Galloping the Mustang Into the Stock Market
Irvine, Calif., businessman John D. Davis Sr. settled into his seat on an airliner at nearby Reno airport a few days ago, feeling a mix of excitement and satisfaction because he had just closed one of the most unique deals in the history of American companies whose shares are publicly traded.
As Davis recalls it, sitting back and waiting for takeoff, he was joined by a seatmate who looked to be a prosperous businessman--a real “Dapper Dan,” as Davis puts it. As airplane passengers will, as the craft was taxiing down the runway, the two men started to get acquainted.
Dapper Dan got around to asking Davis what he does for a living, Davis says, just as the airliner climbed over the Mustang Ranch, the Sparks brothel currently owned by Joe and Sally Conforte, arguably two of the most legendary and colorful figures in Nevada history. Davis savored the opportunity and gestured toward the ground as he started to answer.
“I just went into escrow on that,” Davis says he told Dapper Dan as he pointed to the 440-acre complex below that includes more than 100 bedrooms staffed by 48 prostitutes. The seatmate, as Davis tells the story, was genuinely impressed. “I was there just last night!” Davis says the man exclaimed. “But, please, don’t tell my wife!”
Unprecedented Event
Davis was telling the man the truth and--while obstacles remain to closure of the deal for Davis and his company, Strong Point Inc.--by the end of October, ownership of the Mustang Ranch may very likely change, marking the first time any publicly traded American company has entered the prostitution industry.
Announcement of the bizarre deal on Aug. 5 has already attracted a flurry of attention at the brothel. One of Conforte’s “girls,” Delila--the women who work there generally prefer to be known by first names only and make it clear that even some of those are fictitious--said five of her customers have already told her they were stockholders.
“A lot of them ask my opinion about whether they should buy stock in this place,” said another woman, known as Marlo. And in the brothel’s hallways and the kitchen off the main lobby where the women take all their meals, there are frequent conversations about the prostitutes themselves buying in. Some of them have talked about liquidating their current investment portfolios and putting all of their assets into what would become Mustang Ranch stock.
“I am not sure this is what the Founding Fathers had in mind when they set up our free enterprise system,” observed Charles Larson, a Washington spokesman for the Securities and Exchange Commission, “but I can confirm this would be a first.”
Analysts at Work
While Davis and Strong Point are still some distance from actually taking over the Mustang Ranch, analysts have already begun to debate whether and how the bordello business, the securities industry or both may be affected by this unusual transaction. Strong Point has not yet raised all of the $18 million purchase price, though negotiations have been ongoing all week and Davis is confident the money can be found.
Davis and his major partner in Strong Point, Rodger W. Garrity, want to buy the Mustang Ranch on behalf of themselves and their shareholders for the simplest of business motivations: They hope to make a fortune from it. Joe Conforte wants to sell for, essentially, the same reason.
In arrears to the Internal Revenue Service for back taxes, interest and penalties totaling an estimated $10 million, the Confortes hope the Strong Point deal will let them settle their disputes with the IRS and walk away from the Mustang Ranch with $8 million in their pockets to lead a life in retirement split between a sumptuous home in Sparks, just a few minutes’ drive from the Mustang, and Rio de Janeiro.
Joe Conforte was released in December of last year after serving a one-year prison term for tax evasion to which he was sentenced after ending three years as a fugitive in Brazil. He returned to the U.S. in a plea bargain deal in which he was required to testify at the bribery trial of U.S. District Judge Harry E. Claiborne in 1983.
‘Provocative’ Investment
If Strong Point and its owners--the firm is currently in the hands of more than 300 investors after a flurry of both buying and selling that occurred in the stock just after the company made its purchase announcement--succeed, though, they say what they concede is a “provocative” investment could play a role in changing the public’s attitude toward prostitution. Strong Point has 3.2-million shares outstanding. The stock is traded over the counter.
With the Mustang in a publicly traded company’s hands, Davis said in an interview early this week in Irvine, pressure might increase societally to perceive prostitution as what Davis says it essentially is, “just a business.”
“My wife is a psychologist as well as a (registered nurse),” Davis said, “and she deals with patients who are victims of sex crimes and she thinks a lot of it could be avoided. Perhaps if there was legal prostitution (and wider public acceptance of it as an industry) there would be less instance of rapes, molestation and incest.”
But scrutiny since announcement of the Mustang purchase also has raised some questions about Davis and Garrity. Davis, for instance, several months ago was asked to resign as vice president and a director of the California Properties Pension Fund, a spokesman for that Costa Mesa-based firm said. No wrongdoing was alleged, but the company said it asked Davis to leave because he was pursuing a variety of outside projects and was no longer able to devote sufficient time the fund’s affairs.
Garrity, in turn, signed a consent decree with the SEC in 1982 in which he gave up his license as a stock broker after he was accused of improper stock trading leading to the collapse of Los Angeles-based Joseph Sebag & Co. The consent decree involved no admission of guilt by Garrity, who, with his lawyer, confirmed he surrendered his broker’s license voluntarily and agreed to a “permanent bar” from trading activities.
Davis says he and Garrity never intended to get into the brothel business when, earlier this year, they bought controlling interest in Strong Point, an obscure Salt Lake City corporation started in 1984 by 44 Utah investors seeking opportunities in real estate speculation. With ambitious intentions, Strong Point, in May of last year, got SEC approval for a 5-million-share public stock offering.
But the company--run by several moonlighting Salt Lake area men--was never able to match its performance to its hopes. Simultaneously, Davis and Garrity were casting about for new investment opportunities. One thing led to another and, according to Davis, he and Garrity made connections with the Salt Lake group whose company offered several advantages to the Irvine pair: Strong Point was an established and duly registered corporation with no blots on its record and it had already undergone the time-consuming process of SEC approval for a stock offering.
Small Town for Sale
Originally, the reconstituted California Strong Point planned to pursue miscellaneous real estate opportunities, but then one day, Davis said, he noticed a classified ad in the Wall Street Journal seeking buyers for a small town in Nevada which, it turned out, included a bordello. “I saw the representations of the earnings,” said Davis of his analysis of the brothel, and what had initially been skepticism and humor turned to serious deliberation. “I thought, ‘This looks very interesting.’
“(Garrity) and our wives and I went and saw the place (north of Las Vegas) and I thought, ‘This is the funniest thing I’ve ever seen.’ I really had never been in a brothel in my life but it was a nice facility, even though I am without certain experience.”
The deal didn’t go through for the bordello outside Las Vegas (Nevada prostitution is legal by county option throughout the state except in Las Vegas and Reno), but Davis and Garrity had gotten curious.
“We said, ‘Maybe this might be an opportunity,’ ” Davis recalled. “Maybe we ought to find ourselves a public company, a nice little financing vehicle and something (a bordello) that offered a real opportunity for growth.”
Serious Investigation
“The lark turned into a serious investigation,” Davis said. “We went on a tour of the industry in Nevada.”
The two men began a series of inquiries for brothels that might be for sale, learning in the natural course of events that the Confortes had been trying to unload the Mustang Ranch intermittently since Joe’s tax troubles began in the 1970s. As recently as early this year, the Mustang had even been on multiple listing at a local real estate office.
The Mustang would not come cheap. Conforte’s rumored asking price ran between $20 million and $24 million. But for Davis and Garrity--who, in the process of their bordello research acquired controlling interest in Strong Point and moved its headquarters to Orange County--the more they scoured Nevada for available brothels, the more they saw the Mustang as their hope and aspiration.
“People would say the Mustang is the Taj Mahal of the business. In the course of things we made some phone calls and one of them was to one of the leading madams in the state,” Davis said. The madam turned out to be Gina Wilson, who runs the Salt Wells Villa, a bordello in Fallon, Nev. Wilson, who had tried unsuccessfully to buy the Mustang herself a couple years ago, took the Californians under her wing, even showing up at the Storey County courthouse in Virginia City--the seat of the county in which the Mustang is located--with Davis and Garrity in tow. She introduced the two men to the sheriff, Robert Del Carlo, who said in an interview this week he got the impression that Wilson was, by then, playing as much of a role in Strong Point’s brothel inquiry as the two principals in the corporation.
A Superior Facility
Eventually the little group ended up at the Mustang, which is actually a complex of two brothels next door to one another--both owned by the Confortes. “I was very impressed,” Davis said. “I had seen the equivalent of the Travelodge and now I was looking at the (equivalent in the industry of) the MGM Grand. It was a far superior facility. It was big, well run, clean.”
Serious negotiations began almost at once. Davis said he knew of Joe Conforte only through press accounts. Davis knew, for instance, about Conforte’s tax case and the Claiborne matter and he was also aware of the murder of Argentine boxer Oscar Bonavena, who was shot to death by a Conforte security guard outside the Mustang in 1976.
Joe had figured in the murder investigation too, according to Del Carlo, when, the sheriff said in the interview, detectives learned that Bonavena had been having an affair with Sally Conforte and that she was in the process of separating from Joe and inviting the prizefighter to take over management of the brothel. Joe Conforte was never charged with any crime in the slaying though the security guard served 18 months in prison on a murder charge.
First Impression
But the Joe Conforte who opened negotiations for sale of the Mustang was not the man John Davis had expected. True to his Sicilian childhood--Joe says he came to the U.S. in 1937, when he was 11--Conforte sounds and looks like what a casting agency might offer for a movie about the Mob. But the first impression of Conforte, Davis said, is deceiving because Conforte, a world-class bridge player, is an impressively sharp and incisive businessman capable of conducting prolonged, very tough negotiations.
Eventually, the two sides settled on a sale price of $18 million for the brothels and about 440 acres surrounding them. In court records of a bankruptcy proceeding filed by Sally Conforte in 1982 to protect the Mustang from seizure by the IRS, the land and buildings in question are valued at $4.7 million and the brothel business at $11.6 million.
Strong Point handed over what Conforte says was a “substantial” down payment and the escrow was opened. Both Conforte and Davis say the purchase price represents the amount of profit the brothel operation can be expected to turn over a five-year period, but close scrutiny of what few figures can be obtained--Conforte is unwilling to make detailed financial records available--raise questions about bordello economics.
Conforte claims the Mustang returns a 20% annual profit--a rate generally considered very good in business in general.
Independent Contractors
The Mustang’s prostitutes work as independent contractors, paying the ranch $10 a day for meals and facilities and splitting their gross receipts 50-50 with the house. Davis said he was told to expect the house gross would reach $25,000 a day, based on 100 women each grossing $500 a day.
But bankruptcy court records and interviews with some of the prostitutes themselves seemingly contradict these financial assumptions. To begin with, both the women and Helen Smith, a manager at the Mustang, agree that business volume this year--summer is the brothel’s busiest period--seems to be down. Smith, the women and a bartender at the Mustang disagree on what has occurred, but it is widely believed that fear of infection by AIDS may play a role, as well as general sluggishness in the economy--a factor that affects any enterprise.
The prostitutes say they are taking in only a total of $250 to $400 a day--$500 only on a very good day for business. And while the women may have reason to deliberately understate their earnings, manager Smith said there are normally only about 50 women--48 right now, not 100--working at the two Conforte-owned houses on the Mustang property. There is a third bordello on the ranch but it is owned by a Conforte nephew and is not involved in the pending sale.
Conforte insisted the prostitutes’ impressions of business volume are in error, noting that Mustang II, the second Conforte-owned brothel on the property has opened since last year, possibly siphoning business away from the main Mustang I. He said business is as good or better than last year.
Davis concedes he has not conducted an audit but said he is convinced the Mustang represents a golden investment opportunity. Stock purchasers apparently see it the same way. According to Mark Peterson, who handles Strong Point stock transactions for Alpine Securities, the Salt Lake firm that handled the offering, Strong Point stock was selling for about 50 cents a share in March but, beginning in May, when word had started to leak out about the company’s bordello negotiations, the price jumped to $2.25 when Strong Point sent a letter out to its stockholders informing them of the pending Mustang Ranch deal.
By the end of last week, said Peterson, Strong Point was selling for $3.25. But Peterson and other securities analysts questionned by The Times noted that a great deal of interest in Strong Point appeared by be on the part of so-called “lark” investors interested in the shares more for the curiosity value than true investment purposes. More time needs to pass before the actual ramifications of public ownership of a brothel are clear, Peterson and other securities experts agreed.
At the same time, too, said Peterson, a sort of backlash also developed. Shareholders who had retained their positions in Strong Point during the transfer to Davis and Garrity began to sell off once the Mustang purchase was announced. Even Peterson was taken aback when he heard the knews. “I would never have guessed they would do that,” he said. Peterson said he isn’t sure how many shares were dumped by investors alarmed by possible questions of propriety with the brothel purchase, but he is aware of between 20,000 and 30,000 shares disposed of by stockholders who could not countenance owning a piece of a house of prostitution.
“Hey,” Peterson said, “these are (still) mostly Salt Lake investors and Salt Lake’s a conservative town.”
Marlo stands in a hallway at the Mustang Ranch and considers her profession. “It’s not all peaches and cream,” she says. “It’s a good job, but every job gets to you after a while.” Mustang women charge by the time they spend with their clients--about $100 an hour. “We don’t guarantee them a climax,” notes manager Helen Smith. The average Mustang customer pays about $50, though there is no upward limit and an “orgy room” with two or more prostitutes can cost $400 to $600 an hour, minimum.
Drugs are strictly prohibited and intercom speakers in the ceiling of each room are used to monitor conversations between prostitutes and their clients to detect drug use and diversion of money from the house. The Mustang is cash-only. No credit cards or personal checks. Travelers checks and some money orders are accepted.
The prostitutes come here for 21 days at a time, during which they cannot leave the premises except under unusual circumstances. They follow each 21-day tour with a week or 10 days off. A physician tests them for venereal diseases and herpes every week.
It is a relaxed and secure atmosphere, the women say, where there is little feeling of the threat of serious infection and violence common to working on the street or in places where prostitution is not legal. Conforte is responsible for the situation, having gotten Nevada to legalize prostitution 17 years ago. He concedes he started in the business 13 years before that and says it is the only industry he knows well and in which he feels truly comfortable.
Conforte is fond of puffing on Cuban cigars and, when he is on the premises, uses a small apartment decorated in purple by his wife, Sally, who once lived on the premises full time. Today, Sally Conforte, 68, is all but withdrawn from the business, recovering in the couple’s Sparks home from hip joint replacement surgery.
Thirty years in the brothel business, Joe Conforte says, is enough.
“Each person in life, God made them for certain things,” he says, sitting back in a purple easy chair in the apartment. “For some reason, I am good at two things: Running one of these places, and I’m good in politics, too. I have never lost a bet on an election in my life.
“Carter-Reagan in 1980? I made a fortune.”
He ponders for a moment a question he has faced often before. It concerns the ethics of the profession he has pursued for three decades. He knows the question has recently been taken one step farther than before. It has become: Is it ethical and moral for a company on a stock exchange to run brothels as its major activity?
“No one is saying that this is the most illustrious business in the world,” he says. “But what’s more important is that prostitution in today’s world, it cannot be eliminated.
“Society does not have the choice, ‘Do we want prostitution?’ We do not have that choice here.
“The moral question is nothing but that. Since we don’t have a choice, the only question is, ‘ How do we want it?’ It is better this way than any other.
“Make believe you are a stockbroker and you have a client who would like to kind of show off. A stock certificate in the company that owns this place would be the best conversation piece in the world. And it’s bringing you 20%, maybe 25%, a year.”
