The Trial of Joe Russo

An intimate look at how -- and why -- Houston's high flyer of the '80s was taken apart in court

August 31: Little People
All week long, a parade of witnesses has described the money owed them by the elder Piperi; each has testified that those debts are nowhere to be found on the financial statement Piperi provided to Ameriway. Two have left behind a particularly bad taste. One, a burly Vietnam vet named Dean Gessner with a million miles of rough road on his face, was married to the Piperis' Korean maid, Su Cha. So that Su Cha could follow the Piperis from Killeen to River Oaks Boulevard, Piperi got Orange to lend Gessner $900,000 -- enough to buy a sad, fraying budget motel across from Gallery Furniture. Gessner couldn't make a go of the motel; Piperi picked up the loan payments and claimed the motel as an asset on his financial statement. The aroma of self-dealing hangs in the courtroom air, just as the government intends.

But the most affecting testimony comes from an intensely unhappy Hill Country schoolteacher, Nolene Norred. In flat, resentful tones, she rehearses her family's disaster: her mom sold the family's nest-egg acreage to a group including the elder Piperi, but received only four checks before the money stopped coming. Norred called, she saw a lawyer, to no avail; finally, she journeyed to Houston and drove by the address on the checks, just to see where her creditors lived. DeGeurin is up objecting, but the harm is done: the image of this aggrieved country girl cruising River Oaks Boulevard is a potent one. When Prosecutor John Lewis, an even-tempered young man with a prematurely receding hairline, asks if she sees the debt on Piperi's financials, she emits a vehement "no."

"They were saying they couldn't pay me, and they were living in this huge house," Norred says later outside the courtroom. "I was totally shocked. I was about to lose my house. We ended up losing the property, everything." For a single moment in this large-scale drama, the vivid, mournful minutia skulking behind the scrim has leaked out: when the big guys went down in the '80s, they took a lot of little guys with them.

September 8: Weasel Alert?
Today, DeGeurin's bow-tied young associate, David Gerger -- a horn-rimmed Yalie who plays the scholar to DeGeurin's deliberately bumbling Columbo -- argues that Judge Harmon should sever the Piperis from the Russo case. It's one of many such motions. Tensions fester when defendants are yoked in a conspiracy trial: what helps one may hurt the other. Berg is eager to tar witness Steven Raab, a former Orange bank officer, as a convicted felon; Gerger argues this will tar Piperi as having placed a felon in a responsible position. "Well, I'm not going to grant a severance," says Judge Harmon; instead, she tells the jury that Raab has pled guilty to fraud in a matter "unrelated to this prosecution." What the jury won't know is that he pled guilty to charges on which the Piperis also have been indicted, a bank-fraud case that has yet to come to trial. Neither will they learn of Russo's other two bank-fraud indictments.

What they do learn from the fast-talking Raab is that he intended the famous letter of November 8, l985 -- addressed to UPI's investment banker -- as an "expression of interest" rather than a binding vow to fund $20 million for Russo to buy UPI. It left opportunities for Orange to back out, Raab claims, pointing to language that reads, "funding is subject to ... approval at our sole discretion." Radiating outraged disbelief, Berg refers to this "kick-out clause" as if it were vaguely obscene. Just what you'd expect, Berg implies, from a weaselly banker who'd call the missive a "letter of commitment" in an FBI interview and later change his tune; who'd write such a letter without sharing his reservations with Russo.

Far more instructive than the question of whether Russo is a victim and Raab a weasel, however, is the question of why Raab became a bank officer in the first place. As a go-go Dallas developer in the early '80s, Raab was hired by the elder Piperi to expand Orange's commercial loan business. Newborn bankers like Raab and the Piperis and Joe Russo were wheeling and dealing in a risky new world; caught up in boom-time euphoria, they thought less like cautious, old-fashioned bankers than developers -- intent on the next deal, convinced the oil-fueled real-estate market would go nowhere but up. Their mindset unleashed a catastrophe on Texas that's still making itself felt. And it is why we are sitting here today.

September l2: House of Banking Horrors
"Their lending policies and procedures were nonexistent," says Joanne Pizzigno in her flat, low voice. She's the latest witness spinning a saga that might as well be titled "First Savings of Orange: How Not to Run an S&L." It began in early 1983, when Ronald A. Piperi bought the sleepy, small-town S&L off I-10, just outside the Louisiana state line.

Pizzigno, hired in l985 to put together a sorely needed loan policy manual for Orange, found an institution with cramped quarters, loan files stacked on the floor and a computer system so archaic that accounting was done manually. Yet Orange by then was growing so fast, lending so aggressively, that loans often were approved before supporting paperwork was in place. The S&L's liabilities grew as explosively as its assets. One transaction alone, in which Orange essentially loaned $73 million to its own shareholders, boosted the S&L's liabilities by 400 percent.

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