A Friendly LetterA Friendly LetterSince 1981, an independent journal of news and issues of concern to related to the Religious Society of Friends (Quakers), and like-minded persons.
Online Issues Seventh Month (July), 2000
"Quakers make good victims," Steve Schroeder says.
He should know; as a federal prosecutor since 1974, he's seen lots of them. Lots of fraud victims, that is; Quakers were a relatively new experience. In particular, the ones who quoted the Bible to him about staying out of court.
I thought he was referring to Paul, and the familiar passage from First Corinthians 6:
"If one of you has a dispute with a fellow Christian, how dare he go before heathen judges instead of letting God's people settle the matter?...Would it not be better for you to be robbed?" (V 1, 7)
But Schroeder thought not. He was certain it was the Gospel that had been quoted to him, but was unsure of the specific passage.
Me too. The closest I can find is Matthew 5:25f (repeated in Luke 12:58f):
"If someone brings a lawsuit against you and takes you to court, settle the dispute with him while there is time, before you get to court. Once you are there, he will turn you over to the judge, who will hand you over to the police, and you will be put in jail. There you will stay, I tell you, until you pay the last penny of your fine."
One might think this verse was directed more at wrongdoers than victims. But perhaps one would be mistaken. The first sentence could be construed as advice to stay out of court regardless, and the rest taken as a not-so-veiled threat that going to court would backfire. Accepting such an interpretation would indeed set one up to be a "good victim."
Especially if you were a friend of Phil Harmon.
It was Halloween, October 31, 1997 when Philip E. Harmon formally pleaded guilty to federal charges of conspiracy and tax fraud in Seattle, Washington. The event was a major story in the city's newspapers and TV news shows. These headlines were but the latest in a series, as the story had unfolded over the previous year:
First had come the news of an investigation by Washington state investment authorities, which began in early 1996. Then a federal court issued a restraining order in February, 1997, followed by an injunction in mid-March. A week later, on March 26, 1997, Philip Harmon was arrested, and spent almost a week in jail before being released on $350,000 bail. In May, Harmon was forced into involuntary bankruptcy.
By August, facing a list of felony charges including obstruction of justice and money laundering as well as several varieties of fraud, Harmon had signed an informal plea agreement to reduced charges of conspiracy and tax fraud.
All this was well-publicized; the news of Harmon's arrest even made it into the pages of Quaker Life, the magazine of Friends United Meeting. The journal's thirst for of justice in this case, contrasted with its kid glove treatment of Maurice Roberts' fall, was undoubtedly intensified by the fact that this time its editor and staff were among the victims.
Despite the publicity elsewhere, when Northwest Yearly Meeting gathered in late July on the campus of George Fox University in Newberg, Oregon, the minutes of its six days of sessions recorded no mention whatever of Harmon or his legal difficulties.
Of all the silences surrounding these Quaker scandals, the silence at Northwest YM is the loudest, the deepest, and the most troubling of all. Consider these items:
Harmon had sold Northwest its health insurance plan for employees and pastors. When this plan collapsed in February, 1997, the yearly meeting was left with $20,000 in unpaid medical bills.
Harmon had defrauded numerous prominent members of the Yearly Meeting, or their children, of their life savings. Among these were some of Harmon's own relatives.
Harmon's son Steve, and his son-in-law Terrill "Terry" Beebe, who were implicated in the frauds and faced possible indictment, were prominent in the yearly meeting in their own right; Steve Harmon represented the Yearly Meeting on the George Fox University board, and the campus featured a dormitory named after Beebe's father.
When I asked Northwest's Superintendent, Joe Gerick, about the lack of references to the Harmon scandal in the minutes, he grinned and shrugged.
"Nobody brought it up," he said.
Acknowledged or not, Phil Harmon is about as pure a native son of Northwest Yearly Meeting as one could hope to find.
Where Priscilla Deters' background is shrouded in obscurity, Harmon's is an (almost) open book. His family has been part of Oregon/Northwest Yearly Meeting all his life. His parents, Howard and Mary, took their three children to the McKinley Avenue Friends Church in Tacoma, Washington, where Howard worked as a landscaper and gardener.
McKinley Avenue was a strongly holiness-influenced church, where pastors preached the importance of knowing Jesus, and the duties of plain living and avoidance of perilous worldly influences like movies, dancing, makeup and bobby sox. An uncle, Ed Harmon, spent his entire career as a pastor in the yearly meeting. His salary the first year in the pastorate was $45.18; now that's simplicity.
A friend who knew Philip's parents, describes them as "fine people, simple, hardworking, rough-hewn." An elder in the yearly meeting can recall young Howie, Phil and their sister Leona as peppy and lively kids at Oregon's church summer camps.
Howard Harmon's sons Howard Jr. and Philip were clearly ambitious, and as the saying goes, the apples did not fall far from the tree. Both enrolled in George Fox College, and Howard went into the ministry, where he rose to finish his career as Superintendent of what had become Northwest Yearly Meeting.
Philip took a different course, but in the same stream. Starting at George Fox in 1954, he dropped out after two years, in his own words, because "Quite frankly, I didn't have enough money." To earn money, he became a salesman, and by 1959 had moved from Oregon to Seattle, where he was active in Friends Memorial Church, Oregon Yearly Meeting's congregation there.
In 1970, Harmon was licensed to sell insurance in Washington state. He was a good salesman, and some of his best customers were Quakers. In September of 1972, he formed the National Friends Insurance Trust (NFIT), which Friends United Meeting and the Evangelical Friends Alliance were the first two groups to join. At its peak, NFIT covered as many as 1750 people, from 25 yearly meetings and other groups.
The idea of the trust was simple: Harmon pooled the insurance premiums of member groups, and used their joint buying power to get discount rates on group health coverage. And for about fifteen years, it appears that's just what the Trust did.
By 1978, Harmon had moved from Seattle to Camano Island, Washington, a small town about an hour north of the city. Business must have been good, because he settled into a mansion-sized house with shore frontage. From its wide, rambling deck, Harmon could look out along a scenic stretch of Puget Sound.
Besides the house, the Harmon compound ultimately expanded to include a sizeable enclosed swimming pool, a two-story four-bay garage, and enough additional acreage for his son Steve to build a house of his own next door. (We'll hear more about Steve's house.)
There was no Friends Church on the island, so the Harmons settled into the Camano Chapel, an independent church of an activist, neofundamentalist character. The church was growing rapidly, ran lively youth programs, and its members were prominent in disputes over teaching about sex and evolution in local schools. Harmon also began investing in local real estate, and within a few years he and his family had become the town's leading citizens. One mark of their stature was that Steve Harmon ultimately became chairman of the Camano Chapel's board.
The Harmons remained visible among evangelical Friends too. The trio of Phil, Steve and Terry Beebe were a fixture at yearly meetings and other Quaker conferences, where they manned booths for NFIT and recruited potential investors. They paid special attention to the superintendents of pastoral yearly meetings. These were their kind of people; moreover, when properly stroked, they could bring along their pastors and staff as a group onto NFIT's rolls.
In the early 1980s, Phil decided he needed to finish his college education, abandoned in 1956. George Fox College obliged with a special individualized program of study. At the 1982 commencement, Phil stepped up to receive his diploma the same day his son Steve collected his. This achievement received prominent coverage in the George Fox alumni publication.
Harmon was at the time a member of the George Fox College Board of Directors. He also served on the boards of Barclay College, the Houston Graduate School of Theology, and the Friends Center at Azusa Pacific University in California.
As was perhaps to be expected of a fast-rising, successful businessman, Harmon soon began collecting things besides board memberships. Among them were a series of antique cars, "hobby cars" he called them. This seems to have become a passion. His collection ran into the dozens over the years-- I've seen figures as high as eighty in legal documents. Besides the four-bay garage at the Harmon compound, he parked some at the Camano Closet, a nearby rental storage facility he owned. More were at another large garage, with at least sixteen spaces, tucked away on a back road just outside of town.
What kind of cars? Not all were luxury models, though Phil was said to have a fondness for convertibles, such as a Model A replica he posed with for his graduation feature. His property listing for the bankruptcy court listed a 1951 Rambler and a 1968 Lincoln. But also included was a 1952 Jaguar, which wouldn't be considered an economy model. Local sources told me of a 1927 Willis Knight, a 1930 Pontiac, a mid-1930s Rolls Royce, and something called a Manavertti. This last was a Swiss model, supposedly one of only four that were produced, which Harmon bought and had restored.
The same local sources tell of these cars being driven in Homecoming parades and other public events. Harmon's son Steve also reportedly liked to cruise around Camano and nearby Stanwood in them. The Harmons were highly visible in their domain.
And not only on land. By 1982, Harmon could boast to his alma mater of being the skipper of an "85-foot yacht once owned by gangster Al Capone." Perhaps this vessel's provenance became problematic for him, for he later acquired a more modest 53-foot model, which he named the Harmony Mist.
Besides cars and boats, Harmon began collecting tracts of land and houses, like some enthusiastic Monopoly player. By the mid-1990s, there were --besides the proliferating Harmon compound itself-- three beachfront condos on Maui; a lakefront cabin and camp in Idaho; several more condos in Camano, and numerous houses and tracts of land elsewhere in Washington state, a total of 62 pieces of real property, according to the feds. Among them was a popular Taco Time fast food restaurant in Stanwood, owned by son Steve.
Atop all this stuff perched a honeycombed maze of corporations, trusts and foundations, with names like the Olympic Group, Skagit Valley Associates, Northwestern Investment Company, Family Investment Corporation, Landmark Leasing, Capital Investors Limited, Island Mortgage Company, the Foundation for New Dimensions, Camp Harmony Foundation Trust, and so forth. All the ownership of these many interconnected entities was held by Phil Harmon and his family members, principally his wife Esther, son Steve and Terry Beebe.
With such a small and stable ownership group, one might wonder why it was necessary to keep piling on legal shells. It would be enough to give pause to what financial professionals call a "sophisticated investor."
Fortunately for him, Phil rarely seemed to run into one of those, especially at the Camano Chapel, or among Friends.
When did the stealing start?
This question is more a matter of journalistic or even biographical concern than a legal one. Only vague answers can be extracted from the piles of court documents in the Harmon cases.
(For the record, there were, as of February 1998, three actions: a criminal case against Phil, a civil case with a receiver seeking to recover funds for investors, and a bankruptcy case involving some of Harmon's assets and various claimants. There will soon be other cases, however. The one certainty about Harmon's future is that the litigation spawned by his frauds will go on well into the next millennium.)
Regarding timing, the criminal complaint says only that, "Beginning at an exact time unknown, but in or prior to 1986...Harmon began selling unregistered securities...." Harmon himself says he began selling investments in 1981.
Prosecutor Steve Schroeder said he didn't think the investments were ever legitimate, but were probably a Ponzi scheme from the beginning. That is, Harmon took in money from investors, spent most of it on personal pursuits and possessions, then paid off clamorous early investors with some of the funds from later ones.
The criminal complaint is a bit more helpful about the course of Harmon's health plan, the National Friends Insurance Trust. It suggests that for seventeen years after its creation in 1972, NFIT apparently did what it was supposed to do, namely pool insurance premiums from various yearly meetings to buy group health insurance at favorable rates.
Then, the complaint asserts, "beginning sometime in 1989...Harmon and his coconspirators stopped purchasing health insurance...and began operating an illegal, unlicensed health insurance company under the name National Friends Insurance Trust...."
Why did they do this? Probably because it paid better. The short-term profit possibilities were laid out by Judy Swem, a state insurance investigator who examined piles of Harmon's business records.
The insurance premium payments coming to Harmon's company from the various yearly meetings and schools totaled as much as $300,000 per month. From this amount, Swem testified, Harmon's staff was told "that all excess funds' were to be transferred from NFIT's bank accounts to the Northwestern Investment Company, another of...Harmon's entities."
But, she continued, what "Harmon referred to as excess funds' were not truly surplus funds; Philip E. Harmon simply transferred funds whenever one of his entities needed money." His staff reported "that these excess funds' were rarely if ever returned to the NFIT bank account."
In short, the premium money was being illegally diverted to other purposes. Stolen, if you will. Swem estimated the total amounts diverted from legitimate insurance purposes over the years to be as much as $15,000,000.
Perhaps the most egregious example of this diversion that Swem turned up occurred in February of 1995:
On the 21st of that month, the sum of $42,035.00 was withdrawn from the NFIT account and deposited in the First Interstate Bank. That same day, Steve Harmon withdrew the very same amount, $42,035.00, from the same bank, to make a down payment on the house he was building next to his father's estate on Camano Island.
The down payment amount? $42,035.00.
But how did NFIT pay its insurance claims, if its premium income was being diverted elsewhere?
The short answer is, increasingly, it paid them late, and sometimes not at all. As investigator Swem testified, "The NFIT benefit checks were held at Harmon's...office until funds were available...." She was "...advised that checks were sometimes held for months at a time before funds were finally available in the NFIT bank account."
Slow pay was only one effect of the diversions. Another important wrinkle involved something called "stop-loss" insurance.
Many companies and groups are "self-insured," that is, they collect premiums and pay claims themselves, without going through an insurance company. But a few high-cost medical claims can drain the funds of even a well-managed self-insurer. To cope with such cases, self-insurers can buy backup insurance, called "stop loss," from outside companies. This "stop-loss" coverage has a very high deductible, say $80,000. the self-insurer pays a claim's cost up to that amount, and then the "stop-loss" policy kicks in to cover any additional expenses.
Harmon bought such "stop-loss" coverage for NFIT, and filed "stop-loss" claims for cases involving very costly treatments. The stop-loss company sent him payments which were supposed to be forwarded by NFIT to the hospitals and other providers involved.
The stop-loss checks were deposited in the NFIT account. New checks were then written on the NFIT account, made out to hospitals and physicians.
But many of these NFIT checks were never sent. The deposited "stop-loss" money likewise was diverted for other purposes.
In January of 1997, Investigator Judy Swem found dozens of unsent NFIT checks in a drawer in Harmon's office. One check, made out to the UCLA Medical Center in California, was more than a year old, and was for $216,346.24. What happened to the "stop-loss" money that had been sent to NFIT to cover it, is anybody's guess.
Well, not just anybody's. Steve Schroeder and David Reese Jennings, another federal prosecutor, are making it their business to find out where the money went. They talk proudly of the feds tracking hundreds of thousands of financial transactions between Harmon companies, investors and insurance customers, and entering all of them onto computer spreadsheets. Schroeder says this is a pioneering effort in fraud law enforcement.
Schroeder and Jennings insist that when this massive data entry project is finished, they will be able to tell at the touch of a computer key which insurance customer's claim money was used to buy which "hobby car," and which investor's nest egg went for which of his numerous condominiums.
As the recipients of these ill-gotten gains come clearly into view, Jennings will turn loose a battalion of other lawyers to sue them in order to recover some or all of the money. Among the potential targets are companies with deep pockets who, the lawyers will argue, should have known better than to deal with Harmon and thus could be held liable for negligence. The "stop-loss" carrier; the company that processed NFIT's claims; and a liability company which provided Harmon a form of malpractice coverage are all plausible targets.
We'll see. So far, almost a year into this effort, the receiver has recovered exactly--zero.
But this dismal result is not for lack of trying. The feds seized all of Harmon's assets that they could identify--condos, cars, houses and so forth, and they're still sniffing around for more. No slackers there. Unfortunately, it turned out that virtually all the substantial property was already mortgaged to the hilt. And in a bankruptcy case, creditors with secured mortgage claims get first pick.
Take, as an example, the Harmony Mist, Harmon's 53-foot yacht. It was appraised as being worth about $130,000. But Phil had managed to get a bank and a wealthy buddy to loan him $175,000 on the boat, or $45,000 more than it was worth. Which means that when these creditors sell it, they will lose money, and there will be exactly zero left over for all the other 230 unsecured creditors, who have a claim to nothing but worthless pieces of paper.
This is not to mention the 330 additional health plan subscribers who were left with hundreds of thousands in unpaid medical bills, some of whom have been unable to find replacement insurance at all.
The three beachfront condos on Maui were in the same situation. Ditto Phil's big house on Camano. And so forth.
One of the bankruptcy lawyers told me he thought that when all the available properties had been found and disposed of, and the mortgage claims paid off, there might be as much as a million dollars left over to divide among the unsecured investors.
This to cover investor losses estimated in excess of $14,000,000. Which would come to about seven cents on the dollar--and that's before the receivers take their cut for legal fees, which are already well into six figures.
Where did all that money go? And how much was there? Adding up the $14 million from investors, plus the estimated $15,000,000 in diverted funds from NFIT, we can see why prosecutors told the judge the theft total was "more than $20,000,000 but less than $40,000,000." There is much murmuring around Camano Island about the possibility of money and assets being hidden. Steve Schroeder was vague on that point, but an FBI report described Harmon as not "sophisticated" in such concealment.
But where, then? Could the Harmons really have blown $20-$40 million on their nouveau riche-provincial gentry lifestyle? That's the other possible conclusion; but estimating such spending is out of my league.
If that's what happened, Phil managed to do it without enriching the public purse. For instance, in a financial declaration for the bankruptcy court he indicated that in 1994, before his troubles surfaced, he had a personal adjusted gross income of $244,508, but a taxable income of only $1,862.
This means he paid less income tax, a lot less, than, say, I did that year, even though my income was about ninety per cent smaller. A lot less. No wonder the IRS wanted in on his case too.
In any event, if there is to be any substantial recovery for investors and NFIT subscribers, it will likely come at the end of lawsuits against the third-party deep pockets--if they succeed. If it was my money that had been lost, I wouldn't be holding my breath.
Still, the feds are making a game effort. The Harmon investigation brought together a remarkable coalition of state and federal agencies: Washington's Insurance Commissioner and Financial Institutions staff, plus agents from the FBI, IRS, and the U.S. Labor Department, along with the U.S. attorneys. The resulting task force was even given a name: Operation Islandscam.
Phil Harmon thus becomes the first Quaker since Richard Nixon to have his own officially-designated scandal.
Steve Schroeder is very proud of this cooperative investigation, and considers it a model for the prosecution of white collar crime. "State agencies by themselves have a hard time stopping these frauds. Most don't have the enforcement clout. So unless you get the attention of the feds, it's hard to get convictions. But state agencies have expertise that we need--insurance, securities."
Here he is in tune with the message from the top. Attorney General Janet Reno told a recent interviewer that, "I was often times frustrated as a local prosecutor because I didn't have the jurisdiction to reach beyond the boundaries of one county, and I didn't have investigators in another part of the country that I could direct to find out more about what was going on."
Now she does, and she says she has made white collar crime a Justice Department priority, adding, "It's the U.S. attorneys who have been successful in these cases and particularly those that have reached out to state and local law enforcement who can, as I say, do so much in terms of supporting or doing it themselves. If we work together, if we provide our investigative resources in other parts of the country, it can truly make a difference."
So Schroeder is on the cutting edge as a white collar crime fighter. He's also a canny veteran, who once convicted seven of the eight members of the Scranton, Pennsylvania school board for taking bribes. Nevertheless, he was surprised at the extent of Harmon's fraud. "This is the biggest case I've ever seen involving middle class people. Other cases may involve more dollars, but from fewer people or companies."
He also says, "It's a tragic case. In most Ponzi schemes, the victims have some larceny in their hearts too, because they're promised unreasonably high returns. [E.g., by Productions Plus.] But Harmon didn't promise his investors outlandish returns, just a few points higher than more conventional stocks or funds. So his investors thought they were being reasonable and prudent."
But they weren't, really. Harmon's "investments" may have sounded reasonable, but they lacked some of the basic features of legitimacy, which would have been red flags for a truly prudent investor. They were not registered, for one thing. And for another, few of the investors ever saw a prospectus, the legally required document which lays out the details of a security, and describes its potential risks.
Few of the investors were familiar with such documents, and anyway they didn't think they needed such paraphernalia from good Christians like Phil Harmon and his associates. More folly, but a very common one.
The same goes for the yearly meeting superintendents. One after another signed on to NFIT without doing a serious check into its financial and legal status. Several became investors as well. Why not? Harmon was their friend, a fellow Christian, and a champion schmoozer. An incident in September of 1996 shows this side of him in full bloom.
For many years, the superintendents and secretaries of yearly meetings and major Quaker organizations of all the branches in North America have met annually in an unofficial retreat. "Supes and Sects" it has been called. It serves as a quiet pipeline for communication and safe ecumenical discussion. Each year, a different yearly meeting plays host.
In 1996, it was Rocky Mountain Yearly Meeting's turn to host, but Phil Harmon offered to take over the logistical planning. The actual legwork fell to one of his employees, who had come on board only a year or so before, as his Chief Operating Officer.
The employee's name was Maurice Roberts.
Roberts was an ideal person to set up such a meeting; after all, as Superintendent of Mid-America Yearly Meeting, he had attended his share, and knew the drill.
(Maurice Roberts was not the only former superintendent Harmon hired in his efforts to keep the lid on. When Bob Garris, the veteran executive of Western Yearly Meeting in Indiana, retired, Harmon began paying him $450 per month to act as a "consultant" for NFIT in Western's territory. This relationship didn't net Garris much, though; Harmon took him and his wife for almost $29,000 from their IRA).
The bulk of the 1996 "Supes and Sects" sessions were held at Camp Brotherhood in Washington, not far from Camano Island. The big issue there was not insurance, but the announcement by the leaders of the evangelical yearly meetings--Southwest, Eastern Region, Mid-America, Northwest and Rocky Mountain, along with the head of Evangelical Friends Mission-- that this would be their last "Supes and Sects" retreat.
They explained that their evangelical agenda of overseas missions and intensive domestic church planting, plus the theological and cultural tensions between them and the more liberal unprogrammed groups, made the gathering no longer useful or relevant to them.
Other superintendents, like Indiana's David Brock, pleaded with the evangelicals to reconsider. The fellowship and communication was valuable in itself, he felt. Besides, among the pastoral groups, pastors often moved from one region to another, and it was helpful for superintendents to be in touch to for background. This was wasted breath; when the "Supes and Sects" gathered in 1997, Brock was present, but the evangelicals were absent.
Doubtless many of the executives were glad to put this wrangling behind them and move on to the highlight of the gathering, which was a long cruise around Puget Sound on none other than the Harmony Mist. Phil Harmon and Terry Beebe served as captain and crew.
As it happened, this cruise came just as the steel-jawed trap of law enforcement was about to close around Harmon's ankles. In fact, barely a month before, on August 7, 1996, he had sent out a letter to his investors which contained the first open acknowledgment of impending financial trouble. He had said nothing in the letter about the NFIT health plan; and when a couple of superintendents gathered on the deck asked him about it, he blithely (and falsely) told them it was fine.
In retrospect, the whole performance seemed designed to keep the yearly meetings on board, and those premium payments rolling in, as long as possible. Harmon needed to do something; NFIT's slow pay pattern had already induced several groups to jump ship and find more conventional insurance; and others were beginning to ask some embarrassing questions. His schmoozing ability had carried him and NFIT a long way; but its power was not unlimited.
Even so, when the axe fell in February, 1997, several yearly meetings were still signed on. Indiana's David Brock has taken the lead in attempting to sort out the damage, and he estimates that the 330 subscribers were left with well over a million dollars worth of unpaid medical and pharmacy bills, plus some "stop-loss" claims that were supposedly paid, but weren't. Ten of the groups have hired a Seattle attorney to monitor the recovery process.
When this was written, many of those unpaid bills were still being negotiated by the affected yearly meetings. If the federal receiver's suits against deep-pocket third parties ever produce some recovery, they might get a share. Again, it may not be much, but it seems to be their best shot.
Lawsuits aren't the only thing that Operation Islandscam is likely to produce. Last Halloween, when Phil Harmon formally entered his guilty plea, Steve Schroeder told reporters he expected there would be up to a half dozen more criminal indictments in the case. When I asked if this was just grandstanding, he said flatly, "I don't bluff."
He doesn't hurry, either. Schroeder said in January, 1998 that the new round of indictments probably won't be announced until spring, maybe late spring. For that matter, Phil Harmon is not to be formally sentenced until May 4, six months after his plea. In the meantime, he remains somewhat at liberty, though subject to numerous restrictions.
Why the delay? On the one side, Schroeder and his colleagues want to squeeze as much information from Harmon as possible before he goes off to jail, to aid the recovery effort.
And on the other, Schroeder was frank to admit that, "Fraud cases are among the hardest cases to prove. The defense usually is that this was just an honest business deal that went bad, not a fraud. Sometimes it's true. How do you tell the difference? Then again, a lot of frauds start out as legitimate businesses, then they go sideways. People begin to lie and send out false information. And the people usually look nice. Trustworthy."
He said it again: "They're tough cases," then added, "that's why I like them."
But it also means they take a long time to prepare. And he need Harmon's information to build the cases against the others.
Which others? That would seem to be the question of the year. Officially, Schroeder couldn't say. But he admitted that in the cases of Steve Harmon and Terry Beebe, "It really isn't a matter of if,' but when.'"
So that's two.
Another source, outside the U.S. Attorney's office but close to the investigation, points at two of Harmon's former employees in the financial side of his operation as likely candidates. The feds found evidence that these two had embezzled funds from Harmon while working for him.
Schroeder grinned when asked about this. "Hey, when you're working for an outfit that's mainly involved in stealing its customers' money, what do you expect?" He hinted that these two might be able to bargain for lesser charges and light sentences by testifying against bigger fish.
Another possible target would be Harmon's daughter, Sandy Harmon Kintner, who worked in the business and had ownership shares.
I can't deny, though, that the name I was most curious to hear was the one Schroeder was most resolutely coy about:
Will Maurice Roberts be defendant number six?
"That decision has not yet been made," Schroeder said cryptically.
I pressed. What goes into such decisions?
"As a general rule, we don't charge people who didn't profit from the fraud. So an employee getting a lower middle class salary would not likely fall into that category. But if somebody was making $200,000 a year, that's a different matter. And we look at who's making the decisions about illegal actions."
Based on the court documents that I read, these standards leave Maurice Roberts in a grey area, or perhaps, teetering on the edge. Consider:
He worked very close to the center of Harmon's empire, as Chief Operating Officer.
He signed many of the checks included in the list of diverted funds found by Judy Swem.
Phil Harmon described Roberts as an "extremely close personal friend" and a member of his personal "support group" on a court petition last May, asking permission to contact some of his investors and former employees for personal reasons. (The court okayed contacts with seven of those on the list--not including Roberts.)
On the other hand, the records are not clear on how much Roberts was paid; from the available figures, I estimate about $50,000 per year. That's good money, but not $200,000. In addition, the receiver reported that Roberts was cooperating fully with efforts to get a clear handle on the tangled web of Harmon's companies and holdings.
Furthermore, a very curious incident occurred on January 22 and 23, 1997, when Operation Islandscam agents, led by the FBI, arrived at Harmon's offices with a subpoena for business records. This incident deserves a closer look.
What the agents discovered was that Harmon's personal office "was very sparsely furnished as compared with the rest of the office complex." Indeed, it was almost empty.
Then the agents received a phone call from a confidential informant, who had in turn been tipped by "a current employee in a position to have firsthand knowledge, who indicated that records from...Harmon's office and his secretary's office had been moved in anticipation of Agents arrival."
Closer inspection revealed many indentations in the carpet where filing cabinets had been removed, and furniture moved around to conceal the fact.
The agents "approached Roberts about the indentations in the carpet, and he readily admitted that a file cabinet had been removed...."
(In addition, there was a paper shredder in the office, and Judy Swem says she was told by two former employees that many documents had been shredded during the previous weeks.)
Who was the current employee, in a position to know, who tipped the confidential informant to call the agents and blow the plan to hide the records?
There are only a few possibilities, and Maurice Roberts is one of them. Moreover, it would be entirely appropriate for the FBI to maintain cover for him, by having him call a "confidential informant" who served as a cutout between him and the agents in the office.
But enough of the cloak and dagger. This incident, like the others, leaves me confident that Maurice Roberts will play a major role in Steve Schroeder's future prosecutions.
But what role? There are, I think, two possibilities.
He will either be:
A. Criminal defendant number six on Schroeder's target list. Or
B. A key prosecution witness against all the other defendants.
If it is B, he will repeat in Seattle a role he is set to play in Wichita.
As intriguing as these speculations are, courtroom drama is not what this case is about. Its "bottom line" is the theft from 230 people, mostly elderly, of their life savings, and of health coverage from several hundred more.
Yet when Harmon comes back to court again, on May 4 of this year, they ought to produce some drama in the courtroom.
The issue then will not be guilt or innocence; Harmon has already admitted his culpability. What is to be decided is how much jail time he will get.
Harmon pled to two counts of conspiracy and tax fraud. The prescribed sentence for the first is five years, and the second, three. But at the formal sentencing in May, it's the judge's call whether Harmon will serve these terms concurrently, for a total of five years behind bars, or consecutively, for a total of eight.
Before passing sentence, the judge will hear from all interested parties. That's when the victims get to come and speak their piece before the judge and their victimizer. This should provide some melodrama. In fact, there's already been some tense scenes like this, at creditors meetings for Harmon's bankruptcy case. Numerous investors showed up at these sessions, as did Harmon. Judy Swem, who also sat in on some of them, says she thought "they were going to tar and feather him right there."
What will the judge be likely to hear? Some of the victims have already said their piece. Esther Hardinger is one of them.
A retired schoolteacher and a widow from Coldwater, Kansas, Esther Hardinger invested with Harmon after her husband's death. She put in her entire savings, $40,663.48. "Because of him," she said, "I lost my financial security."
Hardinger spoke last November in Washington DC. She was part of the press conference staged by the North American Securities Administrators Association, dealing with "affinity group fraud."
"In July 1996," she said, "I received a letter from Phil Harmon saying there would be no more money. The money was gone! I was in great stress and depression as my Social Security is not enough to live on.
"I would call the Harmons and ask for some money but they would only ignore me.... I have health problems and the medicines are costly....
"Because of Phil Harmon's greed and dishonesty he has not only robbed me---but my children and future generations....
"Many of the families who have been robbed by Phil Harmon are applying to Welfare for commodities to even exist, and I will be one of them....
"My question is--how could...the judge decide to give him just an eight year sentence when he has ruined so many lives...?"
Beside Hardinger stood another widow, her sister, Lois Hutson, of Wichita. Hutson said:
"My husband, who was a minister for 46 years, passed away suddenly in 1992 and left me $100,000 to live on for the rest of my life. I invested my monies with a man who was part of my church organization and he is now being prosecuted for fraud. And I can only hope to get back a tiny percentage of my original $95,000.
"In 1996 I had a valve replacement and a heart bypass. I feel very deprived. It is hard to buy the medications I now need. My life is completely changed with the loss of the money. I receive only a few hundred dollars from Social Security. No longer can I buy clothing and other necessities of life. I spend many hours searching coupons for groceries and other items. My car is nearly 11 years old with no hope of ever buying another one. Purchasing things for my home is a no no....
"One time I called Phil Harmon to tell him I was desperate for money. All he could say was, If I send money to you, you will just sue me with it!'"
Her views on the sentencing were direct: "It sounds like the judge may only give him a sentence of eight years which in my opinion is far too small." [On her written statement, she had written and crossed out the following sentence: "I had hoped it would be for the rest of his life."]
"I pray that justice will be done for this man and he'll never be able to treat anyone else like he has treated me and 230 others that have been in this horrible investment company."
"I want to say," she concluded, "I'm so thankful for my family and my God's help during this extremely difficult time."
The judge could well hear many similar stories. Last June Dave Pinkham, publisher of the Stanwood-Camano News, sat in on a meeting of Harmon investors. The News is a local weekly which has covered the Harmon case extensively.
One investor, Ralph Armstrong, lost $203,000, and had to return to work at age 78 to make ends meet. Another couple, Pat and Joy Getty, lost $125,000, 80 percent of their retirement fund. "We're both back to work now," Pat said. Said Edna Fletcher, "I'm 74 years old and I'm working two jobs now." She and her husband lost $82,000. Others spoke of losing sleep night after night, and their loss of trust in people.
Harmon will also have his defenders, however. At least, some character witnesses, who gave statements to Dave Pinkham praising Harmon's charitable donations and his fine family values.
But for a moment, let's you and I play judge: If it were your call, what would it be: Concurrent or consecutive?
Either way, Phil Harmon will soon be a con. And as I've read these comments, I was struck by a recurring theme among them, one which is not supposed to weigh heavily with the judge, but is very significant for our purposes.
What I hear and read most frequently about Phil and Steve Harmon had to do with their identification as churchmen.
"I knew him through church," said Tex Kazda, who lost his $119,000 IRA. "He seemed honest and smart, and had lots of assets and a happy family."
"He was a pillar in the church and the community," Joy Getty agreed. "He was a success."
"I thought he was a good Christian man," said another woman to Dave Pinkham.
Lots of people around Camano agreed. Fully a hundred of his investors came from the Stanwood-Camano area, many of them from the Camano Chapel congregation. Harmon even held $48,000 of the church's school fund, on behalf of its pastor, who also lost almost $40,000 of his family's funds.
"The hardest thing," says Norma Beebe of Eugene, Oregon, "has been to recognize that such a trust could have been broken in Christian circles." Beebe is Terry Beebe's mother. Her late husband was the Presiding Clerk of Northwest Yearly Meeting for sixteen years. After his death in 1989, George Fox College named a building after him. Then Phil Harmon moved in and took her widow's legacy; she lost $135,000
This record brings to mind a comment by author-psychiatrist Scott Peck, in his book, People of the Lie, that "...one of the places evil people are most likely to be found is within the church. What better way to conceal one's evil from oneself, as well as others, than to be a deacon or some other highly visible form of Christian within our culture?" (P. 76)
It was this same identification, going back half a century in Oregon/Northwest Yearly Meeting, which opened so many doors (and shut so many mouths) among Friends for Harmon as well.
One closed mouth belongs to Phil Harmon's brother Howard, who sedulously avoided being interviewed for this report. He and his wife were taken for a total of $96,000. (But lest you think Phil plays family favorites, I hasten to add that his sister, Leona Harmon Lyda, was taken for $59,000 also.)
Yale's Arthur Leff wrote astringently of what he called the "godcon" versions of confidence games. He noted, however, that "...I am not arguing that religion in general, or organized religion in particular, is a swindle. I am suggesting instead that if one does set out crookedly to acquire money for one's personal benefit, there are structural components in a religious context which make the job of the conscientious swindler very much easier."
The refusal to believe one could be victimized by your own is one such component. We have seen this in spades in both the Deters and Harmon situations. Another is a desire to keep quiet about such victimization when it happens. This tendency is widespread among church groups, but it seems highly pronounced among evangelical Friends, and in Northwest Yearly Meeting in particular.
Take the comment by Northwest's Superintendent Joe Gerick about the absence of the topic from the minutes of their 1997 session: "Nobody brought it up."
Of course, there was more to it than that. Other sources make clear that in fact the collapse of NFIT was discussed during the sessions, but behind closed doors, within the confines of the Executive Council, a gathering of committee clerks and staff, the minutes of which are not included in the Yearbook.
There the clerks were told that the yearly meeting had been left with approximately $20,000 worth of unpaid insurance claims. These were paid with money from its endowment. But this meant that other program budgets had to be trimmed by an equivalent amount.
This is hardly earthshaking news; $20,000 isn't peanuts, but it wasn't going to bankrupt the yearly meeting either. Similar reports were heard in several other yearly meetings, and appeared in their minutes.
For that matter, with a close look at Northwest's official minutes, one could discern a few telltale signs of the scandal's impact, in the work of the Nominating Committee: it brought forward the name of a new health insurance consultant, a post that Phil Harmon had filled for many years; and it reported that George Fox, which had just become a University, had advised them that one of the yearly meeting's delegates to its Board, Steve Harmon, was "stepping off" the body and needed to be replaced.
There was no explanation for these changes. They bring to mind the cryptic parenthesis in Mark's Gospel (13:14), when the "abomination of desolation" is described, and Mark adds: "Let them that readeth understand!"
If you can.
Ironically, even Phil Harmon has said more than that about the collapse of his empire than the yearly meeting whose members he so freely exploited. At least he did to me, when we had our exclusive interview.
Yes, while doing field research in Washington state, I obtained an exclusive interview with Phil Harmon.
Okay, so it only lasted about 30 seconds. And never mind that it took place on the voice mail tape at a friend's house where I was staying. I had asked questions, Harmon answered, and we saved it. Here it is, in full:
"The only statement that I would have to make is that I feel terrible about the things that happened, and things are terribly distorted. As time goes on, the rest of the story will come out. And I just really grieve for the negative impact that it's had on the Christian community, and particularly on the Friends. I'm just seeking God's will on how to work what's become an unbelievable situation out."
Harmon's whole career was built around Christian communities which make much of their commitment to the Bible. One might think that if Harmon even halfheartedly shares this commitment, he would do more than grieve for other people's losses. By rights, he would also have to consider himself to be in very deep spiritual trouble.
After all, the scriptures resound with denunciations of confidence men. Take the notorious passage in First Corinthians Six, just after the command to avoid lawsuits, where Paul lists the categories of the "unrighteous" who "shall not inherit the kingdom of God."
In recent years whole denominations have endured agony and schism over whether Paul meant to include homosexuals on this list, in verse 9. But I have seen no questions raised about the legitimacy of the next verse, which specifically names "swindlers" as destined for the outer darkness. It's a category that here to stay.
For that matter, a chapter earlier, in 1 Cor. 5:11, Paul insists that Christians are "not to associate with any so-called brother if he should be...a swindler--not even to eat with such a one."
And while his victims lose sleep over paying their medical bills and buying groceries, do any of the Harmons ever wake up in a cold sweat, hearing echoes of Matthew 23:14: "Woe to you, scribes and Pharisees, hypocrites, because you devour widows' houses, even while for a pretense you make long prayers; therefore you shall receive greater condemnation."
Or maybe Isaiah's searing censure: "Woe to those who...rob the poor of my people of their rights, in order that widows may be their spoil." (10:1)
I cite these verses because Phil Harmon clearly had a thing for widows. He could smell one with a nest egg, especially a devoted Christian, from miles away. Even the mother of the police chief of Stanwood wasn't safe. A widow, Phil got to her through her son, and took them for $159,000.
I wonder.
Does Harmon feel their pain?
In any event, he feels his own. The mighty have fallen far in this case.