WITH FRIENDS LIKE THESE . . . ASSISTANT U.S. ATTORNEY TOM CONNELLY DIDN'T NEED ANY ENEMIES
Back in the days before the Federal Bureau of Investigation started snooping around, a lot of people remember that Tom Connelly and Bill Reeves were pretty good friends. The two met quite by chance four years ago, right after Connelly hired on as a criminal prosecutor at the U.S. Attorney's Office in Phoenix. Connelly was poking around a barn in north Scottsdale, looking to buy an Arabian horse for his wife. Reeves happened to own a few Arabians, and soon sold Connelly a fancy stallion named Preodney.
Reeves seemed so magnanimous. The middle-aged investor seemed to have everything--a beautiful young wife, a corporate airplane, plenty of cash, Arabian horses. He'd often invite others to share his success by tipping them off on investments within his vast business empire--his gypsum mine, his cattle ranches, his gold-mining properties and his lucrative bonding deals for government construction projects.
These days, you can bet that Connelly wishes he'd never heard of Bill Reeves. In the summer of 1988, at the height of their friendship, Connelly made a terrible, devastatingly stupid mistake.
It's a mistake that put him for a short while under the watchful eyes of the FBI, although he's not the target of a criminal probe at the present time. And it's a mistake that raised serious questions about how someone trusted as a U.S. attorney could dabble in a strange world of white-collar con men and thugs.
Connelly's incredible gaffe was uncovered by New Times during a one-month probe of his financial dealings with Reeves. The newspaper discovered that in his official capacity as an assistant U.S. attorney, Connelly signed an affidavit assuring the government that "to the best of my knowledge," Reeves was worth $138 million.
That affidavit meant money in Reeves' pocket. He now qualified as an "individual surety"--a well-heeled businessman who had enough assets to cover bonds required for federal building projects. The way it's supposed to work is if the contractor doesn't pay his subcontractors, the individual sureties step in and reimburse them.
But a Maryland lawsuit reveals Reeves defaulted on the very bond that was advanced by Connelly's signature on the affidavit. As a result, some subcontractors were left in the dust, short thousands of dollars for work they say they'd already completed.
And people started asking a lot of questions about how this happened.
Similar defaults have bred what the Wall Street Journal calls "a nationwide federal contracting scandal." Federal officials estimate that subcontractors have lost tens of millions of dollars when sureties default on bonds based on bogus fortunes, the Journal has reported. The "scandal" is so widespread that congressional fact-finding hearings were held earlier this summer to see what can be done to help the ailing subcontractors.
Which naturally raises the question: Did Connelly's role in Reeves' default prompt his surprising resignation from the U.S. Attorney's Office two weeks ago?
By then, New Times already had discovered from a Scottsdale police report that Bill Reeves was under investigation by the FBI in connection with a "large fraud case." (Reeves tells New Times he is not the focus of an FBI probe but is cooperating with the federal agency in an investigation of surety defaults.)
The newspaper probe also shows that before and after Tom Connelly put his signature to that document, he had business dealings with Bill Reeves.
HOW IN THE WORLD can a U.S. attorney get involved with a man who's linked to a fraud case by the FBI?
"All of us from time to time get taken in by folks whose appearance, demeanor and approach is disarming," he will only say. "Apparently I didn't know him [Reeves]." Although he's not anxious to talk about the situation at all, he lets it slip that he thinks his ex-friend and business associate is "a well of poison." Connelly absolutely refuses to say anything more about his relationship with Reeves.
Comments seem in order. New Times has found that Connelly's association with Reeves goes far beyond the federal affidavit.
New Times has learned that from 1987 to 1989 Connelly:
* Was listed in Reeves' ledgers as the recipient of more than $10,000 for "loans" and "stock," including checks for $2,500 after Connelly signed the federal affidavit.
* Obtained or help obtain a total of $55,000 from investors for deals put together by either Reeves or Gary Anderson, who had served time in prison for robbing Pizza Hut outlets. All of the investment money was lost.
* Signed over what turned out to be worthless stock to Reeves as part of a complicated plan to pay one of Reeves' debts.
THE SIGNATURE on the affidavit of surety is the most troubling of these business transactions, especially in light of the fact that Connelly was a criminal prosecutor for the U.S. attorney at the time. Officials at the U.S. Attorney's Office won't detail specific cases Connelly handled, but they admit that his division sometimes prosecutes fraud cases. So it follows that an assistant U.S. attorney ought to be able to spot suspicious financial statements, which sometimes mean a white-collar con man is near.
Only certain federal officials are eligible to sign surety affidavits. But with that right comes the responsibility to "assure protection of the government's interests." The affidavit declares: "Such certificates must be based on the personal investigation of the certifying officer. . . . " Connelly will not explain what kind of checking he did, but Reeves claims he submitted plenty of documents to back up his assets.
Reeves submitted a financial statement claiming he had "assets" worth $138 million. The financial statement was signed by a Phoenix certified public accountant. As is common in this profession, the accountant refused to take responsibility for the statement's truthfulness, since all the figures came from Reeves and had not been independently checked out.
When New Times double-checked that financial statement, it quickly found public records that disputed Reeves' claims and cast doubt on his ability to pay his bills. Connelly had access to the same public records; some filed by his co-workers and stored embarrassingly nearby with the District Court of Phoenix--just a few floors below Connelly's old office in the Federal building.
Reeves stated all the assets were owned either by him or two of his corporations, RKS Mining and Midas Corporation.
He claimed virtually all his assets were tied up in various mining properties in Arizona, California, and Utah--worth $135 million based on projections of what they would earn over time. The largest single piece is a gypsum mining claim in Arizona's Tonto Basin that Reeves said is worth $60 million. However, state officials say they suspect that value is grossly inflated. "If someone handed me a financial statement like that, I'd be inclined to say, `Yeah, sure, prove it,'" hoots Ken Phillips of the state Department of Mines and Mineral Resources. Phillips is knowledgeable with the claims and notes that not enough tests have been done to determine how much gypsum is there or what it's worth. However, a Payson miner familiar with the property tells New Times those gypsum claims are worth about $60,000. "It's very hard to evaluate five miles of claims when you've only dug a few holes," the miner adds, questioning whether Reeves had conducted a suitable assay of the claims. He asked not to be identified because he's been interviewed by the FBI about Reeves and doesn't want to impede the investigation. However, Reeves still maintains the projections are valid and asserts he had respected professionals evaluate the claims. He offered to show New Times his proof, but he didn't show up for two separate scheduled meetings.
If the enormous anticipated value of the mining claims wasn't enough of a red flag for anyone reviewing the financial statement, Reeves' skimpy available cash should have been. He listed only $96,000 in ready cash--a small sum to sustain and develop such huge mining operations. Furthermore, Reeves claimed to own the $1.7 million Apache Ranch, also known as Reavis Ranch, in the Superstition Mountains--a claim he still makes today. He said he controlled "350,000 acres for grazing from the U.S. Forest Service." But Forest Service officials tell New Times neither Reeves nor his corporations had any grazing permits in the area in 1988. They still don't.
"Reeves has been working on getting a permit for three or four years, but he hasn't been issued one yet," said Gary Holder, an official for the U.S. Forest Service. Reeves also claimed to own a house in Scottsdale. But Maricopa County assessor records reveal that neither Reeves nor his corporations are listed as owners of that particular house. (Reeves tells New Times another man held the house "in trust" for Midas Corporation.) What is not listed on that financial statement is also revealing:
* Absent is $174,191 the federal government claims Reeves owes for nonpayment of taxes stemming from his 1982 bankruptcy. Just three months before Connelly signed the affidavit, federal attorneys in Washington, D.C., filed papers through Phoenix indicating they wanted to pursue the tax money. Connelly's former office is involved in the suit. (Reeves explains away the tax problem by saying the Internal Revenue Service has a vendetta against him because he once befriended the dying son of a Mafia chieftain.)
* Absent is $225,462 in judgments New Times found against Reeves in public records at the Maricopa County recorders' office from 1988, about the time the affidavit was signed.
New Times also discovered that Reeves' "fortune" varied. In yet another surety affidavit signed a year before his $138 million claim, Reeves said he was worth $351 million! Connelly didn't sign that document.
CONNELLY'S SIGNATURE on the first affidavit prompted Captain E.M. Wilson of the Air National Guard in 1988 to accept Reeves as one of the sureties for a contractor called Jennings International. Jennings agreed to do a construction job for the Air National Guard in Washington, D.C., area.
Wilson, now a major, has refused comment. Jennings purchased a $500,000 bond from Reeves. Since the law requires that a contractor be bonded by two individual sureties per job, Jennings also purchased a bond from a Phoenix man named Charles Neely.
New Times could not locate Neely, who apparently is an associate of Reeves. Neely's affidavit, which was signed by a bank officer for the Wells Fargo Bank in California, listed assets of $49 million. Some of those assets were in Reeves' corporations. According to a Maryland lawsuit, Reeves and Neely defaulted on the bonds. Larry Press, a Maryland subcontractor, claimed in Maryland District Court that he was shorted $140,000.
Press puts up steel sheds for a living. He works long days to ensure that his little prefab-building business will survive. He thought he was protected by the individual sureties.
Press said he was astonished when he discovered how "lax" federal officials had been in okaying Reeves and Neely. He wonders how the government could betray small subcontractors who don't have the money or power to fight back. Press isn't the only victim, though.
New Times also learned from federal and county court records that shortly after Connelly signed Reeves' affidavit, Reeves defaulted on similar bonding deals in Texas, Illinois, California, and Mississippi. Subcontractors claim in various district courts that they were owed about $600,000 for work already completed. Court records obtained by this newspaper do not reveal whether Connelly signed the affidavits for Reeves' other bonds. Bill Jennings, who owns Jennings International, was no stranger to Reeves, New Times learned from a source who asked not to be identified because he has been "subpoenaed by a grand jury" in connection with federal bond defaults. The source says Jennings knew Reeves on a social basis, had dinner with Reeves and occasionally flew around with Reeves in his corporate airplane. TWO WEEKS AGO, Tom Connelly resigned from the U.S. Attorney's Office after being on an unexplained "administrative leave" for several weeks. Connelly told New Times he'd always planned on leaving the U.S. Attorney's Office to go into civil practice once he was "admitted" to the state bar.
What's odd is that Connelly has yet to be admitted to the bar here. (Assistant U.S. attorneys aren't required to pass the state bar to practice in federal court.)
Connelly resigned shortly after New Times separately questioned him and his boss, Linda Akers, about Connelly's involvement with Reeves on the bonding deal. Akers has refused comment. So has District Court Judge Steven MacNamee, who as a U.S. attorney had hired Connelly in the first place.
Connelly has refused repeated requests for interviews, referring all New Times questions to the FBI. The FBI refuses to comment, except to say that Connelly is not the target of a criminal probe at the present time. A Scottsdale police report confirms that the FBI is investigating Reeves in connection with a "large fraud case."
BILLY HARRIS KNOWS more about the ritzy Arabian horse world of north Scottsdale than just about anybody. Harris has trained and judged Arabian horses for more than a decade, despite the fact that he was born severely dwarfed and disfigured.
Harris loves the patrician horses, but he's not always terribly fond of the Arabian horse groupies drawn to the glamour and wealth of the owners.
"It's the money and movie stars that draw them," sniffs Harris, who claims to be a personal friend of Wayne Newton and several other celebrities.
Unfortunately for Harris, there aren't quite as many celebrities in his stables as there used to be. The bottom fell out of the Arabian horse market in the late Eighties. Even Sandspur Farms, the once-thriving Arabian horse farm that Harris has managed for several years, is broke. Harris looks out at Sandspur's special swimming pool for horses and the elegant paddocks and wonders how much longer he'll be able to stay in the spacious ranch house that's been his home for so many years. And he now has to worry about the retirement he'd saved for all his life, because he claims he's lost thousands of dollars to failed business deals pitched by Tom Connelly, Bill Reeves or Gary Anderson. Harris was drawn into that circle when his good friend and fellow horse trainer, DeDe Bisch, married Bill Reeves. They introduced Harris to Gary Anderson, who claimed to put money deals together. Harris says he met Connelly around the time the prosecutor bought the fancy Arabian stallion from Reeves. Before long, Harris joined his "friends" for regular drinks at Handlebar J's, the north Scottsdale watering hole and eatery for the horsey set. Connelly would frequently show up wearing a huge cowboy hat, much to the amusement of Gary Anderson. "Tom loved to be a cowboy," recalls Anderson, who punctuates practically every paragraph with a little giggle. "He used to wear a big stetson, must have cost $300. I used to say, `Tom, take off that thing, you're embarrassing me.' "Tom was just having a few drinks like the rest of us," Anderson says fondly. "We were just a bunch of guys getting together and basically it just turned into business, you know."
Harris recalls that during those golden days at Handlebar J's Connelly tried to "give the impression that he had money" as well and acted like "a big shot." He remembers that once Connelly even borrowed some pieces of African ivory from a friend to put in his house at McCormick Ranch to impress a visitor.
Looking back now, Harris says it never struck him as strange that his friends were hitting on him for loans. So he lent money to Connelly. He lent money to Reeves.
And he's still waiting to be repaid.
Harris has a note proving Connelly owes him $15,000, and he's hoping he'll get paid in full some day.
Harris claims Reeves owes him about $30,000. He'd like that money, too, but he's learned the hard way to watch out for how Reeves tries to repay debts. Billy Harris will never again accept stock certificates for repayment. He still smarts remembering how he got snookered in August 1987. Reeves offered to pay back Harris $5,000, with Tom Connelly as the middleman, Harris says.
Here's how the payback was supposed to work, according to Harris: Reeves paid Connelly for some stock the prosecutor owned in a Nevada corporation that was supposed to be financing a network of Tutor Time preschools. Connelly then signed the stock over to Harris. The horse trainer agreed to reduce Reeves' debt to him by $5,000.
Harris recalls Connelly said the preschool stock would pay off in a few years. He remembers somebody saying there were already a few Tutor Time schools in Albuquerque and Los Angeles.
"I asked Tom about it [the stock] the other day," Harris recently told New Times, "and he said, `Give it another year. It's going to go.'"
But Harris now suspects the stock is worthless. Records at the Nevada Corporation Commission reveal that the parent company is in revoked status. There are no "Tutor Time" preschools listed in the Albuquerque or Los Angeles telephone directories.
Reeves disputes Harris' account of the tradeoff. He says Harris bought the stock from Reeves and failed to pay him. But an entry in Reeves' business ledger reveals he paid Connelly $2,500 for stock in the fall of 1987.
New Times also has learned that at the time Billy Harris lost his $5,000 in the stock deal, Connelly and Reeves were involved in other transactions. For instance, copies of Reeves' office ledgers reveal from the summer of 1987 to the fall of 1988, Reeves lent Connelly money. The prosecutor was listed as the recipient of checks from Reeves totalling a little more than $10,000, including the $2,500 for "stock." The other checks were tagged "repay loan," "loan" or "travel expenses," the records say. Then in 1989, Reeves and Connelly worked together on a doomed "Guatemalan gold" deal. This transaction was centered on gold chains, the kind a fellow puts around his neck when he wants to look spiffy.
Connelly obtained $25,000 from investors in New Jersey and gave the money to Reeves, according to several sources. In return, Reeves was to get gold from Guatemala at a discounted rate for the manufacture of gold chains. Harris says Connelly got a cut for putting the deal together.
Unfortunately, the investors didn't get their Guatemalan gold. Connelly, reportedly, was furious.
Reeves admits he lost the money. "I went to Guatemala," he says. "I set up a deal to buy gold from the bank at 5 percent." But then Reeves got involved in his wretched divorce, and his wife, he says, stole his office records. And so he couldn't follow through with the deal.
You'd think Connelly would have learned his lesson and quit finding investors with money to spend, but several sources say the assistant U.S. attorney got involved in another disastrous enterprise in 1989 when he tried to help Harris gather funds to buy his beloved Sandspur Farms.
In this case, Connelly located a Scottsdale man with $30,000 to invest. Connelly and Gary Anderson, the Pizza Hut bandit, pointed the man to a company called Corporate Investments. The man gave Corporate Investments his money, and the company promised the man he'd get $45,000 back within a short time. The Corporate Investments executives, who later turned out to be Gary Anderson's friends, said they would use the Scottsdale man's money to obtain mortgage funds for Sandspur Farms.
The Scottsdale man never got his money back.
Anderson explains the loss by saying there was "some European banking deal" that fell through and adds, "That's just the way things go sometimes."
BILL REEVES IS a different man these days. The rich and generous investor who once shot the breeze with his buddies at Handlebar J's is now consumed with bitterness. He's broke, he says, and he blames much of his misfortune on his bitter divorce with DeDe.
Reeves fled Arizona in 1989, taking his two young daughters with him. He claimed DeDe had hired thugs to kill him. Several months later, Reeves was arrested in Colorado for custodial interference and the two girls were returned to their mom. Reeves was placed on probation and now lives in Scottsdale. He insists he had to take the children to protect them.
But Reeves claims that during his absence, his wife and Gary Anderson stole his office records. He says those records would clear him of any wrongdoing involving the federal bond defaults, the hundreds of thousands of dollars' worth of debt recorded in county records and practically every other problem in his crumbling world.
DeDe denies she stole the office records. She says they were community property, and she had just as much right to them as her husband.
But Reeves has filed poisonous papers in Superior Court alleging that DeDe last year hired Anderson and an alleged underworld enforcer, Carl Verive, to hurt him. For proof of these allegations, Reeves filed with the court affidavits from his friends saying Anderson had threatened to do Reeves in. Reeves himself claimed he overheard Anderson plotting against him when Reeves, disguised as a hippie, was spying on his wife at a New Mexico horse show.
Verive, a friend of Gary Anderson's, is a plumber who's been convicted of assault several times. Legend has it that Verive's wrists are too thick for handcuffs to fit around.
In 1979, Verive was found guilty of beating a Mesa man so he wouldn't testify against an associate of Verive's, Superior Court records say. Verive's accomplice in the assault was fellow plumber James Robison, who was convicted of killing Arizona Republic reporter Don Bolles. Robison's conviction was later overturned by the state Supreme Court, but Robison is currently in the slammer for beating up a Scottsdale talent agent. DeDe Reeves adamantly denies that she hired either Anderson or Verive to hurt Bill Reeves. In fact, Anderson tells New Times he asked Verive to tag around the Arabian horse barns to protect DeDe in 1989 during a particularly nasty period in the divorce. DeDe Reeves says she feared for her safety because Reeves threatened her. (Reeves denies it.)
Anderson, too, scoffs at Reeves' claim that he and Verive were out to beat him up. "Look, to be honest about this," he says darkly, "if I wanted to do something to Bill Reeves, I'd have no problems doing it. I would just walk up and do it." As a matter of fact, Anderson claims Reeves asked "me and Carl [Verive] to go make threats to people for him. I don't want to say who because I don't want to incriminate myself here." Reeves spends a lot of time ranting on and on about how his wife wants to kill him, even today. He sees himself as the victim of a colossal conspiracy involving all the people who are out to get him: his wife, Gary Anderson, the IRS, the Scottsdale police, and his ex-friend Tom Connelly. BILLY HARRIS AND Gary Anderson don't frequent Handlebar J's much these days. Anderson even found a job managing a vegetarian restaurant. But then he quit last month, saying there just wasn't enough money in it. He says maybe he'll get a job working in one of the fancy new eateries at Fashion Square. He is the only member of the old Handlebar J's clique who still says he counts Tom Connelly as a friend. "Tom Connelly is like an innocent bystander who got ate up in this whole thing," he says with a clear sense of drama. "I don't think Tom Connelly is a bad guy. I think Tom was used by Bill Reeves. Maybe he should have known better because he was an assistant U.S. attorney."
Anderson sees Connelly as a tragic figure of sorts, whose downfall was simply the fact that he was a nice guy who tried to help his friends. "And now," he says bleakly, "Tom's lost his job and Bill's lost everything."
Billy Harris doesn't share Anderson's tragic view of the past four years.
"I was a pigeon," the little man says of his various business "deals" with his friends.
"I've been run over, and I've done a lot of stupid things, and I know that.
"I've been cheated, but I never did anybody no wrong."
As for Connelly, Harris says the former assistant U.S. attorney has decided to sell his Arabian stallion Preodney.
Connelly made a terrible, devastatingly stupid mistake.
The New Times probe shows that before and after Connelly put his signature to that document, he had business dealings with Reeves.
It follows that an assistant U.S. attorney ought to be able to spot suspicious financial statements, which sometimes mean a white-collar con man is near.
When double-checking that financial statement, New Times found public records that disputed Reeves' claims and cast doubt on his ability to pay his bills.
"If someone handed me a financial statement like that, I'd be inclined to say, `Yeah, sure, prove it.'"
Looking back now, Billy Harris says it never struck him as strange that his friends were hitting on him for loans.
"Tom Connelly is like an innocent bystander who got ate up in this whole thing.
Get the This Week's Top Stories Newsletter
Every week we collect the latest news, music and arts stories — along with film and food reviews and the best things to do this week — so that you'll never miss Phoenix New Times' biggest stories.