What's Up in Jakarta?
Adams, James Ring
James Ring Adams What's Up in Jakarta? Last fall the Clintonites signed huge contracts with their Indonesian friends— some of whom, like the Riadys, have been major backers since their glory...
...control Worthen Bank or violate any banking laws...
...Whatever went on behind the scenes with Jack Stephens remains shrouded, but the financier emerged as a J. P. Morgan in more ways than one...
...Entergy's Washington lobbyist also represents the Hong Kong Trade Development Council, where Lippo exerts rapidly increasing influence...
...Why wouldn't the administration want to publicize its terrific success in Jakarta...
...Among other things, the large sums sometimes exceeded 50 percent of the bank's reserve cash, a bad case of putting all the eggs in one basket...
...The brokerage house offered the bank an unusually high return precisely because the bank declined to insist on routine but inconvenient safeguards, primarily involving delivery of collateral.,On April 4, the Maundy Thursday before Easter, Worthen placed its biggest repo order yet—in the amount of $52 million...
...Inside, the bank bragged of its ambition to enjoy a "position of financial leadership in the Pacific Basin...
...With that leg up, she ran unopposed in the next election...
...to every member of the state Board of Finance—except for Julia Hughes Jones...
...T he connections seem to multiply almost unendingly...
...If the good ol' boy loans were a disgrace, some of the Asian loans appear to have been downright illegal...
...The request for an injunction was Commissioner Bell's last resort, and it fell by the wayside when the firm dropped its plan to open a Little Rock office...
...The cover of Worthen's annual report that year juxtaposed the skylines of Little Rock, Hong Kong, and Hot Springs...
...Jack Stephens didn't simply take the $32 million in rescue money from his own pocket...
...When an Arkansas examiner went to the Bevill, Bresler office in Houston, company officials refused to produce its records...
...He recouped the other $20 million in losses from an insurance policy against bank officer misconduct...
...International banking is not basically about money," Riady wrote in the Worthen annual report...
...A former Worthen employee, who would not agree to be named, described how the new senior management rejected his suggestion that they use the agency agreement as a legal defense: "They said, 'It's politics now.— The message was that they were not going to do anything to embarrass Clinton's administration...
...It's already part of his presidential legend that Worthen Bank pushed him over the top in the New York primary by extending a $3.5 million line of credit...
...Mochtar Riady joined the board of the corporation, and his son James came to Little Rock as president of the bank...
...Memories of the way that federal examiners squelched the grandiose plans of the Stephens/ Lippo group gave a sharper edge to one of the themes of the conference—to encourage growth by loosening the regulation of banking...
...Louis...
...Contributors crowded into a cocktail hour at the art deco Little Rock headquarters of Madison Guaranty, the doomed S&L now being investigated by the Independent Counsel for Whitewater, Kenneth Starr...
...And one of them was Mochtar Riady...
...Now a multi-billionaire, and one of the most powerful men 28 The American Spectator September 1995 in Asia, Liong began as a quartermaster for General Suharto, Indonesia's strong-man president since 1965...
...As Arkansas Deputy Treasurer Harold Criswell has confirmed to me, every penny of the $52 million that Worthen put at risk that Easter weekend was state pension fund money...
...An August 1985 prospectus reported that the Stephens family and its trusts, along with another ally and Riady's investment groups, had come to own 31 percent of Worthen's stock—without even counting their share of the new stock issue...
...The bank from sleepy Little Rock began to have global ambitions...
...The federal examiners accused Stephens and his Indonesian partners of repeatedly breaking federal law limiting insider loans...
...Like that great bulbous-nosed banker, Stephens had rescued not only a major bank but also the career of a rising young politician, Bill Clinton...
...Bevill, Bresler apparently felt it had enough clout in Arkansas to ignore the securities commissioner, who is appointed by the governor...
...And then, in the spring of 1985, Worthen Bank and Trust nearly collapsed, almost taking with it the career of Little Rock's most important politician—Governor Bill Clinton...
...The American Spectator September 1995 29 Bresler went under, wiping out virtually all of Worthen's reserve cash...
...After the Board voted this March to close the case with no "supervisory action," Stephens Inc...
...In the 1985 prospectus list of principal shareholders, Riady and the Stephenses both denied that they acted as a group or benefited from each other's shares...
...But federal regulators got around to the issue somewhat belatedly...
...The answer is that a small circle of James Ring Adams, an American Spectator investigative writer, is at work on a book on the decline of the American republic...
...American unionists complain about the use of cheap Indonesian labor to sew up several popular brands of running shoes...
...The Federal Reserve's Board of Governors didn't open its formal investigation "into the relationship between Stephens Inc...
...James Riady also showed up at Clinton's Asia Pacific Economic Cooperation conference in Seattle in December 1993...
...The money for the purchase came from Stephens and Riady...
...And every penny of it was gone...
...So Stephens pitched Riady on another southern bank—Worthen Bank and Trust of Little Rock...
...But Worthen's investment practices violated basic rules of prudence...
...Only after the failure did they discover that the agency agreement was illegal...
...Indonesian billionaires now has unusual, and in many ways unprecedented, influence with Bill Clinton and his administration...
...She had been a district coordinator during Clinton's first run for governor and had joined his staff in December 1978 as his scheduler...
...Like many of the Chinese Christians who prospered uneasily in the 88 percent Muslim country, Liong islamicized his name, conducting much of his business as Soedono Salim...
...The money placed in the repos came from Arkansas state pension funds—money, in other words, directly from Bill Clinton's state government...
...Perhaps the date was merely a weird coincidence, but it raises the question whether any of these contributions bore on the Worthen repo deal...
...Even though the state treasurer, Jimmie Lou Fisher, was an independently elected constitutional officer, she was a Clinton ally who owed her own career to him...
...the vice chairman of Worthen Bank and Trust, Eugene Fortson, became chairman of the Hong Kong bank...
...According to one participant, he shared a breakfast table with then–White House chief of staff Thomas (Mack) MacLarty...
...It is a matter of buying and selling trust...
...Jack and his now deceased older brother Wilton ran Stephens Inc., a Little Rock investment bank that Wilton founded in 1933...
...Stephens himself had to wait until just last year, when Worthen stock finally reached its pre-Bevill level, to begin selling it off...
...T he impending collapse put Bill Clinton in a political panic...
...Lower level bank officers thought the agreement insulated them from losses...
...Stephens was soon in a two-hour meeting of Worthen's board of directors...
...Human rights activists marvel at the lack of world interest in the bloody Indonesian suppression of East Timor, a former Portuguese possession that was blatantly swallowed by its Third World neighbor...
...The real issue, of course, was confidence in Clinton...
...A major scandal about the lost $52 million would inevitably mean that Governor Clinton would be asked why his securities department had so quickly forgotten its charge that Bevill, Bresler had conspired with Arkansas banks to "operate . . . a fraud" against Arkansas depositors...
...The Stephens/Lippo group was stuck with Worthen stock that wouldn't stop falling...
...he direct cause of the problem was the sort of thing T senior managers would have kept hidden from their major investors, and junior investors would have kept hidden from their seniors...
...It is not the assets one looks at...
...And the Lippo deal was called the first phase of a "two-year capital infusion program that will eventually give the Stephens/Lippo investors majority ownership of Worthen Banking Corporation...
...from operating a commercial bank like Worthen...
...Starting out in 1956 with a bicycle repair shop in Jakarta, Riady would rise to become one of the most influential figures in Indonesia...
...But is it simply fear of these critics that makes Clinton mute his outstanding relations with such an important country...
...One crucial detail in the repo arrangement could have involved the state in years of messy litigation...
...In a recent letter to the Washington Times, however, Warren Stephens, now president of Stephens Inc., denied that any member of the Stephens family knew about the line of credit before it was established, an argument in keeping with Stephens's current campaign to distance his company from Worthen...
...The Little Rock bank was financing office buildings in Java for the benefit of one of the richest men in Asia...
...Since the Depression, federal bank regulation hasprohibited an investment bank like Stephens Inc...
...Executives of the $2.5 billion Worthen Banking Corporation talked about growing to $10 billion in assets in the next decade...
...There was yet another curious coincidence, one that would emerge only later...
...The bank had some terrible loans," he said...
...In smaller amounts, repos are a standard means of managing cash balances, earning interest over weekends or other short time frames...
...While the firm dispatched a senior executive, Curtis Bradbury, to take over operations and fire the previous management, along with the new team came federal examiners from the Comptroller of the Currency, the agency in charge of nationally chartered commercial banks...
...A Coleen Riady of California appears as a donor of the maximum amount to the 1992 Democratic national camambivalence toward Clinton's ambitions, but the Stephenses' second generation, led by Jack's son Warren, gave Clinton crucial support in his 1990 gubernatorial campaign...
...A fter several years of impressive strides forward, Indonesia now stands on the verge of an economic miracle...
...The vehicle for the acquisition was an entity called Worthen Holdings (Hong Kong) Ltd...
...These topics had been front-page news for the preceding month...
...So why is the White House silent...
...His Salim Group embraced many of Indonesia's Chinese business families, and did well by them...
...Accusations to the contrary, they claimed, were "politically motivated...
...Then–State Securities Commissioner Harvey L. Bell had gone to the Pulaski County Court in Little Rock and asked for a permanent injunction to keep Bevill, Bresler from doing business in the state...
...Clinton was vulnerable in other ways as well...
...The world's fourth most populous country, Indonesia represents an emerging market of 184 million consumers—and under Bill Clinton's aegis, American companies are finding a warm welcome from them...
...When the Center for Public Integrity, a Washington-based watchdog group on government ethics, recently asked White House officials for a list of businessmen on the Indonesia trip, they refused to release the names...
...But the Commerce Department entourage did real business...
...would have the public believe...
...But early that year, her staff began to suspect something strange was afoot: Worthen's share of the state repo business suddenly shot up...
...Then the roof caved in...
...One man who wanted to bid on those holdings was Indonesian financier Mochtar Riady, a central member of his country's ethnic Chinese business clique...
...So why don't we know more about these people...
...People with policy interests in the Pacific basin have found the Riadys an effective conduit to the Clinton administration...
...But by that time, Jack Stephens had already flown home to Little Rock from Augusta, Georgia, where he had been presiding over the Masters' Golf Tournament...
...A large part of the crisis management consisted of keeping the general public from realizing that state pension money was at stake...
...The Indonesians left Little Rock, but Clinton has stayed in touch...
...Though all the repos were placed through open bidding, Worthen's high-interest, high-risk deals with Bevill, Bresler gave it an advantage...
...When the president visited Jakarta in November 1994, his business entourage signed a whopping $40 billion in contracts...
...In other words: Clinton owes them big time...
...Going a bit beyond the Fed's letter, the firm wrote to The American Spectator: "After a rigorous 33 month investigation, the Board concluded that at no time did Stephens Inc...
...His career in Los Angeles included fundraising for the '92 Clinton campaign...
...part of a global network...
...Anthony also happens to be married to the late Vincent Foster's sister...
...S tephens's Morganesque gesture in fact accelerated a business plan for the holding company that was already well underway...
...and the Worthen Banking Corporation" until almost eight years later, in March 1993...
...Though the White House now refuses to divulge the names of those who attended, an earlier Commerce Department trip to mainland China gave a bit of a preview...
...Jack Stephens knew about that experience, since he was on the board of the target bank and had brokered the early stock sales...
...To the undoubted relief of state officials, Worthen paid the interest and principal on the repo that came due on April 7—and on the five others that matured later in the week...
...Just a few years earlier, in 1978, the administration of his predecessor had a run-in with Bevill, Bresler that dropped out of sight when Clinton took office...
...Though he is registered as an independent, Huang was recently elected a delegate-at-large of the Democratic National Committee...
...In any event, the Comptroller's examination ended such practices...
...Along the way Stephens was quoted as calling the bank his "least favorite investment...
...When Clinton made his November 1994 visit to Jakarta, press reports focused on his token statements about human rights...
...The Federal Reserve's investigative report has not been made public, but the sequence of events is more complicated than Stephens Inc...
...Stephens Inc...
...Last fall the Clintonites signed huge contracts with their Indonesian friends— some of whom, like the Riadys, have been major backers since their glory days in 1980s Little Rock...
...Environmentalists and wildlife protectors protest corporate trashing of the Indonesian wilderness...
...The lobbyist is Beryl Anthony, a former Democratic congressman from Arkansas and chairman of the Democratic Congressional Campaign Committee...
...Clinton started her on her career as Treasurer shortly thereafter, when he appointed her to fill the unexpired term of her predecessor...
...0 n the eve of Bevill's bankruptcy, phone calls from the governor's office went out at 3 a.m...
...That weekend, Bevill, When the Center for Public Integrity recently asked White House officials for a list of businessmen on the Indonesia trip, they refused to release the names...
...Jack Stephens never hid hisof contracts...
...All of them were partners in the Salim Group...
...John Huang, the Commerce Department's deputy assistant secretary for international economic policy, was until recently president and vice chairman of the Lippo Bank in Los Angeles...
...The disclaimer was remarkably like that of the group of Arab investors under the tutelage of the BCCI who several years earlier had taken control of First American Bankshares in Washington, D.C...
...The feds imposed controls on the insider lending and started to ease The American Spectator September 1995 31 the Riadys out of the bank...
...W hile the Worthen affair ended badly for the Stephenses and the Riadys, it also drew both groups personally closer to Bill Clinton...
...The Freedom of Information Act, they said, doesn't apply to the White House...
...There were a lot of poor, unchecked loans in Arizona and places like that...
...Worthen was the biggest customer of a government securities brokerage in Livingston, New Jersey, named Bevill, Bresler & Schulman (BBS...
...T he story begins in 1977, after Jimmy Carter appointed his confidant T. Bertram Lance as budget director...
...The Riadys even have an alumnus inside the Clinton administration...
...The pipeline from Worthen to Jakarta would be cut off...
...And every penny of it was gone...
...Later the Riadys took on still another partner, a holding company controlled by the People's Republic of China...
...For a number of months, the bank had routinely been giving BBS repurchase agreement orders—a form of high-interest, short-term loans known as repos—for $10 to $20 million at a time...
...Worthen apparently thought it could play a bit loose with the money, because it wasn't investing its own reserves or the deposits of its private customers...
...The new friends helped each other...
...On February 14, 1984, the Lippo Holding Company purchased a large chunk of Worthen stock for $20 million in cash...
...This arrangement was crucial...
...It was the good ol' boy network...
...And the Riady family is doing more than attending conferences and signing deals...
...Losses from the loan portfolio were so severe they may have pushed the bank to take risks elsewhere...
...All the other members were Clinton loyalists...
...According to the complaint, Bevill, Bresler had conspired with certain Arkansas banks and S&Ls "to overstate their, the institutions' income and conversely to overstate assets such as to create a false impression of the institutions' financial condition which operates or could operate as a fraud or deceit on the depositors and shareholders of the institution...
...These connections may be more of a problem for Clinton's domestic constituency than for advocates of free trade and a global economy...
...The Freedom of Information Act, they said, doesn't apply to the White House...
...According to state law, Worthen was not The cover of Worthen's annual report that year juxtaposed the skylines of Little Rock, Hong Kong, and Hot Springs...
...Worthen and its shareholders did a major favor to Clinton when they decided not to try to protect the bank from its losses through a court suit...
...A whole team of ethnic Chinese from Indonesia and elsewhere came to Little Rock to work at Worthen, which soon after formed an international division...
...In subsequent meetings of the state's financial officers, Clinton's appointees squelched proposals from auditor Jones for stricter investment procedures...
...Yet the White House has been strangely silent about the trip...
...Jack Stephens and the Indonesians may have been worlds apart, but when it came to exploiting "personal contacts," they spoke the same language...
...Entergy Corporation of New Orleans, parent company of Arkansas Power & Light, sent along its chairman Ed Lupberger, and signed a joint contract with the Riadys' Lippo Group to manage and expand a 1,200-megawatt power plant in northern China...
...CI Every penny of the $52 million that Worthen put at risk that Easter weekend was state pension fund money...
...In spite of the rescue, an earlier federal investigation frustrated Stephens Inc.'s plans to consolidate its influence in Worthen...
...Riady represented Lippo Bank, almost the only foreign company at the affair...
...It took the Riadys another five years to extricate themselves from Worthen...
...With warrants for the new stock, their stake could have climbed to 72 percent...
...In 1984, one of the auditor's lawyers noted, Worthen ranked eighth in state repos, placing only $58 million worth...
...From the beginning, Stephens and Riady tried to downplay their dominant position at Worthen...
...In normal circumstances, $40 billion in business deals would be a staggering success...
...By contrast, Ron Brown's much ballyhooed trip to mainland China two months earlier netted a mere $6 billion in new business...
...Its ambition forgotten, Worthen was absorbed into a much larger regional bank and lost its separate identity...
...hired the Washington PR firm of Robinson Lake Sawyer Miller to discreetly spread the word about the Fed's finding...
...The share price had dropped from $31 to $20 after the Bevill debacle, and by the time the examination became public in August, it was trading at $10.50...
...For Riadyand the Stephens brothers, the financial future couldn't have seemed much rosier...
...In an orgy of networking, Ron Brown's fellow travelers signed $40 billion worthpaign...
...Forbes recently reported there were six new billionaires in Indonesia...
...The rescue team at Worthen knew that it was acting on higher policy when it decided to forego this defense...
...By cutting corners and taking excessive risk on the state's dime, Worthen was squeezing maximum profit from what was supposedly the routine placement of the state's pension fund cash...
...His Indonesian business partners may have wondered about the disaster at their new bank, but they agreed to support the bailout...
...it's certainly a topic within the purview of the Independent Counsel...
...Bert Lance's holdings at NBG, it turned out, were not available for sale to Riady...
...along with Liong, Jack Stephens put up part of the money for Riady's purchase of the Hong Kong Chinese Bank in November 1984...
...But from mid-January 1985 to the time of the BBS disaster, the bank handled $342 million worth—more than anyone else in the state...
...About $35,000 was raised that evening, and the money helped retire a personal loan of $50,000 the Chiffons had gotten from the Bank of Cherry Valley during the closing days of the 1984 campaign...
...On April 4, the day Worthen put the state's $52 million into the final batch of repos with Bevill, Bresler, James McDougal held his now infamous fundraiser for Clinton...
...Former state auditor Julia Hughes Jones—in 1985 the only statewide elected Republican—had been warning about the state's lax use of repos for years...
...Worthen and the state were the latest victims of an epidemic of fraud in the government securities business...
...It is what partners can offer in personal contacts and business connections...
...By the end of 1984, the Stephens/Lippo group and its allies had tapped Worthen for a total of $78 million...
...To add to their embarrassment, there was nothing arcane about the fraud or the simple steps that would have avoided the loss...
...before that he worked for James Riady at Worthen as vice-president for the Far East, and for the Salim Group as general manager of Bank Central Asia, New York...
...32 The American Spectator September 1995...
...Lance was required to sell his interest in the National Bank of Georgia (NBG), and for help with the deal, he turned to fellow Carter fundraiser Jackson T. Stephens, an Arkansas king-maker whose powerful but complicated influence on Clinton has already been documented in these pages (see "Clinton's Bert Lance," TAS, November 1992...
...His control of state government was by then so tight that he would inevitably take some of the blame for any loss of state money, whether or not he was actively involved...
...According to one account, he closed the meeting by writing out a check for $32 million, and then flew back to Augusta for more golf...
...Yet it had signed a contract with the state of Arkansas that, Worthen later claimed, allowed the bank to act only as an agent...
...By conducting its business with Arkansas banks from an out-of-state office, it stayed outside the jurisdiction of the Arkansas Securities Commission...
...In any case, as one state official said later, "Bill Clinton had a busy week...
...The Indonesia deal should have been a public relations coup for the Clinton administration, which doubtless could use one...
...He turned to the investors who were already working to make Worthen Banking Corp...
...NBG eventually became a unit of Clark Clifford's First American Bankshares, the Washington, D.C., bank holding company secretly owned by the scandal-ridden BCCI...
...He first made his name as a conservative executive of Bank Central Asia, a subsidiary of the Salim Group, an investment company that had been founded by Liem Sioe Liong...
...The bad loans had been accumulating for many years, but the problem intensified when the Stephens-Riady group began throwing its weight around in 1984...
...30 The American Spectator September 1995 allowed to hire Bevill, Bresler—or any third party—to do the repos...
...It might all turn out to be perfectly above board, but a democracy allows for scrutiny as an antidote to cronyism...
...Just by raising the issue, she was told, she would be undermining confidence in the state's banking industry...
...The rescue money ultimately came from a new issue of common stock—much of which wound up with Mochtar Riady...
...As the feds combed through the bank's loans, said a former employee, they found that the Bevill loss "was a drop in the bucket...
...Ultimately all these issues—even the Federal Reserve investigation—were mooted when Worthen was taken over earlier this year by the Boatmens' Bank of St...
...they were already destined for a Saudi named Ghaith Pharaon and the morass of the Bank of Credit and Commerce International...
...Mochtar Riady received an invitation to Clinton's presidential inauguration, and James Riady was asked back to Little Rock for Clinton's pre-inaugural economic summit...
...brokered the sale of Lance's holdings...
Vol. 28 • September 1995 • No. 9
