Pirate Cove: Chapter 18

The Wall Street Journal

Here’s the thing about working with the FBI. They don’t tell you much. In fact, they only tell you what you need to know. So, if there is nothing that they feel you need to know. You don’t hear from them. At all.

This was all new to me. I thought once you handed over incriminating evidence, your part was over. I thought I may get called within a few weeks. Southport had pulled some complex transactions. Maybe I could help explain or give context.

But I got nothing. Nada. Zilch.

For someone like me, running a business is all about goals and communication. Ask Ami or Russell or anyone at the vineyard who reported to me. First rule, get everyone on board with the goals and how they get there. Second rule, communicate, communicate, communicate. Communication is everything. Businesses run better when everyone knows what everyone else is doing… and why.

As a leader, I like to give good people clear goals. Make sure they buy into them. Structure their compensation so they know that if they do this… they get that. Then I like to step back and let them do the things they can do better than me. From there, I like to listen, answer questions and solve problems. Or course I am also there to course correct if they veer off the plan.

My job is not to do their job. My job is to give them the tools which will let them do their jobs to the best of their ability. Then stand back and get out of their way.

But the FBI operates on a whole different set of principles. At least from the position I was in. So, when Elliot said, “sit tight until you hear from me.” That is exactly what I did.

Boy did that suck.

In the meantime, for Lieb Cellars and Premium Wine Group winter was coming.

Last winter, after Alex disappeared, I was able to convince Andrew Scherr to wire in $250,000. I made the same presentation to Andrew that I did to Alex on the day he got up and walked out. Andrew, who is polite to the core was more direct. You never had to worry about him frothing at the mouth and spitting at you like Alex tended to do. Andrew was polite. Slightly scary. But polite.

His answer? “Ok, but that is the last you get. No more. You need to figure this out yourself.”

This year was different. Summer 2014 was good to Lieb Cellars. And by good, I mean that from May through October we had managed not to lose money. During that same period, Premium Wine Group was very profitable. But not profitable enough to get everyone through the winter.

So, I did something some considered bold. Some considered stupid. I personally guaranteed a $2,000,000 loan using the hard assets of all the companies as collateral.

Now, I didn’t have $2,000,000. But by guaranteeing the loan, that ensured I would be the lenders best friend if the company failed. If they didn’t get $2,000,000 from the sale of the assets, then they would sue me for the balance. So, it was in my best interests to help them get the best price possible if we had to sell the assets.

Now, here I need to thank Andrew Scherr and Hugh Hill for something.

Both agreed to the loan. It is what saved Lieb Cellars. Without it, I would have had to shutter Lieb Cellars and focus 100% on Premium Wine Group. That would have been an absolute failure in my mind.

But the funny thing was, I didn’t really need Southport’s approval either. The Delaware Insurance Commissioner had taken possession of Freestone Insurance back in August. According to Duff & Phelps, Freestone had an “indirect interest” in the loans made to Premium Wine Acquisition.

On December 30, 2013, PBEV “bought” the vineyard. So, Southport then converted those loans into 92% ownership of PBEV. But that also meant the Delaware Insurance Commissioner would be coming for that stock ownership too… eventually.

I didn’t need Southport’s approval. But this was not the time to pick that fight. The vineyard and I were still in survival mode.

Andrew called it, “a ballsy move.” Hugh put it this way, “We are in the “asset protection business not the asset liquidation business.” That’s all I needed.

Now, I couldn’t go to a normal bank for this. How do you explain to a bank that you are not completely sure who owns the company that is borrowing money?

So, after weeks of smile and dial, I found a “hard money lender. “ The only thing they cared about was whether an appraisal value was double the loan value. For that lack of risk management…. they charged 12% interest. The appraisal value came in at $6,000,000 for a $2,000,000 loan.

If we were in compliance with all the terms of the loan… I was in the clear. I viewed it as an acceptable risk. Shutting down Lieb Cellars would have been disastrous for the everyone. The shareholders — whoever they were — the employees and me.

In late November 2014 we closed on a $2,000,000 loan. I could breathe.

We were going to survive. I had several years of cash cushion to fix the business. All I wanted now was for everyone at Southport to back off and let me stabilize and grow the business.

Not a chance with that though.

Shortly after the first of the year I got a phone call from Hugh Hill. Two reporters from the Wall Street Journal were asking questions about Alex. Their names were Leslie Scism and Mark Marmont.

Hugh told me in no uncertain terms that I was not to speak with them. That if they did call me, I was to refer them back to Hugh.

I was fine with that. I wanted nothing to do with the press. But I did Google them both. Then I went back and read everything they wrote over the past year or so.

The Southport story was right up their alley. Young kid. Reckless spending. Unusual transactions. Bellevue. There was so much good material here. Somehow I didn’t think this would be a one and done type of article either. This would be a series. After all, they didn’t know the half of it!

It had been nearly a year since Alex walked out of Southport. Apparently, he checked into Bellevue Psychiatric unit complaining he had a “nervous breakdown.” He was there for about a day. He then checked out and went home to his mother’s house.

What happened after that — for me — was a weird series of events.

After he left, Alex and Southport signed a separation agreement. In it they named me responsible for removing Alex’s personal effects from the vineyard house.

Within minutes of Hugh telling me about this. I received a call from Alex’s mother. I didn’t recognize the number, so I let it go into voicemail. Five minutes later. She called again. Five minutes after that she called a third time. This time I answered.

Boy… was she a human tornado. She wanted everything packed and available by the next day.

No way was that going to happen.

I was to pack up his clothes, toiletries, plates and dishes he had purchased. Kitchen items… everything. She also wanted her husband to pick up Alex’s Porsche 911 (license plate “REINSURE”). Not to mention his personal wine and cigar collection from the wine cellar in the basement.

I asked her if Alex paid for these items with his money or Southport’s. That didn’t go over well. But we agreed I would put his personal items in the Porsche. She could make arrangements to pick it up.

One thing. I found a lot of prescription drugs. Vicodin, Percocet, that kind of stuff… all from different doctors in Manhattan. What bothered me was that it wasn’t one pill jar for each type of drug. It was several pill jars of the same drug from different doctors and pharmacies. They were all full or only partially depleted. That has always bothered me.

Anyway, I refused to give up the cigars and wine collection. I said I needed proof these weren’t purchased with “ill-gotten gains.” As time went on… the cigars and wine became a bigger problem than they were worth. I had to put a combination lock on the wine cellar door to keep folks from thinking they were party favors. After all, I was the custodian of all this crap. We had inventoried everything and sent that to Southport. Anything and everything could come back to bite me. And it did.

But thank God the reporters from the Wall Street Journal never contacted me. I was sooo relieved.

On March 15, 2014 the story broke — on the front page of the Wall Street Journal. The headline blared:

Young Financier’s Insurance Empire Collapses

Investments of insurance companies owned by Southport Lane Management were swapped for unusual and sometimes worthless assets

Well, that got your attention. Thank God it was a quiet Saturday morning.

Once again. Everything changed. I gave my employees the heads up and then sat them down and told them “most” of the Southport saga. You could see the worry in their eyes.

“In moments like this” I told our managers, “You can ask me anything. I’ll give you the strait scoop.”

Well… almost everything. I wasnt close to telling them about the FBI and the criminal stuff. Not unless I had to. I hoped that would never come. But it did.

To make matters more tense, a few weeks before, those Preferred Stock shares came back to haunt me.

It started when I received the following e-mail from Rob McGraw.

On Feb 24, 2015, at 12:32 PM, Robert McGraw <rmcgraw@southportlane.com> wrote:

Richard,

I hope all is well. Below you will find a request from US Bank to re-register the holders of the PBEV Preferred Securities (issued initially circa Aug 2013 and traded by Alex circa Jan 2014). Let me know when you might have a convenient moment to discuss.

Many thanks.

Regards,

— Robert

In regards to the registrations for Solar Night/Premium Beverage certificates, we would need to have new certificates under the surviving company name indicating the appropriate owners and value as follows:

$7,750,000 — Companion-Redwood — 15, 500 shares in the name of Blue Cross Blue Shield of South Carolina

$2,250,000 — Imperial Management — 4,500 shares in the name of Imperial Management.

Upon receipt of the new certificates, we will cancel the current certificate and provide it to you for your records.

— — — — — — — — — — — — — — — — — — — — — — — -

Robert McGraw Executive Director

Yikes! Not only did they want me to reissue the Preferred Shares… they wanted me to issue them at the inflated value — the fraudulent value — of $10 million. Only problem was… they were issued for $1.2 million. No $10 million transaction ever took place! So. I ain’t signing anything stating they were worth $10 million. No way.

And where the fuck was the FBI? I had given them all the information on the Preferred shares when we met 4 months ago?!

Now what do I do?

A few days after the Wall Street Journal article came out, I was driving by my neighbor Donnies house. It was a warm late winter early spring day. Finally, I saw him outside. He was doing some cleanup yard work.

I pulled up the cul-de-sac where he lived. His daughter was with him. He saw the look on my face and asked his daughter to go inside.

“Do you have any idea was is going on with Elliot?” I asked.

“No. I am not in that loop. Why?” he responded.

“There was a front-page article in the Wall Street Journal about this. They say there may be as much as $250 million involved” I said.

“Where’s Elliot on this?” Donnie asked.

“I have not heard a word from him since our meeting at Jaimie’s”

Donnie suddenly had his business face on. He looked at me and said, “Go home. Keep your phone close. You will get a call within the next few minutes.”

Damn if he wasn’t right. About 10 minutes later my phone rings. Its Elliot.

“Can you come into our office tomorrow? Bring everything you’ve got on this.” he asks.

“Absolutely” I responded.

He gave me the time and the address. My wife looked at me and asked me if I was alright. “Yeah, I am. Just some stupid stuff at the vineyard I have to deal with.” I lied.

I am pretty sure she knew I was lying.

The FBI office in Boston is kind of a dump. It was designed by a famous architect from Harvard. The building has a post Stalin, Soviet design aesthetic. It’s butt ugly.

To get in, you go through multiple security checks, including a metal detector. You hand over your cell-phone and your drivers license. Which they keep until you are leaving. They photograph you. Then they search your briefcase or in my case a backpack.

When all that was done I was escorted into a dumpy room. There was a conference table, a white board on one wall and on the opposite wall… what must be a huge two-way mirror. It was right out of your basid TV crime drama.

Elliot and another guy — an analyst — soon came in. I give them the story again and then diagram out all the steps of the fraud as I know it on the white board. Elliot and the other guy are taking pictures of the whiteboard with their iPhones.

After answering all their questions, Elliot and the analyst begin discussing jurisdiction issues. How can the Boston office get this case?

Nothing is resolved. They tell me I can go. They will get back to me. When I walked out to my car. I was pretty pissed off. But I also know I am also well past the point of being able to do nothing. I was in. All in.

For the record. I never heard from the Boston FBI agents again.

Next: Beau Dietl and Associates.