I continued working at my law firm, sometimes on cases requiring investigation that helped hone my skills, but they were relatively straightforward and kept me close to home. But soon enough, three cases came along that took me beyond Washington for weeks at a time. The first was a case requiring good old-fashioned shoe leather—and in this case, I mean that quite literally.
In June 1975, I received a phone call from David Mugar, whom I had met through a friend now working in the Boston Police Department. David was the son of a prominent Armenian-American businessman in Boston who had founded the Star Market grocery chain and owned several other properties.
From the outside, Mugar’s Boston office looked like many of the red-brick buildings that dotted the New England city. But inside, it looked as though it had been designed for the next century. The modern office had all kinds of gadgets, and David seemed to use every single one of them. Certainly, his office proved that he was unique. He also was generous, thoughtful, and smart.
When we sat down, David told me he wanted to branch out into television; he wanted to own one of Boston’s network affiliates. He had his eye on Channel 7, which was owned by RKO General, a subsidiary of General Tire and Rubber Company. The Ohio-based company had purchased RKO Radio Pictures from, of all people, Howard Hughes in 1955.
In Mugar’s view, Channel 7 was airing pretty dull programming and failing to produce intelligent, challenging entertainment. Unfortunately the station wasn’t for sale, but it was time for it to seek renewal of its license with the Federal Communications Commission. The Mugars filed a bid with the FCC to challenge reissuance of the license.
The Mugar family claimed that they should be given precedence over RKO for the license because they would broadcast higher-quality programming, which was in the greater public interest. It was a weak argument, and they knew it. As a general rule, the FCC did not strip licenses away from one company because their programming was inferior. One guy’s Masterpiece Theatre is another person’s Jerry Springer Show. Not surprisingly, the commissioners denied the Mugar challenge.
Mugar’s lawyer had advised that the only way the family had a chance to win the station was to find something “blockbuster” about RKO or its parent company that would change the commissioners’ minds. I had no idea how to approach this, but figured that there might be something significant hidden in RKO or General Tire’s operations. No one expected me to have much luck, but David really wanted me to try. The Mugar family did not make a fortune in America by giving up whenever they encountered an obstacle.
Clearly, the case required more than good lawyering. It required another critical quality for an investigative firm: good instincts. The first thing I did was pull together all the business records and reports I could find on RKO and General Tire and Rubber. We assembled annual stock reports and SEC filings, but there wasn’t likely to be anything in them that was sufficiently dramatic. Additionally, I searched on microfilm for news about the companies and their executives and employees. This was a painstaking process too—you never know what small, seemingly insignificant thing may have a big impact.
I came across an article that mentioned two midlevel General Tire and Rubber executives, Howard Swires and Bob Curtis, who had retired to a small city in Mexico called Morelia. That piqued my curiosity. For one thing, the men seemed too young for retirement. Also, I wondered why two midlevel executives would choose a location so far from home. Retiring to Mexico may be more common for American executives today, but it was unusual in the 1970s. On nothing more than curiosity and Mugar family funding, I decided it would be worth a trip to Mexico to see what these guys might have to offer.
I hired Scott Armstrong, my former Watergate investigator, to accompany me. Scott was good at getting information out of people. When I called David to let him know I was following a hunch to Mexico, he decided to come too. I had one of my investigators call General Tire and Rubber asking how to contact Swires and Curtis in Mexico for a delivery. We got a phone number, and the day before we were scheduled to fly out, I called the number and asked for Howard Swires by name. When he came to the phone, I asked if he was going to be home the next day.
“What’s this about?” he asked suspiciously.
“I have a package for you,” I said. “I’d like to deliver it tomorrow if you will be home.” I did have a package for him, though certainly not what Swires expected. All I could give him were documents related to my client’s bid. But Swires seemed interested enough in this mysterious package, and gave me his address.
I had no idea how this trip would turn out. It could have been the proverbial wild-goose chase. But I figured that at the very least, they could tell us something about General Tire’s internal operations.
When we arrived at the address in Morelia, we found a compound surrounded by barbed wire, with a Mexican police officer standing outside. It looked like these guys were in hiding. We gave the officer twenty dollars, and he opened the gate.*
• • •
Having satisfied the guard, we walked to the door and knocked. The casually dressed middle-aged man who answered looked like he could be one of the executives we sought. Another fellow came to the door behind him. I made introductions and explained the real purpose of our visit—that we were looking for information that might help Mugar’s bid for an RKO TV station in Boston. RKO meant little to them, even if they knew it was a subsidiary of General Tire and Rubber. They had no interest in RKO’s success or failure and no reason to be defensive on its behalf.
It soon became obvious they didn’t get many visitors. I could see they were desperate to talk to other Americans. They were cooped up in the middle of nowhere with nothing to do, completely bored. What I was telling them was the first mildly interesting thing that had happened to them in who knows how long. They invited us to come inside.
“We’ll either kill you or we’ll talk to you,” one of them said. I decided to take that as a joke.
Howard Swires and Bob Curtis had come to Morelia with their wives, who didn’t seem any more content than their husbands were. The men had occupied many days drinking and playing poker. I figured the only way to engage with them was to go where they were. So I asked them to deal us in.
Scott, David, and I spent two days hanging out with Howard and Bob in Morelia. They seemed happy to have us as long as we wanted to stay. They took us to their club for lunch, where we sat outside overlooking the city, then we returned to their compound for more poker and drinking. They poured drink after drink. Eventually I started pouring the drinks. I’d pour them glasses of beer or tequila and tried to avoid drinking much myself. We talked football, politics, movies, anything and everything for hours on end. And then they started to talk about what we had traveled two thousand miles to find out.
Swires and Curtis had been middle managers at General Tire and Rubber, so they didn’t care about the people at the top. It’s not surprising that middle managers sometimes harbor grievances against higher ups—especially when they believe themselves to be smarter and more competent. Many are confident they would have been better leaders than their bosses if only they’d gotten the right breaks. I sensed our guys had been forced to retire and were pretty pissed about that. If they loosened up enough, they might reveal something “blockbuster” that we could use.
They described all sorts of schemes they had hatched for General Tire and Rubber. They bragged about padding expense reports for trips they took. They told us they’d had to flee Chile after the company’s trendy whitewall tires turned out to be frauds. After heavy rain, white paint washed from the tires, leaving telltale pools on the streets. The tires weren’t actually whitewall at all, but only painted to look that way. They had been paid by the company to relocate to Mexico, and in effect to disappear.
I was pleased when they opened up to us, but I didn’t dare to make any obvious effort to take notes. They threatened to kill us more than once. They seemed to get a charge out of saying it, and although I strongly doubted they meant it, I didn’t want to antagonize them. And I figured note-taking would make them more guarded. But Armstrong was wearing shoes with white soles. In a stroke of spontaneous brilliance, he discreetly started jotting names and shorthand notes on the bottoms of his shoes with his foot rested casually on his knee. When we returned to the hotel we quickly wrote up more complete notes from our recollections, jogged by what Scott had written on his shoes.
Whenever I had the chance, I painted a picture of the Mugar family as an example of American entrepreneurial success—decent, hardworking immigrants who really wanted to improve their community. Since they couldn’t get control of a TV station on the merits of their intentions, I suggested they needed a “bombshell” of derogatory information about the license holder. Swires and Curtis listened intently and, eventually, sympathetically.
When I thought the time was right, I asked, “You guys have any thoughts?”
They looked at each other and smiled. In fact, they did have some thoughts. Boy, did they ever.
They told us about a secret bank account in Akron, Ohio, where the company was headquartered. It had accumulated money from skimming profits from General Tire and Rubber, including a company in Chile, which is where they had worked. They had closed that account to open a new one in Liechtenstein, used as a political slush fund.
“Why did you need those accounts? What’s the money in those accounts for?” I asked, trying to skirt a line between uninterested and too interested.
“For bribes,” they said. When I heard that word, I knew our trip to Mexico had been worthwhile.
“Bribes?” I asked.
The men told us that money in the accounts was used to pay off foreign government officials all over the world to obtain contracts for General Tire and Rubber, in violation of the Foreign Corrupt Practices Act. They spoke about this knowledgeably, even finishing each other’s sentences. I had no reason to doubt their veracity.
They also said that the chairman of the company, M. G. O’Neil, had a safe in his office at the company headquarters in Akron that contained cash for senior executives to contribute to Republican political candidates.
Jackpot.
Our two new friends identified people who they said could support their allegations, and gave us hundreds of pages of documents. Perhaps they had been waiting for an opportunity to pay back the company that had taken away their pensions. But they weren’t going to sign affidavits themselves or testify under oath. Telling these facts was as far as they were willing to go.
Armed with this information, we left Mexico as soon as possible. The Mugars’ impossible dream might just be possible after all.
As we checked out the information we’d been given and followed various leads, it became clear that what we’d learned in Mexico was true. David and I flew to Frankfurt to talk to someone involved in the General Tire and Rubber schemes and got him to sign an affidavit. We then learned of the bank account in Liechtenstein from which $160,000 had gone to bribe officials in Chile, Morocco, and Romania. The bribes were used to block competitors, such as Goodyear Tires, from getting government contracts. We traced money to government officials in Morocco: the secretary of state for finances, the minister of commerce, the minister of tourism, and a number of others.
But time was running out. The FCC was in the process of finalizing the decision on the Boston license, and we were still scrambling to assemble all the information we had discovered. Thinking quickly, the Mugar family’s lawyer and I did some research into the backgrounds of the FCC commissioners. We managed to find a very attenuated connection between one of the commissioners and the law firm representing RKO. We decided to file a request asking the FCC to decide whether this connection was a conflict of interest. Since the commission had to consider the merits of our allegation before making a decision about the license challenge, the delay gave us more time to amass our evidence. I remember telling RKO’s senior lawyer about this request at his office on Christmas Eve.
When the FCC hearing began in December, we had given Mugar’s communications lawyer more than enough evidence—six hundred pages of documents—to support accusations of fraud and bribery on the part of General Tire and Rubber. He argued that evidence of the parent company’s moral turpitude was so great that RKO should not be allowed to maintain its license. General Tire simply denied the allegations. But we sent a copy of our submission to the Securities and Exchange Commission too, which opened its own investigation. The SEC required General Tire and Rubber to conduct an internal investigation, which corroborated the claims we had made. The SEC determined that the company had violated several U.S. criminal statutes, including bribery, financial fraud, and perjury.
Ultimately, the FCC found that the company lacked the requisite moral character to have the radio and television licenses. After appeals that went all the way to the Supreme Court, the case finally concluded, seven years after our visit to the retired executives in Mexico. Denied the licenses, RKO went out of business as a broadcaster and sold its thirteen radio and television stations, one of which the Mugar family had waited so long to obtain. At midnight on May 21, 1982, RKO signed off its Boston station for the last time. David Mugar was now the owner of Channel 7. It was a huge victory, a landmark case, and a great boon to my investigative career. Obtaining a network-affiliated television station in a major market for simply the cost of its physical assets was an extraordinary accomplishment.
For me, the Mugar case demonstrated that investigative skills were needed on business cases as much as they were needed for political ones. Instead of resigning myself to becoming yet another typical attorney, I began to wonder how I might apply my skills to other matters.
• • •
When I was in Mississippi working on civil rights cases in the sixties, I once drove a white woman to testify in a grand jury in Biloxi. I was struck by something she said about racial conflict. “Wait till this gets up north,” she said. She believed the South would solve racial problems before the North did—because the North had racial inequities that hadn’t yet risen to the surface. I encountered proof of her prediction in the city of Boston, the cradle of the American Revolution.
In 1963, the local NAACP demanded that the Boston School Committee recognize the de facto segregation of Boston’s public schools. Thirteen of its schools were at least 90 percent black, although the city’s black population was small. The independently elected school committee refused, and its chairperson, Louise Day Hicks, became an enormously popular politician among Boston’s large Irish-American population. In 1965, she led opposition to desegregation of Boston schools that had been mandated by the state legislature to achieve racial integration. In 1967, Hicks lost narrowly to Kevin White in her bid to be mayor, but controversy over school desegregation continued to haunt Boston for several more years, bedeviling Mayor White’s efforts to revitalize the city. In 1974, when busing of students was mandated to balance the racial demographics, widespread violence erupted, especially in South Boston’s Irish-American enclave.
Boston was troubled by racial tension. Minority citizens perceived hostility from city officials, and the city was under court decree to desegregate public housing and revise hiring policies, particularly in the police and fire departments, whose forces were almost entirely white. Mayor White was getting flak from the NAACP for the mistreatment of blacks in formerly all-white housing projects in South Boston—and the seeming indifference to the matter by the Boston police. “Southie” was notorious for anti-black sentiments and resistance to integration. The few minorities who dared to move into the housing projects were harassed, threatened, and sometimes assaulted by their white neighbors.
Knowing of my experience in the South in the 1960s, Mayor White hired me to come to Boston to look into the situation and see what actions I might suggest for his administration to ease racial tensions. There was resistance to this idea internally. Bureaucrats, especially in the police department and housing authority, didn’t like outsiders coming in to scrutinize their work and offer direction. But I liked and respected Mayor White a lot, and wanted to help him as much as I could. He was an energetic, optimistic, blunt, and charming guy. At one point, when I put forward a controversial plan to address racial violence in a housing project, the mayor was supportive—to a point. “If things get screwed up,” he said, “I’m going to go out on the steps of city hall and announce I hired an a—hole for a lawyer.” I laughed, but I didn’t doubt it.
Racial tension in parts of Boston was in some ways worse than in the Deep South, where blacks and whites had lived together forever, however unequally. One of my first assignments for the city of Boston was to investigate the shooting of a young black man by three white youths in 1979. The now paralyzed victim, Darryl Williams, was a football player, and the white boys who shot him claimed they had been on the roof of a housing project aiming at pigeons. I doubted that was true. Boston public schools had been integrated four years earlier with enormous conflict, and tensions were still running high. I did what the Boston police should have done. I went up to the project’s roof and checked out the angle the boys would have had in relation to the football field below. It appeared to me that the shooting could not have been an accident. I told the police that I didn’t believe the white boys and that we had to reconstruct the scene. I also asked to examine the victim’s clothing to determine the angle of the bullets’ penetration. The police blithely replied that they’d already destroyed the relevant evidence. Eventually, two of the three boys pleaded guilty to assault and battery with a deadly weapon and each were sentenced to ten years in a state correctional facility.
The police were of equally little use in protecting minorities who integrated the housing projects. They were going to do little more than what was required to enforce desegregation. We had to devise more unorthodox approaches.
One case involved the harassment of minority tenants at various projects. At the Mary Ellen McCormack housing project in South Boston, for example, I was put in charge of helping a Hispanic woman move into an apartment. Tensions among whites, blacks, and Hispanics were so intense that the woman was a target of demonstrations, threats, and outright violence. In order to help her survive, I had police put bulletproof glass in her apartment windows. We installed a panic button connected to the police department. Officers were stationed in a squad car near her residence twenty-four hours a day.
On the day of the move, flyers were distributed on car windows in the neighborhood calling for a rally against her. Fearing a violent confrontation, I urged the police to move her in ahead of schedule. The officers refused. “We have batons if there’s a problem,” one told me. Finally I moved her in with my own people. The woman didn’t stay for long. After her car was burned, she moved out.
I also remember a housing project in East Boston where the tenants being harassed by white gangs were reluctant to talk with investigators. For understandable reasons, they distrusted the police, city officials, and most strangers. So I came up with the idea of having some of my investigators move into the projects for several weeks. I hoped that, as neighbors, they would earn the tenants’ trust and encourage them to talk. Eventually this worked. We learned the names of the white neighbors who were causing trouble and making threats. But the witnesses were reluctant to say anything publicly. They were afraid the police would not protect them from retribution, and I feared their concern was justified.
I turned to a sympathetic federal judge and asked him to examine the statements of an anonymous list of witnesses. I asked the judge to have the police escort the white residents named in the anonymous complaint into his courtroom, almost as if they were under arrest. The judge confronted the tenants and informed them of the law and the consequence of any further harassment of black tenants. That scared the hell out of them and made a big difference. I heard of no more complaints of racial threats or violence in those buildings.
• • •
In 1976, I received a call from Monroe Price, a friend I’d first met in Washington in the 1960s. He was a brilliant and creative lawyer who had set up a legal services program in the Navajo Nation while I was at the Office of Economic Opportunity. He was now teaching at UCLA Law School and still deeply involved with Native American issues.
When Price called me, he was working with a native group in Alaska. He brought me onto a case that not only consumed every ounce of energy I had for seven months, it also changed my life. In fact, the idea for the company that became Investigative Group International originated on the frozen tundra of Alaska, thanks to a good-natured troublemaker.
Price was working with the Cook Inlet Region, Incorporated, one of the twelve regional native corporations created in 1971 by the Alaska Native Claims Settlement Act. Though initially poor, Cook Inlet was becoming a major corporation whose shareholders, members of a group of native tribes, benefit from its landholdings and financial success.
In 1974, construction began on the Trans-Alaska Pipeline, which when completed would transmit oil eight hundred miles across the state, from Prudhoe Bay to the port at Valdez, much of it across native Alaskans’ land. Before construction could begin, complicated land exchanges between federal, state, and tribal lands had to occur to ensure fairness for the native corporations. Monroe introduced me to the Cook Inlet group to help them with an internal legal matter. It was reasonably straightforward work, but it led to a much more significant and complex case.
Alyeska, a consortium of eight major oil companies—including BP, ExxonMobil, ConocoPhillips, and Unocal—was authorized to build the pipeline. In order to oversee the massive project, the state legislature created the Alaska Pipeline Commission. The commission was specifically responsible for regulating construction, safety, and protection of the fragile environment.
The commission came to me with a serious problem. After the 1973 oil shortage sharply increased oil prices, oil exploration in Prudhoe Bay was fast-tracked. The original budget for the project ballooned—from an $800 million estimate in 1969 to $8 billion in 1976, by which time construction had begun and I came onto the case. This rate seemed incredible—a 1,000 percent increase. And costs would have a major impact on the citizens of Alaska. Through a complicated formula, costs of constructing, maintaining, and operating the pipeline would be deducted from the portion of annual oil revenue owed to the state of Alaska. In other words, if the $8 billion figure withstood scrutiny, the Alaskans risked losing a fortune.
The state legislature had no reason to know how much it should cost to build a pipeline. Most of the Alaska legislators were earnest libertarians more interested in passing laws to legalize marijuana than in micromanaging such a complex project. The pipeline commission had access to Alyeska’s proposed budget, but they lacked the resources and expertise to second-guess the oil companies’ projections. They had deferred to Alyeska until they began to fathom the astronomical costs, and began to wonder if the oil companies were bilking the host state. The oil companies tried to defend the cost estimate and dissuade criticism by claiming that the pipeline was “the most expensive privately financed project in the history of the world.” The commission asked me to investigate. My task was to see whether that boast was a point of embarrassment or pride.
The Alaska Pipeline case is an interesting study in how corporations often take advantage of circumstances—in this case, an oil shortage—to shortcut careful planning and cost consciousness in order to reap profit as quickly as possible. Without adequate planning, greed and hubris ruled the day.
Our charge from the commission was to go over all the major costs associated with the pipeline’s construction and identify areas in which money was imprudently spent. Our findings would be reported to the Alaska Pipeline Commission, who would then turn it over to the Federal Energy Regulatory Commission, the Washington agency responsible for determining the formula for allocating revenue to the oil companies and to the state of Alaska. If we could document cost overruns, the state would get more revenue from the pipeline. We had about six months to conduct an initial investigation and draft a report, with a budget of around $100,000.
There was no doubt that the Alaska pipeline was a feat of engineering. It was the largest ever constructed in the United States—measuring four feet in diameter. It spans eight hundred miles of Alaskan wilderness and carries two million barrels each day to Valdez. From Valdez, oil is then loaded onto ships and sent down to the lower forty-eight states. The pipeline crosses mountains, valleys, and one of the most active earthquake faults in the world. In addition, it is built over Alaska permafrost. The permafrost posed unique challenges because steps had to be taken in the construction to ensure that the heat of the oil pumping through the 48-inch-diameter pipeline would not melt the ground beneath it, crack the pipeline by shifting its supports, and cause an environmental catastrophe.
I didn’t know anything about oil pipelines at the time. I also didn’t know much about Alaska, how business was conducted there, the unique weather conditions, or its unusual culture. That would change over the course of the investigation. I flew from Washington to Alaska and back on dozens of occasions, coming home jet-lagged to a busy family. In Anchorage, I fell into a routine: I would check into a hotel, prepare questions for depositions, and then travel, usually in small aircraft, all over the state for interviews. The entire southeast coast of Alaska, including the state capital of Juneau, is landlocked between the sea and a mountain range. As a result, flight is a common mode of transportation. And everybody seemed to like flying in Alaska, including a number of pilots who probably should have stayed on the ground. One of the first times I landed at the Anchorage airport, I noticed wrecked planes off the runway, which was not terribly encouraging. Some weeks later, as I was in a taxi headed to the airport, the driver told me he’d just dropped off a passenger who was drunk and about to pilot a transport plane filled with livestock. The next morning the Anchorage Daily News reported that a plane had crashed on takeoff, scattering animals all over the tarmac.
Everything I heard about the quirkiness of the state rang true in my experience. I remember reading an article about an Alaskan who had sailed or windsurfed from Little Diomede Island in Alaska to Russia, where he was arrested by Russian border guards. On one of my first trips when I was staying at the Captain Cook hotel, I was awakened by a loud noise. The next day I learned that a Teamster had blown up his wife’s car in the parking lot.
While assembling my team, I encountered some very unusual and interesting people. One of the smartest lawyers was Jeff “Mad Dog” Lowenfels, who had moved to Alaska from New York City after he had been mugged and shot in the head in Central Park. After recovering, he didn’t like being in crowded cities. He was incredibly smart and competent with a great sense of humor. Once, while in court, the judge asked why he had a toothbrush in his breast pocket. He replied that he expected the judge to be perturbed by the oil companies’ lack of compliance and that someone might have to spend the night in jail.
I found an Alaskan to serve as our forensic accountant. He was a graduate of Dartmouth’s business school who had taken to the Alaskan frontier with the zeal of a convert. He lived in a cabin about twenty miles outside of town, beyond the end of the road. The cabin had neither electricity nor a telephone line. We had to call him on the bush radio whenever we needed him in town. He would go to the railroad track with his two Siberian husky dogs to flag down the train, which was required to stop for such passengers. When he came into the office, he brought the two dogs, who would lie on the floor all day. On one occasion, he contacted us and said he wasn’t coming in because he was in the process of moving his entire cabin. He had seen a snowshoe print in the vicinity, which had apparently ruined his sense of isolation.
I worked with Terry Bird and Vince Marella, former assistant U.S. attorneys with a practice in Los Angeles. I hired them to head up the Anchorage office. We worked closely with Alaska’s attorney general, Will Condon, who had grown up in Yellowstone National Park and had been in my class at Exeter Academy.
Back in Washington, my law firm, Wald, Harkrader, and Ross, wasn’t equipped for the extensive investigative work required in this case. In addition to analyzing thousands of documents, we needed to interview people in Alaska and across the country who could tell us about various aspects of construction. The firm’s lawyers could have learned how to do this, but they had their own cases, and they would have been costly. They billed by the hour, which meant that time spent going to and around Alaska and interviewing various pipeline workers would quickly add up. I needed people like those I’d worked with at the Justice Department and on the Watergate Committee—investigators first and foremost who knew how to ascertain people’s credibility, who had good instincts and knew how to develop leads. They had been paid on salary, not by the hour. So I found people who could be good investigators and brought them into the case—former FBI agents and lawyers, for example. Some were journalists; several were recent law school graduates who loaded information from oil companies, contractors, etc., into computers (then fairly primitive). Marc Lackritz and his wife, who had both worked with me during the Watergate investigation, had come to Wald, Harkrader, and Ross with me to work on the case.
With teams in place in D.C. and Anchorage, we began to piece together the facts. Alyeska oversaw the pipeline subcontractors through a web of committees and subcommittees. Making things more complicated, the pipeline was divided into five different geographical sections, each managed by a different set of contractors. An audit during the planning stage had already revealed early problems with inventory organization, architectural plans, and general management. Consultants who’d been brought on board to address those problems had made a number of suggestions to improve efficiencies, most of which were ignored. The audit also suggested hiring one outfit to oversee the whole project, and even recommended a particular company: Bechtel. The giant engineering and construction firm had built the Hoover Dam and had done pipeline projects all over the world. They had a sterling reputation.
Still, it was three years before Bechtel was finally hired in October of 1973, with construction set to begin the following April. Six months later, the Alyeska’s owners’ committee abruptly demoted Bechtel. When I began the investigation, I figured that Bechtel people might be good sources of information.
At the very beginning, I recommended that the Alaska Pipeline Commission issue subpoenas to Alyeska and all the oil companies, contractors, and subcontractors for any and all documents relevant to the construction of the pipeline. I wanted those documents locked down fast. The Pipeline Commission had no jurisdiction outside Alaska, and I was afraid that if documents left the state we’d never be able to get them.
I met personally with the CEO of Alyeska, an arrogant oil executive named E. L. Patton, to deliver the news. He wasn’t happy. Not surprisingly, the oil companies blew off the subpoenas. On my strong recommendation, Attorney General Condon filed suit on the commission’s behalf to ask a state court to order compliance with the subpoenas. The judge agreed. This was a major step for us. It sent the message that we weren’t going to be rolled over and had the full weight of the state government behind us.
With the subpoena secured, the very next day I took my team en masse to the headquarters of the Alyeska Pipeline Service Company in Anchorage. I wanted to demonstrate that we had the resources and the will to complete our task. I told them to read every document they came across and to copy anything at all that reflected sizable expenses. We walked out of those offices with boxes of material and a number of leads for interviews.
One of the most obvious places to look for incriminating information was with the people at Bechtel. Ex-employees are always gold to an investigator, most especially those who had been terminated. Their demotion from the project had been embarrassing and left bad feelings all around. Bechtel executives told us they had wanted more time to plan the project, but found themselves under intense pressure from the oil companies, who wanted the pipeline operating as soon as possible. Their relationship quickly deteriorated, which Bechtel attributed to the oil companies’ micromanagement. They cited continual reworking of the construction plans because of “constantly changing criteria,” lack of expertise shown in creating plans, and lack of timely decisions. The oil companies had created a huge bureaucracy where decisions had to be vetted and approved. Delays and confusion proved almost inevitable. The construction had begun without a cost estimate in place and without any kind of inventory system.
What happened over the next two years in the construction of the pipeline was a stunning example of financial mismanagement. Alyeska farmed out the construction projects to various contractors. They avoided doing necessary studies of the unique conditions in Alaska. As a result, they were unprepared for Alaska’s challenges. Because of the harsh temperatures and shifting permafrost holding up the pipeline, it was prone to splitting and cracking. To fix the cracks, they used a tape called Royston, which didn’t work at all. When, two and a half years later, it finally was decided to stop using that tape, one of the executives working with the oil companies tried to destroy all evidence of its use. Unfortunately for them, they didn’t destroy everything. A memo we obtained through the subpoena included the following: “It might be well to destroy this report so there will be nothing in your files that indicated any expected trouble with Royston tape.”
In addition to speaking with Bechtel employees and others still working on the project, we identified various outside experts and people with other pipeline experience. At one point I flew up to Calgary, where the Canadians were building a pipeline of their own. There was near unanimity that one of the biggest mistakes the Alaska pipeline folks made was beginning construction in March, still winter in Alaska. Dealing with terrible Arctic weather and setting up camps for workers was enormously expensive and—it doesn’t take an expert to know—dangerous. But the oil companies’ interest was in getting the project completed as fast as possible, costs be damned. The Alaskan taxpayer would eventually take the hit for the costs once the oil began flowing.
The Canadians also told us that one of the most crucial aspects to building a long pipeline was to adopt a “conveyor belt” approach. Efficiency could be maximized if all the tools, equipment, parts, and support staff were stored at the warehouse near the point of construction and moved along the route at the rate of construction. That way, they could avoid delays and regain all the lost time and energy spent on looking for tools and parts. That was not at all how the Alaska pipeline was working. Most pipeline workers didn’t even know what was in the warehouse closest to them. Without any inventory control, construction brigades couldn’t find the tools they needed. So when a contractor needed something desperately, he would charter a large plane to pick up equipment and bring it to the working site—if they could figure out where the equipment was being stored. This often meant buying parts at unreasonably high prices because they needed them quickly and paying more to have them flown in.
Sometimes the tools that were missing in the winter would be found where they were supposed to be when the snow melted in the summer. Lack of effective management meant that the workers were being paid without having work assignments.
The workers brought their own laundry list of problems. They were unionized by the Teamsters. The Teamsters also unionized the Alaska police force, which undoubtedly added to the difficulties for the oil companies in dealing with the pipeline workers, since they’d be the ones who would have to break up strikes or involve themselves with slowdowns. When the pipeline began, the union promised not to strike at any point in exchange for premium wages, which were 25 to 30 percent higher than normal wages in the lower forty-eight. So what the Teamsters did instead was to practice slowdowns and work stoppages based on the slightest pretext. We documented workers sitting in buses or sleeping on the job for excuses that ranged from lack of driving directions to bad weather to inadequate equipment or materials to poor scheduling. In all, we counted at least fifteen work stoppages and hundreds of slowdowns.
Without adequate planning or oversight, the management had brought this nightmare on itself. But they didn’t seem to worry about cost overruns. We found numerous examples, through reports and memos, of workers receiving paychecks for far more money than they were entitled. There was man-hour abuse on every single crew. Time card abuse overall, by our calculations, totaled 2.5 million man-hours and nearly $85 million. One pipeline worker was paid for working twenty-four hours a day for twenty-seven consecutive days. The screening of personnel also had problems, especially when it came to welders. To ensure the safety of the pipeline, the welders were required to X-ray a sealed pipeline section at various points to make sure that everything had been welded shut. The contractors had found a novel shortcut around this regulation by taking one X-ray and copying it, passing it off as X-rays of other sections that they never checked.
Greed undoubtedly played its part in the rush to construct the pipeline, regardless of considerations of safety and efficiency. Yes, the corporations cut corners to get oil pumping quickly to generate revenue quickly. But it was also in their interests to make sure the pipeline functioned properly. In their defense, building a pipeline across eight hundred miles of the most unforgiving terrain in the world was a massive challenge, and one that would inevitably entail cost overruns. They were undertaking a difficult enterprise with a rule book that didn’t take into account the terrain and climate, no real supervision, and a whole host of problems they should have foreseen. The oil companies knew what they needed to be doing, had the time to prepare for it, and yet did little to do so. The corporate people at headquarters had no idea how to run an efficient pipeline operation, and didn’t bother to find out.
Many people tend to extol the business world for their ruthless efficiency in turning profits. Maybe there’s truth to that. But not always. In this case, these major companies, some of the biggest and most profitable in the world, proved just as bad at running a bureaucracy as the federal government ever was. The oil companies had few incentives to make sure that they were being cost-effective. The state of Alaska was not blameless in the situation either, which the legislators recognized. Their regulators were “fish and feathers” guys who cared more about the wildlife and landscape than about cost overruns. As a result, the oil companies were left to their own devices. They knew they would get hefty revenue checks no matter what. The federal government too was entrusted with monitoring the pipeline’s construction. They lacked either the resources or the ability to do so, leaving the oil companies and their contractors with a free rein.
Our final report for the commission, officially entitled “The Management, Planning, and Construction of the Trans-Alaska Pipeline System,” was 598 pages long. The report’s completion coincided, as it happened, with the delivery of the first barrel of oil through the pipeline to the port at Valdez in July 1977. So the pipeline worked, but it was not without issues.
We submitted our report to Alaska Pipeline Commission chairman Harry Donahue on August 1, and it became public a week later. The report cited three main problems: 1) a lack of an effective inventory system; 2) not enough warehouse space; and 3) a procurement program without procedures. Overall, the themes of the report were poor management and inability to get things done in a timely manner, the combination of which bred many other problems. We estimated a cost overrun of $1.5 billion over the $8 billion expended. This figure too demonstrated the complexity of the investigation. Our goal wasn’t to damage the oil industry but to protect our clients, the citizens of Alaska. In fact, we found that the vast majority of the sums spent on construction—or $6.5 billion—seemed to have some legitimacy.
Nonetheless, the pipeline’s CEO, E. L. Patton, immediately blasted me and the investigation for bias, despite having told me he’d reserve comment on our findings. Yet even he recognized that our facts were unassailable.
During our presentation to the Federal Energy Regulatory Commission in 1977, the oil companies capitulated. They agreed to negotiate with the state to determine how much of the construction costs were legitimate. That new calculation decreased the portion of revenue that the companies could recover and raised considerably the portion of revenue the state would receive. The settlement ultimately allotted Alaska an additional $1 billion in revenue from the pipeline’s oil production. Through the Alaska Permanent Fund Corporation, which manages the state’s oil revenue for the benefit of current and future generations, every state resident receives an annual dividend—as much as $2,069 in 2008.
The pipeline case was challenging and invigorating. It taught me the value of having a team of investigators on the payroll with skills to navigate the complexities and surprises of these sorts of projects. Using highly paid lawyers to retrieve and analyze documents, interview scores of witnesses, and follow leads would have been far too costly. There was no way in the world a bunch of lawyers could have undertaken something so complicated without billing the state a fortune in legal fees. Investigators could do this job not only cheaper but better. They were trained to ask the right questions and discern a witness’s credibility. They were paid on salary, and we charged the client much less per hour for an investigator than a lawyer would have billed. I figured our law firm might be able to keep a functional investigation office as part of our legal practice for cases just like this.
I spent a lot of time with the full-time investigators on the pipeline case. I was fascinated by the forensic accountant, who could analyze various aspects of construction and then reconstruct how the money had been spent—much as Carmine Bellino did with the Howard Hughes money in the Watergate investigation. I liked interviewing the executives, watching them answer questions, and getting a sense of whether what they were telling me was true. A lawyer doesn’t always have the time to follow his instincts in a case, especially if it leads to a dead end. But an investigator lives on instinct. He may run into a half-dozen dead ends before he finds a payoff.
These cases impressed upon me the virtue of persistence. David Mugar got the television station he wanted because he didn’t accept lying down the rejection the FCC first delivered. The state of Alaska, refusing to accede to Alyeska’s demands, received the compensation from the oil companies that it deserved, revenue that still benefits its citizens. And Kevin White was able to lead the city of Boston through a very difficult time of racial conflict with creativity and judgment.
When I left the Wald, Harkrader firm in 1981 to join Rogovin, Huge, and Lenzner, I took my cases with me. I brought the investigators along to continue with the pipeline case before the Federal Energy Regulatory Commission. They were not part of the law firm but operated out of separate offices nearby working on my cases and for other partners. In 1984, when we founded Investigative Group International—with me as chairman and Jim Mintz as president—I was still a partner at the law firm but was soon spending about 50 percent of my time on IGI matters.
As IGI prospered, I supported the investigators’ eagerness to conduct investigations for their own clients as well as for the firm’s. The law firm benefited because my IGI clients had to retain and pay the firm for my time, but this cohabitation wasn’t easy. The other partners didn’t share my enthusiasm for the investigative operation. Too often, the investigators were told they couldn’t work for a client who came to IGI because of conflicts with the law firm’s clients. And I was annoyed that my investigators weren’t paid nearly as much as the first-year associates. I really enjoyed working with the investigators, and I realized how important private investigating can be to the practice of law. But my law partners felt I wasn’t sufficiently committed to the partnership. My allegiance was split.
Eventually one of the other partners came to me.
“Terry, this isn’t working,” he said. “You need to either be a full-time partner here or become an investigator. You have to choose.”
For me the choice was pretty easy. I left the law firm and moved my office around the corner to work with the investigators full-time.