The Billionaire Who Wasn't (9 page)

Harvey Dale soon established that what the four Cornellians were facing was more serious than bankruptcy. “The way they were operating carried legal risks that could have put them in jail,” he recalled. “It was very serious because what they were doing, not intentionally, was they were taking trust funds that were there for Jones, and spending the deposit to make delivery
to Smith—that is a Ponzi scheme, and that's a fraud. If things had gone in the worst possible light there could have been criminal liability for that. It involved serious risk, financial and criminal for the owners.”

The financial crisis brought another figure into the company who would play a pivotal role in years to come. A senior partner at Price Waterhouse who was going through their books advised them to get a good accountant and gave them the name of Alan Parker. Born in England and raised in Rhodesia, Alan Moore Parker was a talented forensic accountant with a high-domed forehead and large spectacles, then living in Geneva. Feeney asked him to come to London for an interview. Parker remembered the occasion chiefly for the speed at which Feeney walked along the street in London. “I was always three steps behind him,” he said. “No matter how fast I walked I could never catch up with Chuck.” Feeney's fast walking was by this stage legendary. Bonnie Suchet, his London office manager, said, “Sometimes he would talk to you while he was walking away, and you had to run after him down the stairs.”

Parker was hired and quickly established that “people were spending money like crazy. In Geneva everybody had gone out to lunch on the company. Bob Miller would pick up the bill, or Jeff Mahlstedt. I stopped it pretty quickly. I said, ‘You just can't go on like this.'”

Worse was to come. What Feeney had started on the Canadian border had become too big, and under pressure from members of Congress whose states were hurting, the White House had stepped in to stop the mail-order liquor sales. On February 25, 1965, President Lyndon Johnson announced legislation to cut the five-bottle duty-free allowance to one bottle and to restrict the privilege to adults of at least twenty-one years old. No longer could a traveler claim an allowance of five bottles for everyone in his car, including the kids. Johnson justified his move by arguing that in the light of a balance of payments problem, the spending by Americans who were going abroad in record numbers “is not presently warranted.”

His bill had to be passed by both houses of Congress before it became law. Feeney flew to Washington to lobby House and Senate members against the measure. He took Tony Pilaro with him. They were young enough—Feeney was thirty-three, Pilaro twenty-nine—to believe they could take on Washington and win by force of argument. Said Pilaro, “We just had balls.” They set up camp in the Hilton Hotel and hired a well-connected law firm in the U.S. capital, Arnold, Fortas & Porter, to lobby for
them. Abe Fortas was a friend and confidant of the president, and Paul Porter was one of the most influential lawyers in town. Porter told them, “If you can show me an argument that does not embarrass the president, we will take this on.”

Knowing that a firm with registered headquarters in Vaduz, Lichtenstein, would evoke little sympathy with members of Congress, Feeney and Pilaro presented themselves as president and secretary of the “American Tourist and Trade Association,” a body they simply created for the occasion with the motto “Tourism in Trade.” They got several competitors in the five-bottle business in the United States to sign up. It was now an all-American effort.

Paul Porter arranged a ten-minute audience for Feeney with Republican senator Everett Dirksen of Illinois, the strongly anti-Communist Senate minority leader, most often remembered for the quip: “A billion here, a billion there, and pretty soon, you're talking about real money.” The gruff senator with thick white hair and heavy jowls was initially skeptical. “He sat Chuck and me down and served us brandy from grapes in Indiana, so we sort of got the hint that he didn't give a damn about all this French brandy acquired abroad,” recalled Pilaro. Feeney talked as fast as he could, pleading that “this bill would be a terrible injustice, and would take away the booze from all these military guys who were sticking their ass out for everybody.” Dirksen didn't take a note and didn't ask any questions, recalled Feeney, “but he was interested in fairness to the military guys and walked out on the floor and made the most impassioned speech you can imagine.”

Feeney placed his hopes on testifying before the House Ways and Means Committee as president of the American Tourist and Trade Association and as director of Tourists International, Inc. He spent several days in the Hilton drafting his statement against the passing of the legislation, listed as House Bill HR 7368.

When he arrived on Capitol Hill for the hearings, held on May 3 and 4, 1965, he found himself up against the big guns of the administration. Treasury Secretary Henry Fowler appeared first to tell the committee that with a national budget deficit of $3.1 billion, “this is no time to encourage foreign travel.” The bill would have a beneficial effect on the balance of payments position and on Customs administration, declared Fowler. It was necessary to eliminate the “articles to follow” privilege that had deeply troubled a number of states that had lost state liquor taxes, and which he claimed was widely abused.

Porter countered on behalf of the American Tourist and Trade Association that the booze brought in as “articles to follow” accounted for only 450,000 gallons out of a total U.S. consumption of 275 million gallons of liquor. He added to laughter—he was known as a tippler—“I don't know whether I've been getting my share or not.”

Feeney was called on the second day by the presiding chairman, Democrat John E. Watts of Kentucky, home of the American bourbon industry. He acknowledged in sworn testimony that the idea of a home-delivery service had been his but was now used by about fifteen companies. Its elimination “will brutally terminate an entire industry,” Feeney pleaded. Moreover, the bill would not achieve its objectives. It would have a negligible impact on the outflow of dollars, and it would throw out of work hundreds of people in the United States.

Feeney plaintively described the extra hardship the measure would impose on travelers at Kennedy International Airport as they struggled through the equivalent of a “varsity football scrimmage” to declare their packages of liquor, and he appealed to the patriotism of the House members not to discriminate against returning military personnel such as the “young flyer, who has spent the past months stemming Communist aggression.”

None of it swayed the committee. The Democratic majority voted to approve President Johnson's bill, and it sailed through the Senate. But the appeal to Senator Dirksen had some effect. Dirksen and Senator Jake Javits on the Senate Finance Committee combined to put back the effective date of the measure from June 1 to October 1, 1965. Feeney and Pilaro had gained four months.

Feeney never had a hope of winning the argument, according to a lawyer from their lobbying firm who told them later that “when this thing came down to push and shove, President Johnson literally called the leadership of Congress into his office and said, ‘This is the way it is going to be. We are changing the duty-free allowance. There is no discussion on it.'” The attorney said he had never in all of his years in Washington seen such arm-twisting as Johnson pulled that day. At the time, bourbon popularity had slid dramatically, though not only because of them, and bourbon makers were accusing the duty-free businesses of “selling nothing but Scotch and French brandy.” A newspaper columnist later wrote that American liquor interests were behind Johnson's legislation, helped by a legendary Washington lobbyist, Tommy “The Cork” Corcoran, who frequently enjoyed a glass of bourbon
with Johnson. Meeting Corcoran years later at a business conference in Saipan, Pilaro asked the lobbyist about the allegation, but The Cork refused to be drawn on the matter.

Thus it was that in midsummer 1965, eight years after founding their company and seeing it expand into one of the world's first global retailers, Chuck Feeney and Bob Miller faced the perfect storm. The company was buffeted by a series of setbacks: President Johnson's smashing of the five-pack business, the cutthroat rivalry in the Mediterranean and on the Canadian border, competition in auto sales from the PX stores, the end of the car-sales monopoly in Asia—all combined with bad bookkeeping and extensive overspending to provide a classic example of how an innovative business with a visionary leadership can be sunk.

A few days after his defeat on Capitol Hill, Feeney began a salvage operation. He closed the office in Geneva and concentrated everything in New York. One of those let go was Alan Parker, just four months after being hired. Lee Sterling sold the thirty-six Swiss work permits they had acquired to Bernard “Bernie” Cornfeld, the international financier who was using Switzerland as a headquarters to sell investments in U.S. mutual funds through a company that later collapsed and ruined a number of American and European banks.

As Parker looked around for something else to do, Jeff Mahlstedt called him from New York and offered him his job back. Mahlstedt had been impressed with how Parker had been making sense of the figures in Europe. He asked him to come to the United States urgently and help sort out the company finances. The accountant was just about to get married, but he agreed. After their wedding on June 12, he and his Danish wife, Jette, took a plane to New York. It was a bit of an adventure, he felt at the time. He had never been to the United States before.

Bob Miller had also just gotten married, in May, to an Ecuadorian beauty, Maria Clara “Chantal” Pesantes. He was on his honeymoon in the Cameron Highlands in Malaysia when Feeney tracked him down with the message, “We've got huge problems. You've got to come to New York immediately.” Miller cut short his honeymoon, and he and Chantal also made their way to the United States.

In New York, Parker found a situation out of control. There was a “fantastic” cash flow but a chronic shortage of funds to pay the suppliers when delivery time came. They were faced with a conundrum. They had to close
down the car operation but couldn't do it right away because it was generating the cash.

Self-confident and unruffled, Alan Parker went through the books with a small team of auditors. Three days after arriving in New York, he was finally able to announce how bad it was. There was a deficit of $1.6 million, “which is peanuts today but in those days was a massive amount of money.” They were on the verge of going bankrupt, perhaps already were.

On that bleak midsummer day in 1965, everybody in the organization with a professional qualification took fright and walked out. Desmond Byrne, Tony Pilaro, and a Canadian accountant named Bob Lewis came as a group to see the owners in the Tourists International office on Lexington Avenue and announced they couldn't risk their professional reputations by staying, recalled Jeff Mahlstedt. They feared getting caught up in a financial scandal. Desmond Byrne was blunt: “You guys are going bust. The company won't last for more than another two or three months at most. I'm out of here. I'm a chartered accountant and if this company goes bankrupt and I'm still here, it will ruin my name.” Miller asked him what the chances of surviving were. “A million to one,” said Desmond as he exited.

Tony Pilaro was next. “He said in a panic that he had to leave also,” said Miller. “So Tony left. And Desmond left. They were like rats jumping off a sinking ship.” It always stuck in his mind about Pilaro, he said, that “when the going gets tough, Tony freaks.”

Mahlstedt also left. He wasn't too bothered by the debt, he said, but he had been working seventeen hours a day, seven days a week, for five years, and this was too much. “My butt was dragging. I was absolutely zapped,” he said, and Tony advised him to “get out of it as fast as you can.” Pilaro's warning “unfortunately influenced my decision.” Mahlstedt told Chuck and Bob he hoped they would hold on to Alan Parker and give him his 12.5 percent shareholding—not that it was worth anything at that point—and he then drove off toward the Canadian border in a $6,000 Cadillac they gave him as settlement. He opened the Speakeasy Restaurant in Niagara Falls on the site of a real speakeasy that had been there in Prohibition times—when it was people like President John F. Kennedy's father, Joe Kennedy, who were responsible for the flow of liquor from Canada to the United States.

Dick Bradley, a Cornell Hotel School graduate and friend of Feeney who was helping to run Cars International, also left shortly afterward to cofound
Victoria Station, a restaurant chain that grew to 100 outlets in the United States, Canada, and Japan.

“These were really tough times,” said Miller. “I had a young bride of two months. The company looked like it was going bust, and our key people were running for the exits.” He asked an outside accountant, Lester Wulff, from the auditing firm of Larsen and Wulff, to go through the books independently and find out if they were dead in the water. Wulff studied the cash flow of the entire operation and figured out how much money was in bank accounts, how many cars had to be delivered, how many employees had to be laid off, when bills were due. After several hours going through the numbers, Wulff said, “You know, I think you and Chuck can make it. But you have too many expenses and you have to cut them quickly.” Miller jumped up, gave the startled accountant a hug and a kiss, and declared, “Mr. Wulff, I love you!”

Miller called Alan Parker back to the office and asked him not to leave. “I have got to have a chief accountant here, to figure out what to do,” he told him. Parker was in an awkward position. He had been in the United States for just a few days. He had no right to work there, and the business looked dodgy, but he did not have enough money to go back to Europe. He said he would stay and work with them for five years if he got a promise of a share in the company. “The company looks to be going bankrupt so any equity I give you now would be negative,” Miller said. But he talked to Chuck “and we agreed and made equity available for him.” This decision was to make Parker one of the richest men in the world.