THE FUTURE LOOKED bright for Kenneth Treadwell as the Florida spring of 1986 melted toward summer.
So it came as "a major shock," he recalls, when he was slapped in the face with an ice-cold Miranda warning, as he walked into an interview with assistant U.S. attorney Lothar Genge and four other investigators.
Not that Treadwell hadn't known this was serious business: Sunrise Savings and Loan Association-the client he had joined in 1984, leaving the West Palm Beach branch of Blank, Rome, Comisky & McCauley-had failed spectacularly, and been taken over by federal regulators in July 1985. The former top management was under investigation by a federal grand jury.
But Treadwell, who had been outside counsel during the critical events being probed, had been granted immunity and treated cordially by federal prosecutors during two prior interviews. He had consistently denied wrongdoing and saw himself as one of the good guys, cooperating with the investigation. Indeed, he had been kept on at Sunrise by the new, government-installed management to help with the salvage operation, winning high commendations. He was happily married, with three young children under 6 years old, and was a respected leader in his church and community.
All that seemed suddenly at risk on May 28, 1986, as the implications of that Miranda warning sunk in, and the interview proceeded. Genge bored in on some suspect transactions in mid-1984, when Treadwell was still a junior partner at Blank, Rome, helping Sunrise work out problem loans. For the first time, Treadwell recalls, the investigators evinced suspicions that he and more senior partners of the 190-lawyer, Philadelphia-based firm-right up to Marvin Comisky, the most senior partner of all-had facilitated fraud at Sunrise, the firm's biggest client.
These suspicions were fanned by Treadwell's inability to recall details of his discussions with senior partners about some transactions so smelly that he had balked at closing them, provoking a loud ruckus in the law firm's offices.
The interview ended with Genge exuding sarcasm and disbelief, and with the aroma of threatened indictment hanging heavy in the air.
Lothar Genge-a hard-nosed career prosecutor who says that "I came from a Wall Street firm myself, and I know how those firms operate"-had visions of nailing some big-shot Philadelphia lawyers. He saw their former junior partner Ken Treadwell as a crucial, but less than forthcoming, link in his evidentiary chain. And it was soon to become clear that Treadwell could avoid revocation of his immunity and indictment, only by admitting guilt and fingering one or more senior partners at Blank, Rome.
"He came home a different person that day," recalls his wife, Cindy Treadwell. "His world was totally shattered."
Thus began a ten-year ordeal for Treadwell and his young family, one that has nearly bankrupted them: pressured throughout 1986 to inculpate himself and senior partners at Blank, Rome; almost indicted in 1987, then spared, When Genge was overruled by career justice Department prosecutors in Washington, D.C.; almost indicted again in 1989, then spared again; indicted in 1993; and found guilty on two felony counts in January 1995, by a jury that acquitted him on 11 other counts.
Treadwell was vindicated in a September 12, 1995, opinion by the trial judge, William Hoeveler, of the U.S. district court in Miami. Portraying Treadwell as an honest and innocent victim of prosecutorial overreaching, the judge entered a judgment of acquittal. Faulting the prosecution especially for violating Treadwell's immunity agreement, Hoeveler found "respectable evidence" that this was done "in bad faith," because of Treadwell's refusal to finger Blank. Rome.
But it's not over yet: At this writing, Genge is seeking Justice Department permission to appeal.
So while Treadwell now has a thriving law practice, as a partner with the West Palm Beach firm of Lewis, Vegosen, Rosenbach & Silber-and has the time and peace of mind for things like coaching his daughter's basketball team-it's hard for him to forget that Genge is still after him.
Eleven-year-old Kimberley Treadwell "cannot remember when Daddy wasn't in trouble with the government," her mother observes.
For Ken Treadwell to be in that kind of trouble has baffled almost everyone who knows him. His honesty and decency are acclaimed with extraordinary fervency by acquaintances from childhood, college, law school, professional life, church, and community organizations.
The character testimony of Patricia Fountain, a fellow church member whom the Treadwells took into their home with her son during a temporary separation from her husband, was representative: "I think he is the most honest, law-abiding, caring person I have ever met."
To Genge, on the other hand, Treadwell is a man who lost his moral compass, a man who went along with a fraud and lied to cover it up.
But is the real liar in this case Kenneth Treadwell-or Lothar Genge?
A review of Treadwell's case, including copious documentation amassed by Irvin Nathan of Arnold & Porter, Treadwell's lawyer, reveals (in my opinion) rampant prosecutorial misconduct over a ten-year period, including numerous false and misleading statements by Genge to the court and opposing counsel, as well as crude coaching and crass intimidation of witnesses [see sidebar "A Pattern of Misconduct".
This review of the court record and interviews with key participants also provides an unusual (if cloudy) window into what happened inside a major law firm when its biggest client demanded that it close some highly irregular deals in a very big hurry in the summer of 1984. It suggests that Genge's suspicions that someone in the Blank, Rome partnership may have facilitated fraud, and that Treadwell might not be telling all he knew, were understandable, if unproven.
Still, I think that Treadwell has earned the benefit of the doubt, even in the face of some troubling evidence. Ask yourself: Did Treadwell do anything different from what you would have done, had you been in his shoes? Might you be dragged through an ordeal like his, or even end up in jail, if unlucky enough to be in the wrong place, at the wrong time, with the wrong client-and then to fall into the hands of the wrong prosecutor?
BLANK, ROME'S S&L BUSINESS
It's not hard to see why Lothar Genge and his colleagues suspected that much of the responsibility for Sunrise's failure-which cost taxpayers hundreds of millions of dollars-could be laid at the door of the aggressive, entrepreneurial law firm that by 1980 had become one of the largest in Philadelphia.
Blank, Rome was instrumental in the S&L's meteoric rise, fueled by the reckless overinvestment in commercial real estate that was endemic among S&Ls in the post-deregulation early 1980s. And after the crash, the evidence was sufficiently unflattering to persuade Blank, Rome to pay $50 million (covered by insurance) in 1990 to settle a gaggle of civil suits by stockholders and the government, charging the law firm with (among other things) urging Sunrise to make risky loans to generate fees.
One Blank, Rome partner, the high-living Michael Foxman, personally founded Sunrise in 1979, opening its first office in May 1980 in Boynton Beach, while Blank, Rome opened a branch in West Palm Beach to service its new, captive client. Another senior partner, M. Kalman Gitomer, moved to the Florida branch and became the first chairman of the Sunrise board; Foxman succeeded him. Both were major sunrise stockholders, with other Blank, Rome partners holding smaller interests.
Foxman, who was trying to create a chain of S&Ls around the country, suggested in a memo to Gitomer that the law firm should run Sunrise like a "benevolent dictatorship."
But how much control the firm had over Sunrise as of 1984, when the major fraudulent transactions occurred-and how much the lawyers knew-is hotly disputed. For by that time, Robert Jacoby, a smooth, presentable young banker whom Foxman had plucked from obscurity to be Sunrise's first president, was trying to run his own show.
Jacoby had ousted and replaced Foxman as chairman (with help from some of Foxman's partnets) in October 1983. And as Sunrise became a hot stock on Wall Street, shooting from $3 to $31 a share from 1981 to 1984, Jacoby shed his obscurity. Still in his early thirties, he told Forbes magazine in early 1984: "I'm an ego-status person. I have a pretty wife, a Jaguar, a Mercedes, a beautiful home, a yacht. I want a Ferrari, a bigger house, a bigger boat. I want an airplane, an apartment in New York."
Jacoby was described by the prosecutor at his 1989 trial as the "kingpin" of Sunrise, and as a "brazen perjurer"-which he clearly was-who had lied to the Blank, Rome lawyers. But the same prosecutor-Lothar Genge-put the same brazen perjurer on the stand five years later, at Treadwell's trial, to claim that Sunrise had been controlled by Blank, Rome, and that the lawyers had been in on the fraud.
Regardless of who controlled whom, "overnight, Sunrise became the firm's biggest client," Philadelphia Magazine reported in November 1985. "In 1984 alone... Blank, Rome billed roughly $5 million in legal fees through Sunrise, probably more than 10 percent of its total billings ... On the larger loans, the borrower had to pay the law firm a percentage for its fee. The more money Foxman loaned out of Sunrise, the more flowed into Blank, Rome ...It was all very cozy."
There was regulatory advice and litigation, but most of the legal work focused on nuts-and-bolts closings of real estate transactions. That was what Kenneth Treadwell did. Joining the big firm in early 1980, at the age of 31, he moved that December from Philadelphia to the West Palm Beach branch, becoming head of its real estate section in 1983 and making partner in early 1984.
SUNRISE VEERS INTO FRAUD
Like most of the S&Ls that crashed during the post-deregulation 1980s, Sunrise would probably have become insolvent even if there had been no fraud, because of wildly imprudent lending practices that had, by 1984, become a formula for disaster.
Sunrise moved away from traditional S&L home mortgages into the risky and speculative business of financing shopping centers and other commercial real estate. It paid high interest rates to attract federally insured deposits, and offered developers 100 percent-plus financing so that they could take out huge loans with no money down and prepaid interest.
Sunrise rode Jacoby's smooth salesmanship and Florida's land boom of the early 1980s to grow in four years from one start-up office to 14 branches around South Florida, with subsidiaries in Tallahassee and Texas, and from $4.7 million to $ 1.4 billion in assets. It was the nation's fastest-growing S&L, and one of the most profitable-at least on paper, based largely on up-front fees that borrowers paid to Sunrise out of their Sunrise loans.
The fraud of which Jacoby and other Sunrise insiders were convicted was not the kind of outright theft that occurred at some S&Ls. Indeed, it's far from clear that Jacoby or anyone else at Sunrise believed at the time that he was doing any thing criminal, or harming the institution.
The fraud had its origins in various stratagems in late 1983 to boost growth and profits by evading regulatory constraints-in particular, a civil regulation capping the amount of loans to any one borrower.
Jacoby wanted to keep pumping out loans to Sunrise's two biggest borrowers, a developer named William Frederick and his partner Thomas Moye. They had strip shopping center deals cooking all over the state, and ostentatious badges of success, including a jet, a Rolls-Royce, and a 120-foot yacht.
Blank, Rome regulatory lawyers helped Sunrise exploit loopholes in the loans-to-one-borrower regulation, such as structuring transactions to minimize Frederick's formal ownership percentage of the entries receiving the loans.
What took such apparently legal circumventions across the line into fraud by late 1983 was Sunrise's purported lending of millions of dollars to people who clearly lacked the financial means to pay back the loans, and who were acting as nominees, or stand-ins, for Frederick and Moye, while falsely signing certifications to the contrary.
Whether anyone at Blank, Rome was culpably involved in these fraudulent 1983 deals, and what Ken Treadwell knew about them, is in dispute. The evidence indicates, however, that Treadwell had no role in them: He was not a regulatory lawyer, provided no loans-to-one-borrower advice to Sunrise, and did not close any of the suspect 1983 transactions.
The fraud evolved into a cover-up in 1984, when Frederick and Moye had run into cash flow problems, and regulators started to tighten the screws.
The regulators-worried about Sunrise's having too many eggs in the Frederick-Moye basket-came to have an increasingly adversarial relationship with Sunrise during 1984. They considered a cease-and-desist order, but instead-under threat of litigation by Sunrise and Blank, Rome-negotiated a "supervisory agreement" with Sunrise in April 1984. Its restrictions included special underwriting re quirements and board approval for every loan above $500,000.
What the regulators did not know-because Sunrise concealed it-was that Frederick and Moye were in serious default on their interest payments on many of their more than $150 million in loans. By this time, disclosure of the magnitude of the problems would have taken the bloom off the Sunrise rose, and perhaps triggered a regulatory takeover. A foreclosure action against Frederick and Moye might also have brought Sunrise down-and they knew it. So the defaulting borrowers had the bank over a barrel.
Jacoby and other Sunrise executives used various gimmicks to hide both the Frederick-Moye defaults and a succession of huge overdrafts-mounting above $4 million-that Frederick and Moye wrote on their checking accounts, both for interest "payments" and for such baubles as a new yacht and a $ 1.4 million, 26-caratdiamond from Christie's
SUNRISE OFFICERS cooked the books by having Frederick submit worthless checks on out-of-state banks at the end of each month, so that the computer generated, month's-end delinquency reports would show his loans as current. The checks soon bounced, but Sunrise used other gimmicks to hide that.
WHAT TREADWELL KNEW
Ken Treadwell (the evidence shows) knew nothing about any of this until June 1984, when he learned of the Frederick-Moye overdrafts-but not the fraudulent accounting tricks-from Edward Fitzgerald, Jr., who then managed Blank, Rome's branch in West Palm Beach.
Treadwell's initial response was to tell Frederick, Moye, and Sunrise executives, at a June 12, 1984, meeting, that the overdrafts were illegal, and should be promptly paid off. This did not endear him to Frederick and Moye, who came to view him as a goody two-shoes who was always getting in their way with his legalistic nit-picking.
Treadwell's specialty was "workouts": restructuring problem loans to protect lenders like Sunrise while accommodating borrowers' cash flow problems. He suggested in a June 13, 1984, memo to Jacoby that Sunrise work out the Frederick-Moye problem by buying some of their more valuable properties, thereby generating cash to pay off their overdrafts. This was appropriate, commonsense legal advice. Or so prosecutor Genge said five years later, at jacoby's 1989 trial.
(Later still, Genge took a more sinister view, arguing that Treadwell became part of the cover-up in June 1984 by failing to report the overdrafts to the regulators or the board. But Judge Hoeveler ultimately found that as outside counsel, Treadwell had no such duty.)
Nor does it appear that Treadwell had any idea of the seriousness of the problems. He showed his confidence in Sunrise's future by agreeing informally with Jacoby, in mid-August 1984, to leave his Blank, Rome partnership (as he ended up doing on October 1) to become general counsel and executive vice-president at Sunrise
In hindsight, it seems a strange move for a successful young partner, even one with a long-standing interest in business: Treadwell was betting his career on an S&L that was awash in bad loans and overdrafts, that was heavily exposed to two sleazy borrowers whom he despised, that was coming under increasingly tough regulatory scrutiny, and that was soon to go belly-up amid a spate of prosecutions.
But hindsight is always twenty-twenty. At the time, Treadwell had been assured by Jacoby (falsely) that the overdrafts were being paid back. He didn't have to deal much with Frederick and Moye. They seemed likely to sell some shopping centers soon. And Sunrise had already begun reducing its loan exposure to them.
Indeed, at one point Jacoby joked to Treadwell that he was going to tell Frederick-who wanted Treadwell fired from Blank, Rome-that the good news was, Treadwell was leaving the firm; the bad news was, he was coming to Sunrise.
The new job would mean a salary increase from about $75,000 to about $110,000, plus perks. Jacoby was hoping to engineer a buyout of Sunrise that would benefit its top officers, including Treadwell. And, Treadwell recalls, "I had no inkling any of these people [at Sunrise] were involved in criminal actions. I had a high regard for them"
"Jacoby essentially conned Ken," Irvin Nathan, Treadwell's lawyer, was later to tell the jury, "into believing that the bank was really quite healthy, notwithstanding what the regulators were saying, and that the bank had a bright future."
Meanwhile, a bright future hardly seemed assured for the West Palm Beach branch of Blank, Rome. The most senior partner there, Kalman Gitomer, was recovering from a heart attack. The most senior active partner, Fitzgerald, was an alcoholic who would (he later testified) "come in very late, usually with a hangover. "Fitzgerald was told in mid-August 1984 by Marvin Comisky, the prominent Philadelphia trial lawyer who was the firm's managing partner, that he was being pulled back to Philadelphia. And Ian Comisky, Marvin's son- whom Fitzgerald saw as an agent of his father- seemed poised to take over the branch.
Treadwell was still in good standing at Blank, Rome. But the branch seemed on the verge of falling apart. Fitzgerald planned to start his own firm or join another, and asked Treadwell and other real estate lawyers to join him. Instead, Treadwell decided to go to Sunrise. Jacoby later testified that he had made an "aggressive pitch" for the job.
The events that led to Treadwell's indictment- more than eight years later-unfolded between late August and October 1, 1984, the date of his formal move from Blank, Rome to Sunrise.
SOME SMELLY DEALS
Treadwell took a six-day business trip to Germany with a Sunrise executive and another Blank, Rome lawyer in late August, returning very late at night on August 29.
While he was gone, Sunrise was suddenly threatened with a disaster that was apparently unknown :o anyone at Blank, Rome: The outside auditors, Deloitte, Haskins & Sells, had discovered the Frederick-Moye overdrafts, and had said they would issue a qualified financial statement on Sunrise's 1984 annual report unless the overdrafts were paid by August 31.
Jacoby and Frederick made some hasty arrangements. The plan was to have Frederick and Moye sell some pieces of land they owned to three (or four) of their associates, and take out secured loans themselves, for a total of $3.5 million. Sunrise would lend the buyers the money to pay Frederick and Moye, who would use it to pay their overdrafts.
This would have been a legal workout if the sales had been legitimate, arm's-length transactions. But there were, at the very least, serious irregularities.
The three "buyers" were handpicked by Frederick; none had even applied for loans; two of them-Virginia Valosin, a cousin and $24,000-a-year employee of Frederick, with a net worth of about $1,000, and Merle Wood, his yacht broker-did not qualify as plausible buyers; they appear to have been stand-ins for Frederick, who guaranteed all the loans; and the legal documentation was grossly deficient.
Moreover, the plan for Sunrise to make six $500,000 loans and one for $305,000 was a transparent evasion of the supervisory agreement's restrictions on loans of more than$500,000.
The transactions were to be closed at Blank, Rome's offices on August 30, 1984. Dana Scheer, a senior associate-and, ten years later, Treadwell's co-defendant-was told by partner Edward Fitzgerald to handle the closings. But Scheer had major concerns about the transactions.
"These things don't even come close to passing the smell test," says David Batlle, a Florida bank regulatory official who has worked closely with Genge. But Scheer later told the grand jury that he had been worried about possible civil law violations and malpractice liability-not criminal exposure.
On August 29 Scheer mentioned his concerns both to Jacoby and to Frederick-who blew up and demanded the phone number of the main Blank, Rome office in Philadelphia. In a memo to the file that day, Scheer stated that Jacoby had told him not to worry, and to close the loans immediately "notwithstanding having no surveys, appraisals, title commitments, utility letters, permits, opinions of counsel," and in spite of other glaring irregularities.
In subsequent grand jury testimony, Scheer said he had also been concerned that the series of $500,000 loans seemed "structured" to get around the supervisory agreement. He had gone to Fitzgerald's office and mentioned some of his concerns to him and a senior partner (Scheer was unsure which one) visiting from Philadelphia.
"They indicated to me in no uncertain terms," Scheer told the grand jury, "that if I was instructed by a senior member of Sunrise Savings and Loan, our client, to close these transactions, I was to go ahead and close them."
A BAD DAY AT THE OFFICE
But Scheer was still troubled, so he took his concerns to Treadwell the next morning, August 30.
For Treadwell-who had just come off a tiring overseas flight a few hours before, who had never met any of the buyer-borrowers now waiting in the reception area, and who was heard to say, "I am not sure what is going on here"-this turned out to be the quintessential bad day at the office.
(Neither Scheer nor Treadwell testified at their trial, and neither will discuss the facts of their cases it this stage. So this account of the day's events is cobbled together from prior statements by them and others.)
Treadwell said, "Let's see what we can do," according to Scheer's 1987 grand jury testimony. The two lawyers then met with Charles Powell, a real estate broker and small developer who was the most plausible buyer to show up that day, and the only one with whom Treadwell spoke. Powell was accompanied by one Ronald Berkovitz, a career conman soon to end up in federal prison for unrelated crimes. Treadwell said he did not understand the transactions. Powell responded that Treadwell did not need to understand, and should just close the deals.
According to Scheer's testimony, "Treadwell and I said to them, "Look, we don't have title work. We do not have surveys. We do not even know that Frederick owns some of the properties that you are buying .... And Treadwell said to Powell, 'You may want to get counsel because we represent only Sunrise in these transactions. We're not representing your interests."
Treadwell's advice would have aborted the deal if Powell had followed it. Instead, it precipitated a huge ruckus, the like of which is seldom seen in die offices of an establishment law firm.
Frederick and Moye, who were hovering nearby, exploded when they heard what Treadwell had said, and came in screaming and cursing at him for trying to "screw up" the deal. According to subsequent testimony by Berkovitz, Moye told Treadwell "that he's had enough trouble from him today and in the past and he wasn't about to take any more, and that he was tired of bailing Sunrise out of their problems, and that [Treadwell] should understand who was paying the bills."
Then the 5-foot-6-inch Moye came at the 6-foot-5-inch Treadwell and threatened him with a fistfight, saying, "The bigger they are, the harder they fall."
Scheer later painted the scene for the grand jury: "Mr. Moye had keys, as I recall, sitting in his fist that he was going to impound on Mr. Treadwell's face, and Mr. Treadwell was standing there with a clenched fist also."
The office was in an upheaval, with secretaries running about. It must have presented quite a spectacle for the three senior partners who, headed by Marvin Comisky, were down from Philadelphia that day.
"Marvin was the senior, senior, senior partner, the managing partner of Blank, Rome, which is a big law firm," Jacoby later told the grand jury. "So he had, you know, great stature and status." Jacoby said he had been meeting in a nearby office with the (then) 68-year-old Comisky about matters including Comisky's plan to replace Ed Fitzgerald as head of the branch, and Jacoby's plan to hire Treadwell. Comisky was "upset" by the uproar, and spoke to Treadwell about it, according to Jacoby.
Meanwhile, Frederick told Jacoby he wanted Treadwell fired.
Treadwell, for his part, told Fitzgerald (according to the latter's subsequent testimony) that he couldn't stand Frederick and Moye, that "he didn't understand why the loans had to be done in such immense pressure," and that he would not close them. "He was very upset," Fitzgerald added, "because he felt that [Sunrise] was putting undue pressure on us to close a loan, and that they shouldn't be able to do that, and he was being overruled."
Overruled by whom? And what would you have done in Treadwell's shoes, if some senior partner was over ruling you?
HOW THE LOANS GOT CLOSED
The witnesses' recollections are in hopeless conflict as to exactly what happened after Treadwell's near-fist-fight with Moye.
Treadwell was later to tell prosecutors that he had stormed off in disgust and refused to participate in the closings, which had been conducted by Scheer.
In subsequent interviews, he appears to have added that he had a vague recollection that he and Scheer "would have" gone to discuss the problems with Fitzgerald and one or more of the senior partners from Philadelphia-and perhaps with Sunrise's Jacoby-and that perhaps he and Scheer had been told the loans should be closed. But Treadwell could not be sure who had said what or recall other specifics.
Scheer-testifying in the grand jury under threat of indictment-had a different recollection: "Treadwell walks away from me into the back office, where I knew Marvin Comisky, the senior member of this law firm, was meeting with Rob Jacoby and perhaps Bernie [Bernard] Glassman [another senior partner from Philadelphia]...A couple hours later, Treadwell comes to me and says, 'Close the loans. I have been instructed to close the loans.'
But this account appears inconsistent with others by Scheer. For one, he told Fitzgerald on the day of the closings (according to a civil deposition by the latter in 1992) that he was ordered to close the loans by Kalman Gitomer, who had said that "if he didn't do it, he would be fired."
Fitzgerald also testified that he had advised Scheer to do as he was told rather than putting his job in jeopardy. But Fitzgerald stressed in his testimony that he had been relieved of his responsibilities by Marvin Comisky, and had only come in that day to clean out his office.
"I sort of threw up my hands to the partner from Philadelphia, either Mr. Glassman or Mr. [Richard] Rosenbleeth," Fitzgerald recalled in 1987 grand jury testimony, "and I told them, 'You guys want to run this office from Philadelphia? Here is your first opportunity. Go do it.' . .
"I think the relationship between Philadelphia and West Palm Beach at that time was so bad that I think Philadelphia, whether or not they knew all the details, decided they were going to force the settlement down the throat of Mr. Scheer and Mr. Treadwell."
But there is also evidence suggesting that perhaps it was Sunrise chairman Jacoby who gave the word to Scheer to close the loans, with no clear, direct input from anyone at Blank, Rome more senior than the recently demoted, chronically hung-over Fitzgerald himself.
In any event, that afternoon Scheer closed the three $500,000 loans to Charles Powell, two $500,000 loans to Frederick, and a $305,000 loan to Merle Wood. "I have a family to support," Scheer later told the grand jury, "and I was not going to jeopardize my job."
There is conflicting testimony on whether Treadwell attended any of the closings. Berkovitz testified that Treadwell participated in the Powell closing, along with Scheer. But the most credible evidence-including Scheer's grand jury testimony and a paralegal's trial testimony-supports Treadwell's subsequent statements to investigators that he refused to participate.
And what did the most senior partner in all of Blank, Rome have to say about all this? That's what prosecutor Genge most wanted to know, but could never pin down.
Scheer told the grand jury that he had expressed "general concerns" to Comisky, but Comisky had made no "definitive statement about the transactions." Treadwell told investigators that he might have discussed the situation with Comisky that day, and did do so that evening at dinner. But his recollections were vague, and he could not recall Comisky saying much.
The $500,000 Virginia Valosin loan closed the next day. At each closing, the borrower signed a certification that he/she was not a "nominee" for anyone else. Wood later testified that he was a Frederick nominee, and his certification was false. Powell has always insisted that his was true. Valosin testified: "I had a feeling that everything was not quite as it should be, but I had trust in Mr. Frederick."
There was another odd thing about these closings. The law firm initially prepared 36 Blank, Rome checks to disburse the proceeds from its trust account, with "Frederick Workout" in each legend. But then-apparently at the request of a Sunrise official, in what Genge calls a "cover-up"-someone scissored off the legends, along with Scheer's signatures. It's unclear who did this. There is no evidence that Treadwell-who billed Sunrise one hour that day on "refinancing of 3.5 million [dollars] in Frederick loans"-knew about it.
An identical set of Blank, Rome checks was then issued and signed by Scheer, with the names of the borrowers in the legends. These checks were used by Sunrise to pay die Frederick-Moye overdrafts, and to avert an adverse report by the outside auditors.
Did Ken Treadwell do anything on August 30, 1984, that warrants prosecution, or even criticism? That depends on whom one believes.
If you believe Scheer's grand jury testimony (which doesn't mesh with other evidence), then Treadwell relayed an order from a more senior partner to Scheer to close the deals, while washing his own hands of the matter.
That would not necessarily have been a crime. But it would have been pretty lame. And it would suggest that Treadwell's subsequent statements to prosecutors were both self-serving and highly misleading.
If you believe con man Ronald Berkovitz's trial testimony (contradicted by more credible witnesses), then Treadwell didn't wash his hands of the matter; he helped close the deals, and later lied about it.
If you believe the investigators' rough notes of Treadwell's last two interviews with Genge, then Treadwell had some discussions about the matter with senior partners, but couldn't-or wouldn't-recall which ones, or exactly what was said.
I believe that Treadwell did the best he could to extricate himself honorably from a sticky situation. But I'll never know for sure exactly what happened.
Imagine yourself in Treadwell's shoes that day. What would you have done?
ANOTHER QUICK FIX: SEAWALK
The August 30, 1984, deals provided a temporary fix for the Frederick-Moye overdrafts. But the underlying problem remained: They could not pay the rapidly accruing interest on their loans.
And soon there came another day of reckoning. Sunrise had a September 30, 1984, deadline to file a 10Q report with the Federal Home Loan Bank Board. Some $70 million of Frederick-Moye loans would have to be reported as seriously delinquent unless they could come up with about $3 million in interest.
Jacoby settled on a plan to generate a $3.5 million profit for Frederick and Moye by having Sunrise buy from them an undeveloped waterfront property called Seawalk for $13.5 million, less their $10 million mortgage (including accrued interest). Treadwell and Scheer closed the purchase on September 28, 1984.
This would have been a legitimate workout if Seawalk had been worth $13.5 million. But the price appears to have been inflated. It was unsupported by then-existing appraisals or other evidence of fair market value. And Jacoby testified at Treadwell's trial that he had been indifferent to Seawalk's value when he negotiated the price with Frederick and Moye, and that his sole objective had been to enable them to pay the overdue interest, and to meet their demand for $500,000 in extra cash to go along with the deal. A price of $13.5 million did the trick.
Whether Treadwell and Scheer knew the price was inflated was to be a central issue at their trial. There is no evidence that either was told that Seawalk was not worth $13.5 million. Nor that they knew that there was no appraisal or resale contract to justify the price. Jacoby and a subordinate apparently misled them about this-as they later (on October 3) misled the board of directors, by claiming, in Treadwell's presence, that Sunrise had had a $14.7 million appraisal and a contract to resell Seawalk for over $ 13.5 million.
What Treadwell and Scheer did know was that the deal was conceived and closed in extraordinary haste-48 hours in all-to get it on the books in time for the September 30 regulatory filing. Scheer also knew that the price was $5 million more than the $8.5 million that Frederick and Moye had paid for Seawalk in December 1983, with a $9.75 million Sunrise loan. There is no evidence that Scheer (who had handled that closing) told Treadwell this, but it seems likely.
Does this mean that Treadwell knew that Seawalk's fair market value was less than $13.5 million, as prosecutor Genge now claims, and as the jury implicitly found by convicting him (while acquitting Scheer) on the Seawalk count?
Not in Judge Hoeveler's view. As he stressed, even assuming that Treadwell knew of the $8.5 million sale price in 1983, that would not necessarily fix Seawalks fair market value in September 1984: It might have been a bargain in 1983. Or it might have appreciated rapidly. Or-as Jacoby told the board-Sunrise might have had an appraisal and a resale contract supporting the price.
In addition, as five real estate lawyers (including two prosecution witnesses) testified at Treadwell's trial, it is not the job of a lawyer closing a real estate purchase to look at appraisals or second-guess the client on fair market value.
Indeed, during the Jacoby prosecution in 1988 and 1989, prosecutor Genge stressed that no Blank, Rome lawyer had played a culpable role in the Seawalk deal. Spurning Jacoby's efforts to shift responsibility to the lawyers for what he had done, Genge said that the lawyers had merely "prepared the closing documents, your typical closing," after Jacoby had set the price.
"The attorneys of Blank, Rome had nothing to do with that, with fixing the price or anything like that," Genge told Judge Hoeveler at a November 1, 1988, pre-trial hearing. "I can tell you that again, no evidence, no papers, no nothing to suggest that the attorneys had anything to do with establishing the purchase price of Seawalk, and that's the criminal [violation]."
That was then. But Genge was later to claim that Treadwell had knowingly played an "integral part" in setting the inflated Seawalk price.
This was, as Judge Hoeveler later found in throwing out Treadwell's conviction on Seawalk, "a diametrically opposed version ... [an] about-face by the prosecution [that] offends basic notions of fairness."
Genge responded, in a motion for reconsideration, that the judge had "mistakenly" taken his 1988 and 1989 statements out of context, and that "the government's fundamental theory with respect to Treadwell's complicity in Seawalk has always remained the same." He did not reconcile this with his prior statements that Treadwell had no complicity in fraud involving Seawalk.
Genge's motion also stressed that during the Jacoby prosecution he had referred to Treadwell and Scheer as coconspirators with Jacoby-neglecting to mention that he had done so with reference to the transactions of August 30, 1984, not the Seawalk purchase.
Finally, Genge's motion stressed that after Jacoby had been convicted and become a cooperating witness in 1992, he had "provided the government with a much more detailed view of the very active role of Treadwell at Sunrise in the Seawalk transaction." Genge said that this Jacoby information, combined with the 1986 grand jury testimony of another Sunrise official, Lonnie Merrill, had clinched the case against Treadwell on Seawalk.
But as Judge Hoeveler found, the Jacoby-Merrill testimony against Treadwell on Seawalk was logically unpersuasive-although it apparently persuaded the jury-even if believed.
And as Nathan has claimed, their testimony is not worthy of belief. It gives off a strong whiff of concoction, both because of the way their stories initially emerged under leading questions by Genge, and because of the important new touches that both witnesses added at Treadwell's trial-ten years after the fact-in the wake of long hours of pre-trial prep sessions with Genge [see sidebar "A Yellow Piece of Paper"].
While the evidence supports Treadwell's innocence of any crime in the Seawalk transaction, another question lingers: Wouldn't a careful lawyer have smelled a problem, and raised some questions?
Or was Treadwell entitled to assume that his client and soon-to-be boss Jacoby-whom nobody at the time thought of as a crook-was doing an honest deal, and that the still-outside counsel's job was to do the client's bidding and get the paperwork in order?
Again, what would you have done? Go to Jacoby and make an extraordinary request to see a copy of any Seawalk appraisals and resale contract? Or what?
On October 1, 1984, three days after the Seawalk closing, Treadwell left his Blank, Rome partnership to go in-house at Sunrise.
His relationship with the law firm remained close. Scheer told the grand jury that Marvin Comisky had said that "Treadwell was still the guy I was to answer to," and should be treated as though he were still a Blank, Rome partner.
By all accounts, once at Sunrise, Treadwell did his best to work out the S&L's bad loans. He has never been accused of any fraudulent activity after he went in-house. But with hundreds of bad loans, the S&L was too far gone to be saved from insolvency by Treadwell or anyone else.
With things sliding rapidly downhill, the regulators pushed out Jacoby and his top managers by May 1985. They took over completely on July 18, 1995, declaring Sunrise insolvent and its stock worthless, and putting it into receivership.
By that time, Blank, Rome and then-partners Foxman and Gitomer had been named as defendants in shareholder suits filed in U.S. district court in Philadelphia. Other Blank, Rome partners and former partners, including Treadwell, were later to be named as well, and in a civil suit by the government.
The new management quickly fired Blank, Rome. Ken Treadwell, however, was kept on at Sunrise for more than a year after Jacoby's removal, winning glowing reviews from T.E. Salb, the new president installed by the regulators.
Gary Woodfield, a former federal prosecutor whom Treadwell hired in mid-1985 to handle the investigations and other litigation at the new Sunrise, later swore that Treadwell had told him to cooperate completely with all state and federal investigations.
"I knew him to be an honest, straightforward person of the highest integrity," Woodfield said in a 1994 affidavit. "I am not aware of a single instance in which he was less than candid with anyone [or] dissembled or told anything less than the full truth. I know that this was also his reputation throughout the institution and in his community."
A BREACH OF CONTRACT
Meanwhile, a federal grand jury investigation was gearing up in early 1985, spearheaded by Lothar Genge, a veteran prosecutor known for doggedly pursuing tough targets and for playing hardball in amassing an impressive record of convictions in some big cases [see sidebar "White Knight? Or Bull in a China Shop?"].
Genge's grand jury investigation focused initially on Jacoby and other former Sunrise officers, not the Blank, Rome lawyers. The prosecutor first interviewed Treadwell on May 16, 1985, along with another Sunrise official, Joseph Taber, promising them that they were not targets and would have use immunity as long as they were truthful and forthcoming with investigators.
The immunity agreement, later put in writing, specified that the government could revoke its promise, and use Treadwell's statements against him, if he violated his part of the deal by lying or "knowingly and willfully" failing to disclose material information "sought by" the government.
The dispute over whether Treadwell violated this agreement-or (as Judge Hoeveler was ultimately to rule) the government did-is complicated by a problem of the prosecution's own making:
Genge and his cohorts did not make a detailed record of any of their four interviews with Treadwell in 1985 and 1986. Their rough, handwritten notes, and the only FBI report of any of the interviews that was ever typed up, are woefully incomplete, fragmentary, and unreliable, containing major, now-admitted inaccuracies, and few (if any) verbatim quotations.
Asked why the interviews were not tape-recorded, Genge says simply, "We don't do that."
Nor can much stock be put in Genge's (or his cohorts') recollections of the interviews in his testimony about them, which came some eight years after the fact and were unsupported by the investigators' notes on key points. Some of Genge's claims about his dealings with Treadwell and his two lawyers at the time (Rebekah Poston and Theodore Klein) are refuted by his investigators' rough notes, or by the lawyers' testimony-which, unlike Genge's, is corroborated by contemporaneous memoranda.
So it is impossible to determine with any confidence exactly what Treadwell was asked, and what he answered, at any of the interviews. This account reconstructs key aspects of Treadwell's four interviews with Genge based on the best available evidence.
The initial May 16, 1985, joint interview of Treadwell and Sunrise official Joseph Taber was general and preliminary. But Genge's subsequent claim that "nothing was discussed" of substance is contradicted by the investigators' rough notes.
At the outset of the three-hour interview, Treadwell disclosed through his counsel that he had committed one arguable impropriety: accepting a $2,500 gratuity (which Genge calls a "kickback") from a Sunrise borrower for closing a 1983 loan in which he represented both Sunrise and the borrower.
Treadwell explained the roles of Blank, Rome senior partners Foxman and Gitomer in creating Sunrise and installing Jacoby, and as stockholders. The interview also touched on various transactions at Sunrise that might warrant investigation, including some involving Frederick and Moye.
Treadwell returned on July 23, 1985, for a more detailed, eight-hour interview with Genge and two other investigators. As Judge Hoeveler later found, Treadwell provided the investigators with a wealth of valuable information, which they subsequently used. (The new Sunrise management had waived the attorney-client privilege.) He explained the Frederick and Moye overdrafts, Jacoby's role in them, names of potential witnesses, and much more-including the August 30, 1984, transactions.
Treadwell indicated that these transactions seemed structured to funnel money to cover Frederick's delinquent interest and overdrafts, and seemed designed to circumvent the supervisory agreement's restrictions on loans of more than $500,000. He said that he had been concerned that they were not documented properly.
Treadwell also described his advice to Powell to get his own counsel, and his near-fistfight with Moye. He said his recollection was unclear on what he did afterwards, except that he had walked away and refused to close the transactions, that Scheer had closed them, and that Treadwell did not know exactly who had made the final decision but that he certainly did not stop them from being closed.
("When Lothar asked him about the criminal transactions, what we should be looking at, he stayed away from August 30," says bank regulator Batlle, who was at the interview. And Genge has so testified. But Genge's own contemporaneous notes suggest that Treadwell brought up that days transactions as an instance of possible "acts of dishonesty" known to Jacoby.)
On Seawalk, in response to a very general question as to what he knew, Treadwell said this had been a temporary quarterly fix to get Frederick's loans current before the September 30, 1984, regulatory report. There were no follow-up questions.
At the end of this July 1985 interview, Genge signed Treadwell's immunity agreement. Still, he testified eight years later, he had felt that Treadwell's account "was, what should I say, disappointing. It certainly wasn't helpful." Genge claimed he had been particularly frustrated not to learn more about how it was decided that Dana Scheer would close the August 30, 1984, loans.
Genge testified that his experience-including two years at a Wall Street firm in the 1960s-had taught him that at "a major firm with a major client, such as we had here, where transactions were of such a critical nature, both to the client and to the financial well-being of the firm ... a junior associate like Mr. Scheer would not have taken it upon himself." (Actually, Scheer was a senior associate.)
It was supposedly for misleading investigators and withholding information during this interview-and, in particular, for denying personal culpability in the August 30 and Seawalk transactions-that the prosecution later revoked Treadwell's immunity.
But Genge has never proved that anything Treadwell said that day was false or deceptive. Indeed, Judge Hoeveler later observed: "The court is struck by how Treadwell's statements at the July 23, 1985, interview foreshadow and conform to the evidence presented at trial nine years later."
For example, Genge has faulted Treadwell for failing to disclose that he had played an "integral part" in setting "a phony price for Seawalk." Complains Genge: "I anticipated that he would be completely forthcoming. ... He should have told us that Seawalk stunk to high heaven. ... I will bet you my last dollar that Ken knew exactly what went on in Seawalk." But as is noted above, the evidence suggests that Treadwell had no role in setting the price and did not know that it was inflated.
It's true, as Genge has complained, that Treadwell did not detail whatever conversations about the August 30 transactions he had had with others at Blank, Rome. But the investigators' rough notes give no indication that Treadwell was asked specifically about this, or was asked any kind of follow-up questions, except that Genge asked him to search his memory-before the next interview-as to what had happened after his near-fistfight with Moye.
Batlle adds that Treadwell should have mentioned Marvin Comisky's presence in the West Palm Beach branch on August 30, 1984, because "that would have erected a ninety-foot lightning rod over these transactions." Treadwell's lawyer, Nathan, has responded that there was no reason for Treadwell even to think about Marvin Comisky-because he had no role in the transactions-let alone offer him up to criminal investigators as a possible suspect.
But let's suppose that Treadwell was thinking, as he fielded Genge's questions that day, about his discussions with more senior partners on August 30, 1984. Suppose that he was wondering whether Genge would ask about this. Suppose that (as the evidence suggests) the question never came up. Suppose that he then decided not to volunteer anything that might-unjustifiably, in his view-put senior Blank, Rome partners on Genge's list of prospective targets.
Supposing all that, what would most lawyers have done, had they been in his place?
Such speculations aside, the legal issue turns on whether Treadwell lied or "knowingly and willfully" failed to disclose information "sought by" the government. As Judge Hoeveler later found: "The trial record supports Treadwell's contention that his cooperation was complete and truthful and that he did not withhold any information from the government. ... There was no reason why Treadwell should have gone farther than he did."
THE PRICE OF IMMUNITY
More than ten months went by before Genge interviewed Treadwell about these events again. Meantime, Genge says, he came to suspect that Treadwell had not told the whole truth, especially after talking to some other witnesses. He has cited especially his February 1986 interview with Ronald Berkovitz, the career con man who had accompanied Charles Powell on August 30, 1984.
Berkovitz had by then been convicted of bank fraud, forgery, and interstate transportation of stolen securities, and was seeking early release from federal prison (and other benefits) by offering Genge his own version of the events of August 30, 1984.
This initial Berkovitz account did not contradict Treadwell on any specifics, or place him in any of the closings. But unlike Treadwell, and unlike Powell-who has always said he thought the transactions were legitimate deals, on which he had hoped to make a profit-Berkovitz did characterize the transactions as obvious shams, and said that everyone knew it, including Treadwell and Scheer. " 'These lawyers were involved,' " Genge later recalled being told by Berkovitz. " 'I am prepared to testify.' " Berkovitz later got what he wanted from Genge (who later still falsely denied this in court): letters seeking a reduction of his sentence.
It was not until May 28, 1986, that Genge reinterviewed Treadwell to confront him with his doubts, starting with the Miranda warning. The investigators pressed Treadwell for the first time for details of the Seawalk purchase, and of any discussions he may have had with more senior Blank, Rome partners about the August 30, 1984, transactions. According to Genge's subsequent testimony, his assumption was that Treadwell had not been "the majordomo" but "sort of [a] midlevel operative at Blank, Rome who went along with these transactions."
Treadwell told them again that his memory was not clear on what had happened after his near-fist-fight with Moye, except that Scheer had ended up closing the loans, and Treadwell had not participated. He added some speculations that he and Scheer "would have told" senior Blank, Rome partners Fitzgerald, Glassman, and/or Marvin Comisky about the situation, and that one of them may have decided to proceed with the closings.
Genge, pressing for more, suggested: "You would get [a] promotion-[be a] team player" by going along with the deals, according to one agent's notes.
But Treadwell did not give Genge what he wanted. He insisted that he had been told the deals were legitimate, while acknowledging that the deficient documentation might suggest otherwise. The interview ended on a hostile note, with the prosecutors suggesting that Treadwell had known more than he admitted about the August 30 deals and the Seawalk purchase. Gary Woodfield, the Sunrise lawyer and former prosecutor who had accompanied Treadwell that day, felt that they had been "ambushed," he later testified.
"I knew that my life had changed," Treadwell recalls. "I just didn't have any idea how significantly it would change."
In the ensuing days, according to contemporaneous memos by Treadwell's two then-counsel, Genge told them that he thought Treadwell was covering up for some people and that to avoid indictment he would have to implicate "higher-ups" at Blank, Rome, and admit culpability so he would be a credible witness.
"It was apparent to me," recalls Treadwell, "that what I had to do, if I wanted to be restored, was to say, yes, this was a major crime, that the lawyers all knew about it, and they participated in it, and that Marvin Comisky knew all about it... The shift could have been to any one of the three of Marvin Comisky, Kal Gitomer, or Mike Foxman."
Treadwell adds: "I don't think I could have lived with myself if I had gone in and provided them with testimony about those individuals that I knew wasn't truthful. But as a result of that, I-you know, you go back and you rack your brain, and you focus for hours trying to ... resurrect ... the events of one hour ... almost two years prior to that date, after ... a very tiring flight, coming in very late at night."
Bank regulator Batlle has a different interpretation: "Treadwell really was a very small part of this whole thing. Ninety percent of the case was the law firm of Blank, Rome .... When Ken was dealing with us, he was between a rock and a hard spot. 'Do I play with these guys and roll on the managing partner of Blank, Rome? Or do I stay with the money and power?' I mean, what would you do?"
Batlle adds: "In the long run, he made the decision that was best for Ken, because he can still practice law." Similarly, another official says that Treadwell-with Blank, Rome covering most of his legal fees-decided to "snowball [the prosecutors] and protect the people who can help [him] in the long run."
Genge gave Treadwell one last chance to take himself off the hook, by reinterviewing him on June 20, 1986.
This time Treadwell recalled something new about August 30, 1984: Before the transactions were closed, he had been worried about possible legal exposure for the lawyers-worried enough to confer over lunch with Ian Comisky (Marvin's son), a former federal prosecutor. Ian was eating a tuna fish sandwich. He looked in some kind of law book, Treadwell recalled, and said he could find no basis for criminal liability.
This prompted Genge immediately to designate Ian Comisky as a target. Making a large extrapolation from what Treadwell actually said, the prosecutor claimed he had fingered Ian Comisky as having personally approved the transactions.
"I don't think [Treadwell] meant to implicate Ian as the person who gave the order," notes Batlle. "I think he underestimated what would happen by him bringing Ian into the picture."
But Ian Comisky then produced documentary evidence that he had not been in Florida at all that day. When this was presented to Treadwell, he retracted his account, said he must have been mistaken, and apologized.
This episode may be the most troubling one in the whole drama for those who (like me) see Treadwell as an innocent victim of prosecutorial overreaching.
Had he simply made up a phony story to shift the prosecutors' focus from himself to an innocent man?
This last interview with Genge came when Treadwell's spirits were at their lowest point. He had lost his job at Sunrise because of his new status as a target. He was unemployable as a lawyer. And, he recalls, he was despondent "about the loss of work, the inability to support his family, three very young children, the stigma of a criminal investigation, and what that meant."
It seems likely that he had cracked under pressure, crossed wires in his mind, and mistakenly transferred to August 30, 1984, some other conversation over a tuna fish sandwich, on some other day.
Genge had a more sinister view, perhaps understandably.
After "Treadwell's false accusations against Ian Comisky," Genge wrote in one brief, "Treadwell had given so many different versions of the facts that he could no longer be viewed as a credible witness against anyone."
But Genge did not put anything in writing to that effect at the time. And the prosecutors were still ready to deal months later, if Treadwell would provide incriminating testimony against his former senior partner.
At a November 1986 meeting, Genge and his boss, Robert Lehner, told Theodore Klein and Rebekah Poston, then Treadwell's lawyers, that they planned to seek Justice Department permission to include Treadwell (and Dana Scheer) in a broad indictment along with former Sunrise insiders. But one of the prosecutors added that some kind of deal might still be possible:
"You bring us Marvin Comisky,' " Klein testified to having been told, " 'and then we will be able to talk.' "
TREADWELL GETS A NEW LAWYER
Unemployed and with time on his hands, Treadwell spent several months starting in the fall of 1986 working on getting a loan for a new building for St. Peter's United Methodist Church, in which the Treadwells are active members. Meanwhile, the Treadwells were living off savings and severance pay, and a little consulting work, and worrying about the mounting costs of his defense.
By late 1986 Treadwell's legal situation was desperate, and it looked like his only hope was to go over Genge's head to the Justice Department in Washington. It was then that Treadwell found Irvin Nathan of Arnold & Porter, an uncommonly skilled white-collar specialist who had the right background for that sort of thing, having been deputy assistant attorney general of the criminal division during the Carter administration.
Thus began an unusually protracted, and unusually warm, attorney-client relationship. "I can't tell you enough about Iry and what he's done for me," says Treadwell. "I've got some sense of what it's like with a major law firm. I know what he's done over the years in terms of just the quality of the representation, the staff that he's thrown on this job, in terms of seeing him night and day during the trial ... and the battles that I know he's had to fight from time to time with his partners about, you know, 'How are you continuing to stay in this case, gotta get paid more,' and his sense about the case, and how unfairly I was treated over all these years."
Nathan was not an unmixed blessing. After recalling his three "worst moments"-the Mirandawarning, the indictment, and the jury's verdict-Treadwell chuckles, and adds (with Nathan sitting in):
"I just thought of my fourth worst moment. After the indictment, the night Iry called and said, 'This is what the fees are going to be to represent you ... and we need to get this resolved before I appear at your arraignment, which is next Tuesday.' "
(While Blank, Rome has paid a substantial portion of Treadwell's fees, Treadwell has paid a substantial portion himself, according to Nathan, who declines to discuss amounts.)
Nathan met with Genge and other investigators on January 6, 1987, in a last-ditch effort to dissuade them from seeking an indictment. It was to become-by mid-1993, at least-an extraordinarily hostile relationship.
Nathan asked the prosecutors to give Treadwell a polygraph test. They refused. He asked them to specify the precise basis for their claim that Treadwell had breached the immunity agreement. They refused.
But because Genge and his colleagues were then assigned to the Justice Department's organized crime strike force in Miami, the proposed indictment had to be approved in Washington. That gave Nathan, as well as the lawyers for the other targets, a chance to make a full-dress appeal inside the Justice Department.
Contending that Treadwell was innocent, and was protected by his immunity agreement, Nathan argued his case both in writing and orally, with Genge in attendance, to the career prosecutors in charge of the Organized Crime and Racketeering Section.
It later turned out that Nathan had had an ally he had not known about: The FBI, following the lead of Anthony Yanketis, the agent assigned to the investigation, had opposed Genge's effort to revoke Tread-well's immunity.
The Justice Department finally rejected the proposed indictment of Treadwell (as well as of Scheer) in late January 1987, and the case went forward in February against former Sunrise executives Robert Jacoby, Thomas Skubal, and William Frame, along with borrower-developers Frederick and Moye.
A FALSE SENSE OF SECURITY
When he got the good news from Nathan, Tread well recalls, he felt "great euphoria . . . that this was behind me." He came to understand later that "there might be further inquiries" depending on the outcome of the Jacoby trial. But for now, he could "get my life back in order," and resume his career and his civic work.
Treadwell put some feelers out to law firms, ending up at the West Palm Beach firm of Lewis, Vegosen, Rosenbach & Silber. He started there in the spring of 1987, and has been there ever since-through a campaign of news leaks by prosecution sources, near-indictment, indictment, trial, conviction, and vindication.
"It's been a real tribute to the partners," he says. "I was fortunate that I found a firm that was willing to take those risks." Because of his legal problems, he notes, at times the firm has had to wall him off from certain cases or clients. And at times clients have dropped him.
Meanwhile, the Sunrise case marched on. Genge and his colleagues cut a sweetheart deal in November 1988 with the sleaziest operators in the whole drama, Frederick and Moye, to secure their testimony against Jacoby and other Sunrise insiders. Frederick and Moye spent less than six months in jail, and Frederick paid a $25,000 fine.
Jacoby went on trial, along with former Sunrise executives Thomas Skubal and William Frame, in May 1989. (Frame had a heart attack in mid-trial, was severed from the case, and was later tried with Treadwell and Scheer.) Genge was the lead prosecu tor. He depicted Jacoby as the "kingpin" of the fraud, and a "brazen perjurer," and deprecated Jacoby's ef forts to shift blame to the lawyers, whose advice Genge commended in some respects. Jacoby and Skubal were convicted in late June 1989 on 15 and five felony counts, respectively.
With the five-year statute of limitations about to expire on the events of August 1984, Genge once again sought Justice Department permission to indict Treadwell and Scheer-and, this time, the Blank, Rome firm as an entity.
Once again, Nathan (and other defense counsel) appealed to Genge's superiors. Once again, the career prosecutors in Washington blocked Genge's proposed indictment.
When Nathan reported this, Treadwell recalls, "I circled that date on the calendar"-August 28, 1989-"and wrote the word 'freedom' next to it. . . . That was when I truly felt this was behind me. It was over. I would never have to deal with this again."
And the Treadwells got on with their lives. Aside from his busy law practice, Treadwell coached his kids' soccer, basketball, and baseball teams, and dove into church activities and civic work. By 1992 he was chairman of his church's administrative board, chairman of Palms West Hospital's board of trustees, director of the Palms West Chamber of Commerce, and more.
This was not just a matter of billing hours and amassing titles. This is a man who inspired an outpouring of supportive letters to Judge Hoeveler after the jury's verdict against him. For example, Nancy Hykel, a lawyer who was then a senior vice-president of Trammell Crow Company, wrote:
"In May of 1992, my husband Paul Hykel passed away suddenly of a heart attack at the age of 44. At the time, I had two small children ages 2 and three months. In my darkest hour, it was Ken Treadwell who provided an unfailingly constant and immutable stream of light and who, through his profound religious beliefs, guided me through an apocalyptic crisis into coherency and on to steady ground."
GENGE COMES OUT OF THE BATHTUB
But it was not over. Something else had happened in Washington that summer of 1989: On August 9 Congress had passed the Financial Institutions Reform, Recovery and Enforcement Act. Among other things, it extended the statute of limitations for S&L crimes to ten years.
And Genge wasn't giving up. Nathan likens the prosecutor's persistence to that of the Glenn Close character in the movie Fatal Attraction, who obsessively stalks the Michael Douglas character and his family-and who, after seeming at long last to have expired in their bathtub, eerily emerges with knife in hand for one last attack.
Genge had some allies among Florida banking regulators, who thought that the Blank, Rome lawyers were getting away with fraud, and lobbied the U.S. attorney in Miami to revive the case. Meanwhile, news leaks kept the issue alive in the press.
Genge made his move after the Jacoby and Skubal convictions were upheld by the U.S. Court of Appeals for the Eleventh Circuit on March 25, 1992. That's when the two men faced going to prison to serve their sentences-and were most in need of help from the same prosecutor who had put them there.
Genge immunized Jacoby and put him in front of a grand jury on June 5, 1992. The prosecutor claims he never spoke to Jacoby before this testimony. But Jacoby didn't have to be a genius to figure out what kind of testimony would be most likely to shorten his sentence. And that's the kind he gave, including an account of some allegedly fraudulent deals engineered by senior Blank, Rome partner Michael Fox-man in 1982, as well as the Frederick-Moye deals.
On the August 30, 1984, transactions, Jacoby said that senior partner Kalman Gitomer "was promoting it." While noting that "Ken Treadwell was less involved" and "wasn't really around" while the transactions were being planned, Jacoby suggested that maybe Treadwell had consulted with Marvin Comisky after his near-fistfight with Moye.
"It's kind of a scene," testified Jacoby. "I-or Marvin-said [to Treadwell], 'Well, I'll talk to you about it.' And Marvin and Ken eventually went away and did whatever they did." Jacoby added that he himself and Comisky might have continued their own meeting after the Treadwell-Moye incident.
Jacoby suggested that at some point, Comiskywhom he described as "the kind of guy . . . who does his finger-pointing and yelling in private," not in front of a client or a crowd-"went and talked to Ken's people. Now I'm told that, you know, they were directed to be closed by Marvin, and/or the rest of the members of the firm."
'Now I'm told": an interesting choice of words, coming more than seven years after the event being described. Who had told him?
Jacoby added: "I personally believe that [Dana Scheer] was directed by either Marvin or-probably Marvin or Blank, Rome to close the damn things and keep his mouth shut." And who told Jacoby that?
On the Seawalk transaction, Jacoby stressed: "I'm certain the law firm up to the highest level, the law firm knew exactly what we were doing." More generally, Jacoby said that Blank, Rome "controlled the board" of Sunrise.
Later, with Genge's assent, Judge Hoeveler cut Jacoby's five-year sentence in half in light of his cooperation.
With the help of Jacoby, and some from his codefendant, Skubal, Genge finally got his indictment of Treadwell and Scheer-and Foxman and Gitomer too--in early 1993, on his third try. This time, the review in Washington was more deferential, because the organized crime strike forces (which were centrally controlled from Washington) had been disbanded in 1990, and Genge was now assigned to the Fort Lauderdale outpost of the U.S. attorney's office in Miami.
Justice did reject Genge's proposal to include Marvin Comisky, and the law firm as an entity, in the indictment. But Genge soon named them as unindicted coconspirators.
Aside from the emotional devastation, the indictment had a heavy impact on Treadwell's law practice, forced him to resign some of his civic leadership positions, and forced Cindy Treadwell out of her home and into the job market.
The Treadwells had paid their legal fees before 1993 with savings, borrowing on life insurance, and loans from family members. But after the indictment, Cindy had to support the family while Ken spent much of his time fighting in court. She got a job in public health nursing-in which she had a master's degree-and now runs an AIDS clinic.
Nathan moved to dismiss Treadwell's indictment for violation by the government of his immunity agreement, and Judge Hoeveler held a 17-day evidentiary hearing in the summer of 1993. Nathan put Genge on the stand, grilled him mercilessly, and rubbed his nose in a succession of false and misleading statements Genge had made (unintentionally, Genge claimed) in the course of the prosecution.
Toward the end, Treadwell recalls, while he was standing at the lone urinal in the courthouse men's room, and Genge was similarly occupied in the stall behind him, he was stunned to hear Genge say: "Tell Iry the offer is still open."
Treadwell and Nathan took that to mean that even at that late date, in Nathan's words, "if he implicated higher-ups at Blank, Rome, he could walk."
It took Judge Hoeveler a full year to rule on Tread-well's motion to dismiss. (In the interim, Nathan temporarily left the case for a brief, high-level stint in the Clinton Justice Department.) Finally, in July 1994, the judge held that while it was a close question, it appeared "at this juncture, at least," that it was probably Treadwell, not the prosecution, that had been breached by the immunity agreement. He would let the case go to trial, and revisit the issue later if necessary.
TRIAL BY MISCONDUCT
Before the three-month trial got under way in October 1994, Judge Hoeveler severed former Blank, Rome senior partners Michael Foxman and Kalman Gitomer from the case for reasons including prejudicial pre-indictment delay in Foxman's case, and ill health in Gitomer's case. (Although both cases are still open, neither seems likely to go to trial).
That left Treadwell, Scheer, and Frame, the former Sunrise official, to face a trial ten years after the fact, when many witnesses had little or no independent recollection of the events in controversy, and some potentially important defense witnesses had died.
The trial was infected by prosecutorial misconduct from the start. In his October 1984 opening statement to the jury, for example, Genge suggested that Treadwell and Blank, Rome had been desperate to cover up Sunrise's problems to avoid the demise of "a $5 million client." This was (the judge later found) "in direct contravention of the court's admonition" two days before not to mention how much Sunrise had paid Blank, Rome in fees.
(Genge claimed his "$5 million client" line was "not intentional." Nathan's response: "Hogwash. This was deliberate, and its impact could not be erased.")
Genge also told the jury, falsely, twice, that Tread-well had begun as in-house counsel and vice-president at Sunrise before the allegedly criminal transactions on August 30 and in late September of 1994. In fact, he was still outside counsel, and a partner at Blank, Rome, until October 1.
(Genge has argued in court papers that this was only "technically inaccurate," because in his view Treadwell was acting as "de facto" in-house counsel at Sunrise by late August 1984.)
Genge also used guilt-by-association tactics from his opening statement on, repeatedly describing "Blank, Rome attorneys" doing sinister-sounding things-like lobbying big shots in Washington to call off the regulators-in which none of the defendants had any role.
The defendants were also prejudiced by Judge Hoeveler's decision to let Genge try the case on the theory that some allegedly fraudulent 1982 transactions engineered by former Blank, Rome partner (and Sunrise founder) Michael Foxman-which did not involve the defendants on trial-and the 1984 events involving Frederick and Moye were all part of one big conspiracy, run by Blank, Rome, to misapply Sunrise funds.
The judge later found that Genge had not delivered on his assurance that the evidence would "link up" the two sets of transactions as parts of a single conspiracy, and had used the earlier transactions "to prejudice these defendants by tainting them with crimes in which they played no role."
The prosecution case featured slimeball, immunized witnesses with incentives to please prosecutor Genge, like Lonnie Merrill, a former Sunrise official who had pled guilty shortly before the trial to exposing himself to an undercover officer in a public rest room at a zoo. And like Ronald Berkovitz, the career con man who had boasted to the grand jury that "my reputation over the years has been closely associated with organized crime."
And like Jacoby, the "brazen perjurer," who had gotten out of prison early for telling the grand jury what Genge wanted to hear, who was still on probation and thus dependent on Genge's good will-and who, he later reported, was told by Genge during his eight days of trial testimony: "I know you are going to come through for us," because otherwise, an FBI agent "is going to put the cuffs on you and you are going to be out of there in 45 seconds" [see sidebar "A Pattern of Misconduct").
Jacoby's 1994 trial testimony against Treadwellafter he had been prepared for some 20 hours by Genge-was far more damaging than his 1992 grand jury testimony. In particular, Jacoby testified for the first time that Treadwell had personally given him the data that Jacoby had used in setting the $13.5 million purchase price for Seawalk [see sidebar "A Yellow Piece of Paper"].
A MAN OF CHARACTER
Treadwell's essential defense was that he had raised problems with the August 30, 1984, transactions-not closed them; that he had not set the Sea-walk price or known that it was inflated; and that in seeking to work out the Frederick-Moye problem loans, he thought he was "applying the Heimlich maneuver to the bank, not mugging it," as Nathan put it.
None of the defendants took the stand. But Nathan put on some exceptionally glowing testimony about Treadwell, by five character witnesses.
The testimony of Reverend Douglas Kirk, former pastor of the Treadwells' church, was typical:
"Ken was and is a very, very respected member of that church. . . . Has been sought out for counsel, personal counsel for individuals. Has been sought out for any number of leadership positions.... He is of a handful of people in that congregation who have the very highest regard. . . . The reputation for being a straight shooter. For telling it like it is.... He, I believe, has the finest ethical, moral standards, period, and I know a lot of folks. I consider myself a good judge of behavior. I know a lot of lawyers, and I would not say that of all lawyers, by any means."
Even the prosecution witnesses concurred, on cross-examination by Nathan, that Treadwell was a person of integrity. Take Robert Jacoby:
Q. Did you believe that he was a person of high ethical standards?
Q. Has he ever misrepresented any facts to you? A. Not that I am aware of, no.
Q. And do you know him to misrepresent facts to anybody else?
A. I am not aware of it.
By the end of the trial, Judge Hoeveler had expressed "deep reservations" about the case against Treadwell. He dismissed five counts charging him with complicity in the allegedly false certifications, signed by the borrowers in the August 30, 1984, transactions, that they were not "nominees" for someone else.
But the judge said he would let the rest of the case against Treadwell go to the jury-including charges of conspiracy and misapplying Sunrise funds in the August 30 and Seawalk transactions-so that the prosecution would have a chance to appeal any adverse post-trial rulings.
Judge Hoeveler gave defense lawyers what they wanted in jury instructions, however, telling the jury that the prosecution must prove that the defendants acted with actual knowledge that they were involved in fraud, and refusing Genge's request for a "conscious avoidance" instruction.
The case went to the jury in late December 1994. The eight days of deliberations, over three weeks, were raucous-with laughter and shouting audible to people outside. The verdicts, on January 18, 1995, bore the earmarks of compromise.
Treadwell was acquitted on 11 substantive counts, including all those relating to the August 30, 1994, transactions, and found guilty on only one: helping to misapply Sunrise funds in the $13.5 million Sea-walk purchase. Apparently on the basis of the Sea-walk evidence, he was also found guilty of conspiring to misapply Sunrise funds.
Scheer was convicted on five counts, mostly for the August 30, 1984, transactions that he had closed. He was acquitted on Seawalk. Frame was convicted on nine counts.
Mixed with a "sense of hopelessness" after the verdicts, Treadwell recalls now, was faith "that somehow the Lord would take care of me."
In the ensuing months, Cindy Tread-well told the children that they might have to sell their house, but would manage somehow. By early June, she recalls, "I had come to peace with the fact that Ken was going to go to jail."
But meanwhile, Nathan and the lawyers for Scheer and Frame had filed post-trial motions attacking the verdicts and alleging a wide range of prosecutorial misconduct.
The judge had taken these motions under advisement. But at the very end of a June 5 hearing-at which the defense had presented compelling proof that Genge had told Jacoby that he would be sent back to prison if he did not "come through" in his testimony-Hoeveler dropped a bombshell: He had decided to grant Treadwelfs motions for judgment of acquittal and dismissal of the indictment.
"I outjumped Irv," recalls Treadwell, who is almost a foot taller than his lawyer. "I think he got up to about my belt buckle.',
Judge Hoeveler laid out the basis for his ruling on September 12, in a 55-page opinion.
In entering judgment of acquittal, he held that "no reasonable jury could or should have" convicted Treadwell on the Sea-walk count, because it was "clear [that] Treadwell did not participate in fixing the price," and there was no persuasive evidence that he "was aware of the fair market value of Seawalk" or had done anything wrong. He overturned the conspiracy conviction because it was "clear that [it] was based solely upon" the Seawalk transaction.
And in dismissing the indictment because of the prosecution's violation of Treadwell's immunity agreement, the judge held that his cooperation with prosecutors had been "complete and truthful," and that there had been prosecutorial overreaching [see sidebar "A Pattern of Misconduct"].
Judge Hoeveler upheld the Frame and Scheer convictions, however, saying that "there was ample evidence to convict them" on some counts, and that the prosecutorial misconduct at trial was not sufficiently pervasive or prejudicial to warrant voiding their convictions. Scheer is appealing; Frame has since died.
So," Genge reflects unhappily, "we end up with the low man on 1984, but did so because he had a family to feed, and he was afraid of getting fired.
This after Genge had shot for the moon, seeking to prosecute Blank, Rome as an entity and its top partner, Marvin Comisky; after he had gotten indictments of two senior partners (Michael Foxman and Kalman Gitomer) who will probably never go to trial; after he had won jury verdicts against former junior partner Treadwell (on two of 13 counts).
The prosecution filed a motion to reconsider Judge Hoeveler's decision. He denied it.
At this writing, Genge is seeking permission from the Justice Department to appeal Judge Hoeveler's rulings for Treadwell. If he gets permission, the case-and the Treadwell family's or-deal-will go on for years more, perhaps many years.
"I think it's pathetic that they can't let it die, that they can't take their loss and go," Cindy Treadwell says. "But I think if someone were to tell me tomorrow that it was over, I don't think I'd feel safe. Somehow it could come back. It always has."