MARCH 22, 1977
The elderly couple murmured appreciatively as they toured the penthouse suite in the Fontainebleau Hotel. Andy D’Amato made sure they saw every square foot; the foyer alone was nearly as big as many hotel rooms, he pointed out. There was a kitchen and a dining room with a chandelier and a living room with couches, and there were several bedrooms. The terrace overlooked Miami Beach and the Atlantic Ocean. Eventually Jimmy Kealoha and his wife, Miulan, who insisted that everyone call her Mama, settled on a set of circular couches across from D’Amato and Kitzer.
The Hawaii scam had come back together with a thunderclap abruptness. About a week after Wedick and Brennan had finally flown home from their zigzag journey through the Bahamas and on to Los Angeles, Kitzer had received a call from the Kealohas. The couple, who also ran a papaya farm, apologized for having missed their earlier meeting in Miami and said they still wanted to get together. They were still seeking financing for the Waikiki Beach development. Kitzer called around, located D’Amato in Miami and the Junior G-Men in Indiana, and suggested they again try to meet in Florida.
Once they arrived, Kitzer kept Brennan and Wedick downstairs, out of concern that the Hawaiians would be overwhelmed by too many new faces. But after asking about the Kealohas’ flights and the weather in Hawaii, D’Amato introduced someone Kitzer had never seen before. Mark Iuteri was brawny, in his late thirties, with a thick head of puffy dark hair and a mustache. D’Amato said he was an appraiser, but he didn’t look the part.
The Hawaiians began to detail the project, handing out a bound proposal that included an appraisal from John Child & Company, a large and reputable firm. Kitzer had warned D’Amato that this presentation was interminable. D’Amato held up a hand. “Listen, Jimmy,” he said. “I know all about your project. I’ve checked it out….We’re late into this thing already two weeks.”
D’Amato said there was one issue: He first needed to do an on-site inspection. The Kealohas would have to pay his travel expenses to Honolulu, plus $1,500 a day regardless of whether the takeout came through. Also, the appraisal the Kealohas had acquired was inadequate. Fortunately, he said, Mark Iuteri was certified by the Master Appraisers Institute and the Eurotrust would readily accept his work—which would cost the Kealohas $25,000 plus travel and expenses.
Jimmy Kealoha asked for information about the trust, and D’Amato handed over a brochure detailing its background. Kealoha thought it sounded impressive. He turned to his wife. “What do you think of this?”
“Well, Jimmy, we’re into this so far, what are we going to do?” she said. “We have no other way out.”
In an article the Hartford Courant had published just three months earlier, two investigative reporters had looked into the Eurotrust and turned up “phony claims of connections to a famous Italian wine firm, an obscure Liechtenstein prince and supposed missionary investments that couldn’t be traced.”
But there was no Google then, and the Kealohas had no time to commission a lengthier investigation.
“Yeah,” Jimmy said. “Okay. Let’s do it. I finally want to get this thing done.”
On paper, at least, the Kealohas did not appear to be easy marks. Jimmy had been chairman of the county of Hawaii before becoming lieutenant governor. But he was now close to seventy, had never translated his political success into the business arena and was now more desperate than ever. Kealoha was, in fact, the prototypical desperate man.
He had sunk more than $400,000 into the project and had only a blank slab of beachfront land to show for it. He was too far in to extract himself cleanly, and the urge to move forward overwhelmed any semblance of common sense. In that mind-set, he wouldn’t blink at spending another $25,000 to get his hands on $10 million in financing.
The Kealohas agreed to everything. Mama wrote down flight information for first-class tickets to Honolulu for Kitzer, D’Amato, and Iuteri. D’Amato asked to speak to Kitzer privately. “Let’s hit them up for a few days’ advance,” he said behind one of the bedroom doors.
Kitzer shook his head. “No, Andy, that’s not fair. You just met these people, they’re going to lay out thousands of dollars right now for plane tickets, expenses. You can’t conceivably ask them to give you money here in Miami.”
“Mark and I don’t have any walking-around money when we get to Hawaii,” D’Amato protested.
“I have cash on me,” Kitzer said. “I can take care of that.”
While Kitzer reconnected with Kealoha, Wedick and Brennan had been busy with damage control in Indiana. They’d finally flown home from Los Angeles on Sunday, March 13, after two weeks on the road, then left Gary at five-thirty the next morning, battling bone-marrow-deep weariness, jet lag, and a monster Phil Kitzer hangover.
As fatigued as they were, they wanted to get to Indianapolis before everyone else showed up for work. They hoped to avoid a scenario where the rest of the office was sitting there talking about the prodigal sons—how they’d been off doing who knows what in the Bahamas—when they walked in. Everyone arrived by nine, and Brennan and Wedick filed into a conference room with Johnson, Deeghan, Lowie, and a few others. Wedick started to explain what had happened, but Lowie held up a hand to stop him.
“I’ve got my ass out hanging here,” Lowie said, “and there was a period of time where I didn’t know where you were. You know how that looks if headquarters calls me?”
Wedick and Brennan nodded. Next time, Lowie said, they’d better wait on that phone line. The agents agreed that they would. They had been in an impossible situation, but in this moment they grasped the dynamic: The worst-case scenario for Lowie and Deeghan was to be asked what was going on and not be able to answer. People up the chain of command would seize on Brennan and Wedick’s disappearance to score points: Look what’s happening there. I was the one who said this would be a problem.
The undercover agents spent the next fifteen minutes expressing contrition and letting Lowie and Deeghan vent. They promised to do things differently next time. They knew that these two supervisors were their most important allies, along with Johnson.
Once Lowie felt adequately understood, the conversation shifted to the scams Brennan and Wedick had learned about. They added more index cards to the wall, officially turning the conference room into OpFoPen headquarters.
Even though it was a tricky topic under the circumstances, Wedick felt he had to point out the high likelihood that Kitzer would again hijack their plans. Plotting out moves with him was like trying to steer a rudderless boat through a whirlpool. For Kitzer, the lack of scheduling was the point. His priorities were scamming money and spending it. He saw no point in planning for next week when tomorrow might bring a new customer paying cash for paper—if tomorrow arrived at all. In the days of open-return airline tickets—you didn’t need to give a date for the back end of your round trip—that sort of spontaneous travel was easier.
Wedick and Brennan felt as if they were shuttling between two planets that loomed just out of each other’s field of view. They understood why the FBI would be reluctant, as well as flummoxed. The bureau wanted numbers: How much money was Phil stealing, and how much could they recover? But Kitzer didn’t plan any one huge heist. He’d taken $60,000 from Kealoha and might swindle the Hawaiian out of $80,000 more—and that was just one deal. There were dozens of others at any given moment, only some of which Phil had told them about.
Then there was the loss-recovery problem. The agents recounted how Kitzer had spontaneously decided to spend the $8,000 from Seven Oak. There was no stockpiling cash to buy weapons for the IRA or to prop up some idealistic cause. Kitzer mostly seemed interested in partying and traveling and showcasing his powers to whatever audience he could find.
And all of it right now. It was the ideology of dopamine.
This confused everyone as much as one of his complex deals did. Who takes all that money, then just burns right through it? Jack and J.J. could see that the bureau’s befuddlement made it ill-equipped to pursue him. “The average person, you have your mortgage, your car payment, your whole list of things you need to take care of,” Wedick said. “He has no list. All he has is, Where do I have to go to make money? That’s it. Otherwise, he’s going to do whatever he wants, whenever he wants.”
Brennan thought about his early twenties, his own focus on making money just so he could burn through it, the full-on sprint toward the next experience. He’d grown out of that life within a few years and now instead had mountains of paperwork awaiting him: transcriptions and reports and expense vouchers. In a certain mind-set, it wasn’t so hard to see why Kitzer did what he did.
And those were just Brennan’s responsibilities at the office. Back home in suburban Gary, Becky delivered her news that Jack was about to become a father for the third time. He spun through a whorl of conflicting emotions—confusion and excitement and fear and anxiety and joy, all of which he worked to compartmentalize. Jack took pride in his serenity, in his ability to focus on the next most urgent thing. The baby was due in October. Between now and then, he was going to have to be able to focus. When they weren’t with Kitzer, Wedick wanted Brennan in Indianapolis, dictating reports and catching up on paperwork and talking to the U.S. attorney’s office. So even when Jack was home, he often wasn’t home.
In the meantime, Brennan had absorbed an important lesson: When he left to travel with Kitzer, he would no longer try to guess for Becky when he’d be back. If that seemed cruel, it was better than the alternative, which was making promises that Kitzer would almost certainly force him to break. It was better not to disappoint.
After locking down their Hawaii plans, the promoters spent the next couple of days in Florida on other business. Sitting in on a meeting on March 24, Wedick and Brennan caught something important: Kitzer said he wanted to introduce them to a promoter named Jean-Claude Cornaz in Denmark the following week.
The agents huddled on this development. In Indianapolis, Frank Lowie had won the authority to approve the agents’ travel anywhere in the United States—a hard-fought victory. The only thing the headquarters disliked more than FBI employees traveling was having their power decentralized. The higher-ups essentially told Lowie: You want that authority? Fine. But when they fuck up, we’re coming after you.
Foreign travel was a whole other matter. To travel to Copenhagen, Brennan and Wedick would need the U.S. ambassador and the FBI’s legal attaché to Denmark to sign off, and they would have to obtain permission from a high-ranking Danish government official—preferably someone in law enforcement.
The Copenhagen request triggered calls up and down the chain of command and into the diplomatic community. Some officials were concerned about trusting Danish authorities with the case’s sensitive banking and financial components. But the FBI’s legal attaché in Denmark knew someone trustworthy who could secure permission for them to travel without being classified as government agents.
Working steadily over the next few days, slipping away to make calls, the agents lined up the necessary approvals. The promoters checked out of the Sheraton Four Ambassadors on March 26 ahead of the next leg of their journey, to Hawaii. In the lobby Kitzer chatted up a woman named Candy and convinced her and her friend to join them on their ride to the airport. At the check-in desk at Miami International Airport he cashed in his first-class ticket for two coach tickets, one of which he pressed into Candy’s hands.
Wedick parked the car and reached the terminal after Kitzer and the others had boarded the plane. He found Candy standing alone, gazing at the ticket, trying to make sense of what had just happened. Wedick sometimes played along on Kitzer’s pursuits, but Candy looked to be in her twenties and she was considering flying halfway around the world to meet Kitzer. Wedick waved her over to a quiet spot near a phone bank. “Look,” he said. “This is going to sound strange: You need to forget that you ever met us and hope that you don’t meet us again. You don’t want to get involved with us. Trust me.”
He took the ticket out of her hand, ripped it up, tossed it in the trash, and headed for the gate.
The itinerary included an overnight layover in Los Angeles. The group checked into the Marriott Airport Inn and settled in at the rooftop bar. Iuteri was excited to order a Coors, a beer about which he’d heard lots of buzz but couldn’t find back home in New Haven.
Iuteri puzzled the agents. He didn’t sound or dress like a promoter. He wore gold chains and was far less verbally gifted than Kitzer and D’Amato; there was too much street in his sentence construction. Wedick had instantly picked up a New York accent.
As he sipped from his bottle of Coors, Iuteri mentioned an odd coincidence: That morning, at the Miami airport, he’d spotted the owner of a boatyard where he’d once stored a thirty-foot cabin cruiser. In 1969 he’d burned the boat for insurance money, he said, and the fire raged out of control and razed half the boatyard. This was a surprise because he’d firebombed other places—including a few factories—but firefighters had knocked those down quickly.
Still, Iuteri recounted this as if it were the funniest pratfall he’d ever heard of. He also described his connection to a northeastern drug ring and asked Brennan and Wedick whether they might want jobs in that organization.
They drank and gabbed until two a.m., a chill gradually descending on the California night. Wedick, who tended to get cold quickly, shivered. Kitzer offered his fashionable thigh-length leather jacket. Wedick shook him off, but Kitzer insisted: “Come on,” he said. “I’m telling you to wear it.” The jacket fit pretty well even though Wedick was six inches taller.
Everyone overslept the next morning. After hustling through a shower, Brennan called Deeghan and was updating his boss in Indianapolis when he heard a knock. Wedick opened the door to find Kitzer outside with Iuteri. Jack abruptly hung up, and Kitzer strolled in and asked who he’d been talking to. Brennan pawed at his sandy hair, still wet from the shower, and blurted out that he’d been making arrangements with his commodities broker.
Kitzer didn’t question this, and anyway, they were running late. By the time the men reached their departure gate, their flight to Honolulu had left, so they jogged to catch the next plane. As they boarded, Kitzer asked Iuteri, who was sitting in first class, to bring some champagne back to them. Iuteri delivered a bottle once they were airborne, and the three of them toasted the day and all that awaited them in Hawaii.
Brennan and Wedick sipped the bubbly—they had no way to dump it out—and tried to relax. Wedick thought about how Kitzer had handed over his jacket. As a threesome, they had started to develop a certain rhythm and cohesion. The agents now knew not to check out of hotels too early; Kitzer routinely flouted the checkout times when they had a later flight. Brennan and Kitzer both had stomach issues on occasion and passed rolls of Tums back and forth. Kitzer had started calling Wedick by his nickname, J.J. They sometimes called Jack “the Golden Bear” because he was burly, the sun had lightened his sandy-colored hair, and he often wore a light blue Jack Nicklaus golf shirt with an ursine figure emblazoned on the breast. One of them was always making the other two laugh.
As the champagne took hold, Kitzer explained Iuteri’s presence. Iuteri was a “button man for the Outfit”—a made man in the Mafia. Kitzer said that several months ago, D’Amato had borrowed money from a crime family and hadn’t paid it back on time; he had subsequently been called to a sit-down.
“Andy,” the mafioso had said, “when you wanted the money, we told you we would give you the money at three o’clock, and we gave it to you at three o’clock. But a payment was due at four o’clock.”
Apparently, D’Amato didn’t know the time.
“You don’t have a watch, Andy—you didn’t know it was four o’clock,” the mobster said. “We’ve got to give Andy a watch. Andy, here’s your watch.”
And he pointed at Iuteri. Now, wherever D’Amato went, Iuteri went. Any money D’Amato scammed, Iuteri took a cut for his bosses.
Kitzer, who appreciated a good nickname, had come up with one for Iuteri: He called him the Watch.
As the sun cracked the horizon over the yawning Pacific Ocean, Brennan lowered himself to his knees in room 1011 of the Ala Moana Hotel. The previous night they had checked into the massive Honolulu property, where the Kealohas had made reservations for everyone. Brennan gazed under the bed, then studied the walls and ceiling.
The Junior G-Men weren’t sharing a suite with the promoters, but they were just down the hall on the tenth floor—and Kitzer’s presence permeated their days. He now treated Wedick and Brennan as buddies, constantly entering their space. The agents wanted him to trust them, but these newfound invasions of privacy created stress and presented pressing logistical challenges. Kitzer burst in with no notice and pawed through the agents’ possessions, asking to borrow Wedick’s nail clippers or wanting to check out Brennan’s new shirt.
They reacted cautiously to this newfound familiarity. They didn’t want to seem upset, which might suggest they were hiding something. But Kitzer’s behavior made gathering evidence a challenge. Concealing a recorder was already out of the question; everyone in Hawaii wore bathing suits and aloha shirts. Wedick and Brennan were left to write notes by hand late at night, then mail them to Indiana at their first chance. But it was almost impossible to keep up—and Kitzer always wanted them to go out with him at night.
Still, the agents resisted asking for surveillance help. Too many risks and complications. At the Ala Moana, they brainstormed another solution: They bought a mini recorder that used tiny cassettes; they could dictate reports into it at night or whenever they could slip away. Brennan’s inspection eventually brought him to the room’s thick, heavy curtains. He found a hem at the bottom, which he carefully cut open and probed. The fabric formed a pocket just large enough to hide the recorder.
Kitzer knew plenty about hiding things, about moving in shadows. His early-life bail-bond work and the bank kickbacks—all of it fed into the narrative that the system could be manipulated behind the scenes, that people who seized the controls of a business ought to pull the levers for their own gain.
In 1961, Kitzer and his father and brother formed their new insurance company, which they called Adequate Mutual. From there, Junior talked the others into starting up a second firm, Bell Casualty, in Chicago, to reinsure part of Adequate Mutual’s risk. The father and brother largely left the operations of both companies to Phil. Though still only in his twenties, he took to the leadership role without hesitation.
In 1962, they took over American Allied Mutual Insurance Company in Minneapolis, a floundering high-risk car-insurance firm, acquiring it for $25,000 in cash and a car worth $1,200. And in a flash, the Kitzers’ business metastasized. They added more firms with nearly identical names—for example, American Allied Insurance Company on top of American Allied Mutual Insurance, and Bell Mutual Casualty to go with Bell Casualty.
Within a few years, they controlled a spiderweb of fifteen businesses: eight insurance companies in Illinois, six in Minnesota, and a reinsurance firm across the Atlantic in London. They employed more than twenty-five thousand brokers and took in many millions in premiums. What had started with a single low-six-figure bank loan had morphed into a conglomerate in which a single firm was taking in $180,000 in premiums in a single month.
The sudden influx of money triggered profound changes in Kitzer. Helen had already sensed something when he’d come home and announced that he and his father and brother had bought an insurance company in Minnesota. “I had a very bad feeling about that,” she recalled. “I said, ‘Don’t do that—it’s going to break up our family.’ ”
By the time his fourth child, Richard, was born in 1963, Phil was traveling constantly and had become flamboyant with cash and evasive about where it had come from. “They started making a lot of money,” Helen said, “and he was Superman. He could do no wrong.”
He started coming home less, until his appearances dwindled to once a month. “He would say, ‘I have to leave again in a couple of days, I got a lot of business going on,’ ” she said. “I didn’t know where he was, and he never discussed any type of business with me. I was in the dark all the time, and he would always say, ‘You’ll never have to worry about that.’ ”
Phil was busy managing his companies’ dizzying growth, which he insisted followed a certain logic: As his insurance companies’ business grew, so did their potential liability. He bought and formed new insurance firms to spread out the risk, so that if one business began to sink from excessive claims, the others could prop it up.
But his actions suggested another motive: More insurance companies meant more premium money to siphon out. Kitzer soon developed a system for withdrawing cash from their firms. In August 1963, they set up Allied Realty of St. Paul, Inc., the stock of which was owned by American Allied. Allied Realty was a real estate holding company, ostensibly created as a vehicle for investing profits. The scam was simple: Acquire an unwanted piece of property and pay an assessor to artificially inflate its value. Then assign the property to Allied Realty and withdraw from the business the equivalent amount in cash—a classic con man’s ploy also known as asset substitution. On the books, it looks like an even swap.
The foundation of this overnight empire began to spring leaks in 1964, when it came under the scrutiny of George Head, an enterprising thirty-eight-year-old postal inspector who wore oversized glasses and punctuated his sentences with exclamations like “dad bust it!” That year, Head’s boss told him about the Kitzers and said, “The U.S. Attorney in Minneapolis thinks these people are committing a crime. But he doesn’t know what the crime is, and the FBI hasn’t been able to find out.”
The U.S. attorney, Miles Lord, handed Head stacks of records from the Kitzers’ fifteen interlaced companies. Head was baffled, and sought out accountants who had worked their entire careers in insurance companies. None of them could penetrate the Kitzer labyrinth either, but one contact referred Head to someone who had himself committed insurance fraud. “If you steal money from an insurance company,” this source told Head, “you steal it by taking out good money—cash or other assets—and hide it by putting in bad or worthless stuff. Take a look at the assets. They can cover a multitude of sins.”
Head holed up in a hotel room and studied the array of million-dollar assets in American Allied’s records. Some looked highly suspect. He telephoned the state examiner who had audited the Kitzers’ books. “Have you checked their securities?” Head asked.
“Didn’t have to,” the examiner replied. “The National Association of Insurance Commissioners certified them as okay.”
Head then queried brokers in Chicago and New York and discovered that the stocks were a mirage. The daily Wall Street listing of over-the-counter stocks, called the pink sheet, described two of them as “no bid,” meaning worthless. A third stock sometimes sold at one cent a share. The entire portfolio, the state of Minnesota later discovered, was worth no more than $750. But the Kitzers had swapped out more than $500,000 in company cash for it.
Head subpoenaed the broker who had sold the Kitzer stocks. Under oath, the broker conceded that the Kitzers didn’t even own the stocks—he had, in fact, rented them the inflated assets. The $478,000 worth of real estate the family claimed was another facade: They didn’t own much of that, either. After swapping out cash for these phony assets, the Kitzers then mailed false statements and misleading letters to insurance agents to assure them that they were on solid footing. The decision to expand to Minnesota had been calculated. The Kitzers knew that state regulators would look only at companies within their borders. When it was time for Minnesota to scrutinize the insurance companies there, the family would transfer assets over from Illinois.
Head’s investigation triggered alarm bells in both states. In June 1965, the Illinois insurance commissioner ordered the Kitzers to temporarily stop issuing policies. In July, a policyholder filed a lawsuit asking the court to order the company to restore nearly $600,000 in missing U.S. Treasury notes. A month later, Minnesota declared the two-year-old American Allied Insurance Company—one of the many spinoff firms—insolvent. That agency had one hundred thousand policyholders in thirty-two states but carried more than $1.2 million in debt and far fewer assets than the Kitzers had claimed. Head finished his investigation that summer and handed the findings to the U.S. attorney in Minneapolis.
Federal prosecutors targeted the entire Kitzer enterprise in an indictment announced on October 29, 1965. Both Phillip Kitzers and Minnesota insurance commissioner Cyrus E. Magnusson were among seventeen people—including bankers, attorneys, and a securities broker—from five states charged with mail fraud, wire fraud, and conspiracy. The government contended that the Kitzers had built a sham empire off a single firm, Adequate Mutual, that was itself insolvent within a year—and that the recently collapsed American Allied had been a shell game from the start, having been created with $150,000 borrowed from two other firms, one of them bankrupt. If convicted, Junior faced as many as fifty-five years in prison. “A proper investigation of this transaction at [that] time would have shown that American Allied Insurance Co. was insolvent the day it commenced business,” said Minnesota’s attorney general.
The Kitzers were living in high style on the $4 million in premium payments they had vacuumed out. The family had recently acquired lake homes and speedboats and had renovated those houses, filling them with new furniture. They hosted huge parties at the Blue Ox nightclub in Minneapolis. Phil traveled to Miami, Las Vegas, San Francisco, Acapulco, and Honolulu. The charges contended that insurance commissioner Magnusson had overlooked all this, having been promised a job with the Kitzer companies.
On November 10, the defendants all pleaded not guilty and were freed after posting bail. But the following January, the state of Illinois sued the Kitzers and others for fraud related to Bell Casualty and Bell Mutual Casualty, claiming the family had misappropriated $650,000.
The Kitzers were suddenly living under a microscope. Minnesota prosecutors charged Phil with writing an illegal $2,000 check from one of his companies for the reelection campaigns of Minnesota’s Governor Karl Rolvaag and Senator Walter Mondale. The scandal resonated so widely that Vice President Hubert Humphrey, a resident of Minnesota, came to the politicians’ defense, charging that their opponents had distorted the facts about their relationship to the Kitzers. “Phony charges and personal vilification never have been acceptable to our voters in the past, and they won’t be today,” the vice president inveighed.
Only a few decades earlier, the elder Phillip Kitzer had been an anonymous Hungarian immigrant on the streets of Chicago. Now the Kitzers had made millions of dollars, adopted an opulent lifestyle, and were a topic of discussion in the White House.
Instead of conceding defeat, the Kitzers went on the offensive. In June 1966, they sued the National Association of Insurance Commissioners, claiming that the agency had falsely described the stock of three Kitzer companies as worthless. Six months later, in December, they filed a $3 million libel lawsuit against Reader’s Digest for a story about Head’s investigation, titled “Riddle of the Vanishing Insurance Companies.” They also sued George Head.
Young Phil Kitzer’s life was by then unrecognizable to people who’d known him a few years earlier. Helen learned that Phil was seeing Audrey Jensen, a stewardess he’d met during one of his trips, whom he would soon marry. “I don’t know what happened to him,” Helen said. “He just changed completely.”
By late 1966, he had fully moved out, and Helen and the kids hardly ever saw him again. “He walked out the door,” she said, “and he never looked back.”
Fortunately for the agents, who sometimes couldn’t get enough space from Phil, Kitzer had plenty of distractions in Hawaii. He was often locked in his room with a woman named Ruby, whom he knew from previous interludes; they had registered at the hotel as Mr. and Mrs. Phillip Kitzer. He asked the Junior G-Men to hold his address book and had his calls routed to their room to avoid having Ruby become entangled in his business.
Kitzer’s extracurricular romantic activities were now a familiar sideshow on their travels. For every lost cause like Candy, whom Wedick had quietly intercepted, Kitzer added another trophy to his case. He liked the thrill of the chase—as a king dealmaker, he was constantly practicing his trade—and by now Brennan and Wedick were accustomed to him disappearing during their evenings out. He would show up a couple of hours later, flushed and smiling, ready to continue partying. Kitzer had made a point of calling Wedick a few weeks earlier to say he had someone he wanted J.J. to talk to. It took Wedick a minute to remember Cheryl, the young woman they’d sent flowers to on their first trip together. Kitzer wanted to make sure that Wedick knew he had hooked up with her. Other times, Kitzer, short on time or energy, suggested that they hire a couple of high-class escorts. Wedick wiggled out of those situations, saying he didn’t want to miss out on the pursuit.
On the business front, Kitzer had meetings lined up on the third-floor swimming pool deck. The hotel’s architects had designed the pool area as a gathering place, with lounge chairs and a neighboring bar with tables shaded from the withering sun.
The Kealoha deal was proceeding steadily. Kitzer instructed Iuteri to raise the amount in the original appraisal slightly, to $9.75 million, so that Kealoha could ask for a large enough loan to justify Kitzer’s $80,000 fee. Inside the hotel coffee shop, the promoters gloated about how smoothly things were going. “The marks in Hawaii say ‘thank you’ after you take their money,” D’Amato said, triggering laughter.
That sparked a debate about whether it was easier to rip off Hawaiians or Floridians. D’Amato insisted that Hawaii was the softer target.
“It’s like a candy store,” Iuteri agreed.
D’Amato had other pressing business but planned to stick around until they “popped the deal” and cut up the proceeds. As they left the coffee shop, Brennan began singing a song they’d heard at a show at the Ala Moana the previous night that featured the phrase “aloha Hawaii.”
“No, you have the words wrong,” D’Amato said. “The words are ‘rip off Hawaii.’ ” He sang a bar substituting those lyrics, and they cracked up.
Back at the pool, Iuteri and D’Amato belted out the revised song, breaking into a jig by the poolside and snapping their fingers. The ecstatic mood carried over into the evening. The agents felt a kind of awe for Kitzer’s stamina and alcohol tolerance, the way he could stay out drinking until three in the morning and rise and be dressed for meetings at eight. At times they thought he’d passed out in his room and figured that they were safe to slip out and work on their reports—but the next morning Kitzer would ask them, “Where did you go last night? I couldn’t find you when I got up from my nap.” His memory was remarkable—who had been sitting at a table, and where, and what had been said—even after four or five Scotches.
During the daytime, the promoters combated the heat with steady poolside rounds of cold beer. Brennan and Wedick experimented with different strategies for handling the constant drinking. Brennan told the waiter to take away half-full pints. Wedick wandered off and deposited his beer on a table on the far side of the pool. Other times they dumped their brews anyplace that was convenient and inconspicuous. The agents joked that the government would later face a lawsuit over the number of plants they’d killed by flooding them with alcohol.
Everyone kept a wary eye on Iuteri, who evinced little interest in the promoters’ careful preparations. When Kitzer asked him a question, drilling each actor for his role, Iuteri would pause and say “Okay” before hesitantly replying. He used words like anywheres. The contrast with Kitzer, whom Brennan thought of as “an artist at talking,” was vivid.
Once, sitting by the Ala Moana swimming pool, the promoters watched a pair of young women settle into lounge chairs nearby. The men wore flowered shirts and bathing suits that, according to the fashion of the day, covered only their upper thighs. A shirtless Iuteri walked into the girls’ field of vision, dropped to the deck, and knocked out a set of push-ups. Kitzer and the Junior G-Men snickered; they started calling him “Bimbo” and “Bimbo Boy.”
Beneath the booze and banter, Brennan and Wedick couldn’t shake a simmering tension. The FBI’s lack of oversight and rules for undercover agents left open the question of what kind of crimes they could participate in or observe and ignore. But at the start of OpFoPen, Wedick and Brennan had decided that they would interrupt any crime in progress. This might mean warning banks not to accept Seven Oak paper or finding other ways to discourage marks. The previous October, after learning of Kitzer’s new vehicle from Howard, the agents had contacted Scotland Yard about Seven Oak.
The trick was to avoid triggering Kitzer’s suspicion that someone was ratting him out—and the Kealoha scheme was particularly challenging in that regard. If they asked local FBI agents to come and start asking questions, the promoters might suspect that Wedick and Brennan were snitches. But if they did nothing, Kealoha would lose another $80,000.
At nine-thirty the next morning, Kitzer was sitting at a poolside table with Brennan and Wedick when Iuteri appeared, looking bleary-eyed. He and D’Amato had been out late partying, and Kealoha had roused them at six a.m.
“Did you do your appraisal?” Kitzer asked.
“Yeah. I went out there and kicked some dirt around.”
Brennan asked whether he’d purchased new boots for the job, and Iuteri laughed and said he’d poked at the concrete with his shoes and waved his hands around. He and D’Amato had admired the location, across from the beach. Kealoha had offered to make the architect available, but Iuteri had said that wouldn’t be necessary. He had asked just one question: “This is the site where the building is supposed to come up?” After less than thirty minutes, Iuteri recounted, he’d said, “Okay, Jimmy, it’s done.”
Iuteri had appraised the property at $9.75 million, as instructed. Squinting in the morning sun, he told Kitzer and the others that he would’ve spouted out any number Kealoha had asked for in order to get his $25,000.
“That’s the extent of your appraisal?” Kitzer asked. “[For] $25,000?”
“Yeah, that’s it.”
“When are you going to write it?”
“I’ll get it done later,” Iuteri said, plopping onto a seat. “Get me a drink.”
Kitzer cringed and exchanged looks with the Junior G-Men: Bimbo Boy is at it again. Kitzer had vouched for the guy. “That’s a good price for an MAI appraisal,” he’d told Kealoha. “The man is not robbing you, I’ll tell you that. That’s a hell of a good price.”
Kealoha had gone along with everything the promoters asked for, and D’Amato had in return given him a “pre-advice letter” from the Eurotrust—a document recommending a $10 million long-term loan. This was a promoter’s confection—a meaningless document that appeared to move Kealoha a step closer to a loan. Still, he might be able to use it to delay foreclosure.
Iuteri said D’Amato was at Kealoha’s bank, First Hawaiian, making a presentation about the Eurotrust. The four of them sat for a while, and as the hour tilted toward noon, D’Amato arrived by the pool with Kealoha. Kitzer sat up and asked how it had gone.
“Fantastic,” D’Amato said.
They looked pleased. Kealoha excused himself to make a call, and Kitzer eyed D’Amato. “Tell me what happened,” he said.
D’Amato recounted that he’d delivered his full spiel at First Hawaiian—including, of course, flashing the phony CDs in his briefcase. “Their eyes got big,” D’Amato said.
The First Hawaiian bankers had tentatively agreed to provide short-term financing.
“All right,” Kitzer said. “Let’s see what happens.”
The agents were developing a grudging admiration for Kitzer’s operation, in which, they now understood, there were three tiers of participants. Kitzer himself formed the top level, as the operator of Seven Oak or whatever vehicle he was running at the time.
The second tier of the operation included the brokers—people who sold his fraudulent paper. The brokers lived in cities like Charlotte and Miami and New York, connecting with victims and taking their money and forwarding half of it to Phil. Brokers swarmed Kitzer because of his unique ability to make a vehicle stand up. Sometimes brokers even put up seed money to help him start a new briefcase bank, once an old one had been “blown out” by overexposure or an investigation.
The third tier comprised the people who paid for the paper, and that was where things got interesting. Some were unwitting victims: Jimmy Kealoha types. But many others who bought Kitzer’s paper were co-conspirators of a sort.
John Kaye was one such person. A septuagenarian from Marietta, Ohio, Kaye ran a company called Globe Natural Gas and had recently paid $10,000 for a $100,000 certificate of deposit from Seven Oak through a broker, Tom Bannon. Kitzer had instructed Bannon to tell Kaye that he should never present the CD to a bank—it was to be used on his balance sheet only. Kaye had to know that he was getting a fraudulent certificate: No legitimate bank would hand out a $100,000 CD for $10,000. The idea was that Kaye, in turn, would try to victimize a bank—to obtain a loan that he otherwise would be unlikely to obtain.
Kitzer’s meetings with brokers had three purposes: First, everyone involved needed to understand what they were trying to do, and how they were going to do it. Second, he would have “a more or less pep talk on what they’re going to have to tell bankers whenever they start dealing with banks about this letter of credit,” Brennan later recounted. And third, they planned their cover story—which would start with a declaration of how eager they were to cooperate with the FBI because they certainly hadn’t intended to do anything wrong.
Kitzer made countless thousands of dollars providing a “reader” service, or a phony reference. Say Kealoha wanted to check out Seven Oak before Kitzer used his letters of credit to buy up the condos. Kitzer would produce a list of bankers who would tell Kealoha, “Yes, we have done business with them, and they live up to their obligations.” Kealoha would have no idea that he was speaking to other promoters. For a fee, Kitzer would also send Chase Manhattan a telex falsely informing the bank that John Kaye maintained an account of $200,000—to try to jiggle loose a loan. He could also arrange for confirmation from a major European bank—the more you were willing to pay, the more credible the reference. For $3,000, Kitzer could obtain the imprimatur of the venerable Union Bank of Switzerland—a real institution he had “wired” with a corrupt banker.
“What is your price?” Kitzer would ask. “If you’ve got the money, we will give you confirmation. How much do you have? How important is it to you?”
Kitzer’s careful planning aside, there was something maddening about how gullible Hawaii’s former lieutenant governor was. Iuteri’s appraisal was laughable, and D’Amato’s promised takeout letter was scarcely more believable. Kitzer knew from his years in the insurance business that an authentic takeout commitment involved extensive underwriting that required three to six months of work. The agents believed that anyone who possessed the common sense of a houseplant could have detected a problem. But Kealoha didn’t just want to believe what the promoters were telling him—he needed to.
Later that day, D’Amato brought Kealoha the letter promising a long-term loan. Kealoha planned to go to his home in Hilo the next day to pick up a cashier’s check for $80,000. Iuteri groused that he’d done his part and wanted his $25,000, even though he hadn’t written the appraisal yet. The others told him to be patient, rolling their eyes at Dim Lightbulb Boy—Brennan had thought up that nickname—and explained that running a successful scam was about knowing when to push and when to sit and wait.
The promoters awoke on March 29 anticipating a payday. They gathered at the pool just after noon and ordered beers in advance of a meeting with Kealoha at one p.m. But at 12:45, the overcast sky opened and rain pummeled the pool area, scattering the group.
When the downpour relented, Kitzer and the Junior G-Men decided to go find Iuteri and D’Amato. The threesome strung out as they walked the hotel’s hushed, carpeted hallways toward their room, Brennan a few paces ahead of the others. Brennan knocked when he reached room 1022, and Iuteri instantly snapped it open. Bimbo Boy stared at them for a beat, then stepped into the hall.
“Get lost,” he said in a hoarse whisper. His face was flushed. “The feds are here.”
They looked past him, into the room. Phil saw two men talking to D’Amato.
“And don’t go to your rooms,” Iuteri hissed. “In case the FBI is looking for you, too.”