The hills of La Jolla have long been full of thieves and liars. Cliff Graham was a classic of both genres. Compact, red-headed, with bulging biceps, he was admired by his ski buddies for his bravado, intelligence, wit, and ability to milk cash from schemes that ended up losing money for everybody but himself and his friends--and sometimes even they got screwed. He drove fast cars, worked out in a private gym, skied Aspen and Mammoth, sailed boats, packed a pistol, owned two airplanes, buddied up with pro football stars, claimed he "owned" San Diego's judges, partied with politicos, and had a dark-haired wife, who, rumors had it, had been a Las Vegas showgirl.
When it came to conning the suckers of La Jolla, his buddies said, Graham was the master. "He could talk those dumb La Jolla doctors and airplane pilots into giving him their life savings," says one of Graham's compatriots, most of whom have since moved to obscurity in resorts like Coeur d'Alene, Idaho, or the mountains of New Mexico. One is listed in the San Diego phone directory as being at an address that is his lawyer's office in Santa Monica, but he doesn't respond to messages left there. Others have died. Many of those alive decline to talk about Graham, out of fear, they say. They worry that the fugitive financier--who if living would be 72 years old--might turn up pointing his famous pearl-handled revolver at their chests.
They say they have reason to be afraid. Graham, those who knew him suggest, was often a laundry for cash of suspicious origin, money whose owners were pleased to see Graham take it, as long as some of it came back into their accounts in another guise or went to a politician or sports star in the form of a job or an investment in Graham's empire of offshore companies, busted condominium developments, bogus gold-mining deals, and questionable tax shelters.
Graham boasted of his relationship with G. Arnholt Smith, the one-time Mr. San Diego and the town's mob-connected Republican godfather, accused of helping to launder hundreds of thousands of dollars to Republican candidates, whose now-infamous United States National Bank backed many of Graham's deals. And the financier talked of his relationship with Richard Nixon. Graham hung out at Smith's penthouse Cuyamaca Club with San Diego politicians like Congressman Bob Wilson, a Nixon protege.
Another of Graham's friends and business associates was Jack Kemp, ex-San Diego Charger quarterback and Point Loma resident. Kemp and Graham were fast friends, it is said by many who remember the era, from at least the middle 1960s, when they were seen together at meeting that included Herbert G. Klein, an editor with the San Diego Union and one of Richard Nixon’s political operatives. Kemp, supported by local businessmen with ties to the Nixon campaign, was planning to run for Congress, and Graham was one of his most enthusiastic backers.
Over a period of approximately 20 years, according to court records and interviews with friends and associates, Graham provided Kemp with a job, accompanied him on trips, bought a condominium with him, got him involved in his crazy quilt of corporations, and showered him with the bounty of his fundraising.
In turn, Graham gained entree to Kemp’s world of high-flying jocks and their well-heeled fans in corporate and political America, many of whom later invested — and apparently lost — millions of dollars in Graham-led business schemes. According to one bankruptcy court document, Graham’s wife Kathy worked the crowd at the 1983 wedding of Kemp’s quarterback son Jeff, soliciting Texas investors to put money into what turned out to be Graham’s last big con.
When that venture, a gold-refining scheme called Au Magnetics, went sour in the mid-1980s, just before Graham disappeared, never to be seen or heard from again, the San Diego Union reported that Kemp had lost $50,000 in a bad “loan” he had made to Graham connected with the deal. The paper quoted the then-congressman as calling Graham “an old family friend.”
According to court records and sources with knowledge of Graham and his operations during the 1960s, ’70s, and ’80s, Graham and Kemp had, until Graham’s abrupt disappearance, remained the best of friends through the financial debacles and sour real estate development deals engineered by Graham and financed in large part by loans from C. Arnholt Smith’s United States National Bank.
Graham was a regular at Jack Kemp’s annual Super Bowl parties, pitching investors on the gold-refining scheme that would bring him down for good in 1985. According to sworn testimony in the bankruptcy case that followed Graham’s disappearance, Kemp’s Super Bowl event, which attendees said served as a fundraiser for his political causes, was each year hosted by the Dow Chemical Co.
Herbert H. Dow II, the grandson of the company’s founder and a Dow board member, is identified in other documents filed in that case as a major investor in the gold-mining scheme and a friend of Kemp’s. According to the documents, in 1984 Dow made a $400,000 “loan” to Graham so that he could pay off a group of disgruntled investors who were threatening to blow the whistle on the faltering venture and trigger a run on whatever assets Graham might control. Dow’s sworn deposition in the case was sealed with the consent of all parties to the bankruptcy. He died in January of this year at a hospital near his home in Midland, Michigan.
In the beginning, when Cliff Graham arrived in La Jolla in the early 1960s, nobody who remembers him says they inquired into where he got his money. It was enough, some of them say today, that he wore well-tailored suits, flashed a fat wad of cash, carried a small stash of diamonds, packed a Luger, and surrounded himself with fast-talking young Mormon lawyers who spoke of Bahamian tax havens.
It didn’t hurt that his wife, Kathy, was a brunette almost half a foot taller than he, with a taste for designer clothes and a talent for pitching investment schemes to the denizens of high society and Republican politics. Some heard that before marrying Graham she had been the wife of a bodybuilder who had established the country’s first workout emporiums in the late 1950s.
Said to have been born in 1924 and billed in one newspaper story as a self-made Depression-era boy from a “poor but honorable” family in San Bernardino, Graham, word circulated through La Jolla, had variously been a wounded hero of the war in the Pacific, Mr. California bodybuilder of 1953, an M.B.A. graduate of UCLA, and personal manager to workout king Vic Tanny.
In 1969, Graham, then 45, gave an interview to Carl Plain, a business reporter for the San Diego Union. “To many La Jollans Graham remains an enigma and an outsider, although he came here eight years ago from Los Angeles to enjoy retirement and the good life,” the story said, adding that Graham “yields scant information when asked about his Los Angeles years. He will say little more than he earned a master’s at UCLA, became a management consultant, and acquired equity interests in some client companies which prospered.”
The story went on to report that “during World War II, Graham had been a Navy line officer and pretty badly shot up’ at Okinawa. After the war, he made his first million by the age of 32 and figured he would be content. 'But that wasn’t it,’ he says now. ‘I found out that the challenge was the thing.’ ” Some of it may have been true. Some was half-true. Some wasn’t true at all. But background checks weren’t part of the local culture when Graham parachuted into La Jolla in the early 1960s. The quaint seaside village was already stuffed with fancy little jewelry stores with connections to mob money, from Las Vegas casino magnate Allen Click to Teamster lawyer Morris Shenker. C. Arnholt Smith ruled the town’s establishment from downtown.
Property records show that Graham bought his first San Diego real estate, on La Jolla’s Kline Street, on November 27, 1961. His mailing address was listed on the deed as being on Wilshire Boulevard in Beverly Hills. Graham built an expensive, tasteful office building on the site, where he would do business for over two decades. Title to the property belonged to an entity called the KLS Trust, over which Graham had irrevocable control.
Throughout his years in San Diego, Graham did much of his business through the trust, which, as shown by later court records, had been set up in July of 1961. Under its terms, Graham — who described himself to friends and associates as independently wealthy — received a handsome management fee for running the trust, along with the chance for him to make extra cash from property-management commissions. The trust’s beneficiaries were a woman named Kathy Smith and her small daughter.
Three years later, Graham married Smith. Nobody who remembers the couple admits knowing anything about the trust or about Kathy Graham’s daughter.
By May 1965, a year after his marriage to Kathy Smith, Graham was a bona fide entrepreneur. Or so said the San Diego Union in a puffy story about Graham’s first public splash, a proxy fight for Stewart-Form, Inc., a tiny La Jolla company that made forms for amateur dressmakers. Graham, “an investor and real estate developer,” the paper reported, “came in as a business consultant last year. He found the company’s problems so challenging he agreed to become president and lead a battle for corporate survival and control.”
Enthused Carl Plain, the Union reporter: “Graham, conservative by nature, estimates sales this year will total $1 million to SI.5 million. He can hardly miss being right because the million dollar contract with a company he is not at liberty to identify calls for deliveries over ten months. After that, he says, new orders should accelerate.”
Like many a Graham proposition—which often featured mysterious customers and backers whom Graham would always say he was not “at liberty” to identify and who subsequently failed to materialize— Stewart-Form didn’t pan out. Less than four years later, reporter Plain offered a postmortem: “For a while, more or less as a hobby, [Graham] helped organize and steer a La folia dress form company which rose quickly, then foundered in a sea of internal strife he considers tragic and unjustifiable. But that fiasco proved to be Graham’s great good fortune. If it had not happened, he might still be with that firm, rather than running a venture so successful his detractors are nettled.”
Some of those who knew Graham and the real story of Stewart-Form and other Graham ventures — such as his attempt to start up the Roy Rogers Beverage Company or to desalinate seawater using reverse osmosis or to develop a fly fishing ranch in Northern California —swore that he was a crook and the Union coverage was a crock. In a 1967 case involving the Roy Rogers venture, for instance, Graham was sued by Ruth Stewart, founder of Stewart-Form. Stewart, an investor in Roy Rogers, alleged that Graham and his partners knew all along that the Roy Rogers venture was being used to raise money “pursuant to a fraudulent plan, scheme and device.” They settled out of court, months after the company folded.
But in 1967, such stories never made the pages of theSan Diego Union. Graham was approaching the pinnacle of his influence. So was Dick Nixon. And by 1968, as Nixon began his second campaign for the presidency, Graham managed to ingratiate himself with the key members of Nixon’s San Diego machine. The key was money.
For Union reporter Carl Plain, the Nixon years would end prematurely. Some claimed he was under pressure from his editors to hush up the town’s scandals, most of which involved Dick Nixon, C. Arnholt Smith, Congressman Bob Wilson, and their Republican friends, like Cliff Graham. Even as Smith’s empire began to unravel, and Life magazine and the Wall Street Journal began to probe the deals Smith cut with his friends, the Union remained silent. Some said it was too much for Carl Plain. He killed himself in November 1972.
Richard Nixon called San Diego his “lucky city” for two principal reasons: Jim Copley and C. Arnholt Smith. Copley owned the city’s two newspapers and had made no secret of his admiration for the former vice president. In letters to Nixon written over two decades and today held in the National Archives Copley promised that his newspapers would do whatever it took to elect the Republican from Whittier.
The letters show that Nixon relied heavily on Copley staffers like Union editor Herbert Klein and reporter Peter Kaye for assistance both during and between campaigns. In the off-season, Klein would channel to Nixon — whom he always referred to as “the Boss” — political intelligence gleaned from his role as editor. When the campaign began, Copley would grant Klein a “leave of absence” to go to work for Nixon. For this extended kindness Nixon wrote Copley with profuse thanks.
The other pillar of Nixon’s San Diego strength, C. Arnholt Smith, had known the future president since even before Nixon’s days as a congressman from Whittier. Born in 1899, Smith was a product of poverty from Walla Walla, Washington, self-made in San Diego. In 1933, he bought a small San Diego bank with his brother and by 1968 had built it into the almost-billion-dollar United States National Bank. He owned a tuna cannery, taxi cab monopolies throughout the state, a stock brokerage, and an ever-shifting real estate portfolio.
A 1967 exposé in the Wall Street Journal had questioned his practice of self-dealing with the bank, but he was a welcome Nixon insider, having contributed $250,000 and purportedly raised another $750,000 for the president-to-be. Smith was among the few invited to sit in Nixon’s hotel suite as the ballots were counted on election night. In addition to controlling mayors, judges, and “elected officials of every stripe,” according to Forbes, “one of Smith’s close friends was San Diego news baron James Copley, who provided in-depth coverage of his friend’s activities in the society columns.”
Another member of the Copley inner circle was Jack Kemp. He had been born in Los Angeles on July 13,1935. After he graduated from Occidental College in 1957, he was drafted as a third-string quarterback by the Detroit Lions and spent three seasons bouncing around the league until being picked up in 1960 by the then-Los Angeles Chargers, owned By Barron Hilton. The next year the team moved to San Diego. Along the way Kemp linked up with Union editor Herb Klein, whom Kemp would later call his “political godfather.”
Klein was a football fan always on the lookout for sports talent he could enlist in Nixon’s aid. He once advised Nixon to meet Rafer Johnson, “a fine colored lad,” Klein wrote Nixon in 1960, who had beaten the Russians in the Olympic decathlon. By all accounts, Kemp and Klein hit it off well, and Klein soon brought Kemp into the Union’s “editorial training” program during the off-season.
“Here was an extraordinary guy with a bright personality, who could be an interesting political personality because of physical and mental attributes,” Klein told Inc. magazine in 1985. “It struck me right away that he was a potential." According to a 1978 account in Time magazine, Kemp “did research for the editorial writers, wrote ‘a couple’ of editorials himself, and made a good many speeches for the paper before community groups,” as the paper’s “youth representative.”
The relationship was so close that “Klein invited [Kemp] to listen in on [Klein’s] regular Sunday afternoon telephone conversations with Nixon,” the Union-Tribune reported this August.
Sports Illustrated stated in 1970 that “in 1961 [Kemp] began writing a youth column for the rigidly conservative newspaper, and his stories had headlines such as “Sports, Freedom Require Laws’ and “Freedom Is Goal in Playing Game.’ ” On the occasion of Jim Copley’s death in 1973, the young congressman read a eulogy on the floor of the House.
Though the Chargers won two Western Division championships under his direction, Kemp’s football career in San Diego did not last long. On September 27, 1962, Charger coach Sid Gillman sent Kemp packing, announcing to a lunch crowd of Charger backers, according to a newspaper story the next day, that “the Chargers did not feel they could win consistently with Kemp at quarterback.” Replied Kemp: “I gave the best I had for three years. For him [Gillman], it was not good enough,” adding that he was “not quite straightened out” about joining the Bills.
Kemp put his reservations about the Bills aside and was soon winging his way to western New York to play football. But for the next eight years he would keep the home he had bought on Amiford Drive in Point Loma for his growing family, and his political roots remained planted with Klein and his friends in San Diego.
Through his connection with Klein, Kemp campaigned for Nixon in his unsuccessful 1962 bid for California governor and in 1964 supported Barry Goldwater for the presidency. In 1966, he joined Richard Nixon’s congressional campaign tour, stumping for Republicans in the off-year elections that marked the GOP’s comeback from the Goldwater debacle. It also marked a new beginning for Nixon, who used the tour to forge the ties he would need to run for president in 1968.
In the meantime, Kemp was plugging away at his football career, leading Buffalo to the 1964 and 1965 AFL championships. Sports Illustrated said he was “becoming a popular figure in Buffalo community affairs” by giving speeches with titles like “The Struggle of Communism for Control of the Minds of Our Youth.” Along the way he collected honors, including the Outstanding Community Service Award from the Buffalo Jaycees and the Western New York Young Americans for Freedom “Americanism” award.
The awards were not accidental; correspondence on file in the Nixon Library and Birthplace in Yorba Linda show they were part of a campaign by Klein, Jim Copley, C. Arnholt Smith, and others of Dick Nixon’s San Diego backers to make sure Kemp’s name stayed before the public. When Kemp was up for an award from the New York Jaycees in 1965, it was Klein who called Nixon to arrange for a telegram of support from the ex-vice president.
“I was pleased to learn that Jack Kemp was among those who had been nominated for the distinguished citizen award of the New York State Jaycees," Nixon wired the Jaycees’ selection committee in September 1965. “I have had the privilege of knowing Jack as a personal friend for the past ten years. He is a great athlete but even more important a fine citizen.” Kemp got the prize.
In early 1967, as Ronald Reagan began his first term as governor of California, Klein got Kemp a job with the new administration. It was to become by far the most bizarre episode of Kemp’s political career. As described by Reagan insider and former Copley Newspapers reporter Lyn Nofziger in his 1992 autobiography Nofziger, Kemp was “a friend of the Union's editor Herb Klein and a conservative Republican already looking down the road to a career in politics. In 1964, when I was covering the California presidential primary race between Goklwater and Rockefeller, Klein sent him to travel with me for a few days so he could get a close-up view of what a political campaign was all about.
“But in 1967, Klein, a part of Nixon’s inner circle, didn’t have much direct clout in the Reagan organization so it was another San Diegan, Gordon Luce, Reagan’s secretary of business and transportation, who arranged for Kemp to intern in the governor’s office in the spring of 1967."
During his tenure with Reagan, Kemp, according to Nofziger, was befriended by a closeted gay Reagan aide, Nofziger wrote, who was “immediately taken by the intelligent, articulate, and handsome football hero. He took Kemp under his wing and had him accompany him whenever he left Sacramento, which was frequently.
“Kemp accepted the trips to Washington and elsewhere as a learning experience, unaware that [the homosexual aide] was attempting to keep his presence secret, unaware, too, that the close relationship was causing talk and breeding suspicion in the governor’s office. And he compounded his mistakes by going in with [the aide] to buy a cabin at Lake Tahoe. Later, he sold his half back to [the aide], but not before the Washington political gossip columnist Drew Pearson had written a completely false column charging that members of Reagan’s staff had used it for a homosexual orgy.”
Though Kemp quit his job in the summer of 1967 to go back to playing football in Buffalo, for years afterward the orgy story and rumors of homosexuality would dog Kemp and his aspirations for the presidency. He denied them, but they would return. Months before the scandal broke, wrote Nofziger: “Kemp, the victim of circumstance...left to begin football practice. He would not return.”
By 1968, Nixon was running for president, and Kemp was in his camp. But that year another name appeared alongside Kemp’s, Clifford Graham was one of Nixon’s most enthusiastic San Diego backers, and now, thanks to the success of his latest venture, a chain of drive-up franchised photo-processing booths called Fotomat, Graham could afford to indulge his political passions.
Sandy Fleet, son of Consolidated Aircraft founder Reuben H. Fleet, claimed credit for the Fotomat idea, but it was Graham who exploited it. To encourage the father of the family to drop his photos off, Fotomat kiosks were staffed by young women, called “Fotomates,” dressed in hot pants, a gimmick patterned after the stewardesses of another San Diego start-up, Pacific Southwest Airlines.
Founded in 1967, Fotomat started small and exploded, fueled by Fleet’s investment and a seemingly unending line of credit from C. Arnholt Smith’s United States National Bank. “We are opening better than two a day,” Graham told Union business writer Carl Plain in October of 1969. “We expect to have about 1,000 in place by Jan. 31, our fiscal year end.” That April, Graham had gone public, and the stock shot from $20 to more than $36, before settling back into the mid-20s that fall because of what Plain termed “a falling market and earnings vacuum.” Still, Plain reported, founders Fleet and Graham “have fared sensationally. At the market high, each man’s stock was worth more than $60 million.”
Besides money and respectability, Fotomat also gave Graham a political base. One of the first beneficiaries was Jack Kemp. On May 23, 1968, the San Diego Union reported that Kemp had “joined Fotomat Corp., La Jolla, as assistant to the president, Clifford C. Graham.” It went on to say that “Kemp will assist a national sales program by assembling groups to purchase blocks of Fotomat franchises, such as one which recently bought Oakland area franchises for 30 small drive-thru photo stores.”
The story added that “Kemp, who has been working on the staff of Richard Nixon in the campaign for the Republican presidential nomination, will be given temporary leaves to continue political activity.” It was the same technique employed by Union publisher Jim Copley to allow his own employees, editor Herb Klein and reporter Peter Kaye, among others, to campaign for Nixon.
In the ’68 campaign, Kemp was one of the members of a group called “Athletes who have joined with Dick Nixon,” according to a document in the Nixon library in Yorba Linda. Besides Kemp, other New Yorkers on the list included boxers Rocky Graziano and Joe Louis, along with jockey Willie Shoemaker and his wife, and baseball great Whitey Ford. Those who knew Clifford Graham later said Shoemaker, also listed as a California athlete for Nixon, was one of Graham’s best friends.
During this period, other employees of Fotomat say, Kemp and Graham also began to work together on building Kemp’s political future. One of those who remembers is Richard Dahlgren, who was hired as a public relations executive in Fotomat’s advertising department. “I met Kemp in 1967 or 1968,” says Dahlgren, who now lives in Idaho. “It was about the same time that a lot of San Diego Republican businessmen started talking about Jack Kemp. They even took a full-page ad out” in 1968.
Graham, recalls Dahlgren, “was the organizer, the spokesman for the group. They would get together in a big room over at Fotomat and plot strategy. One thing that stands out clearly in my mind was how these guys were so hot and giggly about Kemp. There was a group of about 20 or 30 of them, executives from around town who met regularly. I remember the conversations, how the ‘machine’ was going to push Kemp for political office. They said they were going to make him president someday.”
Along the way, Kemp also helped peddle Fotomat franchises to football players, according to Lew Ground, another Fotomat marketing executive of the time. “I met Jack Kemp there; he was working for Cliff when Cliff started Fotomat. And Jack’s role was to work on franchise sales, and he did in fact engineer the sale of some franchises to Ralph Wilson, you know, the guy that owns the Buffalo Bills. And then I think he was instrumental in getting some sold to the Raiders up in Oakland, because I remember going up there for their grand opening and doing the press on it I don’t know which ones. I met a bunch of them.”
Not long afterwards, records show, Kemp and his wife Joanne, along with the Grahams, bought a condominium together at Mammoth Mountain, a booming ski resort on the eastern slope of the Sierras, about 400 miles north of San Diego. A deed recorded in Mono County shows that the condo was purchased December 8, 1969, for about $40,000; according to a notation on the document, property tax bills were sent to Graham’s La Jolla office. Less than two years later, on March 19, 1971, a few months after Kemp went to Congress, the Kemps and the Grahams sold the unit to San Diegan Jack Sheridan for about $50,000.
Ground says Graham was “pretty active in local politics; he gave a lot of money to the mayor” and was a friend of banker C. Arnholt Smith. But Ground says Graham seldom if ever shared his political confidences or much of anything else with him. “Cliff was a very, very close-mouthed guy. Tightlipped. My role was to do his PR for him and advertising and things like that, and I was told only what I had to know from that standpoint. And I wanted it that way. I didn’t want the burden of anything that he had going that I shouldn’t know about.”
One thing Ground says he did know: Graham packed a gun. “Yeah. I think he did carry a gun. Because he dealt in a lot of cash. Did a lot of buying and selling of antiques and jewelry and things like that, and I’m pretty sure he did carry a gun with him. I don’t blame him. I would have, too. He carried a lot of cash around. But that’s all I know. I didn’t ask a lot of questions.”
Ground describes Graham as “a diminutive fellow. He was about five four and weighed about 198, but it was all muscle. He kept in shape. He worked out a lot. I think I heard he was Mr. California, in 1953. He showed me a magazine with some pictures in it I believed that.” Graham also spoke of his military record. “He said he was in the Navy, a lieutenant, junior grade, I believe, and on a destroyer. He had a terrible scar on the calf of one leg, and he said that was from shrapnel. I heard subsequently it was from a motorcycle accident. At least that’s what somebody told me.”
Ground also recalls Kemp and Graham taking ski holidays at a condominium project Graham developed at Snowmass, near Aspen, Colorado, in the late 1960s and early ’70s. Graham flew there with a small fleet of airplanes that others called his “air force.” Says Ground: “He had a stretched Swearingen. A turboprop, twin engine. They make ’em down in San Antonio, I think. He had one of the first ones, which was an executive style. Now they’re making just, like 22-passenger commercial. Real skinny little planes; you’ve probably seen ’em everywhere. Good plane. Like a mailing tube with wings. His was shorter than that. I flew in it three or four times. Maybe eight- or ten-passenger. And he had a Skymaster, one of these push-pull things. Had a dual prop, a prop in front and a prop in back. A lot of his attorneys flew around in that. I think he may have owned it and leased it to the company. He was strictly a limousine-and-tailored-suit man when I met him.”
Graham’s wife Kathy, says Ground, also was an expensive proposition. “She was a gorgeous lady, I mean, real pretty, she sure did look like a showgirl. And boy, she could sure spend that money. She had beautiful brunette, kind of auburn, hair. They bought Bing Crosby’s old ranch out there in Rancho Santa Fe, Rancho Osuna, and Cliff totally remodeled it for her, bought about a couple hundred thousand dollars’ worth of wine, even though he didn’t drink, just to entertain. He ran around with some heavy-duty folks, Willie Shoemaker, the jockey, a couple of movie actors; I can’t remember all the names he had up there.”
One thing that did stick out in his mind, Ground says, was that he’d heard Kathy had once been married to Vic Tanny, the self-made son of Italian immigrants who founded one of the nation’s first chains of fitness clubs back in the late 1950s. Another thing he remembers hearing: Graham once worked for Tanny as his personal manager and accountant. “But that was what Cliff said. That’s all I knew.”
For a while, Ground says, Kathy ran a boutique called the Plum on the ground floor of Graham’s headquarters on Kline Street in La Jolla. “It was just a plaything for her. She just kind of dinked around with it She had good taste, though. She spent plenty on the dresses. It was a nice little shop.”
Besides her knack for fashion, Kathy had another talent. Correspondence found in former San Diego congressman Bob Wilson’s files, now in the special collections library at San Diego State University, shows that Kemp held her in high regard as a political fundraiser.
In a “Dear Kathy” letter to Mrs. Graham, I. Lee Potter, one of Wilson’s political operatives, asked her to set up a cocktail party and dinner to raise money from wealthy San Diego Republicans. The cash would go to the Republican Congressional Boosters Club, a national fundraising group chaired by Wilson.
“I have just returned from Florida, which was the end of my pleasant trip to San Diego,” Potter wrote Kathy in September 1975. “It was good to see you and Clifford again at the Wilsons’ dinner party....
“In furtherance of our conversation regarding a San Diego Boosters meeting, I talked to Jack Kemp and he told me he had been to San Diego since my visit out there and was well aware of our discussion. Jack said he will come to San Diego and do a Boosters meeting if you will act as our chairman....
“I know Jack Kemp, Bob Wilson, [GOP Congressman] Ed Terrar, and I would be most pleased if you were our chairman.... Best wishes to you and Clifford and hope to have the opportunity to see you both soon.”
On October 22, Potter followed up with a letter to Kemp, describing arrangements for the fundraiser. “Our mutual friend, Kathy Graham, is lining up the location and has a committee working on a Boosters cocktail reception in San Diego for the late afternoon of November 21. It is my understanding Congressman Bob Wilson will be in attendance.”
Following the event. Potter wrote to Wilson’s San Diego staff, thanking them for their “magnificent job.... The telephoning really did bring out the bodies. We had about 85 in attendance. I think Jack Kemp did a good job, and now the important thing is to get the follow-up letters out as this is where we get our financial return.”
By the late 1960s, Kathy’s fundraising and Cliff s stream of campaign contributions placed the Grahams in the elite of San Diego Republican donors. Bob Tanner, another Graham associate of the era who accompanied Graham and Kemp and Kemp’s sons on a ski trip to Colorado, says he was told by Graham’s attorneys that Graham personally “couldn’t get along with much less than a million dollars a year to live on. Most people who are in that category are some kind of users, if you stop and think about it.” Others marveled at how well Fotomat was doing that Graham could afford such extravagances.
In reality, however, much of the money for Graham’s lifestyle, along with his political contributions and business schemes, was coming courtesy of C. Arnholt Smith. According to an investigator who examined the books of the United States National Bank after its collapse in October 1973: “Graham’s name came up several times on loan applications and loan approvals out of the senior loan committee of the bank. I don’t remember [to which Graham entity], but I remember that his name was there, and I think it’s safe to say that he borrowed extensively from United States National Bank, and it may have been for one or more entities.”
Letters in the SDSU collection show Congressman Wilson also borrowed money from C Arnholt Smith’s United States National Bank. In a July 1971 letter to Smith, Wilson said that he had intervened with federal parole authorities on behalf of imprisoned Smith friend Angelo Alessio, who had been convicted on federal income tax charges.
“The favored people didn’t have to go through the normal lending process, of course, and you would go to a senior officer and say, ‘I need to finance one or two or more ongoing enterprises,’” says the former investigator, who requested anonymity. “That had to, by the regulation of the bank, be approved by the senior loan committee, which was really just Arnie calling up and saying ‘grant it,’ and they granted it.
“Graham had a loan limit of, I don’t remember how much, to tell you the truth. It could have been one hundred, two hundred, three hundred, or four hundred, or a couple of million, I don’t remember, a limit that he was basically pre-authorized to borrow up to that amount. And if you got up to that amount and you needed more, you had to go back and go through the same procedure. That was only because the bank examiners required this set procedure, ostensibly to build in independence and overview at each of the levels, when in fact it was all one prearranged thing that occurred.
“It was very hard to determine once the money actually left the bank if it ever got repaid, because loans were rolled over, rolled over, and rolled over. I can’t say for a fact that any of [Graham’s] loans actually went into default. They probably did, but I don’t remember specifically. I only tell you he was one of the cherished borrowers of the bank. How much and into what entities, I don’t know. It was kind of a blanket loan to the individual almost, and whatever company he walked through the door with and said, ‘Loan that one $200,000,’ they got it.”
The source says the records did not reveal Smith’s motive for treating Graham so favorably. “I have no idea. I really can’t tell you. Whether it was favoritism to Graham because Smith was told to by someone, because he was referred to him by someone, because he was getting a piece of the action, I don’t know. But Graham did get preferential treatment from United States National Bank in the very same manner as Amie’s other friends did.”
Chief among those other friends, the investigator says, were the people who ran the La Costa Resort in Carlsbad, about 20 miles north of La Jolla. In 1982, R.N. Gould, a former executive vice president of the U.S. National Bank, testified that in the mid- 1960s the institution extended $972,000 in loans to the resort, the same period that the mob-linked Teamsters Central States Pension Fund was funneling $87 million to the spa. During a trial in 1981, the proprietor of a Costa testified that he had made Smith a dues-free “presidential member” of the resort. Another “presidential member”: insurance executive Allen Dorfman, who was killed by a Mafia hit on the streets of Chicago in 1983. Dorfman also served on the La Costa board.
The fact that Graham borrowed heavily from Smith is confirmed by records filed in August 1975 in connection with the bankruptcy of Health Tree, another Graham venture. “Crocker [Bank] has filed a claim for $1,000,000 with the Bankruptcy Court in the Health Tree proceedings,” according to a letter signed by an attorney for the creditors’ committee. “It is my understanding from Mr. Graham that such claim is based upon a loan originally made to the Debtor by the now-defunct U.S. National Bank and that the $1,000,000 debt was apparently purchased by Crocker among other assets of the defunct bank purchased by it. Such loan is apparently personally guaranteed by Mr. Graham and secured by stock in Foto Mat owned by Mr. Graham. In addition, Mr. Graham advises that there is another $425,000.00 owed to Crocker by Mr. Graham (likewise secured by stock of his in Foto Mat), which he borrowed for the benefit of Health Tree.” As usual, Graham wasn’t telling the whole truth.
A source claims the loans weren’t secured, and Crocker eventually was forced to write them off as part of the government bailout of Smith’s defunct U.S. National Bank. The losses on the Graham loans were, of course, a pittance compared to the money Smith looted from the bank. Before the government finished cleaning up the mess Smith had left, the Federal Deposit Insurance Agency was forced to eat more than $265 million in bad bank debt. As early as 1962, bank inspectors had warned that Smith was building a house of cards, making imprudent loans to his own companies and his friends. But subsequent examiners were much easier on the bank, and several of them were rewarded by Smith with jobs and lavish entertainment. There were also charges that the Nixon administration had deliberately blocked federal banking regulators when they attempted to audit Smith’s books.
Nineteen sixty-eight had been a banner year for Smith. The Nixons told Mrs. Smith that “we would be their first guests in the White House,” according to Life magazine. A business writer for Jim Copley’s San Diego Union had already christened Smith “Mr. San Diego of the century.” The new decade just ahead glowed with promise.
In 1970, two years after Nixon’s victory, Jack Kemp finally got his own shot at elective politics, running for a seat in Congress. But not from San Diego. Instead, according to a 1985 account in Inc. magazine, “when Kemp had decided late in 1969 that he wanted to run for Congress, he had talked to his mentors, Klein and [Robert] Finch, about whether he should return to California. Unfortunately, as Finch recalls it. They didn’t have that many Copley (controlled] seats available.’ ”
So Kemp set his sights instead on Buffalo.
According to a 1970 Sports Illustrated story, which featured a photo of an earnest young Kemp talking to Nixon across the desk in the Oval Office, “During Kemp’s congressional campaign, White House emissaries Robert Finch and Herb Klein appeared frequently in Buffalo, privately to advise and publicly to applaud their man. ‘The President considers Jack Kemp...a rising national figure,’ Klein declared. Envelopes with labels reading ‘From the White House’ lay about Kemp headquarters.” Though campaign finance records are long gone, a San Diego source insists that Smith, Graham, and other locals poured thousands of dollars into the race.
“There was a lot of San Diego money that went into that campaign. Nixon made sure of that,” claims the insider. “Remember, the president was at the peak of his power, and so was Smith, as was Graham, and they all were banking on Jack Kemp. Just like they took a big ad out in the newspaper and found him a job at the Union-Tribune and Fotomat, Amie found a way to get the cash to him.” Kemp won by less than 2 percent.
As his friend entered Congress, Graham was embarking on a dazzling new round of swindles and frauds. By 1971, he was unceremoniously forced out of Fotomat. Remembers ex-Fotomat PR director Lew Ground: “A guy named Dick Irwin came down. He worked for some kind of financial firm that had invested money in the stock, and I think they sent Dick down as a watchdog. And Dick and Cliff didn’t necessarily get along like brothers.
“And it was, I think, a question, he became chairman emeritus of the board, and that left Dick to be CEO. I left right about that time. I didn’t care for Dick either. He wasn’t my type of guy. In any power play, if you’re on one side or the other you either win or lose. I think three of the vice presidents, including myself, left at that time.” Later it was alleged that Graham had mismanaged the company, expanded too quickly, and had taken huge sums from the operation for his personal and political use.
With C. Arnholt Smith’s money backing him, Graham soon turned his attention to other ventures. One was a corporation he owned with Jack Kemp and other partners named International Recreation, Ltd., through which Graham allegedly funneled money borrowed from United States National Bank and other banks to himself and a series of pet development projects, including a condominium project at Snowmass, near Aspen, Colorado, where he and his friends, including Kemp, liked to ski, as well as a controversial condo project he proposed to build near the ski lift at California’s Mammoth Mountain.
According to a sworn statement signed by Graham in a 1975 San Diego lawsuit, International Recreation, formerly known as Clifford Graham, Inc., and also known as IRL, had been formed in February 1969. Less than two years later, on December 18, 1970, according to the document, Jack Kemp acquired a 2.8 percent interest in the company, which he still held as of March 1975, the date of Graham’s court statement.
Graham said he owned 63.3 percent of IRL, with the rest divided among Kemp; Don Augustine, one of Graham’s longtime attorneys and erstwhile business partners; Richard O. Blair, who was said to be manager of the venture’s various projects; and John R. Moebius, who a San Diego source familiar with the situation says was the project’s local contact in Snowmass.
In a 1976 sworn deposition taken after IRL had gone broke and was being sued by a couple who claimed Graham had used IRL to defraud them, IRL’s then-president Richard O. Blair confirmed that loans from United States National Bank had bankrolled the venture. During the deposition, when Blair was asked, “By the way, all these various loans, were they guaranteed to the bank?” he replied, “Some of them were and some of them were —” before being interrupted by his attorney. When asked again whether the U.S. National Bank loan had been personally guaranteed by Graham or anybody else associated with the venture, Blair responded, “The second loan I think was guaranteed, not the first.”
According to the contractor who built the Snowmass project, Kemp, Graham, and Blair owned neighboring condominiums. “If I had to guess, I would say it was about ’72, that would be my closest guess." The contractor, who declined to be identified, says Kemp was a familiar presence around the complex and once dropped by the contractor’s unit to watch a Sunday football game on television. “I was the only guy there with a TV antenna that worked.” Kemp, the contractor says, “owned a condo right below me. The first time I met him, he saw me outside my condo and borrowed an onion from me, and we started talking. Of course, I already knew who he was.”
The contractor doesn’t know how Kemp acquired his unit. “I don’t know how he got it. I’m sure he bought it. I think he bought it. I just don’t know.” Kemp, says the source, was especially friendly with Graham’s development honcho Blair. “Dick Blair kind of really liked Jack Kemp. They were just kind of friends. They always felt that he did a good job with politics and, you know, he respected his issues and views, and that’s why I think he really liked Jack.”
Bob Tanner, owner of a Mammoth, California, pack-horse station who was one of Graham’s employees then, also remembers meeting Kemp in Colorado. “I was in Snowmass at that time. I was trying to do something, I thought, with Graham on a development back there. I thought he might finance a deal that [was] offered me back there. What happened was his henchmen eventually took over the project that I had, and then they lost their shirt on it.
“It was around ’71, a hell of a long time ago,” says Tanner. “I think Jack was running for Congress, but I’m not sure, he might have been in Congress. He was a very good skier and his kids were supergood and there was a reason why. Anybody who can be a pro quarterback is going to be exceptionally good. There’s a world of difference if you’ve got that kind of coordination. It’s just a natural talent.”
According to the contractor who built it, IRL’s Snow-mass condo venture did not go smoothly. The project soon went bust, and the ski trips there with Jack Kemp came to an end. “We went up there and knocked them all out and then — wouldn’t you know it? — the goddamn market went to hell. And before you know it, the building got taken over, I guess by the bank. Nobody made any money on the whole project. I think all the guys eventually sold their condos. That was kind of the last project that they were involved with up there. It wasn’t the greatest experience.”
All of IRL’s projects were fated to fail, leaving behind lawsuits, bad loans, unpaid attorneys, and allegations that Graham had fraudulently milked the ventures from the start.
In 1976, angry creditors (who said Graham had failed to make any of the payments he owed them on a $45,000 loan for a lot IRL had bought to build condos on in Ocean Beach) claimed that “throughout these three years, numerous financial transactions have occurred between I.R.L. and its principals (Blair and Graham) which have had the effect of draining off all of the assets of I.R.L., thereby making [the debt] uncollectible.”
That same year, Blair admitted in a sworn statement that IRI. was broke, “just a shell, you know, it’s inoperative. I’m not active other than — at this time I’m a figurehead at this point.” IRL’s Mammoth Mountain project had been defeated a few years earlier in an epic state supreme court battle between Graham and a group of townspeople who called themselves “The Friends of Mammoth" and argued that the nine-story high-rise proposal was too big for the already fast-growing mountain resort.
The court’s precedent-setting 1972 decision mandated that all future development projects throughout the state required environmental impact reports. Graham and Kemp, his friend in Congress and partner in IRU railed against the newborn environmental movement, but to no avail. The land was lost to foreclosure.
Blair also testified that he would write checks from the company to Graham on his command. “It’s his company,” Blair said. “If he wanted the money, I would usually do it.” Asked whether “there were other stockholders at that time,” Blair replied, “I think so, but they were very small.” In August 1976, Rick Fahmey, a law student who had examined IRL’s books on behalf of the creditors who were suing Graham and the firm, testified that “during the years 1973 and 1974 numerous checks were issued on the account of the defendant, I.R.L, to persons believed to have been household servants of defendant Graham.” Fahmey attached a schedule showing the dates and amounts of the payments from IRL to a variety of women with Spanish surnames.
IRL even wound up owing money to its lawyers. In a February 1976 motion to be relieved as IRL counsel, attorney R. Reaves Elledge, Jr., said in a written declaration that “IRL is already indebted to its attorneys in this matter in connection with other legal work in the amount of $22,263.” Added Elledge, once listed as IRL’s secretary-treasurer, “Clifford C. Graham, the owner of almost all of the outstanding stock of IRL, has likewise failed and refused to make payment of $660 in attorneys’ fees and $211 in disbursements, in connection with other legal work performed directly for Mr. Graham. Mr. Graham has failed to pay this indebtedness, despite repeated requests.”
In 1972, less than a year after being eased out at Fotomat, and just a year before the downfall of C. Arnholt Smith, Graham founded a chain of health-food stores called Health Tree. According to accounts in the San Diego Union, Graham had recruited Kemp, then a second-term congressman from Buffalo, along with National Football League chief Fete Rozelle and astronaut Alan Shepard, to be on the company’s board, although later bankruptcy records make no reference to their roles in the company. The Union also reported that then-congressman Bob Wilson was an investor. Bankruptcy records show that Graham claimed 72 percent ownership of the company, along with the 14 percent interest of his old Fotomat sidekick, Consolidated Aircraft heir Sandy Fleet, and 14 percent for unspecified “others" who never came forward to claim their due.
According to court documents, Health Tree was also backed by at least $430,000 of United States National Bank funds. Almost as soon as the stores opened in May of 1972, according to bankruptcy court documents, they began to lose money. At the same time, Graham began to suck cash out of the business.
By October 1974, with Smith’s bank busted and no longer able to bail Graham out, Health Tree was mired in red ink. Graham threw the business into bankruptcy, insisting he could “restructure” it. Despite Graham’s long record of bad debts, lawsuits, and financial failures, a federal bankruptcy court judge allowed him to continue at the helm as a “debtor in possession.” During the first two years of the bankruptcy, while the business continued to hemorrhage cash, Graham proposed selling Health Tree store franchises to raise money and offering shares of stock in the company to the disgruntled creditors who were fast lining up on the courthouse steps. They soon began to notice the same irregularities that others before them had discovered were the clear trademark of Clifford Graham.
“On February 3,1975, I received a rather distressing telephone call from Mr. Parker of Judge Katz’s office,” an attorney for the creditors wrote Graham’s lawyer. “Mr. Parker indicated that Judge Katz had requested him to inform me that the landlord to whom Mr. Graham stated rent payments had been mailed last week had called the Court and stated that he had not received such check or checks." The lawyer went on to question “the accuracy of the operating reports which are being filed with the Court,” adding, “I’m sure you’ll agree that the accuracy of the operating reports is of primary importance."
Concluded a Los Angeles creditor in a 1980 court filing: “It should be apparent to this Court from its search of the records that Clifford C Graham has wrongfully and willfully liquidated stores and other assets of this bankrupt corporation, without order or permission of this Bankruptcy Court, and has not accounted for the proceeds realized from the sale of those assets.”
It turned out to be just a small opening skirmish in Graham’s ongoing war against those to whom he owed money. When the bankruptcy case ended in 1982, the whereabouts of $6 million —at least $1.4 million of it from the defunct bank of G Arnholt Smith — had become a matter of dispute, and Graham stood accused of looting the bankrupt company of its assets by secretly selling off the chain’s remaining stores and pocketing the money.
Most of the creditors had long since written off their bad debts. One determined Los Angeles refrigerator company fought for years to prove the looting charge. But Graham’s team of Mormon lawyers tied the case up in knots and the creditors eventually settled out of court, leaving behind 12 musty banker’s boxes full of legal papers in the bankruptcy court’s vaults. For Graham, whose lifestyle of Rancho Santa Fe parties and San Diego Republican politics never ceased, it was an anticlimax. He had already moved on to his latest and what would be his last venture. It was called Au Magnetics. Graham said he had finally found a way to get pure gold from mere sand. He said he owned a patent on a process to extract gold using magnets.
“I met Clifford Graham through Jack Kemp while attending parties that Dow Chemical hosted for Jack Kemp at various Super Bowls between 1978 and 1985,” William F. Haardt declared in a sworn statement in 1987. “I also saw Clifford Graham at Jeffrey Kemp’s wedding in March 1983, which was where Kathy Graham initially asked me about investing in Au Magnetics.
“We were originally approached by Kathy Graham, Clifford Graham’s wife, to invest while we were at the wedding. They heavily referenced the investments by people we mutually know, i.e., Leon Parma, Jack Kemp, and Herbert Dow. I traveled to La Jolla, where Clifford Graham made his standard pitch. I agreed to invest, and over several months I sent cashier’s checks to Graham via Federal Express.”
The occasion for Haardt’s statement was Graham’s personal bankruptcy hearing, where wealthy, predominantly Republican La Jollans who had been imprudent enough to invest in Graham’s last great con had come to cast blame and carve up the meager remnants of his personal fortune, which by then consisted only of the heavily mortgaged Osuna Ranch. Haardt, a self-described wheeler-dealer and “business consultant” from Dallas, Texas, proclaimed he was a friend of Kemp and a dupe of Graham.
Others came forward to tell their tales. “We met Mr. Graham and his wife at a social gathering in advance of a Super Bowl sometime in the late 1970s,” said Herbert Henry Dow II, great-grandson of the founder of Dow Chemical. “I recall Mr. Graham speaking of a patent for a gold benefication process for the first time, I believe in 1982. Mr. Graham gave me a copy of the patent for the process that is attached to the lawsuit we filed against Mr. Graham. To the best of my recollection, the copy of the patent was the only written document I received from Mr. Graham in connection with his solicitation of our investment in the process represented as ‘Au Magnetics.’ ”
Walter A. Emery and his wife Sherolyn Jo of Rancho Santa Fe testified they had first met Graham in his office on Kline Street in La Jolla in April 1982. “ During our conversation, Clifford Graham dropped several names as investors: J. Kemp, A. Baldwin (sic), and potentially H. Dow if someone else dropped out. Clifford Graham also talked about the Mike Curb campaign and a Pete Wilson letter on his desk.”
William Chance, a San Diego real estate developer, recalled that “the investment ‘opportunity’ was brought to my attention by Congressman Bob Wilson, who is a personal friend, and indicated that he thought the investment to be a good one.”
Chance took copious notes during his first session with Graham in 1981, which Chance gave the court. “Cliff indicated that we will be negotiating joint ventures and/or royalty rights with a foreign government. Cliff has been given a letter of introduction to the Republic of China by Richard M. Nixon. Cliff is planning to go to China April of 1982.” Chance also made a list of some prominent Au Magnetics investors and the percentages Graham said they owned: “Cliff— 30 percent: Senator [sic] Jack Kemp, 2 percent; Congressman Bob Wilson, 2 percent.”
Once Graham had enticed the investors into his scheme, he closed in for the kill. Not only would they make fabulous profits, he said, but he would also help them avoid taxes by running their returns through offshore havens. “Clifford Graham would transfer our investment to an offshore corporation for investment within a few months,” the Emerys recalled. “Clifford Graham and John De Puy were to educate us and counsel us about the investment and how to profit from it.”
Graham told his would-be investors that he had been offered $10 million for the gold-extracting patent from Mobil Oil but had refused to sell. Once they had sent their first checks, he could be stern with the investors, telling them, the Emerys later testified, that “there was a strong possibility that some very lucrative positions would open up in the company when it got going and it was implied that only people that followed through with what they committed to would have a chance at them.”
They remembered that “Clifford Graham’s secretary was very upset because the checks were not able to be cleared on the day they were given to him. Each time I gave them a check they were aware that the checks were covered that day and they might take a day or two to clear. We felt we needed to expedite the payment to stay on good, potentially profitable sides.”
If the investors still had cold feet, the Emerys said, Graham would take out photos of the gold mine he said he was already operating in Mexico. “In the pictures were, Congressman Bob Wilson and I believe, [retired U.S. Navy Admiral] Bob Baldwin. They said one was coming out of Mexico and the Mexican government was allowing the raw dirt to come out in barrels as samples and to be processed here. He did not know how or when but felt it was coming soon. I he ore tested from this mine showed that it might be the largest gold strike in North American history.”
It was Clifford Graham’s last, most audacious lie. And, year after year, millions of dollars after millions of dollars, he was getting away with it. No lawmen came knocking on his door. Somehow, seemingly intelligent, clever politicians and business-men, hit up at Super Bowl parties, political fundraisers, and the weddings of the rich and powerful, had been enticed to part with millions of dollars for a golden chimera. How a small group of “inside” investors, along with Mrs. Graham herself, finally discovered the con, and why they were so reluctant to tell others who had invested in the scheme, would soon become the subject of heated dispute.
Herb Dow had long been a good friend of Jack Kemp’s. Dow’s top lobbyist was said to live just down the block from Kemp’s house in Bethesda, Maryland. Over the years, Dow and Dow Chemical, where Dow held a seat on the board, had poured hundreds of thousands of dollars into Kemp’s various campaigns, as well as a foundation Kemp had established to spread the gospel of free enterprise, and in the bargain promote Kemp for president.
According to newspaper stories, Kemp reported receiving a $5000 honorarium from Dow Chemical for a 1985 speech. And later, when Kemp ran for president in 1988, Dow’s then-president was a key member of his campaign committee. Dow later testified he had sunk at least a million dollars into the goldmining scheme of Clifford Graham. It was regarded as a sure bet. Graham had given hundreds of thousands of dollars over the years to a vast collection of Republican politicians with San Diego ties, including Congressman Kemp, Bob Wilson, Bill Lowery, and many others.
But suddenly, in June of 1984, questions of where Graham’s money came from were being asked, and cryptic but disturbing reports were coming out of California about Graham’s gold venture. Dow found himself on a plane bound for San Diego, on a mission to untangle the affairs of Graham before they got out of hand. The Au Magnetics bankruptcy trustee later alleged that Dow had a second motive: to put a lid on the story.
As recounted in court records, on June 7 Dow and a small group of others, including Texan Bill Haardt, Graham’s lawyer Carmine Bua, Au Magnetics president Robert Baldwin, investor Stanley Swartz, and two private investigators, arrived at Graham’s Kline Street building for what came to be known as “the Palace Revolt.” “After luring Graham out of his penthouse office on a pretext, Bua, acting in his capacity as an officer and director of Au Magnetics Management, presented Graham with a written demand for inspection of the records. While Graham was forcibly kept out of the penthouse, Baldwin, acting under color of his position as an officer and director of Au Magnetics Management, searched Graham’s private files for lists of Au investors.”
According to an even more colorful account that appeared in the San Diego Tribune shortly after the raid, Bua feared Graham might shoot them. “We brought the [investigators] along because we knew Graham carried guns on him. We asked to frisk him; we found he was wearing a pistol in the holster in the back of his pants. We asked for the gun because we weren’t going to sit there in a room with a man with a loaded gun.”
“Haardt conducted his own independent search for information,” according to the bankruptcy trustee, “and removed some three or four feet (six to eight file storage boxes) of files from Graham’s penthouse office. These files included, among other things, banking and financial information about Graham, Au Magnetics Management, and the various other entities.”
If they didn’t already know or suspect, what they discovered in Graham’s office that day confirmed the worst. There was no gold mine or revolutionary refining process. Graham had simply taken his investors’ money and spent huge sums on undocumented transactions, conducted in cash. It had been no different in his other busted deals. But this time, there was no United States National Bank to bail him out.
Robert Rens, one of the Au Magnetics investors who reviewed the files spirited out of Graham’s office, said later in a sworn statement: “I recall that there were check stubs reflecting a number of large checks — in the $50,000 to $100,000 range — made out to ‘cash,’ which made it appear as though Mr. Graham had taken $1,000,000 or more out of these accounts in the form of cash.”
It was clearly a case for the police. But Dow would have nothing of it. “Despite having the benefit of the collective knowledge of Mrs. Graham and Messrs. Baldwin, Bua, and Haardt,” the bankruptcy trustee alleged, “and having reviewed six or eight storage boxes full of documents (constituting virtually every Au - related document from Graham’s office building), no further or particularized information was provided to other investors. This conduct was particularly egregious in that most persons who knew Graham remarked on his persuasive skills. Baldwin referred to Graham as a 'world-class manipulator.’ ”
Instead of going public with their information, attorneys for the bankruptcy trustee said Dow and other “inside” investors filed suit against Graham, then quickly made a secret, out-of-court settlement with him, taking a $3 million trust deed backed by Graham’s estate in Rancho Santa Fe. But there was more. Twenty other investors in Texas who had put their money into the scheme were becoming restive and threatening to blow the whistle on Graham. As part of the deal, Dow himself agreed to “loan” Graham almost $400,000 to pay off the Texans, allegedly to protect the “carefully orchestrated settlement" he h-d arranged with Graham. As noted by the bankruptcy trustee, “The settlement agreement expressly required that all parties keep its terms secret.” Dow’s group, the trustee alleged, “received exactly what it paid for — the silence of the Texas investors.”
Robert Rens later told the bankruptcy court, “The entire settlement process was kept very quiet, including the fact that Graham actually had to borrow money from Herbert H. Dow II in order to consummate the settlement with the Dow group of investors. Thus the facts concerning Mr. Graham’s financial condition at the time of the settlement were not made known to me or generally publicized.”
Dow’s behind-the-scenes maneuvering managed to limit the harm to his reputation and those of the other big-name investors, but Graham’s game was all but done. Rumors were making their way through the La Jolla social circuit, and the story of the ex- Fotomat founder who claimed he could refine gold from sand, along with murmurings of political scandal, reached reporters. In July 1984, the San Diego Union printed a list of Au Magnetics investors, including the names of Kemp, Bob Wilson, and Dow, which apparently had been leaked to them by an irate investor. Wilson was quoted as saying he had put $100,000 into Graham’s venture and was “a gold bug from way back.” Wilson, the paper reported, “has traveled to South Africa to investigate Graham’s venture and feels it eventually could be worth ‘billions, not millions.’ ”
Wilson’s public ardor cooled, as months went by and Graham, despite a string of promises, failed to produce his refining miracle. A prototype device he had built in Jamul was shut down when the landlord locked the gate because Graham failed to meet the rent. Bua, Graham’s lawyer, filed suit against him, alleging fraud. Graham’s wife, Kathy, filed for divorce. Through the fall of 1984, disgruntled investors piled on with more lawsuits.
Some didn’t bother. “I just wrote it off as a bad investment,” says one La Jolla man who claims to have lost $100,000. “Nothing else you could do. It turned out to be a scam. Graham was a really weird duck. He was extremely paranoid, very worried about security. You had to go through all sorts of buzzers to get into his office. He packed a lot of weaponry. I didn’t know much about him, other than he was a quiet mover and shaker. I think he was a well-connected, conservative Republican. I knew he was throwing a lot of conservative Republican names around. He said he knew Nixon and Jack Kemp. You didn’t want to rock that kind of boat.’’
Kemp later told a newspaper he had lost $50,000 in Au Magnetics. In June 1984, the Union reported that “Kemp said he thought when he made the loan that it ‘would possibly represent an investment in Au Magnetics’ and that ‘I would get stock and an equity position,’ which he said ‘never really materialized,’ and that his attorney advised him that his $50,000 represented a loan. Accordingly, Kemp said, two weeks ago he sent a demand letter to Graham seeking return of the money. Kemp said Graham sent a note and promise to repay the $50,000.”
Kemp has not commented further on his relationship with Graham, saying last month through a campaign spokesman that he was a victim of the scam and that the $50,000 he purportedly lost in the venture was “a lot of money” for him at the time. Bankruptcy records show no evidence of Kemp ever submitting a claim for his loss, and a lawyer who worked for the bankruptcy trustee says he heard talk that Kemp may have been paid back in the months before Graham was thrown into bankruptcy. The bankruptcy trustee refused to discuss anything about the case and hung up the phone when asked about Kemp.
Kemp’s campaign press office did not respond to requests for comment.
In April 1985, the FBI confirmed to reporters it was looking into the case and had sent out a questionnaire to Au Magnetics investors asking about potential “criminal activity.” In early May, Graham gave an interview for a story in the Union in which he was quoted as saying the FBI inquiry was part of a “smear campaign” against him. He vowed his gold-processing scheme was on the verge of proving out. The same week he dropped from sight.
In September 1986, Graham was indicted by a federal grand jury on 13 counts of mail fraud, 2 counts of wire fraud, 4 counts of income tax evasion, and 3 counts of filing false income tax returns. In all, he faced a maximum of 104 years in prison and $310,000 in fines. Part of the mail fraud charge was based on a letter he had sent to lack Kemp in the summer of 1984, but the indictment provided no details.
Clifford Graham was a federal fugitive, and the trappings of his life as a La Jolla potentate fell away. A month before, Pegasus, the yacht where he had last been seen living, was sold at auction for $900,000 by a lender who made a loan on the vessel. Graham’s estranged wife, Kathy, left their Rancho Santa Fe estate and began using the mailing address of a relative in Pacific Beach.
His bankruptcy wound its way through the court for more than seven years before finally being settled with the sale of the Osuna Ranch. Those investors who pursued their claims got only a few thousand dollars; the lawyers and the county tax collector got the rest. Herb Dow’s deposition in the case was sealed by mutual consent.
Many others who knew Graham or worked for him or from whom he stole became reluctant to even talk about him. Bob Wilson, the ex-congress-man, simply refused to discuss the matter. Wilson’s second wife, Shirely, would later sue for divorce, claiming he had recklessly squandered the family fortune on a series of ill-advised investments with his political cronies. The FBI investigation soon tapered off, and some believed that Graham had outfoxed them all and was living in some Central American paradise, looked after by powerful friends. They point to his long history of keeping offshore corporations tucked away in the Bahamas and the rumors of his money laundering for political allies like C. Arnholt Smith.
Others saw a darker fate.
“I’ve talked to several people who don’t know for sure,” says Lew Ground, Graham’s PR man from the Fotomat days, “but they just think that he’s, as they say, been offed. The word I got, here again this is thirdhand, that he just sold some stock to some fellows who took it rather unkindly, as a personal affront, when he skipped out. Stock in that gold magnetics thing.
“I don’t see how a guy five foot four, with bright red hair, the last time I saw him he had red hair and a scar on his face — he’s got in addition to one on his leg, he’s got one on his lip, the side of his face, clear down to his lip, kind of distorts his mouth a little bit — I don’t see how a guy like that can hide anyplace. He’s too obvious.”