Shaky settlements

According to lawsuits in California, Newport socialite Jonathan Pardee and Connecticut businessman Charles E. Bradley Sr. hocked the trust funds of more than 200 vulnerable people

by Steven Stycos

Robert Havlik

ELEVEN-YEAR-OLD Robert Havlik can't speak, eats from a feeding tube, takes seizure medication, has cerebral palsy, and is confined to a wheelchair -- all consequences of how he suffered brain damage while trapped in his mother's birth canal during a botched delivery. A lawsuit against the doctor and hospital was settled through the creation of a "structured settlement" of US Treasury bonds, which pays Robert's parents $2189 a month to help care for their son. The money is particularly crucial since his mother, Bonnie, has breast cancer and can no longer look after the boy on her own.

But the Havliks, who live in Tyler, Texas, didn't receive their settlement checks in January and February, and not just because of a bureaucratic oversight. According to lawsuits filed in California earlier this year, Newport socialite Jonathan Hay Pardee and well-to-do Connecticut businessman Charles E. Bradley Sr., the former owner of a Warwick toxic waste site, squandered the trust funds of the Havliks and scores of other vulnerable people. A total of $118 million is at stake, says Frank Gooch, a Los Angeles lawyer who represents the Havliks.

The lawsuits allege that Pardee and Bradley used trust fund bonds, which were intended to pay the medical bills and living expenses of 206 severely injured people, as collateral for millions of dollars in business loans from Morgan Stanley Dean Witter & Co. In March 1998, Morgan Stanley foreclosed and sold the trust bond funds, without notifying the beneficiaries, after Stanwich Financial Services Corporation failed to make loan payments. Stanwich Financial is a Rhode Island corporation controlled by Bradley, a corporate deal specialist and former business partner of fugitive tax cheat Marc Rich.

Although Stanwich Financial continued for more than two years to make payments to Robert Havlik's parents and other settlement beneficiaries, the checks stopped in November 2000. Earlier this month, Stanwich Financial provided past due checks for November and December, but payments for January and February still haven't been made and future payments are in doubt. Bradley wasn't the first to take the unusual step of using the bonds as collateral for business loans. Although the suits name a number of other defendants, they blame financial consultant Jonathan Pardee, the Newport socialite -- who in 1997 sold to Bradley the company that would become Stanwich Financial -- for pioneering that maneuver in 1995, say lawyers involved in the case.

Pardee, Bradley, and Steven Hogan, a lawyer for one of Bradley's companies, didn't respond to telephone calls seeking comment by the Phoenix. Hogan, though, told the Los Angeles Times that Bradley and his son thought borrowing against the bonds "was a perfectly legal and appropriate thing to do," and that they intend "to pay every penny that is owed to these people."

But those who are grappling with Stanwich's failure to issue the checks for the first two months of this year are deeply skeptical. The missing money "put us in a heck of a bind," says Robert Havlik's father, Michael, a 50-year-old Vietnam veteran who works as a diesel mechanic. "Without credit cards and some outstanding relatives, we'd be bankrupt by now." And the Havliks' story is typical, says Gooch, their lawyer. "Manipulating these bonds to maximize profits for their own business and their own pockets," he says, "It's horrible." About seven plaintiffs -- none in New England -- have joined the suits in Superior Court in Los Angeles County, and lawyers hope to add more.

The lifestyles of Pardee and Bradley stand in sharp contrast to those of the vulnerable beneficiaries of the settlements. Pardee and his wife, Bettie -- described by the Providence Journal as "Newport's own Martha Stewart" -- borrowed $750,000 from the Bank of Newport in 1999, for example, to build a new home between the historic Rosecliff mansion and Salve Regina University's Pell Center. And Bradley, who was involved in the illegal removal of $416,000 from a trust fund established to clean a toxic waste site in Chapin, South Carolina, has a $1.4 million home in Darien, Connecticut.

Marc Seltzer, a lawyer representing another group of accident victims in Superior Court in Los Angeles County, says the stories of his clients "are so terrible, so horrible. I've never seen anything like it in my years of practicing law."

STRUCTURED SETTLEMENTS are often established by an insurance company to provide lifetime financial security for victims of serious automobile or work-related accidents, Gooch says. Having the bonds held by a third party, such as Stanwich, makes interest payments tax-free, he says. This saves money for the accident victim and enables the insurance company to settle large claims for less. The settlement company typically gets a fee for establishing the trust and processing the payments, while a bank acts as trustee. "It was not a lucrative business," Gooch summarizes.

Nevertheless, Pardee and C. John Laugharn, who is now deceased, bought in the late '80s the structured settlements controlled by Merrill Lynch Settlement Services Inc., according to Seltzer's lawsuit. Because little money can be made from operating a settlement services company, the sale was suspicious, Gooch suggests. The company, he says, "had no asset other than the bonds, so you should have no incentive to buy the business, unless you were going to do something tricky with the bonds."

Soon, according to the lawsuit, Pardee was struggling with Wells Fargo Bank, the funds' trustee, to "obtain total control over the US Treasury securities that [it held]." At first Wells Fargo resisted, and in 1991 Pardee's company sued the huge bank to transfer administration of the trust to US Trust Company of California. Although Wells Fargo initially won in court, it settled after Pardee's company appealed, according to the lawsuit. In November 1992, Wells Fargo agreed to relinquish control of the trust in exchange for attorneys' fees and a release from responsibility for any claims brought by the disabled people who were supposed to benefit from the trusts. Tricia Link, a Wells Fargo spokeswoman, declined comment, "because it's a litigation matter."

Bankers Trust Company of New York became the new trustee in 1992 -- the same year that Laugharn sold or transferred his interest in the company to Pardee, who changed its name to Settlement Services Treasury Assignments Inc. In the early '90s, Pardee, by then in his mid-50s, and his wife, Bettie Bearden Pardee, moved to Newport from their home on Commonwealth Avenue in Boston.

A Newport native, Pardee is described by acquaintances as good tennis player who sometimes wears yellow Bermuda shorts with a blue blazer and necktie at society events. Born in Arkansas, Bettie Pardee is the author of Great Entertaining: 1001 Party Tips and Timesavers, and a board member of the Newport Boys and Girls Club. The Pardees own two BMWs, according to property records, and their Newport home -- described as "McMansion" and "faux chateau" by a Newport architect -- was the site of a fund-raiser for Senator Lincoln Chafee last spring, according to Newport society fixture Hugh D. "Yusha" Auchincloss III. According to the Providence Journal, the Pardees also own an 800-acre game reserve in Georgia, and contributed $2925 to Chafee during the last campaign, according to the Center for Responsive Politics in Washington, DC.

In December 1994, according to corporate filings, Pardee and Ogden Sutro of Newport moved Settlement Services from California to Rhode Island, incorporating the company with the help of Providence lawyer Malcolm Farmer. Then, in July 1995, the lawsuit alleges, Pardee got his big break: Bankers Trust Company of New York agreed to allow Settlement Services to pledge the bonds as collateral for a line of credit. The agreement also "purported to permit Bankers Trust to derive earnings and commissions from the management of the trust funds . . . [and] serve as the broker on securities transactions" entered into by Settlement Services. Deutsche Bank purchased Bankers Trust in June 1999.

Armed with his agreement with Bankers Trust, the lawsuit alleges, "Pardee embarked on his fraudulent scheme to loot the trust assets." Borrowing from Morgan Stanley, he and Settlement Services used the bonds as collateral to make loans to other companies, including Pardee's Bellevue Capital Ventures of Newport.

In May 1997, Pardee sold Settlement Services to Stanwich Financial Services Corporation, a Rhode Island company, whose president is Charles E. Bradley Sr. of Darien, Connecticut, and whose son, Charles E. Bradley Jr., of Irvine, California, is vice president. The elder Bradley, now 70, was no stranger to Rhode Island or controversial business dealings.

IN 1985, Stanwich Partners, a Stamford, Connecticut, investment firm headed by Bradley and Brown University graduate John Poole, arranged the $9 million purchase of T.H. Baylis chemical company in Warwick by Sanitas Inc., a Stamford, Connecticut-based corporation. Bradley was also Sanitas' largest shareholder, but the company didn't last long. In 1986, extensive chemical contamination was found at the Warwick site, and by April 1988, the once-successful chemical distributor was out of business. The Rhode Island Department of Environmental Management (DEM) prodded Sanitas to clean up the site, especially hundreds of abandoned drums of unlabeled chemicals (see "Toxic welfare," News, March 10, 2000).

Sanitas repeatedly cried poverty and failed to clean up the site, according to DEM records. Sanitas, however, didn't tell DEM that it sold another subsidiary for a $10 million profit in October 1988. In 1993, the US Environmental Protection Agency stepped in, spending $835,400 on an emergency clean-up of more than 2000 labeled and unlabeled containers of toxic chemicals. If mixed together, some of the chemicals could have formed a cloud of hydrogen cyanide, the gas used by the Nazis to kill Jews at Auschwitz. But EPA never attempted to recover its costs because officials believed that Sanitas lacked enough assets to make the pursuit worthwhile, says Greg Snyder, a branch chief with EPA's regional office of Site Remediation and Restoration in Washington, DC.

The Baylis property was seized last year by the Rhode Island Department of Transportation (RIDOT), which plans to construct a train station linking T.F.Green Airport with Amtrak's Northeast Corridor on the site. But the $761,000 in back property taxes owed by Sanitas, and a clean-up, estimated to cost more than $3 million, of contaminated soil and groundwater at the site, remain unresolved. RIDOT expects to start the clean-up in a few weeks, according to executive counsel Harris Weiner. Two weeks ago -- 15 years after contamination was first discovered on the Warwick property -- the state finally sent letters to Sanitas' defunct subsidiary, whose president is still Bradley Sr., notifying it of its responsibility for clean-up costs under the federal Superfund act, Weiner says.

Sanitas' problems weren't limited to Rhode Island. In 1991, George Jefferson, a judge in Lexington County, South Carolina, ruled that Sanitas and its officers, including Bradley, "illegally took" at least $416,000 from a trust fund established to clean up a toxic waste site in Chapin, South Carolina. And while environmental agencies were struggling with Sanitas' toxic waste site in Warwick, and other polluted Sanitas properties in South Carolina and Florida, Bradley moved to the aluminum industry.

In 1989, Stanwich Partners bought the Ravenswood Aluminum Company in West Virginia. Soon after, according to Ravenswood: The Steelworkers' Victory and the Revival of American Labor (Cornell University Press, 1999), Bradley transferred controlling interest in the company to a corporation controlled by financier Marc Rich. Recently issued a controversial pardon by President Bill Clinton, Rich had fled to Switzerland in 1983 to avoid arrest for racketeering, tax evasion, and arms dealing with Iran. Working with Rich, Bradley locked union members out of the plant when their contract expired in October 1990, and 1000 scab workers were hired before the union members finally regained their jobs 20 months later.

Also in 1989, Bradley became chairman of a Westport, Connecticut, machine tool manufacturer, DeVlieg-Bullard Inc. Other Sanitas principals also became DeVlieg-Bullard executives after the Warwick subsidiary closed. In July 1999, with Bradley still at the helm, the company filed for bankruptcy after the federal government's Pension Benefit Guaranty Corporation (PGBC) placed a $1.06 million lien on it for failing to make required contributions to an employee pension plan. DeVlieg-Bullard is now in the process of liquidation, according to a PGBC spokesperson, and the pension payments have not yet been made.

Bradley and his son, who are involved in several other companies, bought Settlement Services in 1997 to use the bonds as collateral for business loans, company lawyer Steven Hogan told the Los Angeles Times. Based on interviews with witnesses who know Bradley, "Bradley and Pardee know each other quite well," says Gooch, the Los Angeles lawyer representing the Havliks. "It was not an arm's length transaction."

According to Seltzer's lawsuit, Bradley -- like Pardee -- used the bonds as collateral for loans from Morgan Stanley. "At least $46 million was advanced on the line of credit by Stanwich [Financial Services Corporation] and was, in turn, loaned to companies under control of the Bradleys . . . [and] in precarious financial condition," including NAB Asset Corporation and Consumer Portfolio Services, both based in California, according to court documents.

In March 1998, Morgan Stanley foreclosed on the bonds, according to the lawsuit, which blames the financial giant for being involved in the deal. Bret Gallaway, a spokesman for Morgan Stanley in New York, declined comment, "because of pending litigation."

Stanwich didn't notify the widows and families who depended on the trust funds for financial survival that they had been liquidated, according to Seltzer's lawsuit. Instead, it continued to make payments. Then in November 2000, the checks didn't arrive. Nor did they arrive in December, triggering the lawsuits. In late January, however, retroactive payments were made, both Gooch and Seltzer say. But the January and February checks haven't arrived, according to Gooch.

The turn of events has been disheartening for those, like the Havliks in Texas, who once felt sure they had enough money to contend with a difficult situation. "I think we've been robbed," says Michael Havlik. "I have no trust, no faith in what anybody says any more. If it doesn't get straightened out, I don't know what our alternatives are."