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Part II “ Take the Money and Run” by Christopher Menkin The story of how the RW Professional portfolio went to Bank
of Boston and finally to Sierra Cites This story is pieced together over a two year period, with
numerous “off the record” discussions with many of the “players.” None of the participants want to be acknowledged nor did they want to even substantiate
or correct anything from the notes taken. The great majority of this story came
from former Sierra Cities/First Sierra officers directly with the stipulation
they not be quoted directly. Sierra Cities to enter the Internet marketplace. The RW lease portfolio was originally at Denrich Leasing,
but it went to AT&T and finally to CIT after a short stop at Newcourt
Financial. When the CIT relationship
ended with lawsuits and counter suits due to disputes over payments
not made from lessees, retention of early payoff monies and record keeping
by RW, Sierra Cities apparently ignored it.
They had taken the account away from CIT’s predecessor in 1995
and at the time, said the payments were coming in like clockwork. It appears the RW Professional portfolio began developing
when Bob Quinn resigned from ATT Capital and joined First Sierra as
VP of Credit in 1994. Since he
had worked with RW Professional at Denrich and ATT Capital, it made
sense to recruit the business for First Sierra. In fact, when Mike Wing
and Chuck Brazier first put the private label program together for Denrich
Leasing in 1991, they had in mind bringing in Bob Quinn from Bank of
Boston for his expertise in credit. Bob Quinn was hired by Denrich and moved to Florida and was
there in time to witness the damage when Hurricane Andrew struck in
August 1992. When Denrich was
acquired by ATT in late 1992, Bob Quinn brought Barry Drayer and RW
with him along with Barry Drayer’s personal guaranty to AT&T. After
living through the reported less than pleasant changes at AT&T after
the Denrich purchase, Bob Quinn resigned with his trusted sidekick Pete
Smith and both joined the group led by Tom Depping of Sun America who
had decided to put together a conglomerate of “private label” brokers.
Naturally, Bob Quinn recruited RW Professional after joining First Sierra
since he had an excellent history with RW and Barry Drayer.
Most observers tell us that he brought Barry Drayer’s personal
guaranty with him. As the RW portfolio grew each month, the loss reserve
held by First Sierra grew to over $5,000,000. Leasing News was not able to confirm the personal guaranty aspect of the portfolio when Sierra
Cities began its relationship with RW. There have been conflicting stories
about Drayer’s personal guaranty
since many felt it was not necessary based on RW’s performance history.
In June, 1997, Depping
decided to move the credit function from Jupiter, Florida to Houston.
Quinn was the vice-president of credit who had been managing the portfolio
and appears to have had a full handle and watchful eye on the operation. He was reportedly
a key to running the internal end of the process. Ironically when Quinn
joined First Sierra, he purportedly had a deal with Tom Depping to stay
in Jupiter and always have the credit piece in Jupiter. According to a highly reliable source, “Tom
showed up one day in June, 1997 and told the staff that he was moving
the function to Houston at the SAME time Bob heard it. What a guy!” Quinn did not move
so Leasing News was told Depping placed him on the “s**t list.” He actually
spent six months at the Fort Lauderdale office ( Eric Barash’s operation.)
He had a telephone and a computer. But
neither Depping nor anyone else acknowledged his presence. The Jupiter
operation was not moved to Houston until sometime in 1998 as Quinn commuted
over 150 miles a day to the Fort Lauderdale office from mid-1998 until
January,1999, when Eric Barash left Sierra Cities. (Note: Barash was
never involved in the private label program and was a friend of Bob
Quinn. Leasing News was not able to obtain a comment
from Mr. Quinn for this series and this information comes from
people who worked with him and knew him well. editor.) Quinn was the only
one who had kept the operation under control, watched everything, asked
questions, and apparently wasn’t afraid of the man in Chase Tower, everyone
told Leasing News. In Florida,
he was effectively “out of the loop.” The entire Private Label Recourse Program was assigned to
Chuck Brazier that summer since it was his job to grow the recourse
sources including RW Professional. Pete Smith moved from Jupiter to Houston and
became the contact for RW and the person responsible for booking his
deals. Brazier was spending four days a week in Houston, Friday in his Oakmont
office in Florida, commuting. Pete
Smith reported to him about major accounts, but in reality, all involved said Tom Depping personally
ran the RW Professional and Mid-Am relationship.
http://two.leasingnews.org/imanges_uael_wael/brazier,c.jpg Chuck Brazier According to the sources present at the time, Pete Smith
had little or no true authority to be the watchdog like he was when
he worked for Quinn. Obviously Chuck did the selling, the wholesale broker relationship
and it appears no one was watching the henhouse for the MidAm Credit,
RW and other recourse deals that kept coming in the door. Depping’s
main concern was to book business. It is reported he was the first to arrive and the last to
leave. Even his detractors called him a very hard worker. Leasing News tried to reach Chuck Brazier for a comment,
but was unable to do so. It is
reported his job was attracting and holding onto accounts, on the road, on the telephone, and not involved in the day-to-day
operations. It was reported to Leasing News that Chuck Brazier had offered
his resignation several times due to his dissatisfaction. After his very
good friend Oren Hall resigned, he was even more dissatisfied and resigned
to join Centerpoint. The resignation
cost him some significant money to buy out of his non-compete provisions
Leasing News was told. However,
all that we could verify was the fact he resigned to join Centerpoint
with Gordon Roberts, working directly under the owner, John Otto. No one Leasing News spoke to seems to know who had direct
responsibility after Chuck Brazier left to join Centerpoint until Dan Ciocca
took over the program sometime in mid-1999. Several sources told Leasing
News there was not an actual direct report handling the private label program.
Pete Smith and Lon Thompson did the day
to day work, but they did not report directly to Tom Depping. There
were no scheduled review meetings regarding RW, we were told, but they did have regular meetings for management/credit
and scheduling. Mike Wing may have been involved in these meetings since
he also came from Denrich, but it appears Tom Depping was micro-managing
it as his world was beginning to fall apart. The bank, the internet,
the “roll over” of independent leasing companies under one “franchiser,”
and Chase Tower were headed for the “perfect storm.” ---------------------------------------------
http://two.leasingnews.org/imanges_uael_wael/Deepings_view.jpg Thomas J. Depping Looking Out Upon Houston, Texas According to one source, there were so many changes going
on, people leaving, difficulties with sales and changes seeming to be
one thing one day and another the next, the operation was basically
running itself without a “day-to-day” leader. In 1998, Mike Wing had the full credit function. Pete Smith and Lon Thompson handled the day to day operations of the RW program
along with the other Private Label Recourse customers like MidAm. Greg
McIntosh did not become manager until January 2000. In late 1999, Barry Drayer apparently met with Depping in
Houston to request that part of his loss reserve be refunded due to
minimal losses in the portfolio. The
portfolio was performing so well that many said “it was too good to
be true.” It seems Drayer wanted cash. The financial settlement received by RW was
described to us, but since we cannot verify the figures, we cannot print
the information. In retrospect,
the various lawsuits indicate it took a lot of cash to keep the alleged “Ponzi like” scheme working The Sierra Cities cash reserves against losses was as high
as $5 million. The “hold back” was quite sufficient Tom Depping reportedly thought. What went on between the ( name of the floor
) is not known. Greg McIntosh
reported to Depping about the private label program, but was actually
not formally in charge until January, 2000. There were several visits to Houston to meet with Tom Depping by
Barry Drayer, but Greg McIntosh had no comment to make. Perhaps the negotiation for the life insurance was a “trade”
for the removal of Mr. Drayer’s personal guarantee at that point. A key player in the negotiations said that the
personal net worth of Mr. Drayer was a half million, so a $1 million
insurance policy seemed like a good idea to trade the cash
for the policy. The decision was made solely by Tom Depping, according to
all the key players we spoke with. Several of the key officers were not in favor, but the thrust
was to apparently to put more business on the books, sell the company,
and as the man at one time in charge of sale, Mark McQuitty described it , “...move
on before the house of cards collapsed.” Barry Drayer was the vice-president of RW Professional Leasing
a/k/a Professional Leasing Services.
His sister Rochelle Besser was the president. If credit was to be run by a community bank, it would be on Rochelle,
not Barry. While a personal guaranty
may not have been used in assigning leases, it is a common practice
in the financial community to run credit on the president, whether they
personally guaranty or not. When Barry Drayer started his relationship with banker Bob
Quinn at the Bank of Boston, he was the president and personally guaranteed
the recourse and non-recourse lines. It was this manner as the portfolio
was changed as the lenders were changed as companies were sold and bought.
In part one
of this series, RW Professional went with Quinn to Denrich to AT&T
and finally to Sierra Cities. Drayer brought along his personal guaranty to transactions, but he wanted it removed
and he also apparently needed
$1 million in cash. He had $5
million in a “hold back” with his portfolio at Sierra Cities. Sierra Cities CEO Tom Depping personally handled all the top accounts.
He had moved the operation from Florida to Houston, thinking that Quinn would follow. Whether Quinn would have actually moved to Houston
to manage the portfolios, his apparent betrayal by Depping and the sudden
“everyone is moving” without notice that allegedly turned him off ( and many others, too.) Even Chuck Brazier did not move to Florida, but commuted
and lived in a corporate apartment three nights a week. The CIT lawsuit was a factor that had to be considered.
It was originally $10 million, but had wound down to $500,000 over the course
of the dispute. The trade of $1 million in cash to Mr. Drayer and the release
of his personal guaranty
in return for a $1,000,000 life insurance assignment and the promise
to deliver more business was reportedly
not concluded “over night.” It
was a negotiation that involved several key officers, not just Tom Depping,
according to many of the sources we spoke with. It is reported that
at least one key officer felt the trade was a big mistake.
At
the time, it was considered prudent to do the trade because Drayer evidently
“needed” the cash and those involved allegedly wanted to keep him happy
so he would keeping sending in“
good business,” and the portfolio was performing “perfectly.” The medical paper was the best and Drayer’s
business was very necessary, especially since the company was up for
sale ( there is a slide of time between the private decision and the
reality of actually seeking suitors.) Sierra Cities needed the business, particularly since it
was on the market for sale. Talk with
several top buyers was very promising. At that time, RW Professional was “the cat's meow,” according
to Leasing News contacts. No delinquencies to speak of, payments made
on time, and great medical paper from a veteran in the industry. It was also a “house account” with high yields, and everything was going as “perfectly
agreed.” Drayer was apparently given the red carpet treatment every
time he visited Houston Drayer purportedly explained the problems with “Old Kent”
and “CIT Financial” were in actuality disagreements about “late charges”,
“purchase options”, and “interim rents”. At that time, the lawsuit with
CIT was down to approximately $500,000, Leasing News was told. In comparison
to the loss reserve of $5 million cash, a large and well performing
portfolio along with Barry Drayer’s reputation of taking care of everything,
the release of part of the loss reserve was reportedly considered to
be a “small” risk, according to several sources we spoke with. The CIT lawsuit was seen as a plus for Drayer, according
to all the people we spoke with. It was viewed as very positive. CIT had inherited
a 10 year $100,000,000 plus RW relationship through the acquisition
flow through Denrich, ATT, Newcourt and finally to CIT. It was the consensus at the Sierra Cities staff
level, after this much time(10 years) and servicing by three or more
companies , if all they were arguing about was $500,000 ( after a completely
liquidated $ 100,000,000 portfolio) then one could make a reasonable
assumption that CIT had not had any serious issues with RW. The lawsuit
with CIT was definitely not ignored.
It was viewed as making a hero out of Barry Drayer; making payments
for lessees was purportedly seen as positive, and not a red flag. Several of the officers actually told Leasing News “ $500,000
was nothing.” In relationship to the size of the portfolio, the executives
apparently thought it could easily be handled, and might in fact, be
much lower, especially if Barry Drayer was right about what the dispute centered on. In fact, he was even making payments for lessees and CIT should have been
happy about it, Leasing News was told. The key was the performance, the personal relationship that
Barry Drayer, had with his brokers and everyone at Sierra Cities “knew
him well.” He always returned
calls promptly, took care of any problem, and was “Johnny on the spot.” The staff and department heads looked forward to his visits. An executive interviewed by Leasing News via telephone, who
asked not to be named, says he was employed by Sierra Cities at one
time. He said he came into Houston for a meeting, and at a Chinese restaurant
with Fred Van Etten, Greg McIntosh, and perhaps two other people, which
for legal reasons Leasing News is not going to name, when the conversation
of RW Professional Leasing came up. (Later on, the other two at that that restaurant confirmed to Leasing News that the meeting
did take place). He told the gathering he knew the company as Professional
Leasing, who did a lot of dental business when he was at the Vanguard Division
of Old Kent Bank for eleven years. He said this company ripped them off
for between $6 million to $10 million. He asked, “Why should Sierra
Cities do business with them?” He
was told Sierra Cities had the corporate and personal guarantees---and
it was recourse, so Sierra Cities was supposedly protected.
When Old Kent Financial went out of business, the employee
restraining order was no longer valid, according to the legal counsel. Susan
Adamatis, who was an employee, told Leasing News about the settlement not
to disclose the loss of the RW portfolio and the reasons behind it as
part of a cash settlement, including a restraining order that employees not divulge the agreement. “I hope this is not the same Professional Leasing on the
east coast that took Old Kent Leasing for a ride on many fraudulent
transactions with dental practices.
If it is, I can tell everyone how it was done and what to look
for since I had to charge-off the money and we ended up settling with
Professional Leasing as well, “Susan Adamatis said. “ If
anyone wants some insight I would be happy to provide it.” “A fictitious vendor supplied an application for a dental
practice installing ‘NEW’ medical equipment.
All credit checks were completed on the customer etc. Only if the lessee defaulted would you ever
know that there was in fact no new equipment.
The equipment description on the vendor invoice was either for
existing equipment that was in some cases over 20 years old or it never
existed. These were in fact loans. We had a couple of lessees so afraid of being
sued and going to jail for fraud that they signed statements and admitted
just how much cash they received. Needless
to say the cash the lessee received was a lot less than the amount funded
to Professional Leasing, “ Susan Adamatis concluded. “ The lessees claimed
this vendor solicited them to supply additional cash for the business
and all they would have to do is “sign on the dotted line.” It was reported to Leasing News by several former vice-presidents
of Sierra Cities, and confirmed by three other highly reliable sources
that RW Professional Leasing was allegedly
double dipping or even triple dipping deals (same deal to ATT and First
Sierra and banks doing business with RW) and when RW received a payoff
from a recourse client, it appears they did they did not always payoff
the deal at the original funding source.
During this time, Drayer had requested $1 million in cash
from his reserves with First Sierra. He
apparently needed the cash and requested a trade of a $1 million insurance
policy on his life. In lieu of
his net worth, and to continue to receive the “great paying” lease,
Tom Depping allegedly personally approved the request, according to
a very highly reliable source that was there at the time. It is believe he relinquished the personal guaranty ( again, we could not confirm nor get this denied, as many of the staff reportedly
were not privy to the conversations of the two individuals. Efforts to reach
Mr. Depping for a comment have been to no avail.)
http://two.leasingnews.org/imanges_uael_wael/Tom_Depping.jpg Thomas J. Depping in his Office
drinking Diet Coca Cola The negotiations and trades with Drayer coincided with Tom
Depping’s efforts to sell his company to American Express. He apparently
wanted to continue the growth of sales in a tough marketplace. RW Professional
was a house account with great yields and performance. Depping also made it know that he wanted out. It seemed as was as
if his felt his luck was running out and his staff reported that he
was becoming more “secluded, brooding, quick tempered and private.” The Old Kent issues regarding RW making payments on defaulted
leases, undisclosed split transactions and changing or originating vendor
invoices was considered by people Leasing News talked to as not a
secret in the leasing trade. The matter purportedly was settled between
Old Kent and Drayer with a clause that no one could divulge the agreement,
yet it appeared to be “common knowledge” among people in the know. Leasing News reported a lunch held at a Chinese
restaurant in Houston where
key officers discussed this. However,
this was not confirmed until Old Kent went out of business and the trade
of cash ostensibly to keep quiet about portfolio problems made public. In several articles, Leasing News has reported that former
employees at Old Kent now believe the agreement not to divulge this information
publicly is no longer valid as the company no longer in business. Reportedly the person in charge of RW in Houston was Dan
Ciacco. He had pulled some files, but never found any discrepancies.
There was one involving a bankruptcy, but RW explained the doctor was still in practice. CIT had a meeting with Dan Ciacco in Atlanta (Sept. 1999) where CIT showed them
50-60 accounts that had been split between First Sierra and ATT, which
became Newcourt which became CIT. They
also told them they had proof of the early payoff scheme and the fact
that RW was making the payments on BK deals. Greg and Dan went back
to Houston. They claimed to have talked directly with Barry
Drayer, who said the dispute was over late charges, personal property
taxes, and advance payments. He
allegedly said he had made some payments instead of buying the leases
back as the lessees were still in practice despite any credit problems. They again, do some checking, using a formula
from the past, and then called CIT. They said they found no such problems
with their portfolio. They also had a $5 million cash reserve, at the
time, and Tom Depping told staff the company was adequately covered
for any losses. The “roll over” of
companies purchased by Sierra Cities were not performing. The “entrepreneurs” told Leasing News that once
purchased, the control was moved to Houston, Texas and the method of operation changed.
Don Zaretsky was very disappointed.
Not as much as Mark McQuitty, who was running the sales for the former Republic Leasing of Anaheim.
http://two.leasingnews.org/imanges_uael_wael/McQuitty,mark.jpg Mark McQuitty with his wife Carolann In December, 1999, he wrote Depping that the internet and
First Sierra was not the way to create sales, predicting the bust of the
dot.com demise. “We had made it clear to all that we didn’t want to do the
deal if Tom Depping was going to change anything materially, or try
to micro-manage our operation, “McQuitty said in “Whatever Happened
to Republic Leasing of Anaheim.” “Because of the representations we had made to them regarding
the agreement we had with Tom Depping that no changes or tinkering would
occur, all but one out of the 130 sales reps agreed to come with us,
“ McQuitty added. “ You know, First Sierra stock rose to $7 on the news
of our acquisition.” “ We had an operation that was like a highly tuned precision
engine, “McQuitty explains. “ It wouldn’t respond well to Saturday morning
backyard tinkering by amateurs. An assimilation team was promised but
it never materialized. No sooner had the ink dried on the agreement,
than corporate began dismantling the Anaheim back office in an effort
to consolidate with the main office. McQuitty described his reaction in precise terms: “This move in effect decimating the risk management team
we had put in place, which had worked spectacularly for the life of
the company in preventing bad deals from leaking into the system and/
or any sales-induced fraud from occurring, “ he said. “ Our crew was
on top of everything with excellent control. And no sooner than the
back office being dismantled, corporate went after our sales force.”
“Michael Sabel showed up on our doorstep, supposedly for
a routine visit, but what turned out to be orders to fire 100 employees
just before Christmas. “Not only had we lost control of the back office functions,
but now the origination side of the business as well, something we were
told were the reasons First Sierra wanted us in the first place. It was a terrible time and both Jim and I had
no idea about what was to happen. “ Needless to say, this was catastrophic on company morale
and on any remaining loyalties the surviving employees may have had
to First Sierra, along with any credibility that we may have had as
their managers and any belief that we were still in control. “ We soon found out we were managers/VP’s in name only.
And to top this off, corporate headquarters failed to keep its
commitment to issue options to the top producers. They reneged on this
immediately post acquisition, which had a devastating effect on morale.” “We were now down to 25 reps from a high of 130 pre-acquisition.
However, notwithstanding this small sales force, they represented over
70% of the ‘98 revenues. The best and brightest were still committed
to the company and were willing to give it another chance. “In a lengthy e-mail I pleaded with Tom Depping not to “throw
the baby out with the bath water”. He did not even open it, or respond
- no doubt previewed it, then discarded it. At the time, I was next
to Tom Depping, the single largest shareholder employed in the company,
owning over 600,000 shares and no doubt one of the top 5
or 6 shareholders of record (I still have substantial holdings).
This hit me at the time as particularly troubling. In hindsight, it
is clear my departure was already being planned by Tom Depping. “It seemed as though the strategy was now on being an internet
company free from the dependence on salesmen and then tying this into
internet processing company... “- no commissions and cheap cost of finds.
The money would surely roll in. I guess in theory it has a certain appeal,
but if Tom Depping was at all familiar with our business, he would have
seen it as counter intuitive. “Not only was the original intention of training new salesmen,
but even having salesman call on vendors or direct business, became
the “old way” to create business. We
became known as dinosaurs in our traditional way of conducting business.” The more letters and e-mail he wrote, the more Depping was
alienated by McQuitty warning him about doing sales via the internet,
and actually predicting the demise of the dot.com equipment leasing
industry as it was known at the time. In retrospect, McQuitty was brilliant in his observations
about the leasing industry. He appears
to also be correct that Thomas J. Depping was isolating himself in his Chase Tower office.
http://two.leasingnews.org/imanges_uael_wael/Toms_office.jpg Thomas J. Depping Office at Sierra Cities Tomorrow: The Conclusion
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