The Trial of Joe Russo
There were times during the bank fraud trial of Joe Russo when courtroom observers might have had trouble recognizing the man who, in the boom that fueled the giddy 1970s and early '80s, came to symbolize everything that was brash and energetic about Houston. In the middle of the last decade, the city's booster extraordinaire often graced the pages of the Houston Post or the Houston Chronicle, striking a classic CEO-victorious pose: arms crossed, shoulders thrown back, eyes gazing fearlessly into the future. This was the look of a man who behaved as if nothing were impossible, whether it be building a string of high occupancy office complexes, running for mayor or making Houston the center of a worldwide communications empire.
Yet in Judge Melinda Harmon's courtroom on the ninth floor of downtown's federal building, that particular Joe Russo appeared only intermittently. In his place was a trim man who seemed somehow grayer and smaller than he once did, a man whose bold posture had yielded to something more inward, to the faintest protective hunch. Perhaps it was the possibility of spending his retirement years behind bars that had tamped down the old Russo persona, the old feisty strut. To see him in this unfamiliar guise, every errant twitch of the cheek illuminated by the courtroom's flood of mock-daylight, was to wonder how not just he, but also the city to which he once seemed surgically joined, had come to this.
Of course, Russo's subdued drawnness could have sprung partly from fatigue; at times it seemed as if his trial would last forever. Certainly Judge Harmon must have thought so on the morning of November l, when she screwed her pale, small features into a mask of desperation and blurted, "I just can't stand this any longer!" Before her, a squadron of lawyers squabbled over halting the bank-fraud proceedings to await a juror whose wife had landed in the intensive care unit. "This has got to be the world's most jinxed trial," groaned Harmon.
It was a cathartic outburst. "I'm finding this juror is unable to perform his duties further," Judge Harmon suddenly decreed. She dialed the fellow on her speakerphone and bade him a kind farewell; his disembodied voice echoed surreally in the marble courtroom. The trial lurched forward into its 12th ill-starred week.
University of Houston Cougars Football vs. UCF Knights Football
TicketsSat., Oct. 29, 11:00am
Rice University Owls Football vs. Florida Atlantic University Owls Football
TicketsSat., Nov. 5, 2:30pm
University of Houston Cougars Football vs. Tulane University Football
TicketsSat., Nov. 12, 11:00am
University of Houston Cougars Football vs. Louisville Cardinals College Football
TicketsThu., Nov. 17, 7:00pm
Summer had turned to fall and still Russo sat quiet and grim and self-contained, scribbling notes on a legal pad. Flood and then fire struck as the government strove to prove that Russo and fellow savings-and-loan owner Ronald A. Piperi -- together with Piperi's son, Ronald Drew -- had conspired to commit bank fraud, bribery and misapplication of funds. There were time-outs for a juror's wedding, a panoply of holidays, lawyers' toothaches and kidney stone attacks. Both sides spun dark metaphors. "Chinese water torture," sniped a defense lawyer; muttered a weary prosecutor, "It's something out of Sartre."
Yet the trial's pseudo-epic sweep seemed only fitting. The rise and fall of Joe Russo is one of Houston's major loose ends, a nagging, unexplained reminder of that era when boom turned to bust -- and when many Houstonians desperately wanted to believe Russo's optimistic gospel. He seemed to be everywhere back then: flogging the new think-positive-or-else civic association, Houston Proud; waging a bold but fruitless campaign to bring the Democratic Convention to town. One day he was going to buy United Press International and move its headquarters here to diversify the city's reeling economy; the next day he was going to buy an endangered classical radio station to preserve Houston culture. Even when his schemes failed to pan out, Russo's image as a quintessential can-do Houstonian and self-styled civic savior flourished -- at least until Thanksgiving 1987, when he and his various real-estate companies filed for bankruptcy.
Russo's fall from grace is the kind of drama that has always cried out for a large stage. But few Houstonians suspected that his story would ultimately play out in a half-empty federal courtroom. Save for some Russo supporters who showed up on cue at crucial moments, the trial unfolded in obscurity. Yet a rich cast of Houston characters and a powerful subtext -- the bust-era skeletons that still rattle in our civic closet -- made this interminable trial a curiously gripping event.
The legal talent alone was eye-popping. At Russo's table sat both the hyperkinetic David Berg, famous for having gotten Robert Sakowitz off the hook, and Berg's partner, Joel Androphy, whose client Teresa Rodriguez has put him on the map. Arguing for the elder Piperi was Mike DeGeurin, the folksy Percy Foreman protege. The younger Piperi was represented by the dapper Dan Cogdell, a smooth, witty talker fresh from the Branch Davidian wars. U. S. Attorney Gaynelle Griffin Jones dispatched heavyweight Mike Clark, head of her criminal division, to supervise the government team.
In this teeming petri dish, cross-examinations sizzled. Tempers flared. Red herrings flitted through and vanished into the sea of doubt. The ins and outs of the disputed charges were dauntingly hard to follow. Rife with the twisting byways of banking procedure, the case involved a cast of dozens and amounts of money (a few hundred thousand here, a million five there) that seemed almost tiny compared to the mountains of debt that flowed through the city as the boom bottomed out. The only things that rose clearly, hovering over the proceedings like uneasy spectres, were two warring interpretations of the era that birthed both Russo the conqueror and Russo the bank-fraud defendant.
In the eyes of the defense, Joe Russo had simply been carrying out business as usual in the 1980s, doing what scores of others had done -- pushing the envelope, perhaps, but still caught up in the same ecstatic charge to the next deal that had overwhelmed much of Houston commerce. To convict him of malfeasance would be to convict the city itself. He was not the creator of his times, but a product of them; not villain, but victim. To this the prosecution said a simple "no." Russo, and Russo alone, was the creator of his fate.
And just below the surface of this dialectic lurked a single, suspenseful question: would super salesman Joe Russo take the risk of appearing on the stand? As the days ground on, it seemed unthinkable that he could resist the impulse to embark on his most important selling job of all.
August 18: The Battle is Joined
Today is Joe and Sally Russo's 38th wedding anniversary, but complaining prosecutors broke up the devoted tableau the couple presented during jury selection -- when Russo sat just inside the courtroom rail, holding hands with the composed, patrician-looking woman who once caught his eye at a UT football game. With Sally consigned to the spectator section by Judge Harmon, Russo listens, stoic and alone, as Mike Clark lays out the case against him. In a nutshell, the government claims he and the Piperis made a secret deal to swap bad loans through three of their banking institutions, with $1.5 million going for Russo's purchase of UPI stock and $750,000 toward the elder Piperi's speculations in the stock market. The loans ultimately failed; the banks did too. The phrase "federally insured institutions" echoes like a gong, the better to impress upon the largely working-class jury that when "you're backed by the taxpayers' money, you have to play by the rules."
The defendants did not, Clark says, sketching out the irregularities that swarmed through the lending process on both sides. Both loans, he tells the jury, were based on deceptive financial statements and pushed through without sufficient scrutiny; the spotty loan files were papered over after the fact. He contends Russo had an unusual personal involvement in the Piperi loans, and he calls both Piperi the Younger and the Russo Companies "straw borrowers", since the benefits ultimately went to Piperi the Elder and Russo himself. The impropriety lay not in bank owners lending each other money, says Clark, a tall, measured presence whose deep voice resonates with a laconic skepticism; it lay in the way the defendants masked the simultaneous timing and reciprocal nature of the loans from bank examiners and some of their own bank officers. These were not arm's-length loans, Clark finishes, looking straight at the jury. "The defendants treated these institutions as their personal piggy banks."
No way, the assembled defense lawyers spend the next several hours protesting. The transactions were no more than business as usual in the freewheeling '80s. With his disarming country-boy delivery, Mike DeGeurin draws his client, Ronald A. Piperi, as a humble striver after the American dream who worked his way through law school delivering butter and cheese. From a law and building career in Killeen, he made the leap to the banking business (a common one in those heady days of deregulation), buying a "little S&L" called First Savings of Orange. Within three years, Orange ballooned from $30 million to $800 million in assets, and suddenly Piperi was living on River Oaks Boulevard and dealing with "the star of Texas," as DeGeurin describes Russo -- a man whose projects were said to turn to gold.
Dan Cogdell, dark hair slicked back and pocket hankie standing at attention, conjures an image of little Ronald Drew Piperi sweeping the floors of his dad's law office, mowing the grass at his dad's apartment complexes, studying psychology (but failing to graduate) at SMU. And, ultimately, playing the Good Son when his father told him to come work at his new S&L. He suggests that his client was too naive and inexperienced to have been a driving force in the loans. The real players? Drew's father and Joe Russo. If Berg and DeGeurin are less than thrilled to hear this, they betray nothing; such are the strains of a conspiracy trial.
An equally fervent Berg declares it an honor to represent Russo, painting him as Houston's ultimate Horatio Alger. He invokes Russo's "extremely modest" Fourth Ward roots for the jury -- half of whom are African-American -- working in Russo's momma and daddy, the paper route he threw to make ends meet as a novice real-estate broker, his big break when Texaco leased all of his first building. Berg waxes eloquent about Russo's successively larger structures: how he was "the first one" to create landscaped esplanades at his own expense, how -- irony of ironies! -- even the federal prosecutors officed until recently in the "crown jewel" of Russo's buildings, the downtown Lyric Center. Then comes the litany of Russo's civic deeds. "He brought 911, the emergency number, to Houston!" Berg informs the jury. Not to mention the lights he funded at Memorial Park, his NAACP Man of the Year award, the way "he never forgot where he came from, 320 West Bell." It is much the same story rehearsed in umpteen mid-'80s press clippings, with a key difference: now it is meant to persuade a jury that "this is not the kind of man you will find involved in deception."
At day's end, Joe Russo exits the federal building with Sally at his side. He and Sally climb not into the jazzy Porsche that he once likened to his own high-performance business style; instead, they slip into traffic in an anonymous maroon Saturn.
August 22: The Gathering of the Tribes
Two days into the jury's crash course in banking, the government's expert witness, a self-possessed New York banking consultant named Margaret Keene, is still citing the many ways in which she feels the Piperi and Russo loans departed from sound lending practices. Among the things Keene finds awry: that Ronald Drew's $70,000 income could hardly service a $750,000 loan. That Ronald A.'s tax returns should have alerted Russo's Ameriway Savings and Ameriway Bank Woodway (which split the loan) to a $4.3 million debt load missing from Piperi's financial statements. That loan files showed confusion about the purpose of the Piperi loan and about the collateral. That a month after the fact, the Piperis put up shares of a volatile computer stock that later plummeted in value, leaving the loan seriously undercollateralized.
Keene sees flaws in Russo's UPI loan, too. For one thing, Russo didn't have to put up collateral or sign a personal guarantee. At the time, June 1986, the Houston real-estate market was reeling, but Orange didn't bother to verify whether Russo was on time with other bank loans until three months after he got his money; in fact, his companies were having major cash-flow problems. Yet the financial statements Russo sent over to Orange looked good, largely because his in-house accountants had switched to a method that conveniently removed his potential partnership debts from the bottom line.
There is much more, and coming from this earnest woman in the oversized eyeglasses and well-bred navy suit, it all sounds so reasonable. The elder Piperi, his wavy white hair and ruddy jowls suggesting a worldly Father Christmas, fidgets in his green leather chair. He chews gum. He removes his half-spectacles and dons them again, gazing around the large courtroom. With its vaulting skylight, blond wooden pews and handsomely veined brown marble, the room has the air of a modern church, and spectator seating has jelled along church wedding lines. The Russo women and friends gravitate to the far end of the left-hand section, behind their man; to their right, on the aisle, sit the Piperi women.
Scarcely a word crosses the gulf between Russo and Piperi turf; it's as if a stage director has told them to pretend they don't know each other. Looking out, a juror might distinguish two separate tribes. Sally Russo and her four daughters are all of a piece: slender, decorous, sleekly groomed and tailored, with the porcelain skin and crisp, high-cheekboned features of an old-fashioned cameo.
The Piperis are another breed: tousled, fleshy, expressive, quick to laugh. They seem far closer to Killeen than the Russos do to West Bell. Modie Piperi, a warm, buxom woman with a tightened jawline and a little upturned nose, sits shoulder to big padded shoulder with daughter-in-law Melanie, Ronald Drew's wife. Ronald A.'s frail, 84-year-old mother haltingly comes and goes with a changing guard of Piperi daughters and granddaughters. Big prints, bold earrings and flowy garments mark the tribal dress code, more Sam's Club than country club. It's hard to picture the Piperis as River Oaks swells -- but of course, the bust swept them away so fast, River Oaks didn't have time to take.
August 25: Berg Draws Blood
The jury is leaning forward, witnesses to one of Houston's hair-raising blood sports: a cross examination by David Berg. After five days on the stand, a hoarse and rasping Margaret Keene has lost some of her pale-blond, cream-silk cool. All brisk efficiency, his aluminum hair gleaming, Berg pecks sharply away at his target. The room rings with his urgent, bustling footsteps and staccato questions. "You're not gonna say that, are you?" "You made a mistake, didn't you?" The words practically tumble out of his mouth, impatient and accusatory. "I'm not trying to make you look ugly in front of everybody," he says -- but of course, he is.
The Keene who Berg now paints for the jury is nothing more than a money-grubbing government lackey. Besides, as an alien, Eastern, Wall Street Journal-reading member of the privileged class, she just doesn't get "our depression," as Berg keeps referring to the mid-'80s bust. Sowing doubt like bread crumbs, he gets her to admit she was wrong to say there was no evidence Russo told anyone on Ameriway's loan committees about the Piperi loan.
Berg's biggest score comes when he gets Keene to describe a short letter that Orange banker Steve Raab gave Russo in November of 1985 as a valid letter of commitment to fund the UPI loan. That's crucial to the Russo case: what one lawyer later describes as "Joe's theory" holds that if Russo had a binding commitment seven months before the two loans were funded, he would have no need to grant a reciprocal loan to the Piperis. When Berg extracts a concession from Keene that if there's a valid commitment letter, the loans are "unlinked," you can sense silent, there's-the-ball-game joy rising from the defense table.
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.
In February of 1986, federal bank examiners stepped in; they agreed to take no action if Orange kept its liability growth to prescribed limits. But things got worse. During audits, accountants from Coopers & Lybrand discovered $11.7 million in what soon became known around the office as "Unidentified Flying Debits" and recommended that Piperi write them off as losses -- which would have effectively rendered the bank insolvent. Piperi chose not to; the UFDs kept mounting. It was in this ghastly context that Orange made its $1.5 million unsecured loan to Joe Russo.
September 26: Lending in Haste
A careful, schoolmarmy redhead named Kathy Gamel, an 11-year Russo employee who was Ameriway Bank's officer on the Piperi loan, has been rehearsing its unconventional course. She typed up "purchase of S&L" as the loan's purpose after attending a meeting with Russo and the Piperis, she says; learning Piperi had instead used the money to buy computer stock caught her by surprise. By federal rules, a stock-purchase loan called for twice as much collateral as Piperi furnished, Gamel points out; Ameriway "unwillingly" took the computer stock he offered when he indicated he couldn't provide the promised real-estate collateral. Five months later, the computer stock had plunged in value, leaving a serious collateral deficiency that was not rectified until 1988, after Piperi and Russo had bowed out of their troubled institutions.
In the meantime, Ameriway dropped the interest rate on the loan to Piperi at the same time that Orange dropped the interest rate on the loan to Russo. Ameriway, says Gamel, "was asked to do this" by Joe Russo's office.
Diving in for the mop-up, Berg coaxes forth testimony that Russo never asked Gamel to do anything illegal; she seems visibly relieved to opine that Russo wouldn't have done anything to harm Ameriway. When Prosecutor Lewis gets a crack at her, Gamel's discomfort returns: no, Ameriway had no time for the normal due diligence on the Piperi loan, which was funded in great haste; better documentation might have raised questions and slowed down the loan.
Whose choice was it to move so fast? Lewis asks her. There is a long silence. "Well, I would say Mr. Piperi made it clear he would like the money that day," begins Gamel. With Lewis pressing her and Berg making frenzied objections, she finally thrusts her head in the trough and drinks. Who was responsible? "Joe Russo," answers Gamel unhappily.
September 28: Berg Meets His Match
The prosecution is enjoying itself hugely today. They've put on a quick-witted witness who refuses to be cowed by David Berg. Worse, he appears to have been a sane banker during that period when the defense wants the jury to think standards of prudence were so much looser. Larry Linenschmidt, an affable fellow with a clipped beard and glasses, worked as a Wells Fargo loan officer and credit analyst from 1979 until this summer. As manager of the Houston office, he dealt with the real-estate community -- including Joe Russo, to whom Wells Fargo loaned a total of $28
million. Russo had pizzazz, says Linenschmidt, but he also had a lot going while the market was worsening, and Wells Fargo grew "less comfortable about Joe's situation as the '80s progressed."
The defense has insisted from day one that lenders cared more about developers' assets than their cash flow back then. Not so, says Linenschmidt, "cash flow is much more important," and Wells Fargo had projected as early as mid-1985 that Russo's companies would have a negative cash flow of $5.5 million over the next year. Wells Fargo cared about the contingent partnership liabilities that the defense has pooh-poohed, too, because "that was where surprises could come from." Russo began having trouble making his loan payments, and by late 1985 Linenschmidt was trying to get every scrap of additional collateral he could. By 1986, Linenschmidt says, he thought Russo might have to declare bankruptcy.
The usually impassive Russo is reacting visibly: turning to look at the spectators, rocking in his chair, which is as far in the corner as he can get it and still be in the room. For once, Berg can't get a witness to contradict himself, and he grows discombobulated. When Berg fingers the Russo Companies' president, Harold Klinger, as architect of Russo's financial statements (a drumbeat in the rising crescendo that will become The Klinger Defense) Linenschmidt replies coolly, "I think Joe was in charge of everything."
Berg tags Wells Fargo's views of the Houston market as "a doomsday approach," but Linenschmidt will have none of it. "We did take a more conservative view than a developer might," he says, to muffled laughter in the courtroom. Finally, Berg and DeGeurin can do no more than try to gin up jury xenophobia by mocking Linenschmidt as a "belt and suspenders banker" for $50-billion-dollar Wells Fargo. But the jury is left with the indelible sense that not all transactions back in those troubled days resembled the Russo and Piperi loans.
October 3: The Power of Positive Thinking
Donna Wright, an unflappable, articulate accountant who was once Russo's controller, is testifying for the second day about the real-estate companies' mid-80s slide toward bankruptcy; hers is an archetypal Houston tale that still induces a sick-making vertigo. With Houston on the leading edge of the state's real-estate bust, things grew much tighter for Russo in the year that spawned the slogan, "Stay Alive in '85"; by l986, the year of the disputed loans, tenants weren't paying, leasing had fallen off and landscapers, cleaners and suppliers were calling Wright daily, begging to be paid. Russo's leap into the downtown office market had proven exquisitely ill-timed; Wright's 1986 projections showed the Lyric Center losing $4 million to $5 million a year.
Underlying Wright's death-knell of discouraging numbers, though, is that fierce, desperate optimism that kept Russo's 1986 in-house projections predicting 95 percent occupancies within a year. "Best of all possible worlds projections?" asks Clark. "I think we had a very positive attitude," says Wright carefully. She agrees with Berg that Russo never indicated pessimism or said, "We're going under"; that he never considered downsizing or firing people. Given the numbers, it sounds more like denial than optimism -- but then, there was always a dark current of denial running through Russo's Houston Proud crowd; talk positive or shut up was the dogma of the day. Listening to Wright, it is hard not to wonder whether that near-delusionary positivism dug many a bust-era hole deeper than it had to be. "Was there reason to hope?" Berg demands of Wright. "There was always reason to hope," she answers, and hearing his cue, Berg sits down. A short while later, the government rests its case.
October 6: The Man of Vision
There's a new spring in Russo's step now that his version of the story is due to be told, a trace of the old exuberance for which he was so famous. Certainly publishing executive George Wethersby's turn on the witness stand is just what the doctor ordered. Wethersby, the onetime president of New UPI Inc., is here to draw Russo's pursuit of the foundering wire-service company in heroic terms, the better to cast the disputed Orange loan in a flattering light. In Wethersby's view, Russo was not just a serious contender in the race to buy UPI -- he was the sort of visionary that UPI badly needed.
Wethersby grows quietly hostile as Mike Clark suggests Russo was only a minor player cut into the final deal by Mexican media mogul Mario Vasquez Rana because he needed an "American figurehead." "You thought Russo was a rich Texan with deep pockets?" asks Clark sardonically. "My impression was that he had adequate backing," retorts Wethersby, "and that he brought management talent, imagination and a unique vision of the product as his major asset." Wethersby says Russo wanted to move UPI into the electronic realm of a CNN, move its headquarters to Houston and use local technological talent to develop new products. It sounds like vintage Joe Russo, all right; he was never short on energy and ideas and school spirit, even when he was short on cash. Listening to Wethersby, whose admiration seems genuine, it's easy to feel a pang of sorrow for what might have been.
But the current inglorious reality finds Russo shaking his head over Clark's snipes at the Lear Jet he bought to pursue UPI business, and stewing over Clark's suggestion that at one point he couldn't even afford a plane ticket to Washington. "Not during my dealings with him," replies Wethersby stiffly.
"Hey, can you lend me some money?" Russo calls out to an acquaintance in the hall during a break. "I've gone from a Lear Jet lifestyle to not being able to buy a plane ticket!" Schmoozing with well-wishers, he's every bit the confident gladhander of yore. An important looking fellow darts down the hall, briefcase in hand. "Hey Joe!" he hollers. "Hang in there!"
October 11: The Man and the Myth
The suspense is over. At 10 a.m., Joe Russo settles himself in the witness chair, making eye contact with the jury. Russo's supporters are out in force; on conspicuous display at Sally Russo's elbow sit two of Houston's prominent African-Americans, the Reverend Bill Lawson and Howard Jefferson. Prompted by a respectful Berg, Russo tells a story that assumes the outlines of a primal Houston myth. Voice warm and relaxed, he tells of his up-by-the-bootstraps rise from humble roots, the bus commute to Lamar High, the service in the Army Corps of Engineers, the tiny first office he shared with Julio LaGuarta in the back of a beauty salon. It was "the size of this jury box," he says with the smile of a salesman for whom relating to the customer is second nature.
Russo proudly allies himself with the great gods of Houston development, Gerald Hines and Kenneth Schnitzer, calling them "good role models" and "my mentors" (a characterization that might chafe Hines, who was no t exactly a fan). He speaks stirringly of that central Houston romance -- the development of raw land -- as creating value and jobs; as Russo tells it, even his jump into the prestigious downtown market was fueled less by ambition than a civic-minded desire to clean up a bad part of town. When Berg produces a glossy blow-up of the skyscraper, Russo clutches it as if it were a talisman. "It seemed timely," he tells a jury that should know better by now.
"Great" is a word that pops up a lot in the gospel according to Russo, along with "impressive" and "first-class" and "exciting" -- boosterish locutions that echo his Dale Carnegie training. But those rah-rah adjectives drain from the narrative when Russo speaks of the economic travails he encountered as oil and then real estate took their mid-'80s dive. His voice goes flat explaining that despite his companies' internal projections, he was not worried about his cash flow. He'd been close to the bottom of the barrel in 1974, and took away the lesson that good assets and hard work could see him through any downturn.
During the break, Russo seems energized. "It's been debilitating to sit there for eight weeks listening to this crucifixion," he says. "All these humiliating things being dredged up in front of your wife, your family, your friends." The irony, muses Russo in a tone that blends injury and outrage, is "that your own government, that you've tried to protect, would take these coincidentals...." He breaks off, shaking his head. But soon he's pantomiming a boxer's pose, ready for action. As he passes through the lobby metal detector, though, the mask of reflective optimism slips. "I know I'll screw up somewhere," Russo says.
He and Berg devote much of the day to a dramatic and excruciatingly detailed account of the UPI saga, which saw Russo make it to the final round of bidding for the bankrupt company, then work a deal with the victorious Vasquez Rana for a 10 percent share. The tale is interesting less for its intended effect -- which is to portray Russo as the workingman's friend and the universally hailed owner of a valid commitment letter -- than for image of frantic plate-spinning it conjures. From mid-1985 through much of 1986, as his companies slid deeper into the hole, Russo was flying around America in either pursuit or promotion of UPI: lunching with Walter Cronkite, whom he wanted for UPI's board, at New York's Plaza Hotel; visiting UPI subscribers to "spread the good news" (always a Russo specialty) about UPI's new ownership; conferring with the Washington Post's Ben Bradlee and USA Today's Al Neuharth.
"It was a very exciting period in my life," says Russo quietly. Listening to him, it's easy to imagine what a lifeline this bold new arena of corporate acquisitions must have seemed. It was more than a way to lease up the Lyric Center or help Houston diversify: it was a way to escape the worsening financial morass back home. Suddenly it's clearer why Russo threw himself into so many projects, from the Democratic convention campaign to contemplating a race for mayor, in the months before his 1987 bankruptcy. For Russo, the darker side of ferocious optimism -- a penchant for denial -- had struck again.
October 12: Russo Gets Mad
David Berg is marching Joe Russo through the eternal loan documents, hoping to explain the inconsistencies before the prosecution starts hammering at them again. Russo portrays the Piperi loan as "the kind of business that Ameriway was trying to do with people in the community," and depicts his own involvement in it as minimal. According to Russo, he simply "introduced" the Piperis to Ameriway officers after the loans had already been approved. He doesn't remember seeing the letter Ronald Drew addressed to him on June 2 in which Drew discussed both loans, asking for Russo's financials while promising the Piperis' own, and suggesting that "once the dust settles" they both offer collateral "to escape criticism from our respective examiners." According to Russo, he had turned over the UPI loan to his right-hand man, Harold Klinger, whom he also told to contact Ronald A. about a loan Piperi wanted to arrange.
Russo's basic message: other people were responsible for making the Piperi loan; and there was "absolutely not" any suggestion that for Russo to get the UPI money he had to put up on June 10, the Piperis had to get money from Russo's bank in return. Russo can understand why someone might question the transactions, he concedes under Berg's gentle questioning, sounding as if he really can't; but he insists that even though the loans were funded on the same day, they weren't linked. On the subject of the twin drop in interest rates, Russo sounds evasive. It's hard to explain away the tit-for-tat letter Ronald Drew addressed to Russo, alluding to "our conversation before the holidays" in which they discussed lowering the rates on both loans. Russo doesn't remember any such conversation, although he "might have" had it. Berg suggests once again that the rate modifications did no harm -- but that's hardly the point, since the more the two loans can be shown to have moved in tandem, the more they look to be linked.
Klinger's name pops up again and again in Russo's testimony, along with a dark hint at some unspecified malfeasance; it's becoming obvious whom the jury is supposed to blame for this mess.
Russo does admit to responsibility for one thing: his personal financial statement, even though it was prepared by his assistant; the Russo Companies statement, of course, was the province of Harold Klinger. He and Berg engage in a low, sad exchange about his mounting financial woes -- before l987, he never thought he would lose his companies, Russo maintains stoutly -- and soar to a lyrical finish. "I walked every construction site, every floor of every building," Russo declares with passion, "and it would probably take a developer to understand this. There was a great aroma out of a construction site that was very refreshing and exhilarating to me."
"Now the companies are gone," says Berg. "Do you ever drive around at night and look at your buildings?" "Yes," replies Russo in a very quiet voice. For all its calculation, it is one of the trial's genuinely painful moments.
Then the temperature in the courtroom seems to drop 20 degrees. It's cross-examination time; Mike Clark and Joe Russo cross swords immediately. What about that memo notation that nobody at Ameriway was to communicate with the Piperis regarding more collateral "per JER"? Did Russo give that instruction? "I did not," says Russo frostily.
In short order Clark has Russo sounding truculent and evasive. Clark prods him about various Piperi loan documents Russo says that he didn't read, or doesn't recall or -- in the case of one that says the purpose is to buy an S&L -- might very well have signed in blank. "How many other times did you sign a blank document?" inquires Clark, his skeptical voice having added a layer of permafrost. Replies Russo, "I don't recall."
They go on in this vein for more than two hours, calling each other "sir" as if the word were a small, deadly barb; Russo gibing "Did you ask me a question? I didn't hear a question," and "Would you ask me the question please, sir?" He is looking more unsympathetic by the minute.
Clark goads Russo on an obvious sore spot -- holding the UPI stock in his own name (it ended up in his daughters' trust) while leaving the debt with his bankrupt companies. But it is not until Clark suggests that Russo was exploring the possibility of bankruptcy with lawyers as early as January 1987 -- a direct contradiction of his earlier testimony -- that Russo completely loses his cool. "You ... are ... wrong," he says fiercely. When Clark says that things "were coming to a head for the Russo empire, you couldn't pay your bills," Russo snaps back bitterly, "You seem to take a certain joy in that." "No sir," retorts Clark witheringly. "I don't take joy in that. I take this very seriously." He pauses a few beats before adding, "This is a good place to break, your honor."
Gathering up his tote bag, Clark leans over the rail and says, "He's got a temper." He does not sound at all displeased.
October 25-26: A Refurbished Witness
A 12-day hiatus has passed. The courtroom feels like the first day of school: people bustle in sporting new haircuts, state Senator Rodney Ellis makes an appearance in the Russo pew and when Joe Russo takes the stand, it is obvious he has been cramming at Witness U. No longer is he the sarcastic combatant. Today, and for the rest of his testimony, he acts the quietly injured party, answering in a spookily uninflected voice. Judge Harmon allows the contents of a sealed envelope into evidence, over Berg's protests: it's the letter by which Russo engaged the services of bankruptcy specialists Sheinfeld, Maley & Kay. Clark shows it to Russo. Would he like to clarify earlier testimony that he had "zero" meetings regarding bankruptcy? "Well, I might... I might like to clarify my testimony," says Russo. So was the meeting about bankruptcy? "Well not ... not totally." The meetings were about bankruptcy issues, about avoiding bankruptcy, he explains mildly. But there's no getting around that Clark has caught him being less than truthful.
Clark has Russo come down from the stand to examine a wall of loan documents that are on display; Russo, arms clasped behind his back, offers less-than-convincing explanations about their anomalies. Yes, that's his signature on Ronald Drew's "once the dust settles letter," the one he disavows reading. It was sent over as a fill-it-in-yourself loan request? "Could be." On goes the chipping-away process. Russo is licking his lips a lot. He could have had a let's-drop-the-interest-rate conversation with Ronald Drew, Russo admits again. He could have seen Drew's "once the dust settles letter." He just doesn't remember. He concedes that transferring his UPI stock in his daughters' trust made it unavailable to the Russo Companies' creditors when he filed for bankruptcy; since he made the transfer about the same time he was talking to Sheinfeld Maley, it looks as if he stripped the asset and left the $1.5 million debt with his companies -- a key point if the government is to prove that the loan went to Russo's benefit. Russo has produced no diaries that might note who he was meeting with during the crucial loan period; now he concedes although he doesn't have any in his possession, he "may have kept them from time to time." (It is a strange answer coming from a man who, in a local news article, once made much of the detailed diaries he kept.)
All day and half the next Clark's probing continues, sinking occasionally into baffling murk. But Russo never regains the self-assurance that marked his first hours on the stand -- not even when he's back in the friendly hands of David Berg. Once more the name "Harold Klinger" tolls like a death knell: we hear about "Klinger documents" and "Klinger numbers" and "Klinger initials."
In the end, with an earnest flourish, Russo frames his story -- and the story of this trial -- as Houston's own. Did you just run out of time? asks Berg. "We did," answers Russo gravely. "This real-estate depression just lasted too long. There were a lot of people who got hurt by it. It wasn't just a Joe Russo problem ... a lot of people were laid off, lost their homes. We were caught up in it like everyone else."
"Mr. Russo now rests his case," says Berg. While the lawyers mob the judge's bench, Russo retires to his chair in the far corner. He sits drawn and still, an occasional sudden twitch flickering across his cheek.
November 3 : Final Arguments
Everyone squashes into the courtroom pews for the spectacle that is final argument, from Piperi granddaughters in red-plaid school uniforms to federal attorneys watching to see how the home team fares against Berg and DeGeurin. It's a debut of sorts for John Lewis, a refugee from a blue-chip Manhattan firm who turned to "more interesting" bank-fraud prosecution -- but for two hours, he speaks with such lucidity and ease about this complex case that you would never know he is new to final argument. From the moment that $450,000 left Russo's Ameriway Savings at 2:20 p.m. on June 9, 1986, with $1.5 million departing from Piperi's Orange 99 minutes later, Lewis traces the tangled history of the disputed loans.
Without a whisper of arrogance or hostility, Lewis snatches loose ends from huge snarls of testimony. He sounds the sweetheart theme: "Russo's loan really stands out," says Lewis. "How many other $1.5 million unsecured loans did Orange make? None." He summons up such telling details as Ronald A.'s note to an Orange attorney who wanted some Russo collateral: "Nice try, Bob," wrote Piperi, "but that wasn't part of the deal." Lewis actually makes the case comprehensible, and when he sits down after two hours he still has the air of a man with no ax to grind.
David Berg plays his hour blisteringly fast, loud and angry. "This case is a disgrace to the Southern District of Texas," he says by way of setting the tone. Soon he is brandishing the Empty Chair, scornfully citing witnesses the prosecution failed to call. He intimates prosecutors manipulated Steve Raab, the convicted Orange banker who flouted the letter-of-commitment theory. "Miss-Margaret-$40,000-Rahn-Keene," the government's well-paid expert witness, appears as Berg's Greatest Hit. He revisits the moment when he got her to say that reasonable people could differ about the commitment letter. "That was the end of the case!" he declares. "That's the heart and soul of reasonable doubt!" At times Berg seems unaware, or determined to ignore, the impression his client created on the stand. Doesn't Russo have a right to expect that his bankers would make some mistakes? Berg demands, adding "not that he runs away from responsibility, but he has a lot on his plate." Berg makes a final, uncivil prediction that prosecutor Lewis will wake in the night regretting Raab's testimony. Then, seemingly spent by his slightly over-amped performance, Berg quietly asks the jury to give Joe Russo his life back, and sits down.
The lawyers for the Piperis, Dan Cogdell for the younger, Mike DeGeurin and David Gerger for the elder, follow, and repeat their mantras: Ronald Drew Piperi didn't know what was happening, father Ronald A. Piperi tried to be a good banker in bad circumstances, the bad old federal government was to blame for deregulating savings and loans in the first place.
Mike Clark, whose last act is to add emotion to John Lewis' logic, begins so softly that the courtroom must strain to hear him. But soon he grows indignant: Joe Russo lied, he tells the jury, in matters small (how often he flew in the famous Lear Jet) and large (when he began meeting with lawyers about bankruptcy). He paints as expedient Russo's poor memory of conversations and documents and calls the Orange loan "the best loan of Joe's life," reminding jurors that "we pay" when banking institutions go under. Why did it all happen? The defendants' "house of cards was coming down," says Clark. "Desperate times cause good people to do desperate things, and that's what this case is about."
What still lingers in the courtroom is Mike DeGeurin's final division of the universe into bees and buzzards -- the ones looking for "putrid decay." The government wants to turn you into the latter, he has warned the jury, giving them one last directive before he sits down. "The Constitution," said DeGeurin, "mandates that you not be a buzzard." Russo can only hope that the jurors agree.
November 10: The Verdict
At 4 p.m., after five days of deliberations, the jury files into Judge Harmon's courtroom with a partial verdict. They're not making eye contact with anyone. Soon it's apparent why: they have found Russo and Ronald A. Piperi guilty on three counts each of bribery and one of misapplication of funds; they have deadlocked on the three bank-fraud charges and the umbrella count of conspiracy. David Berg shakes his head as the first Russo "guilty" finding is read out, but the Russo tribe remains stoic; there is not a red-rimmed eye among them. One of the jurors -- a wiry man who dresses in carefully pressed Western shirts -- tries to hold back tears. Nine straight "not guilties" ring out in the case of Ronald Drew. At number eight, his wife's shoulders start shaking; by number nine, she is weeping loudly, folded in Modie Piperi's protective arms.
When the jury assures Judge Harmon further deliberations are useless, she declares a mistrial on the remaining counts and sets sentencing for February 17. Russo and the elder Piperi each face a possible 20 years in federal prison and a $1 million fine. Judge Harmon has a reputation as a tough sentencer, and should mandatory federal guidelines kick in, there is a very real prospect that they will go to jail -- the latest in a procession of '80s figures that includes O. Dean Couch, Charles Phillips, John Ballis and Harvin C. Moore.
Afterward, the courtroom seems to throb with hugging, emotional Piperis. The Russo women gather near the elevators, speaking in hushed tones and looking shell-shocked. An uncharacteristically tight-lipped Berg joins them, and a silent Joe Russo; the group melts away into the afternoon with scarcely a ripple, leaving behind the host of questions that no trial -- especially one of such complexity -- can hope to answer.
Conspiracy by its very nature resists unraveling. And not all collusions are overt; assumptions can be made and implications taken without a word having to be spoken. What really happened? By its bribery convictions, the jury concluded that Russo and Ronald A. Piperi had indeed given each other loans intending to get loans in return. By their misapplication findings, they agreed that the two had knowingly converted money from their institutions to their own and each other's benefit. That they couldn't agree on the bank-fraud issue or over-arching conspiracy charge is testament to truth's elusiveness in the massive lending cases left over from the '80s. Yet there was nothing elusive in this: the jury listened to Joe Russo's best pitch and said they weren't buying. In the end, they had decided that the fault lay not so much within Houston's wounded economy as within Joe Russo himself.
Get the This Week's Top Stories Newsletter
Every week we collect the latest news, music and arts stories — along with film and food reviews and the best things to do this week — so that you'll never miss Houston Press' biggest stories.