It all stemmed from trying to do a favor for a friend.
Nearly two years later, William M. Stephens on Feb. 13 was acquitted in U.S. District Court in New York of seven charges of trying to steer union pension funds in a complex bribe and kickback scheme.
In between, Mr. Stephens and his family were forced to sell their four-bedroom home in Mill Valley, Calif., to help defray $1 million in legal bills, moving to an apartment in nearby Larkspur. Instead of going to work, Mr. Stephens coached Pop Warner football for kids, Special Olympics and Little League.
Formerly a pension executive with the Illinois State Teachers' Retirement System, The Southern Co. and Ameritech Corp. before becoming chief investment strategist at Husic Capital Management, San Francisco, in 1998, Mr. Stephens now is going to try to find a job in the investment industry and repair his battered reputation.
But first, he and his three sons are going to Aspen for a two-week ski trip. In fact, Mr. Stephens' 12-year-old twins - Matthew and Murphy - are considered potential Olympic skiers. After the school year ends, the family will move to Park City, Utah, so the boys can enroll in the country's top ski racing school. (The boys' future coach, Robb Adams, is assisting the U.S. ski team at the Olympics in Salt Lake City.) "They're 12 years old, and they're already faster than me," Mr. Stephens said.
The Stephens' third child, 8-year-old Sebastian, has Down syndrome and also participates in sports. "He's the happiest kid you want to see. He does everything," Mr. Stephens said.
For Mr. Stephens, the ordeal of the well-publicized trial is over. Named as one of 120 defendants in a massive securities fraud investigation involving all five New York City organized crime families, Mr. Stephens was one of a handful of investment professionals charged with racketeering.
The government charged that in spring 2000, Mr. Stephens agreed to channel a portion of union pension fund assets into investments that would generate a kickback to organized crime and corrupt union officials. Before any money changed hands, the government raced in and made arrests in a highly publicized sweep.
When, not how
Mr. Stephens said he never thought he would be convicted because he had done nothing wrong. "It always seemed a matter of when it was going to end, not how it was going to end," he said in a telephone interview the day after his acquittal was announced.
"It's too bad the government isn't going to make up his emotional and financial loss," said Stanislaw Maliszewski, partner with The Edgewater Funds, Chicago, who has known Mr. Stephens for more than 15 years.
Wayne Carlin, a spokesman with the Securities and Exchange Commission in New York, said the agency would proceed with civil allegations against Mr. Stephens, even though he had been acquitted of criminal charges.
For Mr. Stephens, an ardent Notre Dame fan, avid athlete and lover of good food and wine, his problems stemmed from the actions of a government informant.
The informant became a principal in DMN Capital Inc., a New York brokerage firm that became the focal point of charges brought by the U.S. Attorney's office in New York and the SEC. The government alleged that DMN was mob-infiltrated and operated a classic boiler-room scheme to sell shaky investments in companies, some of which were fraudulent, to unwitting investors.
The informant attended a meeting to hear a pitch for a new hedge fund, TradeVentureFund, run by Glenn B. Laken, a Chicago commodities trader Mr. Stephens had known. Steve Kanaval, who used to work as a trader at Husic, had become a marketer for Mr. Laken, Mr. Stephens said. Before the March 2000 meeting, Mr. Stephens said Mr. Kanaval asked Mr. Stephens for a favor: Would he give a five-minute testimonial for Mr. Laken at the meeting? Mr. Stephens agreed.
But when the meeting actually occurred, Mr. Kanaval - who never had marketed before - asked Mr. Stephens to do the actual sales pitch, Mr. Stephens related. Mr. Stephens said he initially declined, but after a second plea from Mr. Kanaval, he reviewed the hedge fund materials and agreed to give a quick pitch. Mr. Kanaval, who was not charged with any violations and who now works for a San Francisco hedge fund, declined to comment.
Half-hour presentation
After Mr. Stephens said what a great trader Mr. Laken was, an investment banker named John Black Jr., who also had ties to the informant, gave a half-hour presentation, Mr. Stephens said.
(Mr. Laken and Mr. Black were convicted of planning to bribe union officials of several New York labor pension funds in the same trial. They each face a maximum sentence of 33 years in jail plus criminal fines.)
What neither Mr. Stephens nor the others knew is that the informant was wearing a wire.
"If you hear this tape, this sounds like I'm the professional marketing guy, because, to be quite humble, I'm quite good," Mr. Stephens says. "The FBI hears this, and says, `Who's this guy?"'
Meanwhile, Frank Persico, a member of the Colombo crime family who was a trustee of the Local 400 Production Workers Pension Fund, New York, sought DMN's help in obtaining kickbacks. Together, they hatched a scheme to have union funds invest in TradeVentureFund as well as preferred stock issued by American Realty Trust, a New York Stock Exchange-listed real estate investment trust. According to government charges, 20% of union fund assets would have been kicked back to corrupt union officials. Mr. Persico now is serving a 63-month prison term.
According to Mr. Stephens, the informant realized he and Mr. Persico needed a "squeaky clean person" to introduce the REIT to the pension funds; they picked Mr. Stephens after hearing him in the March meeting.
For Mr. Stephens, that was nothing unusual; Husic Capital often uses third-party marketers, and part of his job was to find them. So Mr. Stephens flew to New York because the informant said he had three days of meetings with pension funds. He went to the informant's wiretapped office at DMN, but didn't meet any pension executives the first day.
"Where are all these pension funds I'm supposed to be meeting?" Mr. Stephens said he wondered. He did meet Stephen E. Gardell, a retired New York City police detective and treasurer of the Detective's Endowment Association. Mr. Gardell now is awaiting sentencing for his part in the scheme.
But Mr. Gardell also had been caught on tape, which put Mr. Stephens in the same room with yet another alleged co-conspirator. Mr. Gardell said he was interested in Husic, and wanted to go to San Francisco to check out the firm, Mr. Stephens said.
What Mr. Stephens didn't know is that Mr. Gardell had retired two days previously. "He has no influence at all. He just wants a trip to San Francisco," Mr. Stephens said. Mr. Gardell got his trip to San Francisco, meeting other Husic officials, Mr. Stephens said.
What's more, Mr. Stephens said he silently disregarded any suggestions by the informant of steering potential pension clients into fraudulent securities. Not only did he not have the authority to invest assets at Husic, but the business Mr. Stephens planned to pitch was consulting services.
The next thing Mr. Stephens knew, FBI agents were arresting him and 119 others on June 14, 2000.
Mr. Stephens said the arrests of prominent investors gave the case "real sex appeal."
Officials at the U.S. Attorney's Office for southern New York did not respond to requests for comment.
Character witnesses
Meanwhile, industry figures Obie McKenzie of Merrill Lynch Investment Managers and Phil Byrne, retired from what was Keystone Investment Management Co., testified as character witnesses for Mr. Stephens. And others encouraged and supported him.
"At times like this, you find out who your real friends are - as opposed to the people who act like your friends when you're on the plan sponsor side. And they know who they are," Mr. Stephens said.
One friend, Donald W. Phillips, chief executive of WestAM US LLC, New York, and former chief investment officer of the Ameritech pension fund, said throughout his ideal, Mr. Stephens was "able to keep his faith and keep his spirits. Not everybody would have been able to go through that."
If anything positive has come from his ordeal, Mr. Stephens said he has focused more on the importance of spending time with his family and has strengthened his belief in God. In fact, his religious beliefs helped him through the entire process "because God is faithful to those who are faithful to him," he said.
Now that the trial is over, Mr. Stephens is working to put his life back together. But things will never be the same. "For me personally, I certainly adjusted my sights accordingly, and realized there are very important things in life, a lot of which is having the opportunity to spend more time with my kids."
