape recording was authentic and admissible in court.
Within two months, Reese filed for bankruptcy.
Napp would have wanted things to go differently in U.S. Bankruptcy Judge Harold Abramson's court. But Napp's company, the FDIC, and the trustee appointed to go after assets for the creditors have often been at odds. (In a bankruptcy, creditors are prohibited from trying to collect their debts; that function is handed over to a court-appointed trustee, who is given the power to manage the debtor's assets and locate funds for creditors.)
Napp and her attorney, bankruptcy specialist Gerrit Pronske, believe the trustee can challenge as fraudulent transfers a number of Reese assets, particularly the valuable Hawaii acreage, because Texas' four-year statute of limitations had not run out. But they are the only creditor to think so. Trustee Milo Segner, who would not return phone calls for this story, and government lawyers have been less aggressive.
"Until Stacey showed up, the government wasn't pursuing Reese at all," says Jeffrey Homburger, the investor in Napp's collection group. "They were willing to wait for decades until he died or tried to sell his house and collect a tax lien."
The most significant rift between Advantage and the government has come over extending the Reese money hunt to bank havens abroad. "With the trustee, a federal judge, the FDIC, and Advantage, it would have been the collection dream team," says Pronske, who usually works the other side of the street and helps wealthy individuals ward off creditors. But the team never suited up for their away game in Switzerland.
Napp says she floated a proposal last summer to the FDIC in which Advantage would absorb the costs of sending legal discovery efforts abroad. In return, it expected to recover 10 times its investment off the top of any Reese funds recovered.
"We had barristers and solicitors lined up and legal papers written; we were all ready to go," says Napp.
But the FDIC had another idea, she says. It wanted the first $1 million recovered and a 50-50 split on the rest. "Why would we invest in that?" says Napp.
Homburger says their group had a signed agreement with the bankruptcy trustee to invest $250,000 in the offshore search. "The trustee backed away from it," he says.
Homburger says he isn't certain why, but the lack of agreement between Advantage and the FDIC apparently played a role.
In addition to the sting-tape admissions and evidence in Reese's S&L cases that he has experience with offshore businesses, Napp's group has, in its James Bond-like way, come up with other evidence that it says suggests Reese might have money stashed abroad.
Napp says databases and credit reports on Reese list at least three aliases associated with his Social Security number, including that of Louis Blackwell. And, oddly, only two months after Reese left for prison, his wife took out an assumed name, Jane Fitzgerald, for herself in Dallas' "doing business as" records.
Reese says that he has never heard of the name Blackwell and that he has no idea why his wife took out an alias. Susan Reese did not return phone calls. Her husband said, "I don't think she will be talking with you."
Napp says a source in immigration in the Cayman Islands has provided her documents showing that a Louis Blackwell arrived in the Caymans for a 10-day-stay the very day after Louis Reese was released from federal custody in December 1995. Meanwhile, while Reese was in prison, a Jane Fitzgerald visited the Caymans in early 1995.
Reese calls the inferences "nonsense." "I've been [to the Caymans] once to scuba dive in the '70s or '80s. Susan's never been. I needed permission while I was on parole to travel out of the country. There were daily phone calls to check in. This is just bullshit."
Napp has another, more specific shred of evidence, however, to suggest Reese has done business with foreign banks. Among boxes of about 30,000 documents obtained from Dallas lawyer James Vetter, who is trustee of several Reese family funds, Napp found an overnight mailer receipt showing documents were sent from Vetter's office to the Anker Bank in Lausanne, Switzerland.
Dated December 1989 and found among Reese documents, the mailer says it contained correspondence and was tied to the account of "LGRIII," Reese's initials.
Asked about the mailer, Reese hesitated for a while and then said it was related to an account he opened in the '70s during his post-college wanderings.
"Right," says Homburger. "How many Swiss bank accounts did you have when you were in college?"
When the agreement to follow those vague leads and look for money abroad did not materialize last summer, Segner, the trustee, seemed ready to head for the exit. And Reese provided a powerful lure in a new reorganization plan. In the proposal, Reese's wife would come up with $900,000, out of which the trustee and his attorney would be paid $300,000 for their fees. Another $500,000 would pay Reese's criminal restitution; the remaining $100,000 would pay Reese's lawyers.
In a bankruptcy, Pronske and other lawyers explained, the trustee is paid out of the debtor's assets. If nothing is recovered, the trustee and his lawyers don't get paid. "It's not a back-room bribe, but it's a pretty nice offer," says Napp of Reese's plan, which she sees as benefiting only the trustee and Reese.
For so-called unsecured creditors such as Advantage and FDIC's old thrift debt, the plan proposes to pay them out of the sale proceeds for a piece of land in Lewisville that Reese says would net at least $2.5 million. Advantage's cut would be about $1.7 million.
Napp and Homburger say that is too little, and an empty promise anyway, because they have not seen proof that Reese actually owns the land. Reese says there are only tax liens to be settled and that the creditors will be paid.
"The only party that remains unsatisfied is Advantage," Reese says. "The entire federal system has run down leads and didn't find any of these vast holdings. The conclusion to me is clear. Advantage is so rapacious, they will not be satisfied with anything less than a pound of flesh."
The judge, who approved Reese's plan in May, is prepared to give Napp's group just what Reese wants to pay them. His ruling is subject to a rehearing, and Pronske has submitted papers saying the judge cannot impose a settlement without the approval of Reese's largest creditor, one that holds 70 percent of his debts.
Pronske, Napp, and Homburger say that if they lose that ruling, they will appeal.
On the Milan tape, Reese said he has from time to time bought back some of his old debts, paying "two cents on the dollar." "They take the money," he said, implying that he gives them no other choice. "They're not crazy. They take the money."
But Advantage says it isn't happy playing on Reese's terms, and for such low stakes.
"Reese wants to play the game out in full. So will we," says Homburger. "We have pretty deep pockets. This has gone on for a few years now, and it probably has a few more to go."
Get the Weekly Newsletter
Our weekly feature stories, movie reviews, calendar picks and more - minus the newsprint and sent directly to your inbox.
- Dallas City Council Is Very Concerned about the City's Roads and Alleys, Not Sure What...
- Dallas Sucks for Renters, Says Survey of Renters
- Dallas PD's New Right-to-Photograph Rules Are Seriously Watered Down