Chinn Wore Long Hair, Carried a Gun : Meese’s Money Manager Cut a Flamboyant Figure

Wayne Franklyn Chinn was a painted bird among the dark-suited men who inhabit the gray streets of the Montgomery Street financial district here.

The one-time encyclopedia salesman shunned the traditional stockbroker look, preferring shoulder-length hair, boots and leather-fringed jackets. Often the jackets concealed another item not regularly part of a businessman’s garb--a handgun.

In line with his flamboyant exterior, Chinn was an aggressive and astute player in international financial markets. Over the years, he developed a reputation as a trader with a penchant for highly speculative deals and a tendency to collect big returns for his customers at the expense of others.

It was his record of generating excellent profits that enticed Atty. Gen. Edwin Meese III to entrust his savings to Chinn on the recommendation of Meese’s longtime friend, E. Robert Wallach.

But it is Chinn’s flashier side that has raised questions about how he could have become the financial manager for the nation’s top law enforcement officer.

As details have emerged about Chinn, his relationship with Meese has become a major element in the federal investigation of the attorney general by independent counsel James C. McKay and an inquiry by the staff of a Senate subcommittee. Meese’s own financial and ethical conduct have come under scrutiny also.

Among the information that has come to light about Chinn:

--Some members of the small financial community in San Francisco refused to deal with Chinn because they said his trading tactics often ran up stock prices for a few hours until his selling sent them plummeting, leaving unprepared brokers with big losses. Said one broker: “Everybody was afraid to trade with him. Nobody knew what he was doing.”

--In 1977, Chinn was a consultant to an investment firm run by David H. Meid, who was sued by two investors who said Meid had misrepresented the risk involved in their investments. The suits were settled out of court. Meid, now a stockbroker in the San Francisco office of Bear, Stearns & Co. and married to a former wife of Chinn, brought Chinn’s business to the brokerage firm.

--Chinn sometimes boasted of having access to Middle East funds through the ex-wife, who is the daughter of a former chief of staff of Egypt’s military. It was widely reported that an organization run by her father claimed responsibility for the 1981 assassination of President Anwar Sadat.

--Chinn did not have the California license required of money managers, according to a state official.

--Chinn has been accused by an IRS agent of using faked gold transactions to siphon $281,200 from the account of the tiny Marymount College, a two-year Roman Catholic institution in Rancho Palos Verdes where his daughter went to school. He also allegedly diverted profitable trades from the college account to that of Meese.

--Chinn and Wallach, who recommended him to Meese, were indicted last December on federal racketeering and conspiracy charges that included allegedly taking payoffs from Wedtech Corp. to influence Meese and other federal officials. Wedtech is the bankrupt New York defense contractor that received a $32-million, no-bid Army contract with Meese’s help.

Meese Severed Ties

Much of the information about Chinn has come out since Meese ended their relationship last summer in the face of the independent counsel’s inquiry.

Meese’s lawyers have insisted that the limited blind trust set up by the attorney general with Chinn meant that Meese was unaware of the details of Chinn’s trading. They disclosed last July that Chinn reported annually to Meese “the dates, amounts and stocks that had been traded during the preceding year,” but they maintained that “at no time did Mr. Meese have current knowledge of the . . . investments.”

Chinn’s reputation as a maverick who skirted regulations was well established in San Francisco long before Meese hired him, and a government investigator suggested that a simple phone call to a member of the financial community in San Francisco could have warned Meese away from Chinn.

The 46-year-old Chinn has pleaded innocent and is free on $500,000 bail in the Wedtech case. His lawyer, Penelope M. Cooper, said she would not permit an interview and she refused to discuss the allegations against him, except to say that his trading practices did not violate the law.

Meese’s only public explanation for hiring Chinn came in testimony before a Senate subcommittee last July 9.

Recommended by Wallach

The attorney general said that Wallach, a San Francisco lawyer, recommended Chinn to him in 1985 when he and his wife, Ursula, were trying to sell some stock that had come from her parents.

“Mr. Wallach suggested that he knew an excellent investment manager who had served him very well in some investments he had made,” Meese said. “That was Mr. Chinn.”

In early 1985 at his Senate confirmation hearing, Meese had said he would pursue only conservative investment strategies to avoid ethical questions while he was in office. When challenged about that pledge by Sen. Carl Levin (D-Mich.) last July, before the details of Chinn’s trading on his behalf had emerged, Meese denied that the investments had been speculative.

“I considered that my entire investment with a reliable investment manager in the form of Mr. Chinn . . . was to me a proper, conservative investment,” Meese said, “and it has turned out to be.”

Meese told the Senate panel that his return had been 18% to 20%. But information that has emerged since shows that his original investment of about $50,000 was turned into about $95,000, a return in excess of 80%.

Born in Shanghai

The man who generated that profit was born in Shanghai on Feb. 16, 1942, and, by his own account, came to the United States in 1945.

He apparently learned how to make money early in life. He boasted later that he collected as much as $50,000 a month in the 1960s from managing a force of encyclopedia salesmen. “He was so extremely successful as an encyclopedia salesman that he sold them to people who couldn’t even speak English,” said Hugo Quackenbush, associated with the brokerage firm of Charles Schwab in San Francisco.

In the early 1970s, Chinn worked as a stockbroker in the San Francisco office of E. F. Hutton before he struck out on his own, associates said. In the mid-1970s, he frequently used the trading facilities at Schwab’s fledgling office.

“He was a very astute stock-market player,” Quackenbush said. “He always seemed to know where the right places to be were for the big deals. He had a short-term focus, but he was amazingly organized. He would pull the change out of his pocket and arrange the pennies by date and go on to dimes and quarters.”

A Warm Friend

Quackenbush, who said that some of the criticism of Chinn stems from his lack of membership in the city’s “old-boy club,” portrayed him as a devoted son and a warm friend.

“He was an avid fisherman and he was always going off to the Great Barrier Reef on a fishing trip and taking his mother,” Quackenbush said. “He taught my son to fish one morning on a small lake.”

At some point in the 1970s Chinn met David Meid, who had been president of a mutual fund in San Francisco before a brush with the Securities and Exchange Commission earned him a three-month suspension from trading in 1970. Several investors had charged in lawsuits that they were misled about the nature of their investments in Meid’s firm, but Meid denied any wrongdoing.

In 1977, Meid was the president of a small investment consortium, and he used Chinn as a consultant. Two investors who lost money sued the firm, and the cases were settled out of court.

Lawsuits are common in the investment world, but Chinn was also establishing an uncommon reputation as a trader whose sharp practices were to be avoided.

“If you were in a trade with Frankie, you’d be damned careful,” said a broker who has dealt with Chinn. “People hated to get on the wrong side of a trade with Frankie.”

According to some brokers, Chinn was regarded as a trader who would run up the price of a stock with big purchases early in the day and then sell his block all at once. While he made money from the inflated price, his big sale would drive down the price of the stock and hurt brokers who were holding shares for other clients, the brokers said.

Associates said Chinn lived lavishly, frequently taking trips abroad and staying in first-class hotels and eating at expensive restaurants. He operated out of a rented apartment on Nob Hill, and his only possessions of note, according to an associate, were a Rolls-Royce, a Cadillac and a Jeep.

He was married from 1961 to 1967 to Shadan Shazly, daughter of the former Egyptian military officer. A former stock analyst herself, she married Meid about two years ago.

Chinn’s second marriage, to a brokerage house executive, lasted nine months. A close acquaintance of the couple at the time said they had a prenuptial agreement and that in her opinion, the marriage seemed more of a business relationship than a love affair.

‘A Nasty Altercation’

During divorce proceedings in 1981, his wife obtained a court order forbidding Chinn to harass her after what Chinn called in court “an admittedly nasty altercation” outside a San Francisco restaurant.

His wife said in court papers that she feared for her safety. To support the claim, she said Chinn owned at least one handgun and had a permit to carry a weapon. Chinn associates have also said he frequently carried a handgun.

Despite his high living, Chinn apparently was not earning a lot in 1981. The divorce papers said he made “substantially” less than the $100,000 a year his wife earned.

His fortunes improved after Wallach, a San Francisco personal injury lawyer and former classmate of Meese, brought him to the attention of Wedtech officials.

At the time, Chinn was handling some of Wallach’s investments, and Wallach was working as a lobbyist in Washington for Wedtech. In 1985, Wallach persuaded the firm to hire Chinn to help promote the company’s stock on Wall Street. Apparently because he did so well, Chinn eventually became a director of the firm.

Introduced to Meese

Wallach also introduced Chinn to Meese, and a former Chinn associate said the three men had dinner in Washington. In May of 1985, the attorney general turned over about $50,000 to Chinn for an account called Meese Partners.

At the time, Chinn managed five investment accounts. Besides those of Meese and Wallach, he managed funds for his mother, Essie, and Marymount College. He also had as much as $225,000 in his own business account.

According to Senate investigators, Chinn pooled the investments he managed so that he could buy large blocks of stocks and, after learning how the deals fared, assign profitable transactions to Meese’s account. Meese’s lawyers have vigorously denied that the attorney general knew about specific transactions or the strategy of Chinn.

The funds Chinn managed totaled only about $750,000, but he traded rapidly and rarely held stocks for a full day. He bought and sold more than $70 million worth of stock during the period from 1985 to the middle of 1987 when he managed Meese’s money, according to a government investigator who reviewed Chinn’s accounts.

Was Living Well

Chinn was also living well, traveling to Hong Kong frequently and to Europe. A civil lawsuit filed against Chinn by the new directors of Wedtech charged that Chinn flew to Zurich in April, 1986, to divide a $1.1-million consulting fee paid to an associate by Wedtech’s former operators.

The suit also contains a receipt for a $264 dinner that Chinn charged to Wedtech at the posh Hotel Plaza Athenee in New York the night before he flew to Zurich. Attending the dinner were David Meid and Shadan Shazly, according to the receipt.

An affidavit filed in federal court in New York by an Internal Revenue Service investigator working on the independent counsel’s probe of Meese indicates that some of Chinn’s high living may also have been financed by funds siphoned from the investment account he managed for Marymount.

After nearly going bankrupt in the early 1970s, Marymount sold some land and created an endowment. The bulk of the money was given to an investment house to handle, but a small portion, about $250,000, went to Chinn in May, 1980, for speculative deals.

Fake Losses Charged

The affidavit said that Chinn arranged for a broker in Hong Kong to create fake loss statements in the gold market for the Marymount account totaling $281,200 in early 1987. The affidavit said that the broker, identified as Alvin Chan, then created a series of bogus statements showing that Chinn’s account had earned $281,200 in gold transactions, and the money was transferred to Chinn.

Despite the alleged fraud, Chinn earned a rate of return for the college that averaged 32% a year for seven years, and Marymount officials are puzzled over the allegations that he bilked them.

“The money that he earned was very important to the college’s survival,” said William J. Petak, a USC professor and chairman of the Marymount board of trustees. “But we’re very concerned over this apparent other side of Mr. Chinn.”

Douglas Frantz reported from Los Angeles and Dan Morain from San Francisco. Staff writer Ronald J. Ostrow in Washington contributed to this story.