The Brothers Graham (Part I)

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,

It was about noon on the fourth day of the new year, and Pat Graham was pretending to be someone else while sitting in a car parked outside a restaurant near Greenspoint Mall.

The person he was pretending to be was Harold Robert of the Texas Department of Criminal Justice, and in conjunction with that masquerade, Pat Graham was also attempting to transfer $150,000 in cash from a delivery-service box into his briefcase. Apparently over-tasked, he failed to notice the battalion of law enforcement agents preparing to engulf his life, which, as his use of an alias might suggest, was already full of complications.

A little later, down at the Harris County Jail, they charged Pat Graham with money laundering. That was the only crime the U.S. Attorney's Office felt it could pin on him, since investigators had no idea whether the non-existent Harold Robert would have kept his ostensible end of the bargain for which he was being given the $150,000 down payment: to arrange the escape of convicted wife-murderer Dana McIntosh from a maximum-security unit of the TDCJ.

The FBI had learned of the alleged plot from McIntosh's girlfriend. According to investigators, the plan called for the woman to facilitate payment of Graham's total $750,000 fee, then bolt to Costa Rica with her beau and his liberator. Instead, she tipped the feds. After several months of surveillance, FBI agents, working in tandem with other law agencies, instructed her to arrange a meeting with "Mr. Robert."

For the Greenspoint rendezvous, the Harris County District Attorney's Office had provided $150,000 in cash for the down payment, put it in the delivery box and given the box to the girlfriend. As instructed, she told Graham the money had been stolen by McIntosh. To knowingly accept ill-gotten currency is a federal crime, so Graham was arrested as soon as he slid the first stack of bills into his briefcase.

While it's easy to rule out the possibility that Pat Graham is a smooth operator (in this instance, anyway), he could be one of three other things: the victim of a mix-up while working his own undercover sting to prevent McIntosh's escape; the brains behind a plan so ludicrous that even a woman dull enough to date a man who murdered his wife knew it would fail; or a con artist hoping to make off with at least $150,000, maybe more.

This last theory is favored by a great many people who know Pat Graham.
"When this last deal about old Pat came up," says one of them, a former elected official from West Texas, "I read it in the paper and thought, 'Goddamn, somebody's getting conned, and it's probably the con.' I could see him stringing them along long enough to get all their money, and then say, 'Well, we tried, but we didn't quite make it.' "

Pat Graham likely could have used that $750,000. He probably would have settled for just the down payment. Given the end result of his effort, he might have been happy with $100 and all the liquor in Costa Rica. But he sure didn't need to get ensnared in any weirdness associated with the state prison system.

Graham's arrest immediately renewed curiosity about his relationship with the TDCJ, in particular his association with the agency's former executive director, Andy Collins.

Collins had been the head of TDCJ's institutional division in 1989, when Pat Graham and his older brother Mike launched a project to develop private jails in six rural Texas counties. Three years later, five of the six facilities sat empty, and bond investors who put up $78 million to build and operate the jails filed a lawsuit alleging securities fraud.

In October 1994, a jury in the trial of that so-called Apex suit ruled that Pat and Mike Graham, operating as N-Group Securities, along with construction contractor H.A. Lott Inc. and the law firm of Keck, Mahin and Cate, had conspired to defraud the investors. The plaintiffs were awarded some $80 million in damages, but the judgment was later reduced by U.S. District Judge Sim Lake by $36 million -- the same amount of public bond money authorized for the purchase of the failed facilities by Collins, who had since been appointed TDCJ's executive director.

At the time of his arrest three months ago, Pat Graham was carrying a business card identifying himself as a representative of VitaPro Foods Inc., whose large contract to provide soybean food products to TDCJ had been approved by Collins last year. An ongoing internal investigation by the prison agency into Graham's ties to VitaPro found that Collins had been paid a $1,000-a-day consulting fee from the company since January 1. Collins recently resigned that position, after earning about $30,000.

Collins quit as TDCJ chief last fall, after Governor George W. Bush caught wind of his involvement in a private corrections facility on the drawing board in LaSalle Parish, Louisiana. The Louisiana project also involved Pat and Mike Graham, along with N-Group treasurer Jim Brunson and former Houston mayor Fred Hofheinz.

In the early stages of the LaSalle Parish project, Hofheinz had got to talking with then-governor of Louisiana Edwin Edwards, who mentioned that what he really wanted for his state was a professional basketball team. Hofheinz figured that was as close to the inside track as he would ever get, so he put the private jail on hold in late 1994, formed a group called Top Rank of Louisiana and, with Pat and Mike Graham handling the financial details, set out to buy the Minnesota Timberwolves.

Though the NBA would have loved a team in New Orleans, the league rejected the group's bid last June, saying the financing for the purchase was too speculative. Two New Orleans investors who say the Graham brothers told them the Timberwolves purchase was a fait accompli later sued Top Rank for breach of contract. In December of last year, a judge awarded them $500,000 -- a judgment that forced Top Rank of Louisiana into bankruptcy.

Meanwhile, shortly before that judgment was rendered in New Orleans, Hofheinz was named as a co-defendant with the Grahams in an Apex-related suit filed in Houston. The bond investors alleged that the former mayor helped the Grahams shield their assets from the Apex judgment by having his family's charitable foundation purchase Mike's antebellum-style manse in Kingwood and its furnishings for $385,000 -- a fraction of their value. According to the suit, Hofheinz also agreed to loan Pat Graham $650,000 from the Irene Cafcalas Hofheinz Foundation in exchange for the deed of trust to Graham's home, which sits on the other side of Deerwood Country Club from Mike's. Both Grahams and their families continue living in the houses.

Hofheinz, individually, was recently dropped from the suit. But the foundation named after his mother is still a defendant.

If you're getting the impression that Pat and Mike Graham are a magnet for trouble, and have a knack for dragging other people into it, you're on the right track. Testimony and evidence in the six-week Apex trial in 1994 offered up more unsavory possibilities involving former Texas governor Mark White and former state attorney general Jim Mattox -- though, as you might suspect, like Collins and Hofheinz, White and Mattox can only blame themselves for the implications.

White encouraged the Grahams' ill-fated private jail development when the concept was first proposed to him by Pat in 1987, shortly after White left office. Later, when the ex-governor joined Keck, Mahin and Cate as a partner, the Grahams chose the firm to act as counsel to bond underwriter Drexel Burnham Lambert. The jury in the Apex suit found that the Grahams and the Keck, Mahin law firm withheld crucial information from investors -- such as about $6 million in kickbacks to N-Group -- while misleading them into believing the state and other jurisdictions would pay to house prisoners in private jails.

Though White was not named as a defendant, and another attorney in the Keck, Mahin firm handled the official duties as underwriter counsel, the plaintiffs' attorneys, during their closing argument at the 1994 trial, accused the former governor of "initiating" the conspiracy to defraud the bond investors in exchange for $225,000 in contributions from a political action committee set up by the Grahams' firm, N-Group Securities. The funds were for White's failed comeback attempt in the 1990 Democratic gubernatorial primary.

Another N-Group PAC gave $55,000 to Mattox, the attorney general who approved the bond issue in September 1989, for his own unsuccessful run for governor in the 1990 Democratic primary. During the trial of the Apex lawsuit, an attorney for the investors asked Mattox point-blank if the PAC donation was a reward for that approval. Naturally, Mattox took offense at the insinuation. But according to evidence produced at trial, it was a legitimate question: a week before Mattox signed off on the bonds, the assistant attorney general in charge of reviewing the issue told Keck, Mahin and Cate that finding enough prisoners to fill the 3,000 private beds "may not be possible at all."

But as many have learned, Mike and Pat Graham have a way of making people believe anything is possible. Their powers of persuasion are well-established -- though aside from the material reality of 3,000 prison beds, not in any way that would suggest a history of good-faith efforts.

The brothers' chief accomplishment seems to be an unerring ability to walk away from their business associations somewhat richer, while leaving behind a trail of people who regret ever meeting them. The public record on the Grahams is littered from the 1970s on with accusations of increasingly brazen malfeasance: theft, breach of contract, bid-rigging, tax evasion, fraud and, now, against Pat Graham, money laundering.

In light of such facts, it would seem that a former governor and the state's top law-enforcement official might have been a tough sell for the Grahams, although by now, with the Apex judgment on appeal, it's fairly safe to say that White and Mattox have removed themselves from the Grahams' A-list.

Apparently, the same cannot as yet be said about Andy Collins and Fred Hofheinz. The private corrections facility in LaSalle Parish is reportedly back on track, pending approval from the new administration in Baton Rouge. Hofheinz, through his company, Viewpoint Development Corporation, is trying to attract private investors for the project, which would be managed by Collins' new firm, Professional Care of America Inc.

Both Hofheinz and Collins have acknowledged employing the Grahams as consultants. So has Charles Terrell, a former chairman of the state board of criminal justice, who has begun his own private corrections business. Those who know from firsthand experience how Pat and Mike Graham operate recognize a disturbing pattern to all this activity.

"They basically surround themselves with credibility, and then market that credibility," says a finance attorney from The Woodlands who worked closely with both Grahams in the late eighties. "They get close to people, and it's like that guy with the prison system [Collins]. I mean, I know nothing about the man. What I do know is that these guys, when it's all said and done, the people who get close to them end up with shit on them, and they're off to the next deal."

Early on, Michael Edwin and Patrick Harold Graham sought to establish their credibility -- and, perhaps, their place in life -- by telling others that they were the sons of a prominent Meyerland haberdasher who for many years clothed some of Houston's best-dressed men. (The clothier actually was their uncle.)Mike Graham reportedly burnished the family pedigree further when he told an Iraqi businessman in Baghdad that he was the great-grandson of the man who baked the first graham cracker.

That both statements are exaggerations suggests that the story of Mike and Pat Graham isn't about who they are, but who they are not. It's a story about what Mike and Pat Graham need to be, and how it is that, to great personal gain for themselves, they could persuade others that they were men of wealth and influence who were always in the right place at the right time.

But when a murderer's girlfriend determined that Pat really wasn't Harold Robert, a TDCJ official with the inside knowledge to spring her boyfriend from prison, and then beat Graham at his own game, it spoke to the pathos inherent in living a lie. Desperation can inspire a virtuous man to great things. Thrust to the forefront of a cunning one's heart, it invariably heralds his ruin.

An accurate telling of Mike and Pat Graham's story would need to answer at least three questions: What accounts for their long run of duplicity? How did they manage to attract the cooperation of otherwise responsible people -- a category that may or may not include high-ranking guardians of the public trust who lent them support?

And, finally, the question a lot of angry people want answered: Why, given the damage that can be laid at their doorstep, haven't they been held accountable?

A former neighbor of Pat Graham's remembers the time he took Pat duck hunting. It was back in the late seventies, and Pat seemed a nice fit to his middle-class Humble neighborhood -- a young husband and father of two trying to make a living in the men's clothing business. A decent sort, the neighbor remembers, though he knew "absolutely nothing about nothing" when it came to hunting.

But Pat took a shine to certain symbolic aspects of the sport. After a couple of mornings in a duck blind, stuffed animal heads started going up on the walls of his house. "The next thing I know, they got all these exotic mounts," the neighbor says. "They were going to those damn shoot-a-lion-in-a-cage things."

Mike and Pat and their families lived about a block away from each other. Each brother ran a little clothing store known as Gents. Mike's was in Houston; Pat's in Humble. This was before the repo men started showing up late at night to take back cars and boats; before the neighbor began to think it was only a matter of time before he'd wake up one morning to find Mike or Pat shot dead in his driveway.

"Humble's an old town," the neighbor points out, "you screw the wrong person E."

With time, the neighbor grew wary of the potential crossfire. He maintained a respectful distance from the Grahams, but kept an eye on things. The more he saw, the more he realized there wasn't much about Mike and Pat that you could get your hands around. "Just a bunch of crap," he says. "They were into just anything and everything."

The brothers' father, Harold Graham, appeared on occasion; on some of those occasions, he appeared to be drunk. Harold was supposedly some kind of an inventor, though the neighbor had begun to doubt much of what the Graham brothers told him.

By the early eighties, the neighbor's curiosity about the Grahams had waned. He had begun to hear things suggesting that the brothers' wheeling and dealing had spun out of control; he no longer wanted anything to do with them. A number of other people felt the same way, though, unlike Pat Graham's neighbor, they didn't make their breaks quickly enough.

A former business partner from those days -- a west Houston man who discussed his experience on the condition that his name not be used -- says his brief but memorable collaboration with the Grahams was the only venture on which he ever lost money. It was called Studio 1000, a nightclub for teenagers located in the 10000 block of the Northwest Freeway.

Mike Graham had come up with the idea in 1979, and brought in the Houston man and an insurance agent named Bud Harmon. The three borrowed $250,000 together and got the place going. Then, inexplicably, Mike Graham didn't show up one day, nor the next. Pretty soon it was obvious he wasn't coming back, though he hadn't really gone anywhere. Apparently, he was still in town and into something else, though the partners never found out what. Graham just refused to take or return their phone calls.

In early 1981, Studio 1000 failed, leaving the two active partners holding the bag. The Houston partner recalls that he also had tried to help out Harold Graham by investing in his women's clothing store, Harold's for Her. Incredibly, all three Grahams -- Harold, Mike and Pat -- abandoned their respective apparel shops at the same time, in much the same way Mike quit the kiddie disco business.

"They just walked off and never came back," the former partner says incredulously. "They just left their employees and walked away. It was a shame. Harold had a good little old dress shop. If he had just kept the money in it, he probably could have made a decent living."

Gents officially ceased to exist in March 1981, after the Grahams failed to pay their corporate franchise taxes. Mike's store in particular had become mired in debt. Several banks had foreclosed on some $60,000 in loans to Gents of Houston or Mike Graham. Vendors and suppliers sought another $50,000 by filing lawsuits.

Pat had similar troubles. First National Bank of Bellaire sued him over a $7,000 default. A clothing manufacturer won another $6,500 from Gents of Humble in court. One Pat Graham venture -- Dunkley's Donuts -- was sued twice before it ever got off the ground.

A subsequent partnership between Harold and his sons, a forklift company called All Lifts Inc., didn't fare well, either. One of its last transactions was the sale of a refurbished lull lift to Mac's Roofing and Supply Company. Mac -- Cliff McLemore -- put $8,000 down on the machine, but upon delivery, discovered it wasn't what he had agreed to buy. Mike took back the forklift, and that was the last Mac saw or heard from any of the Grahams. They didn't even respond when he sued to get his down payment back in 1984. The debt still hasn't been repaid.

While the Grahams' endeavors failed to gain much traction, the same can't be said of Mike's and Pat's lifestyles. Pat's neighbor in Humble says the brothers were "into the flash." They drove nice cars -- new Cadillacs and big Oldsmobiles. So did their children. Pat's neighbor bought a used car for his son and had it painted to look nice. A couple of days later, he looked out his window and saw that Pat's daughter, Lori, had a brand-new Chevrolet Camaro.

And, of course, as haberdashers, the Graham brothers were sharp-dressed men. "If they had sold the clothes instead of wearing them," quips one acquaintance, "they'd have probably been all right."

It goes without saying that much of the contempt in which some people hold Mike and Pat Graham can be traced to their conspicuous consumption. Investors who put money into business opportunities know the rules: no guarantees. But the Grahams had engaged their unwitting partners -- who in some cases were their neighbors -- in games of high risk. When they were over, it seemed that whatever losses the others incurred, Pat and Mike managed to let everyone know they had gotten theirs.

"You've never seen anybody like these people," says a Kingwood man who, while an executive with a national securities firm, did business with the Grahams. "I mean, it's dang near bizarre. These guys got to show it all the time. If you don't have a Rolls, you're supposed to have a Mercedes, and your wives are supposed to wear diamonds.

"Even now, after all the stuff that's happened, they still walk around like they are better, richer, smarter than everybody. They have no remorse."

Aformer associate of the Graham brothers tells a story he attributes to Harold Graham's doctor, who said the old man once told him, "I have two sons. One will never tell you the truth. The other will never tell you a lie. And I don't have to tell you which is which."

Ask around, and many people simply can't believe Pat Graham would try to arrange the escape of a maximum-security inmate from TDCJ. They say it sounds more like Mike Graham's doing. He's a hungrier sort, they say, more calculating and greatly enamored of his capabilities.

Pat, on the other hand, is earthier -- relatively speaking, of course. He married his high school sweetheart, and, according to those who have enjoyed the experience, he's someone you can have a beer with. But as far as dealing with the likes of Dana McIntosh, who stabbed his wife to death for the insurance money E.

"Pat wouldn't be associated with anyone like that," says a former N-Group employee. "Something's very weird there."

Joined at the hip is the expression often used to describe Mike and Pat. Indeed, except for a time in the mid-eighties, they have been in business together for the past 20 years. Their families have remained geographically close as well, seldom living more than a few miles apart.

Physically and temperamentally, however, they evoke another clichŽ: Like night and day. Mike, age 47, is a husky man, soft-bodied, blond and fleshy about the face. He wears wire-rimmed glasses, favors watches made by Rolex and buys his suits at Norton Ditto. Pat, who recently turned 46, stands a full head shorter than his brother, though his slighter build makes him look even smaller. Pat's dark brown hair is thinning, except at the top of his head where there is none.

Their personalities are equally distinct. An attorney who has represented both Grahams suggests that combining Pat and Mike in one body would create one hell of a salesman.

"Pat is, in a classic sense, more of a seller," the attorney says. "He's softer, more engaging and more pleasant. Mike's personality is the closer. Mike's more heavy-handed, more abrupt, more in your face."

And more demanding of center stage. Apparently, Pat was not exempt from his brother's frequent displays of egomania. There was nothing equal about the relationship, and though Pat tried on at least one occasion, he never really made much of an effort to escape Mike's dominance. Instead, he would cede control of their joint business affairs to his brother.

It's now impossible to say whether Pat, if he had exercised more independence, would have saved himself some grief later on. From those who've been burned by the Grahams, Mike elicits a rancor that is strong and immediate. The take on Pat is sometimes softened by a subtle empathy.

"My pattern with them," says the former associate from The Woodlands, "is that Mike was always the guy with the ideas, and he was always telling Pat that Pat was too stupid to do anything on his own."

After the forklift business folded in 1983, the Graham brothers went their separate ways. What direction Pat took is hard to chart, although just before he and Mike formed Bankers Capital Management, an investment banking firm, in 1986, he was working for a prefabricated building company in Victoria.

By 1985, Mike was selling luxury condominiums and limited partnerships for two subsidiaries of Century Development, the Kenneth Schnitzer company that built Greenway Plaza and other landmarks of the Houston real estate boom. By all accounts, Mike thrived, becoming one of the company's top movers of investments that provided tidy tax write-offs for the well-to-do.

To that end, Century exposed Mike Graham to a class of people he hadn't had much experience with. They were known within the company as Regulation D investors, people with wealth and, sometimes, power -- attributes that Mike Graham would never deny he coveted. Among the contacts he made was Billy Clayton, who, upon his retirement from the Legislature in 1983, had been the longest-reigning Speaker of the House in Texas history. As a private citizen, Clayton was a lobbyist for corporate clients, and while lobbying for Century, took a cut of at least one commission earned by Mike Graham.

Later, Clayton became a lobbyist for N-Group Securities. He would be instrumental in persuading officials in six Texas counties that private prisons were the wave of the future and that Mike Graham and his brother Pat were the guys to build them.

West Texas oil and gas magnate Clayton Williams was also favorably impressed by Mike Graham. After buying a Century condo in Austin, Williams gave Graham some money and the use of his corporate name to start a securities business. Graham managed to incorporate Claydesta Securities, but nothing more came of the association. According to Midland consultant Stan Beard, who says he handled Williams' end of the deal, "It was just real obvious after a short period of time that Mike wasn't going to be able to do what we thought we needed done."

Graham took the setback in stride. He might even have taken it as a sign to start a business of his own again. He had learned much at Century, not the least of which was that wealthy people, often as not, might be a coin or two short of a full roll when it came to other areas.

"Oh, he was slick," says a former secretary at Century. "He could sit and talk to people and just talk in circles. The words would form to make sentences, but they didn't make sense. People would ask, 'What do you mean by this?' And he would be like a politician and talk completely around it. After a while, people got to thinking, 'Well, maybe it's me, maybe I'm just not catching it.' I think it was a psychological trick."

Another onetime business associate who has witnessed Mike Graham perform says there is something almost predatory in how he closes a sale -- something about his ability to read a room and then hone in on a mark. Graham had exhibited flashes of that quality in the past. But at Century, he perfected it, and his success convinced him he'd never have to sell forklifts or men's clothes again.

"You can go through life hustling a hundred dollars here and a hundred dollars there," says the former associate. "Or you can just put a few more zeros on the end, talk a little nicer and enjoy it more."

Continued...

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