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."