By Camilo Smith
By Craig Malisow
By Jeff Balke
By Angelica Leicht
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By Sean Pendergast
By Sean Pendergast
By Jeff Balke
The explosion of the battering ram splintering a heavy front door jarred the predawn stillness of a quiet Dallas suburb last Thursday. Seventeen SWAT officers of the Plano Police Department rushed into the fashionable two-story house in their search for the elusive homeowner, Michael Lee Davis.
Six months of intense investigation brought charges that Davis masterminded a massive insurance fraud scheme involving more than $1 million in coverage. He is accused of luring clients of the AIDS Resource Center in Dallas into taking out life policies by lying to insurers that they were not HIV-positive. Sources close to the investigation say Davis would then buy the policies for a fraction of their full value and resell them to investors at a hefty profit.
The alleged scheme was hardly the standard insurance fraud -- and the target of this early-morning manhunt had emerged from an even more unpredictable past.
In 1980, when Michael Lee Davis was still Walter Waldhauser Jr., he confessed to being the middleman in one of Houston's most infamous multiple homicides -- killings committed to cash in on life insurance payoffs. One of the victims was a 14-month-old boy. The triggerman in the case claimed that Waldhauser even held the tot's mother down as she was shot in the head.
Waldhauser received three concurrent 30-year prison sentences. Despite the nature of the crimes, he was paroled after serving only nine years of his term.
Last October the Houston Press tracked the new life of the convicted capital murderer. He had legally changed his name to Davis and had become vice president of Southwest Viatical in Dallas. The viatical market deals in existing life insurance policies of people with AIDS or HIV. Dealers such as Waldhauser/Davis pay pennies on the dollar for patients' policies, then collect full value when patients die.
A series of Press articles pointed out that the viatical business might not be such a good idea for a man with Waldhauser/ Davis's past. The articles attracted the interest of state insurance regulators and even the Texas Board of Pardons and Paroles. Both groups were keenly interested in revelations that some of his associates at Southwest Viatical were also ex-cons.
Waldhauser/Davis had been on nothing more than "postcard parole," which required merely that he report annually to authorities by mail. But last November, a month after the first Press article, Davis had his parole revoked for failing to make his annual reporting deadline.
Four weeks later parole officials reversed themselves and freed Waldhauser/Davis again, with the proviso that his parole requirements be tightened. They fitted him with an electronic monitoring device.
After about three months, however, parole officials dropped the electronic monitoring for Davis. The device was gone. And now, so is Davis.
Police crashed into his house and combed the rooms for any sign of Waldhauser/Davis. Again, the convicted capital murderer and accused insurance fraud kingpin has stayed a step ahead of the law.
Plano Police Detective Curtis Coburn is the latest law enforcement officer obsessed with putting Waldhauser/Davis behind bars. After Waldhauser/Davis's parole was jerked late last year, Coburn learned that the killer and ex-con was a Plano resident. The cop didn't like the idea of what he describes as a piece of "human trash" living in his city.
Coburn took it upon himself to occasionally stake out Waldhauser/Davis's home and monitor his activity. He also researched county records and discovered that there was no mortgage on the Waldhauser/Davis home. That indicated an apparent cash purchase of the $180,000 house -- unusual for someone who had claimed on his parole reports to have been unemployed for the past few years. At times Coburn even rummaged through the trash outside the house in hopes of finding something incriminating.
So Coburn didn't need much prompting when state investigators called to ask for his help in the predawn raid to take Waldhauser/Davis into custody. And he was just as upset as they were when it was discovered that Waldhauser/ Davis had already hit the road after somehow learning that his parole was about to be revoked.
Coburn had arrived at the location early -- 4 a.m. -- to await the arrival of SWAT and the insurance investigators. At 5:45 a.m. SWAT officers made what is called a "hard entry," using the battering ram to burst into the house.
Seconds later Coburn heard the screams of Waldhauser/Davis's wife, Beverly. In the dark, she pleaded with the intruders not to kill her.
"At that point, I don't think she knew it was the police," says Coburn. "I think she thought it was one of her husband's old friends coming to settle a score."
According to one of the raiding officers, Beverly claimed that she hadn't seen her husband since he had learned -- how, she didn't say -- that parole officials had had an arrest warrant issued to revoke his parole. (Calls to the couple's home were not answered.)
Indeed, parole officials in Dallas had obtained that arrest warrant one week earlier. That was after Waldhauser/Davis failed to show up for his scheduled monthly visit with his parole officer in May. The parole records also reveal that only a month before his failure to report, the Dallas parole office had recommended that Waldhauser/Davis be taken off electronic monitoring.
Despite Waldhauser/Davis's reputation as a con artist, two parole board members approved the request for him to remove his monitoring device. Those board members, from the department's Palestine office, are James Paul Kiel Jr. and Sandie Walker -- both appointed by Governor George W. Bush.
A parole board spokesperson defended the action to drop Waldhauser/Davis from close monitoring. She says the standard department procedure is to remove a parolee from the electronic device if he maintains a clean record after 60 days. Waldhauser/Davis wore the monitor for more than 90 days.
However, the department policy also gives parole officers the discretion to recommend electronic monitoring for up to 180 days. Records also show that after Waldhauser/Davis missed his May parole appointment a parole officer went to Waldhauser/Davis's home on both May 27 and 28. He was not home on either date, but no arrest warrant was issued until June 10, almost two weeks later.
Meanwhile, parole officials in Dallas say that to "the best of [their] knowledge" no one in that office tipped Waldhauser/Davis or his attorney to the arrest warrant. (His lawyer did not return calls from the Press.)
State insurance investigators decline to comment. But they are described as furious that parole officials would not alert them that they had obtained an arrest warrant of their own. Insurance investigators believe the parole department knew of the insurance probe into Waldhauser/Davis, although Dallas parole officials say they were unaware of it. A Houston parole spokesperson says she was aware of the probe but did not pass that information on to her counterparts in Dallas, instead assuming that was the responsibility of the state investigators.
It's all enough to make Johnny Bonds -- Waldhauser/Davis's foremost nemesis -- spit.
"I think eventually he'll be arrested," says Bonds. "I hope this mix-up with the [parole revocation] warrant wasn't something that was done intentionally. If it was done intentionally, somebody should be fired."
Almost two decades ago, Bonds brought Waldhauser/Davis to justice. Now an investigator with the Harris County District Attorney's Office, Bonds was a Houston homicide detective when the capital murder case started in July 1979.
Police found the bodies of John and Diana Wanstrath and their adopted infant son, Kevin. All had been shot to death in their Memorial-area home. Although no murder weapon was found at the scene, Harris County Chief Medical Examiner Joseph Jachimczyk mistakenly ruled that Diana Wanstrath had killed her husband, her son and herself.
It took two years of intense investigation, but Bonds eventually proved that the deaths were a contract hit. Markham Duff-Smith had not only arranged the deaths of his adopted sister Diana and her family, but had also had his adoptive mother, Trudy Zobolio, killed four years earlier. The medical examiner's office botched Zobolio's autopsy by ruling it a suicide as well.
In 1981 a Harris County jury convicted Duff-Smith of murdering his mother and sentenced him to death. He was executed in 1993. The triggerman, Allen Wayne Janecka, is on death row awaiting execution.
Waldhauser/Davis put Duff-Smith and Janecka together in the murder scheme and was an active participant in the Wanstrath killings. He avoided the death penalty by pleading guilty to three counts of capital murder in exchange for his three concurrent 30-year sentences. He was released from prison in 1990 and placed on parole until the year 2010.
Almost immediately after his release, he changed his name to Michael Lee Davis and went to law school in Arizona. His plans to become an attorney were upset when law school officials learned of his sordid past.
In early 1997 Waldhauser/Davis surfaced in Dallas when he befriended Garland police officer Bruce Marshall while the two were students in a night biology class at Richland College. Because Davis was so elusive about his past, Marshall decided to find out more about his new companion. To his horror, he eventually discovered that the man who had been to his home on several occasions was a convicted capital murderer who, through the viatical industry, had found a new way to profit from the deaths of others. Marshall contacted Bonds.
"I originally thought that he was probably killing people," says Bonds. "Insuring them and killing them. I'm glad to find out that's not what he was doing. But I assumed he was doing something illegal, and it proved out that he was."
The arrest warrants obtained by investigators from the Department of Insurance provide little detail about the allegations against Waldhauser/Davis. He is accused of insurance fraud -- committing a first-degree felony by using deception to secure execution of a document valued at more than $200,000. Five more charges allege first-degree money laundering, each involving more than $100,000.
However, a source close to the investigation says the actual of insurance fraud by Waldhauser and several other suspects totals more than $1 million and that the scam involves accounts in several offshore bank accounts.
State District Judge Henry Wade Jr. of Dallas refused to release the report that details the evidence amassed by police to gain the arrest warrants. He says that the "probable cause" report will not be public information until police arrest Waldhauser/Davis.
However, about the time the agents from the Department of Insurance began their investigation, the Press was contacted by an HIV-positive Dallas attorney who says he was one of those approached by Waldhauser/ Davis through contacts at the AIDS Resource Center of Dallas. The attorney, who asks that his name not be used, says he refused to participate in the scam but that several of his HIV-positive friends did.
According to the attorney, his friends would pass themselves off to insurers as being HIV-negative, then obtain life insurance coverage of $100,000 or more. After taking out the policies, Waldhauser/Davis would make the monthly premium payments for them until he could find a buyer for the policies.
Early last year, the attorney says, he was lunching at the AIDS center when two longtime friends approached him about the scheme by Waldhauser/Davis's company.
"Southwest Viatical gave them money for the initial premium," the attorney says. "That money then went into the individuals' checking accounts, which they then used to pay the insurance company. Southwest paid the premiums directly after that. All you had to do was say you were not HIV-positive."
After the state-required two-year waiting period, if the insurance company did not discover that those insured were HIV-positive, Waldhauser/Davis and Southwest Viatical would buy the policy, says the attorney. He adds that he told his friends that what they were suggesting amounted to fraud, but several of his associates got in on the scheme.
He says some of the policies were sold to elderly investors who did not realize that people are no longer dying from AIDS as fast as they once were. The buyer of the policies has to pay for the premiums until the insured dies, so some viatical investors found the business to be a losing proposition.
"After the Press article came out, I told my friends that it was obvious they were dealing with real crooks," says the attorney. "But at that point they didn't want to talk to me."
The attorney says he is unsure how many people were involved in the scheme; he says he didn't want to know. Many of them, he says, bought multiple policies and were paid as much as $5,000 each time a policy was sold to an investor. The attorney says he was under the impression that some officials of insurance companies were also in on the fraud.
A Dallas County grand jury is expected to start hearing evidence in the fraud case this week, as the search for Waldhauser/Davis expands.
Andy Kahan, director of victims' assistance for the City of Houston, deplores the way the criminal justice system has dealt with the confessed capital murderer.
"Since Waldhauser's release [from prison], there has been one illogical event after another, so why would I expect a simple arrest on a warrant and law violations to be any different?" says Kahan. "The fact that he was apparently tipped off, and that life was about to change as he knew it, adds to the absurdity of his whole criminal career."
Kahan points out that Waldhauser/Davis has used multiple Social Security numbers over the past several years, a fact that will add to the difficulty of tracking him down. He says that task would be easier for officers if the Board of Pardons and Paroles had granted Kahan's request for them to require Waldhauser/Davis to use his original name.
"I hate to say we told them so, but we told them so," says Kahan.
Ellen Davidson, who was best friends with the late Diana Wanstrath, also was troubled by Waldhauser/Davis's eluding justice. Like Kahan, Davidson says that, given his track record, she's not surprised that he has once again outsmarted the law.
"For [the Board of Pardons and Paroles] to remove him [from electronic monitoring] knowing that this guy had to be up to something is just unconscionable," says Davidson. "It's not like this guy was on parole for stealing hubcaps. This man is responsible for the deaths of four beautiful, innocent human beings. And I'm very, very angry. And right now he's laughing at everybody in the system.