By Chris Lane
By Jeff Balke
By Aaron Reiss
By Angelica Leicht
By Dianna Wray
By Aaron Reiss
By Camilo Smith
By Craig Malisow
During the go-go '80s, Ballis, now 50, made money by putting together Houston real estate deals worth upward of $70 million. He lived at one of the city's best addresses, had a farm in west Harris County and a house in Acapulco. He hung with Houston's rich and famous. He still claims Hakeem Olajuwon as his best friend.
Some of Ballis's deals were aboveboard; others were not. And in the instances that his good-ol'-boy charm failed to achieve his whiskey-fueled greed, he was not above running roughshod over friends and the law to get what he wanted. One former associate describes him as "a man without morals."
In a small room adjacent to the prison's main visiting area, Ballis is clearly agitated. Although prison officials have granted his wish for a private space in which to talk to a reporter, he complains that the room is not large enough. As he attempts to display several hand-drawn flowcharts outlining chapters in the dark side of his career, Ballis berates the prison's staff attorney for not providing adhesive tape. Forty-five minutes later, after failing, or refusing, to get to the point, the fast-talking Ballis whines when a guard informs him that he needs to wrap up the conversation. But Ballis's irritation with his keepers pales in comparison to his feelings toward the federal prosecutors and judges who sent him to prison.
In January 1990, Ballis pleaded guilty to having paid a savings and loan president $371,000 in kickbacks in exchange for $6.7 million in loans. But the bald terms of his plea don't convey the bravura of his crime. Prosecutors say the loans he received actually totaled three times that amount. And $300,000 of the kickback was cash stuffed inside a duffel bag -- and delivered via helicopter.
In accordance with the plea-bargain arrangement, Ballis provided federal investigators with information about the bribe and was sentenced to two years of probation. The plea bargain also granted him immunity from any other prosecution related to investigation of the S&L.
Federal attorneys say that Ballis violated the deal by not telling prosecutors everything he knew about the kickbacks. He was subsequently sentenced to 12 and a half years in prison. According to a 1994 study funded by the National Institute of Justice, of the 580 people sentenced for thrift fraud, only four percent received sentences of ten years or more. Ballis, who has nine and a half years left to serve, had the book thrown at him.
Not surprisingly, he sees the soured deal differently from the federal attorneys: The feds, he says, wronged him. He claims authorities broke the law by tricking him into a plea arrangement designed to send him to jail. He insists that government prosecutors deliberately prevented him from telling the whole story, and that they bargained in bad faith.
Surprisingly, that opinion is shared by the federal judge who originally sentenced him and by one of the prosecutors who helped bring him to court. Ballis may richly deserve punishment, his supporters say; but the federal government should be held to its deals, even when the other party is a crook.
"There's no justification for some of the things I've done," says Ballis. "But what I've done is not why I'm in here."
John Ballis worked his way up to S&L fraud. Before he became a multimillion-dollar deal-cutter, he was a crooked dentist.
He grew up in Beaumont, the son of an engineer and a housewife. In 1971, he graduated from the University of Tennessee's College of Dentistry with an undistinguished 2.15 grade-point average. In June, he set up shop in both Houston and Liberty, a small town 45 miles to the northeast. According to a friend, Ballis smelled money in Liberty: The town had only a few dentists and a large number of minority children who might qualify for Medicaid.
Ballis's Medicaid billings led to his downfall as a dentist. During an investigation by the state attorney general's office, two patients testified that they'd gone to Ballis for root canals, for which he billed Medicaid $150 to $175. But examinations by other dentists revealed that no root canals had been performed on either patient.
Ballis claims he was performing a new procedure not easily detectable through x-rays. But on February 25, 1977, the Texas State Board of Dental Examiners voted unanimously to suspend Ballis's dental license. And in a Liberty County court, he pleaded no contest to two misdemeanor charges stemming from 15 allegations of tampering with a government document. He received ten years' deferred adjudication. Asked why, if he was innocent, he didn't fight the charges, Ballis replies, "It just wasn't worth it."
He already had his eye on bigger prizes; by the time his license was suspended, he'd decided to become a real estate developer. After splitting up with his first wife, Ballis met and married Lisa Elaine Reed, the daughter of Houston developer Chester Reed. One insider likens the elder Reed to the John Huston character in Chinatown -- the dealmaker behind the scenes. In Ballis, he found a willing and eager protege.
"I married into a real estate family," says Ballis. "He basically taught me the real estate business. And I learned a lot -- mainly about borrowing money."
With Reed's help, Ballis began putting together legitimate land deals and construction projects all over Houston: a multimillion-dollar shopping center along upper Westheimer; another near the future site of the fashionable subdivision of Cinco Ranch. Ballis bought a home in Memorial and built another in Acapulco. Life was good. And for most people, it would have been enough.
In the 1980s, a certain segment of Houston believed real estate could cure all your financial maladies: If you waited, the value of your land would go up -- and go up fast enough -- for you to outrun the financial indiscretions that allowed you to buy it.
John Ballis was a dedicated practitioner of the philosophy. He borrowed as much money and bought as much land as he could in hopes of either working a multimillion-dollar land deal or flipping the land for enough profit to pay the note. And in Roy Dailey, the president of First Savings Association of East Texas, Ballis found his dream lender.
"Dailey didn't really care who he loaned money to," says Ballis -- especially if the borrower was willing to kick back part of the loan to Dailey. According to federal investigators, from March through December 1984, Dailey arranged for First Savings to make Ballis $21.3 million in construction and real estate loans.
Actually, the loans were to a handful of Ballis's old and dear friends. Federal banking and lending regulations limited how much money a financial institution could lend an individual borrower, but Ballis and Dailey weren't about to let that technicality stand in their way. Ballis's pals -- the "straw borrowers" -- could be trusted to funnel the money back to him.
"Dailey just said, 'Bring in the people, and we'll make the loan,' " recalls Ballis. "We shouldn't have done it. But there was a lot of that going on back then, so there wasn't much thought given to it."
In January 1985, Ballis paid Dailey $371,000 for his services. A portion of that -- $71,000 -- was rendered in cashier's checks. But Dailey wanted cash, and so the majority was delivered in a far more ostentatious manner. According to Ballis, he had deposited $1.8 million of the money that Dailey had loaned one of Ballis's straw borrowers at the First State Bank of Liberty. Ballis called his friend, bank vice president Suzanne Fairchild, and had her withdraw $300,000 from the account, stuff the cash in a duffel bag, drive it to Liberty Airport and hand it over to his friend John Adger. Adger, who had gone to Liberty on other business, then boarded a helicopter and flew the money back to Houston, where he hand-delivered it to Dailey.
Dailey wasn't the only party willing to cut shady deals with Ballis. In 1985, Ballis owned 210 acres of vacant land in the precinct of then-Harris County Commissioner Bob Eckels. At the time, there was more construction under way in Eckels's district than in some small states, and the building spree was leading to problems with rainwater runoff, and potentially, flooding. To solve the problem, Eckels wanted the county to build flood-control retention ponds on Ballis's land.
If the deal went through, Ballis stood to make close to $30 million -- money he desperately needed to pay outstanding loans. He later told county authorities that to grease the wheels, he paid the commissioner a $1-million bribe. (By the time Ballis made the allegation, Eckels was dead.)
For a while, it looked like his bribe had worked -- but then the deal began to sour. Terry O'Rourke, then an assistant county attorney, was helping investigate County Judge Jon Lindsay. According to O'Rourke, Eckels was locked in a power struggle with Lindsay, who preferred other projects. And after Eckels was indicted for receiving an illegal gift unrelated to Ballis, his influence on the court diminished further. In 1987, the county commissioners voted to back out of the retention-pond deal, leaving the developer with notes he couldn't pay. When that happened, says O'Rourke, Ballis blamed Lindsay. And in 1993, he saw an opportunity for revenge.
Following his conviction on bank fraud charges that September, Ballis was sitting on a bench waiting to talk with a sentencing investigator when he struck up a conversation with one Billy Wayne Chester, who was there for the same reason. According to O'Rourke, during the course of their conversation, Chester told Ballis that he had proof that Lindsay had accepted a kickback for running a county road through northwest Harris County property owned by an associate of Chester's. Ballis told Chester he could help him if Chester would take his information to the county attorney; Chester agreed.
"Ballis called [Harris County Attorney Mike] Driscoll and said he could prove that Lindsay got $100,000 for putting a road through a swamp," recalls O'Rourke. "I was assigned to look into it."
In December 1993, the county attorney filed a lawsuit to remove Lindsay from office, based on Chester's allegations. The county judge denied the bribery allegations but didn't seek re-election, and his term as county judge expired before the lawsuit to remove him could be tried. Lindsay was never prosecuted and was later elected as a state senator.
Ballis, though, wouldn't be so lucky. At least some of his crimes would catch up with him.
Not long after Ballis had the $300,000 delivered to Roy Dailey via helicopter, the S&L president's questionable lending techniques came to the attention of federal authorities. Employees at First Savings of East Texas had noticed Dailey carrying large amounts of cash in a shoe box shortly after the $1.8-million loan went through. But federal agents didn't know where he was getting the money.
By 1988, Ballis was no stranger to federal authorities, who were also investigating his involvement with the failure of a couple of north Texas savings and loans. Ballis realized he was on the verge of being indicted for making kickbacks to Dailey, but he also knew that the government couldn't make a case against Dailey without his cooperation.
Attorneys at the Justice Department agreed to cut a deal. In exchange for his full disclosure about Dailey, Ballis was allowed to plead guilty to the relatively minor charge of making a false statement on a loan application. In January 1990, Ballis was sentenced to two years' probation and 160 hours of community service. Eleven months later, largely on the strength of Ballis's testimony, Dailey was convicted of bank fraud and sentenced to 12 years in prison. Ballis seemed to have gotten off lightly.
But two months after finishing his probation, he was indicted for the very crimes for which he'd previously received immunity from prosecution. More than two years after agreeing to his plea-bargain arrangement, federal prosecutors charged that Ballis had not been completely honest with them about his dealings with Dailey.
The question of whether Ballis was wronged hinges on the details of his interrogation by the FBI. For two consecutive days in July 1988, two agents and an assistant U.S. attorney questioned him about his kickbacks to Roy Dailey.
The meetings were held in the plush offices of Ballis's lawyer, Thomas Royce. During his legal career, Royce had counseled numerous defendants during similar interrogations. But this meeting, he recalls, was one of the strangest -- rambling, disjointed and out of focus. "Every time John tried to explain something to them," remembers Royce, "they'd say, 'Let's get back to that later.' " Ballis was completely candid with the investigators, says Royce -- at least to the degree that they allowed him to be.
Ballis told the investigators about the straw borrowers and how he had had the duffel bag of cash flown from Liberty to Houston. But he failed to mention that Suzanne Fairchild had covered up the withdrawal on the bank's daily ledger by creating a fake certificate of deposit for the same amount. Nor did he disclose that he'd loaned Dailey an additional $200,000.
After Ballis revealed that he'd paid Dailey in cash, says Royce, one of the FBI agents began pounding his fist on the desk and yelling that Fairchild had lied to him. At that point, maintains Royce, the feds must have realized that the $300,000 CD was a fake. And even if they didn't, he says, they never asked.
(Ballis now says Royce was aware of Fairchild's cover-up and should have notified the feds. Royce denies the charge, and investigators say there is no evidence of the attorney's wrongdoing.)
As for what Ballis contends was a $200,000 loan to Dailey, Royce says Ballis had no motive to lie, since he'd already been granted immunity; Royce believes Ballis simply didn't get a chance to mention the loan. But after the government found out about it, the prosecutors may have thought Ballis believed them too stupid to discover it on their own.
Ballis, says Royce, hadn't improved matters by being overbearing and condescending, and by his previous attempts to better the more-than-generous deal offered to him. He irritated the feds, and Royce believes he did it at the worst possible time: at a point when the S&L crisis was starting to generate headlines, and when federal prosecutors had been able to make precious few cases and wanted to send someone to jail. Royce conjectures that the feds hatched a plan to get even with Ballis -- or at the very least, they intended to trick him.
The Bob Casey United States Courthouse in downtown Houston is a dreary piece of prison-like architecture that seems to foreshadow the fate of many defendants who appear there. On the second day of 1990, the day that Ballis would plead guilty, Tom Royce arrived early to discuss Ballis's plea agreement with his old friend John Patrick Smith, head of the fraud division of the local U.S. Attorney's office.
For several months, Royce had battled assistant U.S. attorney Mitchell Lansden over the exact wording of Ballis's plea. After finally settling on the semantics, Royce still had a feeling that Lansden was up to something. Smith confirmed his fears.
"John Smith is an honest guy," says Royce. "He wouldn't say how, but he told me that Mitchell was going to trick me."
Royce guessed that Lansden would use the sentencing portion of Ballis's hearing to bring up his history of unpaid loans -- a ploy that could lead to prison time. But Lansden had something else in mind.
Ballis's plea-bargain agreement had protected him from prosecution in the Departent of Justice's Southern District of Texas, which includes Houston. But Ballis's crimes had occurred in both Houston and Liberty -- and Liberty is in the Eastern District.
In a later hearing, Smith would testify that Lansden intended to pull a fast one. By not including the Eastern District in the agreement, Smith suggested that Lansden was leaving himself an out if he wanted to indict Ballis later, despite the grant of immunity. "Lansden did tell me that his plan was to kind of trick Royce about the Eastern District," swore Smith, "and to do the conversation so that the Eastern District would not be included [in the deal]." Smith testified that he warned Lansden the plan might not be ethical.
Lansden denies having done anything devious, saying that Ballis has only himself to blame. Government prosecutors decided that Ballis had nullified his plea bargain because, they claimed, he lied during his debriefing: He did not reveal how the $300,000 withdrawal from the First State Bank of Liberty had been concealed; nor did he tell them about the additional $200,000 he had given Dailey. In 1992, Ballis was indicted in both the Southern and Eastern districts. That September, in the Southern District, Ballis was convicted of bank fraud. U.S. District Judge Kenneth Hoyt sentenced him to 12 and a half years in prison, and also ordered him to pay a $500,000 fine and $4.26 million in restitution to the FDIC.
Hoyt later ruled that Lansden's alleged trickery didn't expose Ballis to double jeopardy. The judge characterized Smith's testimony against his fellow federal attorney as "treasonous."
But Judge Lynn Hughes -- the judge who originally sentenced Ballis to probation -- takes a different view of the matter. In October 1994, Hughes wrote a letter to President Clinton, asking that Ballis be granted clemency. In his letter to Clinton, Hughes described Ballis as a "crook" and a "dumb-to-venal guy." But despite those moral shortcomings, Hughes maintained that Ballis had been wronged: His plea bargain should have covered the crimes with which he was later charged and for which he had already served probationary sentence.
"All of this is bureaucratic manipulation," wrote Hughes. "Ballis is being ground to pieces by a system that wants statistics rather than actual solutions for fraud losses. There is no social utility in continuing to prosecute Ballis. The only value he has is as a statistic for a 'savings and loan case successfully prosecuted.' "
Ruthlessness by the prosecution, the judge concluded, is not justice. "It merely spreads fear of government and destroys the individual."
Judge Hughes isn't alone in petitioning Clinton on Ballis's behalf. Before his retirement, Harris County Attorney Mike Driscoll sent not one but two letters explaining that Ballis had been instrumental to the county attorney's investigation of alleged corruption among members of the Harris County Commissioners Court. (It probably didn't hurt Driscoll's opinion of Ballis that, over the years, the developer and his father-in-law had contributed at least $55,000 to Driscoll's campaign funds.) He also complained that the U.S. Attorney's Office had been given the same information but had failed to act on it.
Besides writing the letter, Driscoll apparently tried to help Ballis obtain a form of alternative sentencing. According to O'Rourke, before Judge Hoyt sentenced Ballis to federal prison, Ballis's friend Hakeem Olajuwon wrote a letter to the judge, offering to purchase an abandoned hotel in downtown Houston. Olajuwon proposed that during the day, Ballis could oversee the conversion of the hotel into a halfway house; at night, he'd sleep in jail. The county attorney's office agreed to coordinate the project.
The Houston Rockets' media relations office did not return phone calls to confirm the relationship between Olajuwon and Ballis. But according to Ballis, aside from his third and current wife of eight years, Joni, Olajuwon is the best friend he has. Ballis says he met the basketball legend several years ago, when Olajuwon was about to build a house similar to the one Ballis had built in Acapulco. Ballis invited Olajuwon to Mexico, and the two struck up a friendship. According to Ballis, Olajuwon was even at the hospital for the birth of one of Ballis's children, and Ballis and Joni have spent each of Ballis's five furloughs from prison at Olajuwon's home. Ballis also hints that Olajuwon has helped with his continuing legal expenses. "Hakeem," he says, "has been great."
O'Rourke says he's been impressed by Olajuwon's willingness to stand by Ballis. Obviously, says O'Rourke, Olajuwon must see something good in the man.
O'Rourke's view of Ballis is significantly more clouded. "I saw him when he was basically mainlining whiskey," say O'Rourke. "His view of the government was just bribery: If you want something from the government, you've got to bribe it."
Even so, says O'Rourke, the Justice Department went too far in its pursuit of the S&L cheat: "I'm an ex-prosecutor. And I still believe that you have to do things right. I really believe the government went beyond the rules of ethical conduct in their prosecution of Ballis. They ought to cut him loose."
Last April, in order to clear his legal decks, Ballis pleaded guilty to the charges against him in the Eastern District of Texas and was sentenced to 41 months, to be served concurrently with his other sentence.
Ballis is still waiting for Clinton to reply to the letters from Driscoll and Hughes. But considering the president's own legal problems, Ballis isn't optimistic that Clinton will cut anyone loose any time soon. Ballis's best -- and probably last -- chance for freedom is a motion currently before U.S. District Judge Melinda Harmon. In it, he requests his release from prison on the grounds that the government violated his immunity.
Meanwhile, the former high-flying developer passes time by cleaning prison offices and by getting outside as much as possible. And he points proudly to his completion of a drug and alcohol rehabilitation program.
Despite his efforts at rehab, Ballis still appears to have a problem accepting responsibility for his own actions -- or his own debts. When the subject of his millions in unpaid loans is broached, he grows defensive: "You don't put people in jail for not paying their debts."
And besides, he says, he's made some restitution payments. He says the FDIC released him from his debt after he coughed up $3 million. That figure, however, came as a surprise to an FDIC spokesperson. According to FDICrecords, though Ballis may have made payments on some outstanding debts, so far, he has paid the FDIC only $325 of the $4.26 million he owes.
The restitution claim appears to be one more time that Ballis has manipulated the truth, one more time that he's broken the rules that other people live by. Of course, he still expects other people to keep their end of bargains. Asked why anyone should care that federal prosecutors bent the rules to put him away, Ballis hardly pauses before delivering what he sees as an irrefutable argument.
"Because," he says, "a deal's a deal.