The Brother Graham (Part II)

Once upon a time in Humble, there lived two guys named Pat and Mike. They had a way of making people believe, and those people included some of Texas' highest public officials. While it turned out that their stories usually were just too good to be true

John Ford could only be encouraged by the splendor of the Bankers Capital Management offices on the 69th floor of the Texas Commerce Tower. Mike and Pat Graham's investment banking firm certainly looked like a place where successful deals were born. The large, comfortable waiting area was drenched in oak and handsomely furnished. As Ford sank into a leather sofa, his eyes took in the carefully arranged displays that symbolized other Bankers Capital projects; Ford recalls most vividly the huge crystal bowl of oranges that represented a Mexican juice deal supposedly in the works.

Ford, who is from London, was educated as a Spanish and Portuguese linguist. But he had used his knowledge of Latin America to build a successful trading company, which, for obvious reasons, had an operation in Houston to launch further expansion into the Southern Hemisphere.

In February 1987, Ford and his partner, a Houston oilman, secured an option to buy a small Miami company called Calypso Shipping, which specialized in transporting supplies to the Caribbean islands. Ford says he "loved that little company," which had been so profitable that the owner was willing to sell it for less than it was worth to reduce his capital gains liability. Meanwhile, Ford's partner had heard good things about the Grahams, so the two chose Bankers Capital to raise the $1.2 million to buy Calypso.

Ford acknowledges he and his partner "twitched a bit" when Mike Graham, after his first meeting with them in mid-March at Bankers Capital, asked for $50,000 up-front. Ford had heard stories of con men who lived off such advances while doing nothing in return. But Graham didn't fit the profile. For one thing, two impressive diplomas hung from the walls of his private office: a doctor of philosophy degree from the University of Texas, and a master's from the respected business school at Southern Methodist University. (Graham attended neither institution, according to the schools' records.) For another, Bankers Capital had some potent connections. Ford remembers meetings were often interrupted so that Mike Graham could take a phone call from "the governor" -- that is, Mark White, who, after leaving Austin a couple of months before, was doing legal work for Bankers Capital.

And then there was Mike Graham himself.
"He had a way of drawing you in," Ford recalls. "It was all so simple: 'Don't worry about it. It's done, that's done.' How it was going to be done and who was coming up with the money, I don't know. But very often, he said he was going to meet with banks, and my deal was at the very top of his agenda."

Ford took Graham to Miami, where they inspected one of Calypso's five ships. On the flight back to Houston, Graham's enthusiasm was overwhelming. He raved about Calypso's potential, called the deal "wonderful" and insisted Bankers Capital would have no trouble raising the necessary funding.

The $1.2 million never materialized, of course, but Ford and his partner were led to believe otherwise on at least three occasions.

The first was in mid-April, when Graham announced that three investors were forming an offshore corporation that would back the Calypso acquisition, with the closing scheduled for April 24. Two weeks after that date came and went, Graham said he and another Bankers Capital principal, Ray Santos, a prominent Lubbock physician, would go to Miami to "personally finance" the deal and close it by May 14.

On May 15, Graham announced that a group of Iranians had agreed to give him a "personal guarantee" that Bankers Capital could fund the purchase through a Hong Kong bank. Ford and his partner were beyond skepticism at this point, but on May 26, Graham called Ford's partner and said, "The deal is done. I'll call at ten tomorrow morning with further instructions." But after that, Graham did not call, nor did he take Ford and his partner's calls.

"The tragic part of all this was that, of course, the option given to me was for a limited period of time," Ford says. "I had a most marvelous situation that came about by trust and good feelings between people. The owner just said, 'John, it's yours,' and I think I had roughly three months to fund it.

"Well, I let the gentleman down because I never came up with the money. Michael Graham waited until my option ran out and just literally let it die. It was a marvelous opportunity that went away, thanks to Michael Graham and his gang."

In a sense, both Ford and Bankers Capital Management were fortunate. Ford was only out $50,000, admittedly not chicken scratch, but insufficient, really, to merit hiring a lawyer at additional cost to get it back. Graham was never held accountable for the Englishman's losses, just as a number of others would decide to wash their hands of Bankers Capital Management rather than prolong the agony of further dealings with its principals.

That's what the owner of a Houston pipeline company did. He lost $108,000 to Bankers Capital, which he had hoped would raise the money for a 200-mile pipeline and gas distribution system from Huntsville to Houston. His company was fairly new at the time, the owner says, but had had some success. The Huntsville line, he says, "would have made the company take off like crazy."

Again, Graham demanded money up-front before he would go to work. The company owner says that with every promise he would be asked to write another check. One $15,000 check, he later learned, was used to meet the Bankers Capital payroll. Graham's reimbursement check bounced.

After about three months, the pipeline company owner lost the opportunity to expand his business. He says he was "brokenhearted" but unwilling to pursue the money he had given the Grahams.

"I was afraid to sue them, actually," he says. "Somebody told me that someone went in through Mike's garage at two in the morning one time and threw him against the wall and threatened to kill him. The stories just went on and on, and I thought maybe I'd take my losses and get away from it."

Then there was the experience of James O'Brien, an oil field equipment manufacturer from Bay City. O'Brien is retired now, but in 1986, he and a partner from Dallas had finalized their plan to build a pipe mill in Panama under a federal law known as the Caribbean Basin Act, which encouraged the creation of manufacturing jobs in U.S.-friendly companies in the region.

O'Brien and his partner, who has since died, had approval from the Department of Commerce in Washington but had been unable to raise the money to build their plant. Toward the end of 1986, a friend recommended a visit to Bankers Capital Management, where they met with Mike Graham.

Graham wasted no time making an impression. He showed his guests into his private office, and as he stood by the window, pointed toward the blue-green columns rising up from Greenway Plaza. "Ipretty much built all of that," he said, embellishing just a bit on his role as a commissioned salesman for Century Development.

While O'Brien and his partner absorbed that whopper, Graham breezed over to his computer screen. Checking the latest market figures, he mentioned that he was keeping an eye on $100,000 he had recently invested on behalf of the state, at the direction of Texas Land Commissioner Garry Mauro. O'Brien had no reason to doubt the claim; Graham often made a show of taking phone calls from his influential friends.

"You'd be sitting there in his office, and he'd go, 'Excuse me a minute, Garry's on the phone from Austin,' " O'Brien says. "Or he'd go, 'I have to talk to Claytie,' " -- meaning Clayton Williams.

"You never knew who was going to be on the other end of the line."
Even when he wasn't on the phone with "Claytie" and "the governor," Graham bristled with a sense of his own importance. Everyone at Bankers Capital was at Mike Graham's beck and call -- even brother Pat. Although he officially was vice president of the firm, Pat was occasionally called upon to chauffeur Mike around town. At times, Mike's conceit turned to impetuousness. One day, he fired his longtime secretary, who had followed him from Century Investments, after she called in sick.

"You'd have to be on edge," notes a former Bankers Capital employee, "if you know you've promised stuff to everybody in the world, and they're calling to pin you down on it."

On January 12, 1987, several weeks after their first encounter with Mike Graham, O'Brien and his partner were invited to return to Bankers Capital. At that meeting, Graham announced that he would have no trouble raising the $1 million needed to build the Panamanian pipe mill. He asked the partners to put up a $12,000 advance, which they did.

O'Brien's partner, who was suffering financially, was the first to get nervous. He began calling Bankers Capital regularly, asking about the status of the Panama funding. Graham usually told him he'd have the $1 million within a week, two at the most. At one point, he said a family-owned supermarket chain had agreed to back the venture. Once, O'Brien's partner was told to expect Mike Graham in Dallas, only to arrive at the airport and discover Graham wasn't on the plane.

After more than four months, O'Brien also started to wonder about the funding for his pipe mill. Then Mike Graham presented him with an opportunity that made the Panama deal look like a lemonade stand: the exclusive rights to sell pipe and oil field equipment to the Republic of Iraq.

The proposal appealed to O'Brien. His business was slipping as the Texas oil industry continued to suffer. Meanwhile, the U.S. was courting Iraq in the hopes that increased trade between the two countries would induce the Middle Eastern nation to end its ties to the Soviet Union. Under the circumstances, Graham's plan to sell bonds to fund the start-up and operation of the First Texas Trading Company, of which James O'Brien would be president, sounded like an idea whose time had come.

"I felt like the kid looking at the hawker at the carnival, who finally went into the tent," O'Brien recalls.

To set the hook, Graham shifted his name-dropping into high gear, insisting he had the federal government's support to initiate international trade agreements. And, Graham promised, his close connections in Austin almost guaranteed state funding through something called the Texas Economic Exportation Initiative.

It wasn't until the last minute that O'Brien found out his ticket into the Big Tent would cost $100,000. But by then he was convinced that Mike Graham and Bankers Capital were going to make him rich. He wrote a check on his company's pension fund account, which Mike Graham handed to his brother to place in a trust account as security for a line of credit.

Plans were made to travel to Baghdad, where representatives of the newly incorporated First Texas Trading Company were to meet with Iraqi trade officials. Shortly before the trip, Mike Graham hosted a Fourth of July barbecue at his home in Kingwood, where O'Brien was introduced to Farrar Alghrary, a U.S-educated Iraqi who had a successful business in North Carolina that exported medical supplies to the Middle East.

Alghrary, it turned out, was the brother of Baghdad's chief of police and a close personal friend of Saddam Hussein. In fact, he told O'Brien, following then-military officer Hussein's first coup attempt in the 1970s, Alghrary himself rescued the wounded future Iraqi president and drove him to his family's farm for safekeeping. O'Brien also met two Iranians that day. He was told they were hoping to invest some of the late Shah of Iran's fortune into the Iraqi trade venture.

Some of what O'Brien learned on July 4, 1987, may very well have been true. But in retrospect, he must wonder if Mike Graham had any sense at all: with a handful of distinguished Muslims present, the main course at Graham's shindig was roasted pig.

Nonetheless, Alghrary expedited visas for Mike Graham, Jim O'Brien and Don Mauro, a cousin of Garry Mauro and keeper of the Texas land commissioner's blind trust. In late July 1987, they boarded a Lufthansa flight and took their first-class seats, bound for Baghdad.

Don Mauro's presence on the trip is a bit of a mystery. He had been a regular presence in the Bankers Capital office, apparently because Graham was attempting to help Garry Mauro recoup some of the real estate losses that would later force the land commissioner into bankruptcy. But Don Mauro himself would later say his purpose in traveling to Iraq was primarily sightseeing.

Before the plane had even landed, Mike Graham's traveling companions must have been wishing that they all were mere tourists. Somewhere over the Atlantic Ocean, Graham suddenly confided that he was really a CIA agent and was expecting to receive an important communiquŽ once he arrived in Baghdad. After a few moments of shocked silence, Farrar Alghrary turned to O'Brien.

"This guy is crazy," he whispered. "We are going into a country where we could all be killed."

Graham's bizarre behavior continued in Baghdad. At a meeting Alghrary had arranged with Iraqi officials, Graham told a man in a military uniform that he was a representative of the American government and was authorized to negotiate trade agreements favorable to Iraq. When one of his traveling companions later confronted him over the claim, Graham said, "I can't tell you all my connections, but I have secret orders from people in Washington."

That night, the group attended a dinner at Alghrary's family farm, where Hussein had been spirited following his coup attempt. Present were several Iraqis who ran a successful food distribution company. Graham, who seemed to think he was dining with heathens rather than graduates of the Harvard School of Business, piped in that his family had once made an important culinary contribution: his great-grandfather had created the graham cracker.

Late the following evening, Alghrary told O'Brien he was leaving the hotel for a while. When he returned, he announced that no matter what Mike Graham's plans were, the rest of the group should be prepared to fly home the next day.

"For all I know, he met with Saddam, because he came back and said everything was okay," recalls O'Brien, who today sounds slightly amused by the episode. "I think Farrar was terribly embarrassed, and went and pled our case when he realized this whole thing was not real. I think he probably saved Michael Graham's life -- going over there on a phony trip, and a man like Saddam who shot his own brother because he didn't like what he was doing."

Back in Houston, O'Brien had lunch with John Ford, whose path he had crossed at Bankers Capital Management, and the two men traded notes on Mike and Pat Graham. After the lunch, O'Brien immediately tried to stop payment on the $100,000 check he had given Bankers Capital. It was too late: Pat Graham hadn't placed O'Brien's check into a trust account, as promised, but had converted it into a cashier's check, which he had then deposited into the firm's corporate account. The money was then transferred into a certificate of deposit, which was used as collateral for a loan to Bankers Capital.

On August 14, 1987, O'Brien sued Bankers Capital Management, alleging fraud and breach of contract. Later that year, the Grahams' firm also would be sued by a travel agency for $49,000 in unpaid airline tickets. And Commonwealth Bank would foreclose on the loan collatoralized by the CD purchased with O'Brien's check.

In a pattern that would become all too familiar to Mike and Pat Graham's creditors, the brothers refused to show up for depositions to answer questions about the operation of Bankers Capital Management. But evidence produced at the trial of James O'Brien's suit -- which the Grahams also chose to sit out -- showed that during 1987, while John Ford, O'Brien and others were losing money to Bankers Capital, Mike Graham had been issued corporate checks totaling more than $100,000. Nearly half of that was paid to Graham after O'Brien filed suit.

Moreover, Bankers Capital paid medical bills for Mike's wife, Rosalind; covered the rent and other expenses on an apartment at The Spires for Bankers Capital vice president Ray Santos and his family; and picked up the tab for an appraisal done on private land owned by Santos.

Santos, who has served on the state Parks and Wildlife board, testified in a deposition that he was paid $7,500 a month in consulting fees by the Grahams, though he admitted he was "never sure exactly" what type of consulting he did. He later filed his own lawsuit against the Grahams, alleging he was victimized to the tune of about $250,000 while backing Bankers Capital. Mike Graham has claimed that amount is closer to $85,000. Whatever Santos lost is inconsequential at this point; he filed for bankruptcy in April 1988.

More than a year after O'Brien sued Bankers Capital, a state district judge awarded him in excess of $500,000 in damages. That was in October 1988. Today, interest has nearly doubled the judgment to $1 million, and the meter is still ticking.

"We were all a little guilty," O'Brien acknowledges. "We were all greedy, saying 'Boy, we're going to make a lot of money with these people.' I mean, that's part of their game. All of these people put up money, front-end money, with the promise that they were going to raise funds and we were going to get very rich, very quick."

O'Brien and others who maintain hopes of retrieving the money they gave the Graham brothers would not have been encouraged had they seen Mike and Pat as they sat in U.S. District Judge Sim Lake's courtroom on January 16 of this year -- the same courtroom where 15 months earlier a jury had found that the brothers had defrauded investors in a $78 million project to build six 500-bed private jails.

Mike, the cocky clotheshorse with a taste for Norton Ditto threads, appeared clad in an unspectacular jacket-and-slacks ensemble of an indeterminate pastel-like shade. Pat, who less than two weeks before had been arrested while masquerading as a state prison official and allegedly carrying out a plot to spring a convicted murderer from prison, wore a somber gray pinstriped business suit.

They must have been in agony, these two men whose self-images turn on the constant display of material well-being.

The Grahams had returned to Lake's court because Kathy Patrick, who represented investors in the Apex trial, wants Mike and Pat to fork over their share of the judgment Lake awarded to her clients. The Grahams have successfully dodged any discussion of the amount and whereabouts of their assets, though their attorney, a chubby Dallas lawyer named Charlie Blau, says there isn't much to talk about.

"Your honor, I can assure you," Blau told the judge, "dealing with Michael and Patrick Graham is analogous to a junkyard dog chasing an empty armored car."

Perhaps. But it doesn't seem like that long ago that the Grahams built their six jails, and their company, N-Group Securities, was paid more than $8 million. At the time, it appeared that the Grahams' biggest score, and their most successful project, might have also been their least contaminated.

It didn't turn out that way, of course. The most likely reason is that even when they appear to be credible, the Grahams inevitably succumb to one of the most insidious of human instincts. And when that happens, nothing is as it once seemed.

"When they did those jail deals, they were really close to being legitimate," notes a former business associate. "If you cut through all the bullshit and ... kickbacks, they would have worked. But you throw that on, and it screws the whole thing up. The greed is always what's gotten them nailed."

Next week,part two of the Brothers Graham:from jail building with Mark White and Ray Hutchison to jailbreaking with Dana McIntosh.

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