8

Henry Oestericher was a few years older than Irwin Margolies. They had known each other for much of their lives, and their friendship had endured through the years. Like his old and close friend, Oestericher was a man with unrealized dreams. When he was young, he had dreamed of success and fortune in the jewelry business. He had grown up in it. His father was a prominent and successful jewelry merchant and manufacturer, had been one of the pioneers in the use of factoring—the borrowing of money secured by accounts receivable and anticipated sales—in the jewelry business to support the growth of his firm. But when the younger Oestericher tried his hand at the family trade, he failed.

He turned to the law, and fantasized of fame and fortune at the bar. But after a quarter of a century as an attorney, he still operated only from desk space granted him as a favor in the offices of other lawyers on West Forty-fourth Street just off Fifth Avenue. He had never handled a major case, either in court or in the office, was reduced to scratching for business wherever he could find it, was dependent to a large degree on the legal affairs thrown his way by Margolies, more out of that old and enduring friendship than because of any legal talents Oestericher might have revealed.

To support himself and his family, his legal practice providing only a meager income, far from enough for the life-style he aspired to and tried to maintain, Oestericher spent a good part of his working hours as a landlord’s agent, managing buildings around New York and in New Jersey. But even here, his buildings were not in the luxury class, not along the Upper East Side or Upper West Side. They tended to the seedy, like the one on West Forty-fifth Street where Vinnie Russo maintained his catering establishment and where Donald Nash kept his desk and telephone. Oestericher managed a couple of apartments in New Jersey and, among others, the Somerset Hotel at Broadway and Forty-seventh Street, a fleabag cited too many times to count for violations of the buildings and sanitation codes, for nonpayment of taxes, and for scores of other infractions. And it was notorious as a haven for the neighborhood prostitutes; Oestericher’s connection with it earned him, from some of the area’s denizens, the nickname “The Pimp of Father Duffy Square,” the statue of Father Duffy of World War I fame staring across at the Somerset.

Then, one day early in 1980, Henry Oestericher came up with an idea that might make all his dreams and those of his close friend come true.

As he sometimes did in private with somebody he could trust, with a close confidant, Margolies that day was bemoaning his fate to Oestericher. The business wasn’t growing fast enough, was constantly teetering on the edge. He had been forced to mortgage his Westchester home to keep it afloat. He was constantly having to invent new and more outrageous scams to bilk the unwary and raise the needed cash, and a lot of them seemed to backfire, and certainly none brought in enough really to make the effort pay off as he wanted. What he needed was a foolproof scheme that would bring in enough so that he would never have to worry again.

Oestericher listened. He had heard the story before, was well aware of what lengths Margolies had been driven to, was willing to go to, and was capable of. He knew, too, or he expected that if he could come up with the scheme that would help Margolies, he would gain his own reward. It had been on his mind for some time. Now was the time to spell it out.

What did Margolies know about factoring?

Margolies knew enough to know that it was a major financing method in the garment industry; it was the way those companies, trapped in a seasonal business, were able to get the cash to turn out new lines every season.

Had Margolies thought about going to a factor to finance his jewelry manufacturing business?

Margolies had not. Factoring was not a particularly common practice in the jewelry business, though it was done. Besides, Candor Diamond was a small company without much of a growth record. It was doubtful if one of the major factors would jump at the chance to finance his accounts.

Don’t be too sure, Oestericher said. He himself knew plenty about factoring. After all, his father had been one of the earliest jewelry merchants to go that way. Perhaps Margolies was right that one of the long-established jewelry factors might look the other way if he approached. But, Oestericher said, he knew of a factor who might just leap at the chance. John P. Maguire and Company, the factoring division of Irving Trust Company, had, for some years and with considerable success, financed garment firms. But it was anxious to spread itself out from that highly volatile industry into one that might be less seasonal and a little more secure. Garments were garments, and if a line flopped, the factor was left holding a lot of cloth and some clothes that nobody wanted, and it would be lucky if it could sell off for pennies on the dollar. But the jewelry business was something else again. If the earrings and bracelets and broaches and other trinkets didn’t sell, there were always the diamonds and the gold and the other jewels used to make them. They didn’t lose their value. They always could be sold, and they would bring plenty on the market and so would be a protection against major losses. Oestericher knew people at John P. Maguire, knew how anxious they were to get a foot in the door of a new market for their money. Would Margolies like an introduction? Or, better still, why didn’t he have his Scarsdale bank, which held the second mortgage on his home, make the opening contacts and thus provide an element of stability and probity?

The more Margolies listened, the more he liked the whole idea. He and Oestericher were not, that day, merely talking about finding a new source of funds to support Candor Diamond and help it grow, of course. What they were talking about, and both men knew it, was a scheme to take John P. Maguire not for thousands but for millions.

Soon after that discussion, Margolies approached officers of Scarsdale National Bank, told them he had heard that John P. Maguire might be interested in factoring jewelry manufacturers. Since he personally didn’t know anybody there, would the bank make the necessary introductions? Scarsdale National was more than happy to comply. Within a few weeks, Margolies was deep in discussions with Maguire.

On March 21, 1980, the negotiations were completed to everyone’s satisfaction, and a contract was signed between Maguire and Margolies. Under the agreement, Maguire would advance Candor Diamond up to 85 percent of the sales price of its merchandise, the money to be transferred to Candor’s account electronically once Candor Diamond shipped its merchandise to its customers and received invoices that would then be forwarded to Maguire. In exchange, Margolies personally guaranteed his company’s debts to Maguire, and Candor Diamond gave Maguire a lien on its entire inventory of diamonds, gold, and other valuable gems and merchandise. Further, all the income from Candor Diamond’s sales was assigned to Maguire. Candor Diamond’s customers were to be notified, by a sticker pasted on the invoices and bills, that the company’s sales were factored and that all payments were now to be made not to Candor Diamond but directly to Maguire, were to be mailed when due, normally within thirty to ninety days, to a post office lock box maintained by Maguire.

There was nothing unusual about the agreement; it was the standard way that factoring worked. Maguire had no suspicion that anything out of the ordinary was about to take place, for Margolies and his company came highly recommended. (Margolies’s past shady dealings and practices escaped Maguire’s notice, if the factor even bothered to check.) In fact, if anything, Maguire was delighted with the whole arrangement. It was, company officials hoped, the opening into a new market for their money.

For Margolies, though, the arrangement was the golden ring he had long been reaching for. He was about to become a millionaire, at Maguire’s expense. Initially he moved slowly and cautiously, and with a certain circumspection, like a swimmer testing with his toe the temperature of the water. He made his sales, shipped his goods, filed his invoices, and then received, into Candor Diamond’s new bank account at Irving Trust (within six months, though, he would close that account and open a new one for Candor, somewhat farther from Irving Trust’s reach, at Bank Leumi Trust Company in New York), from Maguire an amount equal to 85% of the sales prices noted on the invoice.

And then, on May 8, he tried a little experiment in fraud. He sent Maguire an invoice declaring that he had just sold and shipped to The Diamond Shop in St. Louis a batch of jewelry worth $7,704. Within a few days, Candor Diamond’s account was $6,548.40 richer. The only thing was, The Diamond Shop had never ordered nor received any merchandise from Candor Diamond.

Margolies waited to see whether anybody at Maguire would catch wise, would ask any embarrassing questions. Nobody did. Of course, there still was the question of the payment of $7,704 to Maguire within about ninety days. Margolies figured that he would come up with a solution to that when the time came. What he knew now was that all he had to do was file invoices and Maguire would come up with 85% of the money. If he worked it right, Candor Diamond could become a giant within a very short time, a giant on paper and in the bank, of course, even though nobody in the marketplace ever saw much of its output.

But Margolies was not fool enough to think he could go on this way forever. Someday, of course, Maguire would catch wise and come down on Candor Diamond, demanding an accounting. When it did, somebody was going to go to prison. What Margolies needed was a patsy to take the fall when that day arrived.