Star Tribune from Minneapolis, Minnesota • Page 12

PAGE A12 STAR TRIBUNE SUNDAY, APRIL 20 1997 I had the lowest profile, and now I have the highest profile in town. I go to the toilet, and they report it." Carl Pohlad Looking to Lorenzo Claims of looting, union-busting, fraud 5) (5 lU His mother still active at 104 and giving advice to her son on how to run the Twins was the driving force in the family. While her husband often waited for the railroad to call him to work, she was working through the Depression to pay for 15-cents-a-pound cube steaks to feed the children, said her daughter, Dorothy Dolphin. She'd pay off the children's dentist bill by cleaning the dental office. Besides working as a maid, she took in laundry from prosperous families who lived up the hill from the Pohlads' modest house near the tracks.

As a schoolboy, Pohlad organized a group of boys to pick cockleburs out of cornfields for 25 cents an hour, pocketing a nickel from each as commission. He later worked for a banker, collecting delinquent loans from farmers. After graduating from high school, where he starred in football, he went to California and sold used cars before winning a football scholarship to Gonzaga University in Spokane, in 1937. When not playing ball he earned money boxing in clubs along the West Coast. Alumni records state that he graduated from Gonzaga, but Pohlad dropped out the day his second football season ended and returned to Iowa, where he got a job at Federal Discount Corp.

in Dubuque. His sister had been a secretary there and married one of the owners, Russell Stotesbery. World War II hardly interrupted Pohlad's budding finance career. He was drafted into the Army and became a cook. But he also found time to run a loan business out of the mess tent as his infantry company marched across Europe.

Finance was "just my blood," Pohlad says today. He returned to Iowa and hooked up again with Stotesbery, working for him through the late 1940s in auto finance and personal loans. By about 1949, Pohlad and Stotesbery had taken control of Marquette Bank in Minneapolis. When Stotesbery died a few years later, Pohlad grabbed the reins. He had emerged from an era in which there was little to lose and everything to gain.

With his power base set, he began to build the business and political contacts in Minnesota and nationwide that would pay off for decades. He was quietly active in politics, becoming one of the first bankers in town to support Hubert H. Humphrey's rising career in the 1950s. Pohlad raised money statewide and nationally during Humphrey's presidential and Senate bids in the late '60s and '70s. It was through the Humphrey crowd that Pohlad met Robert Strauss, the future U.S.

ambassador to the Soviet Union and a longtime Washington insider. "When I first met Carl, he was not that important a man," Strauss said recently. "But you knew he was going to be an important man someday." Strauss later helped put together Pohlad's deal to buy the Tropicana. "He's not sent me $100 worth of business since the Tropicana deal, but that's OK because I was never looking for his friendship to benefit me," Strauss said. Pohlad found time for contributions, giving his energy and money to Methodist Hospital for the past 30 years.

He was an original founder of the Boys Club and remains a trustee. "He's given to the poor, and he's enabled me to continue," said Mary Jo Copeland, who founded Sharing and Caring Hands in Minneapolis to provide food and shelter to the homeless. Pohlad gave her organization $100,000 several years ago to help her buy land for a new shelter. "Without Carl's seed money and him calling Irwin Jacobs who also gave $100,000, I probably wouldn't have the land and the shelter." It was the aggressive Jacobs who teamed with Pohlad in the corporate takeover era of the 1980s. They aimed at vulnerable companies, buying up huge amounts of stock, then often selling it to buyers friendly to the targeted company at millions in profit.

Today, Pohlad moves slowly about his downtown offices leaning on a walker. With a bad hip, neck and back, he can sit for only minutes at a time. The aches have kept him off the fairways at Inter- Continued on next page TT! that time the airline, then called Texas International, also had been losing millions more than $5 million in 1969 alone. Two years later Pohlad turned for help to a little-known airline consultant named Frank Lorenzo. When their business relationship ended 20 years later, they had played key roles at two major airlines that went bankrupt.

They would be accused of deception and fraud. A judge would find that one airline criminally defrauded the government by obstructing its ability to promote air safety. In 1974, after Lorenzo had pumped new money into Texas International and taken control, the most bitter period in the nation's airline industry began for thousands of workers and shareholders. Pohlad, too, was a target of critics as the second-largest shareholder of Lorenzo's holding company and a director on four of his airline boards. Over the next two decades, Lorenzo negotiated the purchase of Continental and Eastern airlines, controlling 15 percent of the nation's airline traffic.

Pohlad was a director at Continental in 1983, when it was taken into bankruptcy and the unions' contracts were broken. He was a director at Eastern six years later when it went bankrupt amid a bitter labor dispute. And two years later, with Pohlad chairing Continental's holding company, the airline went bankrupt again. The federal administrative judge who later cited Eastern's fraud involving air safety also declared that the Lorenzo-controlled companies "have lived on the edge of the law and have not desisted from improper conduct until lawsuits or governmental action deterred them from further transgressions." The bankruptcies and union fights attracted numerous lawsuits. Continental shareholders said Lorenzo, Pohlad and others deceived them by misrepresenting the health of the airline, inducing people to invest just before the company went bankrupt in 1990.

Shareholders at Eastern said Lorenzo's group siphoned off millions in assets from their unionized airline to benefit non-union Continental. A court-appointed examiner supported many of the shareholders' claims of looting, and they won a settlement of more than $200 million. Eastern's pension fund also had been underfunded. Pohlad has been described as a friend and supporter of Lorenzo's during most of their two decades together, and Lorenzo said in a recent interview that they have stayed friends, talking occasionally. He said Pohlad was a strong board member.

"Carl was very active," Lorenzo said. "He just brought great judgment on risks to take and risks not to take He had a lot of money involved, too." Pohlad downplayed his role. "A lot of things went on that I didn't agree with Go to any airline board member and they'd tell you Frank Lorenzo called the shots," Pohlad said, but added, "Frank was a good operator up to a point." A longtime board member said Pohlad was supportive of and "somewhat paternal" toward Lorenzo. "I think he felt the guy had guts and was smart and was able to make decisions," said James Mcken-ney, a retired Harvard business professor. "I don't think they ever had any conflicts of personality.

I don't think there were any disputes per se." iovva roots Learning finance from farm to bank CIhe skills Pohlad displays in cor- porate boardrooms were first jl honed in the cornfields near Valley 1 Junction, Iowa, a small rail crossing where he, his brother and six sisters were raised by Mary and Mike Pohlad. "The argument was, these guys were running it into the ground," remembered Ray Haik, a prominent Minneapolis lawyer who was appointed to help the public assume control of the bus company. An audit showed that the company's pension fund had been underfunded by $15 million. Today, Pohlad speaks with pride of his work for the bus company, saying that he became involved only because Gov. Freeman "drafted me" and that he helped make it healthy again.

"I didn't want the job," he said, and only took it "because the transit system was a very important part of the Twin Cities." Don Benson, a longtime accountant for Pohlad, said the group had every right to invest bus-company profits in other ventures. "Our position was, the shareholders had a substantial investment in the transit operation and had a right to a fair return, which should be available for other things such as diversifying." The diversification included buying control of Trans-Texas Airways, a small southern airline. That investment soon made Pohlad a player in Las Vegas. Tropicana Casino Former mob associate ran the operation fter using bus profits to buy the airline, Pohlad used the airline to buy the storied Tropicana in 1968. He said he knew the gambling industry had a taint to it, but added in interviews that he chose his casino carefully and found a manager with "a great reputation." That manager was J.K.

Houssels who was an original co-owner of the Tropicana when it opened in 1957. A close associate of New York mob boss Frank Costello had put that ownership group together after being denied a gaming license. Houssels had been co-owner of Las Vegas gambling operations with mobsters Bugsy Siege! and Jack Lansky in the 1940s, according to congressional testimony. Today, mob associations can block approval of a gambling license. The late Houssels' son, J.K.

who also managed the Tropicana under Pohlad's direction, had been a friend of Cleveland mob boss Moe Dalitz, who dominated Vegas for years. J.K. Houssels Jr. currently owns the Showboat casino, which he bought from Dalitz. "I think highly of Moe," Houssels said during a recent interview.

"He might have been a bad guy at one time. He never did anything but good in this town." Pohlad says today that he knew nothing about any mob connections. "We thought long and hard before any involvement, anything in Las Vegas," he said. "The Trop was the most legitimate." And the Housselses, he said, "were a very successful operation, and we had confidence that they had a great reputation." Houssels says he and his father kept all their businesses clean and helped drive out mob influence from the Tropicana just after it opened. Nevada public records give no indication that the Housselses or Pohlad ever ran afoul of gaming authorities.

By 1971, Pohlad's group had defaulted on more than $100,000 it owed on the casino, according to federal court records in Las Vegas. By 1972, the casino was struggling, Houssels said. An economic recession had hit, and Vegas' era of building giant casinos began. "It took an infusion of capital to keep up," Houssels said. "I don't think Carl wanted to put capital in; he wanted to take capital out." That year, Pohlad arranged the sale of the Tropicana to Twin Cities banking associate Deil Gustafson.

Under Gustafson's ownership, the casino was again corrupted by mob influence, and Gustafson served a 40-month prison sentence for a check-floating scheme. 1964 On behalf of his bank, Pohlad pleads no contest in an interest rate-fixing case. Star Tribune file photo The bus company Questions of deception and private gain over public interest uring the 1950s, the Twin Cities transit company had been controlled by local mobsters Isa-dore (Kid Cann) Blumenfeld, Tommy Banks and the like. They had bought bus stock and then fleeced the company out of more than $1 million. In 1959, Gov.

Orville Freeman turned to Pohlad, a bright light in the business community and president of Marquette National Bank, to rescue the bus lines. Pohlad led a group of businessmen who ended up running the system through a subsidiary of a company called Minnesota Enterprises Inc. (MEI). Ten years later, with Pohlad as chairman of the executive and investment committees, the management would be accused of dishonesty and deception. In 1969 the bus company asked state regulators to approve an emergency fare increase.

Regulators were skeptical, noting that the company already was turning a profit but not reinvesting in new buses to keep it healthy. Upon investigation, regulators learned that Pohlad and his associates had taken at least $4 million out of the bus company in interest-free loans to help buy an airline, which in turn bought the Tropicana Casino in Las Vegas. Ml used to breathe baseball all the time. He only breathes it when the gate receipts comein. Calvin Griffith, former Twins owner, speaking about Carl Pohlad The transfer of bus-company money was not illegal.

But regulators questioned whether the Pohlad group was fulfilling the public responsibility that it assumed when it was called on to rescue the bus company. "In what way do the directors and officers show their responsibility to the bus-riding public?" asked David Doty, then attorney for the Metropolitan Transit Commission and now a federal judge. The months-long public hearing was intense. Pohlad stayed in the background as officials questioned the honesty of the company, which was reluctant to open its books. "If everything is well and proper, I find it very difficult to understand why they have this apparent attitude of calculated and deliberate concealment instead of a candid attitude of honesty and complete disclosure," Minneapolis Assistant City Attorney Arvid Falk said during the hearing.

The City Council joined the debate with questions similar to those that have surfaced in the current stadium debate. "Should public money generated by a utility given life and protection by government be used to finance the widespread business interests of a corporation?" Council President Dan Cohen asked. The rate request was approved, but the state already had begun efforts to take over the crumbling transit system. 1959 Pohlad group is asked to rescue the Twin Cities bus company. Continued from Al Initially, Pohlad said his family would contribute $82.5 million to the deal.

Days later, the public learned that the money actually would be a loan that would be repaid with interest by the state. Suddenly, questions were raised about a man who says any doubts about his motives are unjustified. The public stared him down, forcing another proposal that is meeting further resistance as the state Legislature enters its final weeks. But Pohlad has been there before. "One thing that's made Carl successful is being able to massage a deal until he's comfortable," said corporate raider Irwin Jacobs, who's done dozens of deals with Pohlad and considered him a mentor.

a shrewd, tough, big man. He believes he's an outsider because he doesn't cater to what people think he needs to." A skeptical public has questioned why it should pay to help enrich a billionaire, just for the privilege of watching baseball outdoors. Pohlad answers with leverage. a stadium deal, Minnesota could lose the Twins. Originally, he asked the state to take ownership of 49 percent of the team and come up with hundreds of millions for I the stadium.

His family would keep 51 percent of the team, but Minnesota 'would be obligated to pick up his family's investment if Pohlad wanted to sell the club to the state. It's a technique that Pohlad has displayed for decades minimizing his own exposure, maintaining control and keeping an escape route clear. But while It often has worked for Pohlad, he has been accused in public and private ventures of selling out the interest of others for his own gain. For example: Shareholders in Pohlad's holding company, MEI Diversified claim they lost millions because Pohlad fraudulently misrepresented the company's 'condition before taking it bankrupt in ,1993 and sold off millions in assets to his Sons' companies. The case is ongoing.

That same year, shareholders in Pohlad's 'Marquette Bank accused him and other of depriving them of millions in profit when he sold his bank holding company to First Bank. They received $5 million in a settlement. Pohlad, Lorenzo and other executives were accused in various lawsuits of corporate looting to enrich themselves nd of committing fraud and deceit at the expense of investors during the 1980s and when they ran Eastern and Continental airlines. Both companies were into bankruptcy, with Lorenzo in control and Pohlad serving as a director on both boards. In the Eastern looting case, a court-appointed examiner found evidence that more than $200 million in assets was improperly transferred from one airline to another.

In an unrelated federal review, a judge found that Lorenzo's companies had "lived on the edge of the law" and committed criminal fraud with respect to safety regulations. In 1964, Pohlad and more than a dozen other state bankers pleaded no contest on behalf of their banks in a interest rate-fixing case in federal court in Minneapolis. The yearlong investigation resulted in the first such antitrust banking case in the country. When Pohlad's company owned the Twin Cities Bus Line in the 1960s, it asked state regulators for a rate increase, even though the transit system already was making a profit. Pohlad's group had Used millions of those profits to invest in an airline, which then bought a Las Vegas casino.

Officials found that profits had not been reinvested to keep the bus system healthy and accused Pohlad's company of deception. Perhaps more than any venture drawn from Pohlad's career, the erosion that publicly regulated institution illustrates how the banker-investor has hot let his wealth stand in the way of asking the public and politicians to contribute to his success. I Thirty years ago the controversy involved a bus company. Today it's a baseball stadium. 1949 Carl Pohlad comes to Minnesota as part owner of Marquette National Bank.

1955 Pohlad takes control of Marquette after his brother-in-law dies. He's given to the poor, and he's enabled me to continue. 55 Mary Jo Copeland, founder of Sharing and Caring Hands in Minneapolis 1976 1982 Pohlad's banking empire expands with the purchase MEI invests millions in Pepsi bottling operations nationwide. 1967 1 1972 I Pohlad's company, MEI, uses bus money to buy an airline, which buys a Las Vegas casino. Frank Lorenzo joins Pohlad, takes control of the ailing airline.

The casino is soon sold..