A Los Angeles federal bankruptcy judge is expected to hear arguments today from attorneys for comedian Bill Cosby and his wife, Camille, on a motion to appoint a trustee to oversee $10 million in assets held by the Cosbys' ex-business manager.
The Cosbys sued their longtime manager, Mary Waller, last fall for allegedly embezzling more than $8.5 million from the Cosbys during her eight-year tenure as chief financial officer of SAH Enterprises, the Cosbys' Santa Monica-based personal services corporation.
In November, Waller filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The Cosbys then filed a motion with bankruptcy Judge Arthur Greenwald to declare Waller incompetent to manage her finances on grounds that she uses cocaine and that she misappropriated the Cosbys' money.
Waller has denied using cocaine and maintains that all money, property and tangible goods she received from the Cosbys over the last decade were rightfully earned.
According to court records, it was nearly a year ago that Camille Cosby phoned ahead to ready the Cosbys' private airplane for a trip, only to discover that Waller had used it to fly to New York.
It was that incident, according to documents filed in U.S. Bankruptcy Court last week, that launched the Cosbys' investigation, suspension and--as of last July--dismissal of the 46-year-old Waller.
"She commissioned the investigation of Waller because if Waller could do something as terrible (Ms. Cosby's description) as taking the airplane without Ms. Cosby's consent, she could only imagine what other terrible things Waller may have done," Waller's attorney, Richard Pachulski, said in court documents.
He maintained that Waller, who was a close family friend as well as a trusted employee, was an unwitting victim, caught in the middle of an intrigue between a husband and wife who consistently kept secrets from each other.
"Ironically, Ms. Cosby believed the airplane had been used by Waller for personal reasons when, in fact, the airplane had been used . . . to perform services for Mr. Cosby on a home that was to be a surprise for Ms. Cosby," Pachulski said. Waller couldn't defend herself "because Mr. Cosby had sworn her to secrecy regarding the house," he said.
Nonetheless, an investigation was launched, culminating in Waller's dismissal.
"Over the past seven years, Waller engaged in a consistent pattern of conversion, misappropriation and embezzlement," Cosby attorney David Dykhouse wrote in his own summary of the case, filed in bankruptcy court three months ago.
Because the Cosbys traveled extensively, they maintained a "California Exchange Account" at Wells Fargo Bank and gave Waller check-signing authority, said Dykhouse. Over the last decade, the Cosbys contend in their lawsuit that Waller "spent approximately $5 million on her own personal affairs without (their) consent."
All told, the Cosbys estimated her alleged misappropriation in cash and goods at more than $8.5 million.
In a declaration filed last Dec. 5, the 52-year-old star of NBC's "The Cosby Show" detailed a list of suspect canceled checks and petty cash receipts listed in Waller's books on the refurbishing of Camille's "surprise" brownstone at 18 E. 71st St. in New York City's affluent upper eastside.
According to Cosby, money earmarked for the brownstone went instead for such things as:
--Remodeling Waller's $3-million home at 620 Round Hill Road in Greenwich, Ct. ($61,280 paid to Archtype Studios);
--Waller's cook ($385);
--Tickets to a dinner/dance at the Greenwich Polo Club ($550) and a "gala benefit" for the Islamic Cultural Society, held at New York's Plaza Hotel ($300);
--An electric clothes rack for Waller's house ($1,129).
Waller also spent $140,650 out of "petty cash" between February and November, 1988, on business-related expenses, such as a $300 tip for the pilot of the Cosbys' airplane, according to Cosby's court statement.
Non-business-related "petty cash" expenditures totaled $17,340.61, according to the declaration, and included payments to manicurists, dry cleaners, pharmacists and veterinarians along with purchases of lingerie, bird and dog toys, fish, and playthings for Waller's son, Emon.
But, according to Waller's attorneys, at least a significant portion of those expenditures was part of her regular compensation as the Cosbys' financial manager, confidante and business partner.
"As a consequence of the significant position that Waller held with the Cosbys . . . Waller received compensation levels, including bonus, of approximately $1 million each year," Pachulski said.
During a hearing last week before Judge Greenwald, the Cosbys' attorneys maintained that Waller's W-2 forms for the past two years showed that her annual salary was $700,000.
But according to Pachulski, the Cosbys also paid many of Waller's personal expenses because she worked out of her homes in Connecticut and Malibu.
"To further acknowledge the Cosbys' dependence on and satisfaction with Waller's service during the period of her employment," wrote Pachulski, the Cosbys:
--Paid off Waller's $570,000 mortgage on her residence at 29441 Pacific Coast Highway in Malibu;
--Guaranteed a $3.2-million unsecured line of credit for her with City National Bank;
--Loaned her $70,000 per month from December, 1988, through May, 1989, "with no evidencing promissory note or discussion of terms or interest rate on the loan," said Pachulski. Further, he said, Waller maintains that the monthly loans were part of her compensation, not money to be paid back.
Waller also had to use her own money to help cover the Cosbys' lavish spending habits, "because the Cosbys were notorious for having their bank accounts overdrawn in as much as seven figure amounts," Pachulski wrote.
In her own deposition, according to Pachulski, Camille Cosby admitted to having discovered an overdraw of $1.4 million at one time, but added that she was not aware that it had happened until after the fact.
With regard to the Cosbys' charges that Waller uses cocaine, the former business manager has submitted to drug testing, but the findings have been disputed.
"The conclusion that Waller is an abuser of cocaine is not far-fetched since most everyone who has had some contact with her describes her as a volatile, extremely emotional, overanxious, irritable and irrational person--traits that are frequently applied to users of cocaine," the Cosbys' attorneys wrote in a request for Judge Greenwald to order chemical testing to see if Waller used drugs.
In a sworn declaration, Laura Walker, the office manager for the Cosbys' law firm--Patterson, Belknap, Webb and Tyler--told of how she had come across a "white, powdery substance" secreted in an intricately folded piece of paper among the financial records that the law firm confiscated from Waller's home last fall. When Walker took it to the police to have it tested, she was told that a test could not be conducted without charges having been filed. The police then disposed of the substance, Walker testified.
Earlier this year, Greenwald ordered Waller to submit hair and urine samples to the Cosbys' attorneys for drug testing, and to undergo a psychological evaluation to determine her competence in managing her financial affairs during her bankruptcy reorganization. She complied with the drug testing and the results were negative.
But Cosby lawyer Eugene Galernter complained to Greenwald last Thursday that Waller had dyed and cut her hair shortly before providing the hair sample, possibly affecting the results. He asked that she be re-tested. Greenwald has not yet responded to that request.
Galernter also said that Waller has lied on credit card applications about such basic personal information as her Social Security number, place of birth and age.
Eli Chiu, the controller for SAH Enterprises, said in a sworn statement to the court that Waller was often angry, subject to wild mood swings and very difficult to work with.
During last Thursday's hearing, Pachulski called the Cosbys' attempt to discredit Waller "a witch hunt" whose real intent was to keep Waller from revealing the Cosbys' "bizarre" financial dealings.
"Apparently, these people paid out millions of dollars without contracts," Pachulski said. "Many of (the transactions) Mr. Cosby kept secret from Mrs. Cosby for reasons unknown to me."