Grand Design of a Wheeler-Dealer : John Galanis Thought Big--Now He’s Accused of a Mammoth Scam

Late one night in a nearly deserted Chinese restaurant in Greenwich, Conn., so much food was ordered in such a short period that the chef thought a large party of diners had arrived.

As the story goes, when the chef came out of the kitchen to have a look, he found only two huge men, each weighing well in excess of 250 pounds. It was just John Peter Galanis, having another one of his monster meals with his good pal, Jay Botchman.

But then, everything about Galanis--from his appetite to his life style to the white-collar crimes for which he was recently indicted--is of mammoth proportions. If convicted of the current charges against him, which he has denied, Galanis will rank as one of the biggest white-collar crooks in American history.

Already, he is sometimes compared to Robert Vesco, the fugitive financier accused of stealing nearly $400 million from an overseas mutual fund in the early 1970s. Galanis “is just a fantastic scam man,” marveled one investigator from the Securities and Exchange Commission.

Prosecutors and former Galanis associates estimate that Galanis-controlled tax-shelter projects in the past five years have caused losses to investors and the government totaling between $500 million and $650 million. Additional criminal cases involving other people are expected to result from the current investigation into Galanis’ activities.

Unwitting investors in Galanis-controlled investment schemes include well-known celebrities and sports figures. Among them are actors Dan Akroyd and Eddie Murphy as well as former Los Angeles Rams quarterback Dieter Brock, California Angels pitcher Mike Witt and Los Angeles Raiders defensive lineman Bill Pickel.

Galanis is now in jail on Rikers Island in New York, where he has been indicted on both federal and state charges of securities fraud. Arrested in mid-May at his oceanfront home in the San Diego County community of Del Mar, he is being held on bail totaling $13 million, an amount that judges usually reserve for big-time drug dealers in an effort to keep them from fleeing prosecution. Galanis has pleaded innocent to all charges.

The 44-year-old Galanis has few defenders left. Erstwhile friends either refuse to discuss him publicly or do not acknowledge that they knew him well. Botchman, for example, declined to discuss Galanis even though they were close business associates.

Galanis’ life is the tale of a brilliant, but trouble-prone, promoter who has survived through a blend of charm, guile and money that has dazzled--and in some cases blinded--those who have worked for and with him.

In the past 18 years, Galanis has been a stock manipulator, cable television promoter and tax-shelter salesman. Before his arrest in May, he was free on bond on charges of misusing loans from Chase Manhattan Bank that were intended for cable television franchise acquisitions.

Until recently, Galanis was working quietly in cramped offices in Del Mar, just north of San Diego. The office was vacated shortly after his arrest.

Galanis has been indicted six times, served six months in prison, been barred twice by the SEC from selling securities and has narrowly avoided extradition to Canada, where he was wanted on criminal fraud charges.

He spent nearly five years, from 1971 to 1976, as a key government witness in a wide-ranging securities fraud investigation in New York that led to numerous indictments and convictions. At the time, prosecutors praised his actions and suggested that his life of crime was over.

In 1973, Galanis admitted in court that he had misappropriated investment funds he managed and had illegally manipulated and boosted the stock prices of obscure, money-losing companies in 1969 and 1970.

He cornered the available shares of stock and dumped the shares once they reached a certain price, court documents show. Unsuspecting investors lost “many millions” of dollars in this manner after the stock prices fell sharply, the SEC charged.

One investment fund manager accepted payoffs of $600,000 from Galanis and partner Akiyoshi Yamada, a 1972 SEC complaint shows, while another fund manager received $40,000 in cash and a $20,000 sports car. The fund managers received the payments for trading stock in companies in which Galanis and Yamada had an interest.

Operating like a hidden puppeteer, Galanis in recent years has controlled dozens of related companies through a loyal battalion of front men. But his tax-shelter programs in petroleum and real estate during the past five years have faltered badly, leading to criminal charges and widely held bad feelings among investors.

“His deals sounded too good to be true,” said one former business associate and Galanis family friend. “And they were.”

The most spectacular failure was his Boardwalk Marketplace project, which was designed to renovate a decayed area in Atlantic City, N.J., just off the beachfront boardwalk. After more than $75 million in cash and promissory notes was raised from investors across the country, the project collapsed last year amid a flurry of fraud accusations when the renovation work had barely begun.

One alleged reason for the collapse is that “tens of millions” of dollars were improperly siphoned from the partnerships, according to Michael J. Lerner, an attorney in Newark, N.J., who is now representing the bankruptcy trustee for the project. More than $6 million in investor funds went directly to Galanis and his family, according to the state indictment in New York.

Galanis also used partnership money to help maintain his opulent life style, according to former insiders. They say his credit card charges of as much as $60,000 a month were paid by companies he controlled.

Galanis’ attorney, Brian Barrett, said in a recent court hearing that Boardwalk Marketplace a “wholly legitimate development project” in which Galanis was only a consultant. Galanis himself could not be reached for comment.

Galanis feels that he is being hounded. He told an acquaintance last year that he could not continue raising money for his projects when “everyone was after him,” meaning law enforcement agencies and reporters.

What follows is a look at Galanis and the reasons, as Internal Revenue Service attorney Sharon C. Armuelles said in 1985, he is “reputed to be one of the top 10 white-collar crime figures in America.” The story was pieced together from voluminous court documents and dozens of interviews with associates and law enforcement officials who have observed Galanis since he first went to work on Wall Street in 1968.

John Peter Galanis is immensely contradictory--hulking yet graceful, elegant yet coarse, charming yet crude. He is an excellent dancer, for example, remarkably nimble for a man so large. His weight usually varies from 275 to 325 pounds.

Beside his girth, curly hair and olive skin, his most striking physical characteristic is his dark, piercing eyes. “Shark eyes,” one erstwhile friend called them.

Friends and associates knew him as a man capable of tremendous consideration, kindness and generosity. His many lawyers knew him as a client who regularly threw huge parties for them at Lutece, an elegant restaurant in Manhattan.

When attorney David Brodsky was unable, because of a family illness, to attend one such party, Galanis had food from the restaurant sent to his home. Brodsky had once prosecuted Galanis for securities fraud.

When a close relative of his cook died, Galanis hired limousines for the funeral. He gave $5,000 to a Greek Orthodox church in Stamford, Conn., after a wedding ceremony held to bless his previous civil marriage.

Nothing was too good for the four Galanis children, who range in age from 4 to 16. He spared no expense when it came to their latest hobbies, ranging from expensive old coins to rare baseball cards. One son received a Ferrari automobile on his 16th birthday.

“He had that Mediterranean obsession with his family,” said New York writer Nicholas Gage, a fellow Greek-American and Galanis acquaintance. “He was always talking about his children. He worried about every little thing concerning them.”

But Galanis’ warmth and sophistication could give way quickly to streaks of anger and playful crudeness.

His volcanic temper, dubbed by friends as his “Incredible Hulk” routine, was something to behold. Highlighted by piercing screams and pounding fists, they said, the bouts of anger usually occurred when Galanis was challenged or questioned too closely.

Though well behaved at Lutece, he more resembled Bluto, the John Belushi character in “Animal House,” when dining and drinking with his buddies at the secluded Stein Eriksen lodge in Deer Valley, Utah. His friends included former football players, like Douglas C. Adams and Terrell W. Smith, who both played for Stanford University in the era of star quarterback Jim Plunkett.

Sometimes, in the midst of a big meal with close friends, Galanis would suddenly yell “Dive! Dive!” and disappear under the dinner table, all 300 pounds of him. There, he’d crawl and grope at people’s feet. “It was actually quite funny,” one family friend said.

When friend John F. Landon asked for water at dinner one night, Galanis threw the whole pitcher at him. “When he let his hair down, he was a wild man,” said one former drinking companion.

If Harold Rothwax is correct, Galanis is in big trouble.

Rothwax is a criminal court judge in Manhattan who set Galanis’ bail at $10 million in May on state fraud charges brought by the district attorney’s office in Manhattan.

Despite SEC consent decrees that had barred Galanis from selling securities, including limited partnerships, Rothwax said Galanis “again has done just that and in a fraudulent manner.”

“The weight of evidence against him is considerable and quite strong,” the judge said during one bond hearing held after Galanis’ arrest. If Galanis is convicted, “there is a likelihood of maximum incarceration” on the state charges, the judge said. The maximum sentence would be 20 years.

Galanis and five colleagues were named June 11 in a separate 38-count federal indictment in New York that charged them with racketeering, tax fraud and securities fraud in connection with an oil and gas tax-shelter program known as Transpac Drilling Venture.

According to the indictment, more than $172 million in fraudulent partnership losses were passed on to 2,500 investors nationwide between 1982 and 1984. Galanis faces a maximum punishment of 162 years in prison and a fine of $4.74 million if convicted of the federal charges. He and his co-defendants pleaded innocent to those charges on June 22.

The Manhattan district attorney named Galanis and three associates May 13 in a 57-count state indictment for fraud and grand larceny involving Boardwalk Marketplace in Atlantic City. Though Galanis was the project’s “principal promoter,” the indictment said, the defendants “concealed Galanis’ business background and criminal background from potential investors.” Because Galanis maintained that he was only a consultant, he argued that his ties to the project need not be revealed to investors.

Galanis frequented only the best places, from the French restaurant in the 188-year-old Homestead Inn in Greenwich, Conn., to spectacular apartment suites in New York’s Helmsley Palace. His tips were legendary: Doormen received $20, hotel staffers $500.

Galanis motored by Rolls-Royce and flew by corporate jet, a white 12-passenger Lockheed JetStar named “Jader.” His sailboat was also named Jader, a name derived from Jason and Derek, two of his children.

Through his wife, Chandra, Galanis acquired multimillion-dollar homes in Greenwich, where he worked much of the time, and in northern San Diego County. He also had a ranch house in Park City, Utah.

His pink-stucco home in Del Mar is hard by the public beach, but a home in Rancho Santa Fe, complete with Jacuzzi, outside bar and playground for the children, is far from public view. His favorite leisure spots in San Diego included La Costa resort and Fairbanks Ranch Country Club.

His estate in Greenwich, which has an indoor swimming pool and a secret rear entrance, has been unoccupied for months--and it shows.

The grass in the backyard was two feet high during a recent visit by Deputy Sheriff Joseph P. Purcell, who was looking to serve a civil summons. Galanis vacated the home last year after he came under intense scrutiny from law enforcement agencies that included an IRS raid on his business office in Greenwich.

Galanis was a disarming boss who motivated and attracted high-quality help. Money was certainly key.

“The money was very unreal around John,” said one woman who knew him well. “The environment around him was quite unreal. He was this king-like figure . . . who always took care of his people.”

As important was his uncanny knack for giving underlings what they wanted, be it big salaries or important titles. “He read people very well,” a former friend said. “After a while, he knew exactly what buttons to push.”

Apparent sincerity was another drawing card, and it came in handy when Galanis and several associates were indicted several years ago on charges of grand larceny and misapplication of bank funds. The indictment said the defendants “stole” $9.53 million from Chase Manhattan Bank. (The grand larceny charges have been dropped, but the misapplication of fund charges are pending.)

After the indictment, Galanis told one employee: “I understand if you want to leave, but I swear on my kids’ lives that I didn’t do anything wrong.” The employee, to his later chagrin, stayed on.

But some of the Galanis magic has clearly worn off. Three of Galanis’ closest associates have pleaded guilty to fraud charges and are helping prosecutors in their continuing investigation.

The latest was Landon, who was raised in San Diego. A Stanford University graduate and former Peace Corps volunteer in Nepal, the 39-year-old Landon played a key role at Transpac, the petroleum tax shelter. He pleaded guilty June 18 to mail fraud and conspiracy to commit tax, securities and bank fraud.

Boardwalk Marketplace in Atlantic City was long on promises.

The objective was to acquire several blocks of buildings just north of the city’s big casinos and turn the neighborhood into a swank hotel and commercial district.

“Highlighted by elegantly restored hotels,” one promotion brochure read, “the development is an urban festival marketplace, containing professional office space, entertainment facilities and exciting shopping and dining experiences.”

In fact, Boardwalk Marketplace turned a marginal neighborhood into a virtual slum. Situated just off the Atlantic City boardwalk, several commercial properties that were to have been developed are now boarded up or burned out. Among the surviving businesses today are a palm reader and a popular Irish pub that never closes.

Boardwalk Marketplace was run from Greenwich through a Galanis-controlled company known as Nashua Trust Co., or Natco for short. It raised money by offering well-to-do investors tax breaks, investment income and real estate appreciation.

Investors were told in 1985 that Natco had a net worth of $25 million, was a “leader in real estate development” and had acquired more than $500 million worth of energy and real estate properties in recent years.

With a $97,000 investment, investors in one partnership were promised income writeoffs of $193,000 in the first three years and $58,442 in income by 1994. The partners were told by the law firm of Leff & Mason that the tax benefits “will more likely than not be realized.”

“The tax savings would finance the (promissory) note payments,” one former finance man at Natco said. “It was a great idea.”

What investors were not told was that ex-convict Galanis was the brains behind the project. Though more than $100 million flowed through the partnership, only $10,000 was left when the company declared bankruptcy in June, 1986. Its affairs are now run by a trustee.

Nashua Trust had some 60 affiliates and subsidiaries that are now involved in the bankruptcy reorganization. “It’s one of the most complicated bankruptcies ever filed,” trustee attorney Lerner said.

The Leff & Mason law partnership has since been dissolved. The Leff side is Ernest Leff, a well-known savings and loan attorney who works in Beverly Hills. Mason is Arthur Mason, a highly decorated Vietnam War veteran who once ran for Congress in Massachusetts against the Rev. Robert F. Drinan.

It was Washington-based Mason who did most of the legal work in Atlantic City. At one time, Galanis installed Mason as chairman and controlling shareholder of a Connecticut savings and loan firm that lent millions to Boardwalk Marketplace projects, according to court documents filed by the Natco trustee.

Mason, now reported to be running a limousine service in Washington, has not been charged with any criminal wrongdoing, though he has been named in civil suits filed by unhappy investors. Mason did not return a reporter’s phone calls to his home in suburban Maryland.

Galanis sometimes affected the accent of a Boston Brahmin and suggested that he was from a family of hotel and restaurant owners. He told people that he had gone to Harvard law school.

In fact, Galanis’ family members were not bluebloods but salt-of-the-earth Greek-Americans who ran a small diner and motel in northeastern Massachusetts. And Galanis did not go to Harvard. He started law school at Boston University but dropped out after one year.

By all accounts, Galanis had a remarkably normal, middle-class childhood in Ipswich, a picturesque town of 11,552 located 30 miles northeast of Boston.

Locals remember the young Galanis as quiet and studious--good at math--whose hard-working family ran the Agawan Diner, a local favorite where the pies and pastries are homemade, and the Whittier Motel, one of the area’s few overnight resting spots.

Galanis went to a preparatory school in New Hampshire, where his experience was equally unexceptional. Nicknamed “Big John” and “Greek,” Galanis played football and lacrosse with no great expertise, former classmates recall. He graduated from Syracuse University in 1965.

“He played football because he was big,” recalls fellow prep school classmate Anthony Cairns. “But he wasn’t very good.”

There are 13 Galanises listed in the Ipswich phone book. But the ones who are close relatives do not care to talk about the wayward son.

“I have nothing to say,” his mother said on the steps of her modest home. “They just fill those papers full of lies.”

“They are broken hearted,” said Dick Poore, who bought the Whittier Motel from the Galanis family. “They can’t understand what happened.”

During his 1971 to 1976 stint as a star prosecution witness, Galanis’ testimony led to “numerous” indictments and convictions, court records show. Law enforcement officials were investigating a wide range of alleged securities frauds, including bribery, perjury and lying to the SEC.

But opposing lawyers excoriated Galanis in the court room.

“When Mr. Galanis decided to cooperate (with prosecutors), he was for all intents and purposes a dead man,” said one defense attorney, Sandor Frankel, in closing arguments in one case. “His world had absolutely collapsed around him. He was being investigated for more activities than he could count.

“He was caught red-handed. That meant he could have spent his life in jail, if he were fully prosecuted for all of his crimes. Indeed, if he were to live as long as Methuselah, he could have spent his life in jail.. . . “

Frankel added: “This wasn’t a kid going to steal a couple of loaves of bread for a hungry family. This was a man milking corporations of huge sums of money.”

But prosecutor David Brodsky praised Galanis for being “completely candid and honest,” saying he had continued to help the government despite two “verified threats to his family safety.”

One threat apparently came in the summer of 1971 when Galanis and his wife were returning to their room at La Costa.

There they encountered a business associate identified as Morton Kaplan, to whom Galanis owed money, and “a gentleman by the name of Tony,” according to an account by Lester Green, an SEC attorney. (Green recounted the incident in notes of a meeting with Galanis that were eventually produced as part of an investor lawsuit involving Galanis.)

Tony--who was stocky, well-tanned and wore a pinky ring--demanded that Galanis repay Kaplan a debt of $1.3 million. Tony wanted the money paid so he, in turn, could get $250,000 that Kaplan owed him.

According to Green, “several threats were made to Galanis about the payment of these funds. Galanis, after considering these innuendoes, managed to put them off for a few hours.. . . “

Galanis called his New York attorney, Paul R. Grand, who advised him to see if any “federal agents” were available, apparently to protect him. When none were, Galanis was advised to tell the pair about his role as a government witness.

But Tony wasn’t impressed. “He said he didn’t care what he was and that he owed him hard money. . . .”

Galanis suffered no physical harm and later avoided Kaplan back in New York “because he doesn’t care . . . to discuss repayment” of the debts, Green said.

Nothing John Galanis does is simple.

One jury trial in 1973 in which he was a prosecution witness took five weeks to complete. An appeals court, after reviewing the 4,300 pages of testimony, described the fraud variously as “Byzantine” and “serpentine.” Galanis contributed to the fraud, the court said, by weaving “a tangled web of falsity.”

According to court records, here, in sum, is what happened:

A company named Microthermal Applications sold stock to the public for the first time in 1969, raising some $700,000. Microthermal told its shareholders that most of the money from the public sale would be invested in government securities and certificates of deposit, both safe investments.

In fact, $480,000 was given to an investment fund run by Galanis, and the “entire $480,000 was quickly dissipated,” according to one appeals court ruling in connection with the case.

Galanis then helped Microthermal produce a phony certificate of deposit to paper over the losses, allowing the company to hide the losses from shareholders and the SEC. Galanis’ testimony ultimately helped convict an attorney and two accountants involved in the fraud.

In Galanis’ early days on Wall Street, in 1969 and 1970, he and partner Yamada were known as “the Gold Dust twins” because of their touch for making money. Galanis estimated in his later court testimony that he had a gross income of about $4.5 million in 1970.

But the Gold Dust twins later became, in the words of one defense attorney, “the Coal Dust twins” after they ran afoul of the SEC and the U.S. attorney’s office in New York. Galanis and Yamada would have faced charges on “20 or more serious securities violations” if they had not decided to cooperate, Brodsky said.

Galanis eventually pleaded guilty to two conspiracy counts. One involved the filing of false financial statements with the SEC in connection with the Microthermal Applications fraud and the other for his stock manipulation activities.

Galanis received a five-year sentence on each count, but the sentence was suspended in the Microthermal case. Yamada eventually pleaded guilty to three felony indictments, court records show.

Galanis and Yamada ran Takara Partners, which operated a high-risk investment fund known as a “hedge fund.” Its two dozen limited partners, who had invested at least $50,000 each, included Keith Funston, a former president of the New York Stock Exchange; J. R. Dilworth, a money manager for the Rockefeller family, and John L. Burns, a former president of RCA.

What the investors did not know was how badly the fund was doing, because the Gold Dust twins did not tell them.

In one financial report, Takara Partners said the fund had cash and liquid securities of $4.23 million at the end of 1969 and had made profits of $452,343 in its first six months of doing business. In fact, the SEC said, Takara had sustained substantial losses, “grossly overstated” its cash and liquid securities and understated its short-term liabilities by about $400,000.

Galanis and Yamada were master stock manipulators. To keep demand up for certain securities, they paid off other mutual fund mangers to buy the stocks, court documents show.

As Galanis himself testified: “We would purchase a large block of stock at 50 cents (a share) or less and then move the price up through the manipulation of public supply to any number from $5 to $10 to $15.

When prices got to a certain level, Galanis and Yamada sold their shares and stopped touting the stocks. As a result, prices “declined sharply,” resulting in investor losses of “many millions of dollars,” the SEC said.

In one stock fraud, Galanis helped manipulate the stock in a company called Hair Extension Center from $1 to $10 a share. Though the hair-weaving firm had never been profitable, Galanis sold his shares at $10 by bribing portfolio managers to buy the stock. The profit from that fraud was $750,000, court records show.

Galanis and Yamada also operated through a firm known as Everest Management that was set up to invest foreign money in U.S. securities. The investment fund was known as Armstrong Capital, which was incorporated in Panama and headquartered in the Bahamas.

Galanis and Yamada squandered the money, court records show. Some transactions were “shams,” the SEC charged, “in which either no securities had been purchased, bogus securities had been purchased and/or securities of little or no value had been purchased.”

In one case, SEC records show, Galanis and Yamada siphoned off $425,000 of Armstrong’s money that was purportedly invested in 500,000 shares of common stock of United Asset Group Inc. “In fact, no such corporation existed,” the SEC said.

In another case, Yamada and Galanis took $175,000 of Armstrong’s money that was supposed to pay for 270,000 shares of a company called Regal Crest. No such securities were acquired, the SEC said.

In later years, Galanis rarely talked about the six months he spent in prison. He served the time in 1973 at a low-medium security prison near Danbury in a lush, rural part of western Connecticut.

Chandra Galanis told friends that her husband was never the same afterward. He left a nicer, easier-going part of him behind him following his release.

This time around may be even tougher.

Galanis apparently was not too well received at Rikers Island, where he is awaiting trial, because some inmates were unhappy to read that Eddie Murphy, a prisoners’ favorite, had invested heavily in Galanis-controlled tax shelters.

“I think he’s surviving,” said attorney Grand, who has represented Galanis often in the past two decades. “Rikers Island is not a pleasant place to be.”