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1995-07-01 (Texas Monthly) - The King of Bankruptcy - How Did Mogul Jack Stanley Go From $1.2 Billion in Debt To $2 Billion in 11 Years
1995-07-01 (Texas Monthly) - The King of Bankruptcy - How Did Mogul Jack Stanley Go From $1.2 Billion in Debt To $2 Billion in 11 Years
1995-07-01 (Texas Monthly) - The King of Bankruptcy - How Did Mogul Jack Stanley Go From $1.2 Billion in Debt To $2 Billion in 11 Years
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The king of bankruptcy: How did Houston natural gas mogul Jack Stanley
go from $1.2 billion in debt in 1983 to $2 billion to the good eleven years
later?
Cartwright, Gary. Texas Monthly 23.7 (Jul 01, 1995): 96.
Abstract (summary)
THE AMAZING THING ABOUT THE TRIAL WAS THAT people were swearing under oath that Jack Stanley was
a crook and nobody in Houston seemed to notice. True, Jack Stanley was not a name one read in Maxine
Mesinger's column in the Chronicle or heard on the ten o'clock news. Remaining mysterious and enigmatic
is part of Stanley's armor, his secret of survival. Nevertheless, the 56-year-old owner and chief executive
of TransAmerican Natural Gas is one of the richest and most powerful players in the oil and gas game. He
is also one of the most ruthless, if you believe the testimony of three witnesses, one of whom was his son
Billy, who until recently was his heir apparent. (excerpt)
Full Text
THE AMAZING THING ABOUT THE TRIAL WAS THAT people were swearing under oath that Jack Stanley was
a crook and nobody in Houston seemed to notice. True, Jack Stanley was not a name one read in Maxine
Mesinger's column in the Chronicle or heard on the ten o'clock news. Remaining mysterious and enigmatic
is part of Stanley's armor, his secret of survival. Nevertheless, the 56-year-old owner and chief executive
of TransAmerican Natural Gas is one of the richest and most powerful players in the oil and gas game. He
is also one of the most ruthless, if you believe the testimony of three witnesses, one of whom was his son
Billy, who until recently was his heir apparent.
Testifying last fall in a multiparty lawsuit in Houston's 190th District Court, Billy Stanley and two other
former high-ranking TransAmerican employees alleged that the company had systematically cheated
royalty owners and drilling partners, hidden assets from the bankruptcy court, forged and destroyed
documents, broken into the offices and homes of employees, wiretapped the phones of employees and of
parties in litigation, and bribed public officials. Though the Houston Chronicle reported some of these
allegations in an article several weeks after the trial, not a word appeared in the media during the many
weeks of testimony.
Legally, TransAmerican and Jack Stanley are separate entities, but in practice, this giant drilling, pipeline,
and refinery corporation is as much a part of Stanley as his heart, lungs, and soul. He built the company
from scratch, starting in the late fifties, when he leased a service station in his hometown of Springfield,
Massachusetts. Stanley turned 1 service station into a chain of 230, bought a refinery in Louisiana,
negotiated drilling leases in South Texas, built a pipeline, and started building an ammonia plant in Corpus
Christi. His gas leases near Laredo, in what is called the Lobo Trend, were among the most productive
ever discovered in the country, and in three decades he had built what is now the third largest producer
of natural gas in Texas. Finally, reckless ambition caught up with him. In 1975, when the price of ammonia
plunged, Stanley's company filed for bankruptcy. By 1979, however, he was back running full tilt. In 1983
his company again filed for Chapter 11, emerging four years later when his creditors agreed on a
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wrongdoings, including concealing and diverting assets and filing false reports with the court. Money that
should have gone to creditors was funneled instead to companies set up in the names of his wife and
children, the bankers claimed. Stanley also took steps to make sure that he would remain comfortable,
even if his creditors weren't. He sold his home to one of the companies and leased k back for $1,000 a
month--$4,000 less than the mortgage payments. Although TA denied the bankers' allegations, Stanley
reluctantly compromised with the creditors, appointing an independent board of directors for
TransAmerican--the first ever to oversee a Stanley-owned enterprise. This must have been a bitter pill to
swallow, but not nearly as bitter as the alternative, which was liquidation.
The bankers believed--and Stone confirmed--that Stanley was deliberately attempting to undervalue his
company as a ruse to avoid liquidation, that he had directed his accountants to cook the books. Stone
showed the jury a letter written to him in 1986 by John Nabors, TransAmerican's chief outside attorney,
suggesting that in the disclosure statement that Stone was helping draft for the creditors, the overall
liquidation value should be under $500 million. "In order to present something that was unattractive to
the creditors in terms of liquidation...the value had to be under $500 million," Stone explained. Stone
believed this was far below the company's real liquidation value, which he had calculated to be about
$720 million. But Vic Stone thought of himself as "a team player," and he ended up testifying at a
bankruptcy hearing in 1987 that the figure was only $450 million. "I could have waked away from the
company, quit my job...but I didn't," Stone admitted to the Houston jury seven years later. "I was a
coward. I needed the work."
Stone went down a long list of "accounting irregularities' that he discovered after he took the job. The
purpose of these irregularities, Stone told the jury, was to create a cash flow that would permit Stanley to
expand his business outside the jurisdiction of the bankruptcy court. About the same time that Stanley
filed for bankruptcy in 1983, Stone said, TransAmerican formed an affiliated company called Southwest
Texas Services. The purpose of the company, or so it appeared to Stone, was to divert money from
creditors. Moreover, Stone discovered, the company was selling goods and services to TransAmerican at
inflated prices. Stone said that when he told Nabors and TA president Craig Shephard that Southwest
Texas Services was gouging the company, they told him to mind his own business. Within a few years,
other suspect vendors and oil-field supply companies began to do business with TransAmerican--Somex,
Petrolith Drilling Fluids, Petrolith Pipe, Petrolith Mud. "What's irregular about it," Stone explained, "is that
these companies were all controlled by or through Mr. Stanley..." Millions of dollars were changing hands,
and none of the money was going to the creditors.
Because of a formula error in the computer program, Stone learned, TransAmerican had been underpaying
royalty owners by deducting excessive severance tax from their checks. Stone corrected the formula,
which he assumed was his job, and suggested that retroactive payments be made to royalty owners.
According to Stone, when Jack Stanley learned what he had done, Stanley hit the ceiling. "Mr. Stanley
called me into his office and told me that I was never again to make another change in accounting practice
without his approval," Stone recalled. He added that Stanley had told him, "If the royalty owners have a
problem, we'll negotiate it with them. They'll have to sue us." As an aside, Stone informed the jury that
suing a company in bankruptcy is particularly difficult.
By the summer of 1987, royalty owners and drilling partners began to suspect that TransAmerican wasn't
paying all that it owed and demanded to look at the company's books. The company stalled, usually
forcing the royalty owners to file suit, at which time the company was likely to countersue. In the
meantime, Stone requested that his comptroller, Richard Bloodgood, examine the methods being used to
calculate royalty payments and drilling program payouts. Bloodgood responded with a memo listing fifteen
separate accounting problems, a finding that if corrected, would have cost TA millions. The memo was
directed to Stone, with copies to Stanley and others. But when Craig Shephard saw the memo, Stone
testified, he ordered Bloodgood to rewrite it and direct it not to Stone but to the legal department--and
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remove Shephard's name and the names of Jack Stanley and his wife, Eileen, from the distribution list. If
the jury was wondering why an accounting problem would be bucked to legal, Stone supplied the
explanation: "That was the practice TransAmerican used whenever they had problems or sensitive
material...They put it through the legal department so it would not be discoverable, so that royalty
owners, the State of Texas, you name it, in litigation could not get to it because it was under the
privileged communication rule of attorney-client."
The summer of 1987 was a critical time for Jack Stanley. The creditors were about to agree on a plan of
reorganization that would allow the company to emerge from bankruptcy, Stone testified, and everyone
was waiting for the plan to be approved. In the meantime, Stone apparently waited and hoped for the
best. But five months after the plan went into effect, Stone said, the company was still having accounting
irregularities and fielding embarrassing questions from royalty owners, the state comptroller, and
creditors. By March 1988, Stone had decided that he couldn't play the game anymore. That's when he
refused to sign two documents that he believed were fraudulent--a tax settlement agreement with the
state and the monthly compliance report for the creditors committee. As a result, Stone told the jury, he
was fired.
ALTON DAVIS, 42, WAS, BY NATURE, more trusting than his friend and going companion Vic Stone. Before
deciding to be an accountant, he had studied theology at Houston Baptist University. At the time that
Stone and other executives were working on the reorganization plan, Davis was just a foot soldier doing
what he was told. According to his testimony in Houston, Davis was told to commit perjury, lie to and
conceal records from the royalty owners and their auditors, destroy documents, and commit perjury a
second time--which is where he finally drew the line.
Davis told the Houston jury that in the summer of 1987 the company ordered him to testify in
TransAmerican's long, complicated, and extremely bitter lawsuit with El Paso Natural Gas. The litigation
was actually two suits resulting from two disputed contracts--a farmout agreement and a gas purchase
contract--negotiated between the two gas industry giants. First, El Paso claimed that TransAmerican had
breached the farmout agreement by which TA drilled and shared profits on commonly held leases at La
Perla Ranch in South Texas. Then TA countersued El Paso for breaching the gas purchase contract. Davis
was called as a witness in the farmout part of the case and asked to explain to the court how TA
calculated payouts on the La Perla leases. Although Davis was at that time supervising payout accounting,
all the figures used to calculate payouts came from the revenue department. Davis told the Houston jury
that before testifying in the El Paso case, he was supplied with both questions and answers. Partly
because of Davis' testimony, TA won a judgment of about $500 million.
After the El Paso judgment, Davis was promoted to supervisor of revenue accounting, and about a year
later he realized that the testimony he had given was false. Davis told the Houston jurors that he went to
TA president Craig Shephard and to his own immediate superior, Alton Sauls, with this alarming news.
According to Davis, Sauls told him that "we were going to do what we had to do to keep our jobs and,
regarding El Paso, that was to say nothing, that if anyone ever found out about it, that it wouldn't make
any difference anyway. The trial was over and TransAmerican had received a judgment..." (TA did not call
Sauls to refute Davis' accusations. However, the opposing counsel deposed Sauls, and a brief segment of
his video testimony was shown to the jury.) Davis also testified that Shephard told him to do nothing, say
nothing, keep it to himself, and not worry.
That was the beginning of the end of Alton Davis' innocence. He had been aware of some accounting
irregularities, but he regarded them as sloppy bookkeeping. Eventually he saw them as deliberate and
systematic fraud. After that, he told the jury, he was ordered to routinely stall royalty owners and others
who were hounding TA for audit records and, if necessary, to conceal or lie about records. "My job had
become one basically of having to lie on a daily basis," he said.
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In testifying about what came to be called the December 1988 Price Fraud, Davis told the jury that Craig
Shephard called him to his office in January 1989 and ordered him to tear up two December invoices that:
were ready for mailing. Shephard wanted him to draw up new invoices--at a lower price. Davis couldn't
believe what he was hearing: Was the company president really asking him to charge customers less than
the price agreed on in the contract? Davis learned that TransAmerican had a good--if devious--reason: If
bills went out for prices specified in the contract, TA would reach what accountants call an "all-in cash
price" of $2 per thousand cubic feet (mcf) for the month of December. That dreaded number--$2 per mcf-automatically increased TA's monthly minimum payment to its creditors from $3 million to $5 million. Davis
said that Shephard told him to destroy the original invoices and any copies of contracts that supported
the higher prices. He told the jury that he and Alton Sauls stayed until midnight drafting new invoices and
new income statements. But Davis didn't destroy the old invoices. He hid them in his desk drawer and
took them with him when he resigned.
According to documents filed by TA in another case, the late eighties were particularly sensitive times at
TA because of a so-called brother-in-law deal that Jack Stanley had made with his bitter rival, Oscar
Wyatt, to sell gas to Wyatt's Coastal Corporation at favorable prices. The deal had been more or less
forced on Stanley in 1987, when Wyatt, in a brilliant stroke of one-upmanship, tried to undercut TA's plan
of reorganization by having Coastal file a competing plan, which made the creditors a better offer than
Stanley's company was prepared to make. Stanley believed that Wyatt had been trying to get even with
him since the sixties, when the two had quarreled over a purchase contract between Coastal and
Stanley's Gasland chain. In the seventies, of course, Stanley had scored big on his rival by hitting it rich in
the Lobo Trend, which was practically in Wyatt's back yard. Thus, if Coastal had succeeded in co-opting
TA's plan of reorganization, Wyatt would have finally grabbed TA's drilling leases. Instead, Wyatt backed
off, in exchange for an agreement by which TA guaranteed Coastal a supply of cut-rate gas. Not
surprisingly, his agreement created a new flurry of lawsuits for TA. Landowners and drilling partners sued,
claiming that TA was selling the gas from leases in which they held a common interest, thereby forcing
them to pay a percentage of a settlement to which they were not a party. TA also sued Coastal on the
claim that Oscar Wyatt had misled Jack Stanley into accepting an unfavorable gas-pricing index. That suit
was settled and a new pricing index was agreed on--which led to yet more litigation. Stanley eventually
freed himself of the entanglement by agreeing to pay Coastal $13,750 a day until 1997.
Davis testified that what finally persuaded him to quit TransAmerican was a 1988 case in Zapata County in
which TA was attempting to force an elderly widow in Alabama named Monica Kolaya to accept
considerably less in royalties than what Davis had calculated she was owed. Davis told the Houston jurors
that when he was deposed in that case, Alton Sauls gave him instructions to say nothing about the issue
of underpayments to royalty owners, especially the part about the Coastal settlement. He remembered
that Sauls had said that before TransAmerican paid any royalty owners for any underpayments, "they
were going to make them sue them and pursue them until they beat them down and then make them
settle for less than what they were owed if they could." Davis did as he was ordered during the
deposition, revealing as little as possible without actually lying. But when it came time to testify in Zapata
County, Davis said, he informed TA's lawyers that if called, he would tell the truth. (An attorney for TA
testified at the Houston trial that this did not happen.) Instead of Davis, the lawyers called a woman from
TA's land management department, who was forced to admit to Monica Kolaya's attorney, Richard J.
Hatch, Sr., of Corpus Christi, that she was merely reading from a document that she had been given. The
court found for Hatch's client and rendered a judgment of $1.7 million.
Hatch would soon discover, however, what other lawyers who have tangled with Jack Stanley have
discovered: It ain't over till it's over. TransAmerican hired another lawyer, Carlos Zaffirini, who filed a
motion for a new trial based on a procedural error. Judge Manuel Flores apparently had no choice except
to set aside his own judgment. Hatch was devastated. His client was too old and too sick to return to
Texas for another trial. Declaring, "I'd had all the justice I could take in Zapata," Hatch refiled Kolaya's
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case in federal court. A federal judge ordered TA to settle with Kolaya, which it did, for $1 million.
Unfortunately, she didn't live to enjoy it. Within the year, Kolaya was dead.
BILLY STANLEY WASN'T PART OF the BDS suit--he has his own suit and countersuit with his father--but he
didn't have to be asked twice to testify. When Jack Stanley forced him out of TransAmerican and then
disowned him in 1992, Billy tried to kill himself. He has since become consumed with putting his father
behind bars, even if it means that he has to go with him. Billy has told his story to the FBI, the U.S.
Attorney, and the Environmental Protection Agency, as well as journalists, investors, and anyone else who
will listen. He freely admits having operated a criminal enterprise from 1988 until 1992, the four years that
he ran TransAmerican's Laredo office for his father. The question seems to be, Was Jack Stanley a dupe or
the evil brains behind his son's enterprise? TransAmerican has pulled out all the stops to keep Billy quiet.
Returning to the courtroom of Judge Flores, who had set aside his own judgment in the Kolaya case, the
company prevailed on Flores to issue a temporary restraining order prohibiting Billy from publicly repeating
his allegations. Billy went right on talking.
Billy, who is now 32, told the jury in Houston that he was sent to Laredo in 1988 to be his father's "eyes
and ears." His instructions were to keep watch on Southwest Texas Services and TA's drilling operation
and its network of pipelines, and to identify and fire would-be troublemakers. Billy arrived at a strategic
moment-shortly after the reorganization plan was approved. His credit exhausted, Jack Stanley was
desperate for new sources of revenue, and Laredo was his cash cow.
On his father's orders, Billy explained to the jury, he set up more than two dozen service and supply
companies (known in the gas patch as soap, dope, and rope outfits) whose mission was to funnel money
away from creditors and redirect it to his father. On occasion, these companies sold goods and services to
TA at inflated prices. On other occasions, they collected for pipe that was never delivered. Billy went on to
describe how wells were drilled on land leased to Lynn Petroleum, a company owned by Billy, his brother,
and two sisters but operated by their father, who made all the business decisions. Money to pay for
drilling came from TransAmerican; it was transferred to Lynn Petroleum through one of Billy's companies.
Billy's companies purchased rigs, equipment, and land with TA's money and shipped equipment to
companies owned by family members, and sometimes to Jack Stanley's Good Hope Refinery in Louisiana.
Billy told the jury that it was company policy at TA to lay off 10 percent of the accounting personnel every
three months: Jack Stanley fired people as object lessons on what happens to workers who don't play
ball. Vic Stone, for example. Billy told the Houston jury that his father got rid of Stone--and then sued him-because "Vic couldn't keep his mouth shut and he had to shut him up." Billy described to the jury how he
established a system called Laredo Healthcare Associates, again on instructions from his father, and used
the medical records of employees to decide which ones to fire. "Basically, anybody with a claim over five
thousand dollars was terminated," Billy said.
Billy also told the jury that on his father's instructions he delivered large amounts of cash to South Texas
wheeler-dealer Clinton Manges. Billy said that the money was supposed to be used to bribe former
congressman Albert Bustamante of San Antonio, former railroad commissioner Lena Guerrero, Louisiana
governor Edwin Edwards, and other politicians and judges. In the Wall Street Journal story, Jack Stanley
admitted making political contributions to Edwards but denied bribing anyone.
The first of Billy's front companies was called Somex, founded with money Billy drew from TransAmerican.
Somex soon proved inadequate, and more companies had to be formed. These were eventually
consolidated under a holding company called World Energy. The reason that Jack Stanley wanted so many
companies, Billy testified, was to make "the board feel more comfortable" that TransAmerican was
soliciting competitive bids. Apparently the board did not realize that Billy himself prepared all the invoices,
manipulating the bidding and deciding which of his several companies would get TA's business. Billy
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testified that his father told him not to worry about the board, "that anytime he wanted to get rid of them
they would be gone."
Billy's run in Laredo ended in 1992, when his father decided to take part of TransAmerican public.
Desperate for new capital to support the moribund refinery in Louisiana, Stanley lumped TransAmerican's
oil and gas reserves into a new entity called TransTexas. (Since then, Stanley has sold roughly 13 percent
of his stock in TransTexas.) One problem with taking the company public was that a disclosure statement
had to be led. This meant that World Energy had to vanish, Billy told the jury. He testified that in October
1992 he met with TA's outside auditors, who told him to make World Energy "go away." Billy, who testified
that up until this point he owned 25 percent of World Energy, went to his father's home in Kingwood for a
showdown. There are two accounts of what happened next. Billy told the Houston Chronicle that his
father drummed him out of the company, "divorced" him, and ordered him to change his name. Jack told
the jury that Billy tried to shake him down for 25 percent of TransAmerican in return for his silence. A few
months later, Billy tried to kill himself. Today he runs a boat business in Naples, Florida, and conducts his
vendetta against his father.
CRAIG SHEPHARD, WHO HAD LEFT his position as president of the company in 1991, was called back into
service by TransAmerican's attorneys to refute the charges made by Davis and Stone and set the stage
for the jury as to what this case was really about. From TA's point of view, the case was about what it
termed the Armageddon Strategy--a conspiracy that TA alleged was cooked up by Oscar Wyatt, with help
from an attorney named Jonathan Cox. Winning the BDS case depended in part on how well the TA
lawyers could sell this theory to the jury, and this in turn would have a profound effect on how well the
Armageddon scenario played to future juries at future trials.
Here is the substance of the Armageddon Strategy. Its linchpin was TransAmerican's settlement with El
Paso Natural Gas. TA said that El Paso had tricked it into settling too quickly and that the trick had cost TA
millions. Though Shephard did not lay out the details of the Armageddon Strategy, he spent much of his
first three days on the stand reviewing the El Paso litigation, in which the court awarded a $500 million
judgment to TA in 1988. El Paso had appealed the judgment, and by the fall of 1989, TA still hadn't
received a penny. TA was extremely hard-pressed for cash and still owed the banks $780 million. The
banks were squeezing Stanley for a big payment. Moreover, Stanley was still required to sell gas to the
hated Wyatt at below-market prices while also fighting off a lawsuit involving a pipe supply company
called Toma. Toma happened to be represented by Jonathan Cox, a lawyer identified by TA as "a longtime
friend and acquaintance" of Oscar Wyatt's. This was where the dots of the alleged conspiracy began to
connect: In March 1989 Richard Bloodgood and Vic Stone were hired-Alton Davis was still at TA--to review
documents that Toma had obtained in its lawsuit with TransAmerican. TA alleged that in May Wyatt
persuaded El Paso Natural Gas to hire Cox, who retained BDS, which allegedly began to supply El Paso
with "stolen" documents, which allegedly gave El Paso the leverage it needed to force TA to settle. On
June 21, the conspirators allegedly met in Wyatt's hotel suite in Houston perhaps to celebrate Wyatt's
imminent takeover of TransAmerican.
TransAmerican's lawyers contend that the company-ignorant of the alleged conspiracy-agreed in
December to settle with El Paso Natural Gas for $300 million, plus El Paso's leases at La Perla Ranch,
worth approximately $100 million. Though it was not part of the BDS case, another document sheds light
on the events leading up to Stanley's decision to settle. In a letter banks and other creditors dated
December 20, 1989, Stanley solicited the banks' commitment to write off his $780 million debt in return for
a $250 million payment out of the El Paso settlement and the promise of another $269 million the
following year: In other words, if Stanley agreed to settle now, the banks would "forgive" $261 million. In
the letter, he also offered to purchase $80 million in debt from non-bank creditors, for fifty cents on the
dollar. Assuming that these offers were accepted-and the fact that there was a settlement suggests that
they were--TA was able to arrange $301 million in debt forgiveness, which diminishes Stanley's argument
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financial officer at TransTexas when the company was formed in 1993 and who had prepared Jack
Stanley's tax return for years, told the jury that no money was diverted from World Energy or the other
companies to Jack Stanley or any other member of the family. He acknowledged that World Energy and its
affiliates had done business with TransAmerican-the volume of business had gotten so high that the
board of directors became concerned and had it sharply reduced-but he never had any indication that TA
didn't get a "fair deal" from Billy's companies. In cross-examination, Donahue acknowledged that
Southwest Texas Services, a subsidiary of a company owned by Jack's wife, Eileen, "could haven done
business with other companies owned by members of the Stanley family.
ON A RARE VISIT TO THE WITNESS stand, Jack Stanley came across as a man who takes very good care of
himself. He carried his lanky frame with an apparent self-awareness, as befits a man who runs six miles
each day before breakfast. People who know Stanley say that when the mood suits him, he can be
charismatic and engaging, that he has a dry, sometimes caustic sense of humor. This was perhaps one of
those occasions. When TransAmerican's lead attorney, Don Jackson, asked him what it was like to owe
more than $1 billion, Stanley' glanced at the jury, let his face go slack, and replied, "Everyone is going to
expect me to say it wasn't much fun. It wasn't."
Briefly, he gave the jurors an outline of his rags-to-riches story, how he grew up in Springfield,
Massachusetts, how he turned a job pumping gas into a chain of gas stations, and how, in response to
the gasoline shortage in 1971, he bought the Good Hope Refinery, just upriver from New Orleans. Two
years later he went looking for oil in the Lobo Trend and instead he hit one of the country's great pockets
of natural gas. To date, he told the jury, TA had drilled 1,100 successful wells, produced two trillion cubic
feet of gas, and paid $700 million in royalties.
He explained that his second bankruptcy, in 1983, happened not because of TA's drilling operation but
because he decided to turn the refinery at Good Hope into a state-of-the-art operation that could refine
heavy, high-sulfur crude oil from Venezuela and Mexico. Most of the money for this renovation came from
the $750 million loan from Continental Illinois--on which he was paying 23 percent interest.
Though the refinery played no role in the BDS suit, it has played a major role in Jack Stanley's life. If
Laredo was his cash cow, the refinery was his albatross. It has been widely reported that Good Hope had
a terrible environmental record and that explosions and fires were common. Eleven years ago it was
mothballed. Even so, Stanley has poured more than $1 billion into efforts to reactivate the refinery and
tried to borrow hundreds of millions more. In July 1994 he attempted to raise $530 million through a bond
offering that failed to attract the necessary investors. In November 1994 he tried again, this time with a
scaled-down $400 million offering. It failed too. TransAmerican says that the bonds were pulled down to
await better market conditions, but Billy's public comments no doubt caused some investors to back off.
Boosted by funds from the public sale of TransTexas stock, the refinery reopened in 1994 but shortly
before Christmas was forced to lay off about eight hundred workers, in effect shutting down the operation
again. Nobody has been able to explain Jack Stanley's obsession with the refinery, but Billy has a theory.
"It's his huge ego," Billy told me. "The refinery is something he started but couldn't finish. That's never
happened before, and he can't stand it."
Point by point, Stanley denied to the jury the accusations made against him. He said that it was
"absolutely untrue" that he ever told Stone that he couldn't make accounting changes without Stanley's
personal approval. Nor did Stone ever advise him that there was something fraudulent going on with TA's
royalty accounting: "Absolutely not, he never did any such thing." On the contrary, Stanley assured the
jury, he made a point to avoid personal dealings with TransAmerican's accounting department. "I do not
have any education in accounting," he said. He had never even heard the phrase "cook the books"
before.
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And, no, there was never a plan during the bankruptcy to increase cash flow by cheating royalty owners.
"It was totally the opposite," he explained. "We needed to keep the royalty owners satisfied....we have
renew those leases....You have a moral responsibility to pay whatever the royalties are." In fact, some of
his best friends were royalty owners. "Except for a few cases," he said, his relations with the royalty
owners have been "excellent."
Curiously, Jack Stanley was asked little about Billy or Billy's activities in Laredo, nor did he volunteer much.
He merely said that Billy was "estranged from the family." Outside the courtroom he has denied any
association with Somex, World Energy, or any of Billy's ventures. "I had no interest in it whatsoever," he
told the Houston Chronicle. "None. Zero."
NEAR THE END OF OCTOBER 1994, the jury in Judge O'Neill's court found that TransAmerican's conduct was
fraudulent and illegal and awarded Vic Stone and Alton Davis $8.1 million. Because BDS had profited from
the documents they had copied, the jury also awarded TransAmerican $200,000. TransAmerican filed a
motion for mistrial based on the contention that Judge O'Neill had dismissed one of the original jurors and
appointed an alternate without holding a hearing to allow attorneys to question the juror who was
dismissed. On November 8, Eileen O'Neill was defeated for reelection by John Devine, a largely unknown
Republican with no experience on the bench.
But one more remarkable thing was yet to happen. During the final week of December, in one of her last
orders of business before stepping down, Judge O'Neill granted TA's motion for a mistrial. She said that
"with an extremely heavy heart" she was ruling that the proceedings between BDS Associates and
TransAmerican had been wasted effort.
Badly shaken by the decision, Berk and Powell, the attorneys for Davis and Stone, asked Judge Devine to
overturn the ruling of his predecessor. They pointed out what they considered a conflict of interest. Don
Jackson, who had been hired by TA as its lead attorney three months before the start of the trial, was a
former colleague and a longtime friend of Eileen O'Neill's and had served on the steering committee and
the finance committee in both of her election campaigns. Powell argued that TransAmerican had "a history
of working the system, of arranging to practice in front of certain judges and hiring certain lawyers." But
under Texas law, Jackson did not have a conflict of interest. For that matter, neither did Powell, who was
forced to acknowledge that he had also contributed to O'Neill's campaign. Devine had no choice but to
uphold O'Neill's decision.
The case has been transferred to the court of Judge Scott Brister for retrial, starting August 21. In a
summary judgment, Brister has weakened BDS's case somewhat by ruling that the former employees can
not justify taking the documents and using them for profit merely because the documents demonstrate
fraud or illegal conduct. Brister's ruling is a double-edged sword, however: In the new trial, the burden of
proof falls on TA to show which documents BDS profited from rather than showing that BDS profited from
the documents as a whole.
IN FEBRUARY JACK STANLEY FINALLY made investors an offer they couldn't refuse--a $300 million junk
bond offering with a promised yield of up to 18.5 percent, plus a bonus of stock in the company. These are
interest rates not seen since the leveraged-buyout frenzy of the late eighties. The refinery at Good Hope
has again been rescued, at least for the present.
Floyd Norris, who writes the Market Watch column in the New York Times, observed, ((Mr. Stanley's
agreement to pay rates as high as 18.5 percent can be viewed as a sign of confidence, or of a willingness
to gamble with other people's money. He says he isn't worried: 'If I lose $200 million or $300 million, it
won't affect the way I live.'" If Jack Stanley's career proves anything, Norris added, "It is that sometimes
an entrepreneur can do well even when his creditors don't." Or, to say it another way, Jack Stanley
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Indexing (details)
Subject
Southwest;
Personal profiles;
Natural gas industry;
Entrepreneurs
Location
People
Stanley, Jack
Classification
Title
Author
Cartwright, Gary
Publication title
Texas Monthly
Volume
23
Issue
Pages
96
Publication year
1995
Publication date
Year
1995
Section
Publisher
Place of publication
Austin
Country of publication
United States
Publication subject
ISSN
01487736
CODEN
TEMOD4
Source type
Magazines
Language of publication
English
Document type
PERIODICAL
Accession number
95-66023
ProQuest document ID
226956366
Document URL
http://search.proquest.com/docview/226956366?
accountid=63064
Copyright
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Last updated
2014-05-22
Database
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