Forgive Jeffrey S. Maurer if he's not in the mood to celebrate his 25th anniversary with U.S. Trust Corp. These days Mr. Maurer, U.S. Trust's president, finds himself defending its handling of the $1.2 billion estate of tobacco heiress Doris Duke.
Last month a Manhattan judge dismissed U.S. Trust as preliminary co- executor of the Duke estate, arguing that the bank failed to properly police the other co-executive - Ms. Duke's high-living Irish butler, Bernard Lafferty.
The bank has denied the allegations and has appealed the ruling. Last Thursday, American Banker reporter Cristina Merrill met with Mr. Maurer in his New York office to discuss the Duke case.
Q.: Let's talk about the allegations, especially a series of loans totaling $825,000 that U.S. Trust made to the other co-executor of the Doris Duke estate, Bernard Lafferty. The loans were questioned because he did not have much in the way of personal assets, is that right?
MAURER: The main allegation is that U.S. Trust, because we made a loan to our co-fiduciary, did things that were improper with regard to the administration of the estate, a fact we vigorously deny.
The loan was based on two expectancies.
We believed the will would be admitted to probate, based on everything we had understood with regard to its execution - that Mr. Lafferty was going to be receiving a legacy of $500,000 a year. He couldn't start receiving the legacy until the will was admitted to probate, but $500,000 a year starts from when Mrs. Duke died (in October 1993). So I wouldn't call anyone who expects to receive $500,000 a year "without funds."
Also, Mr. Lafferty was a co-executor and under the terms of the will would receive an executor's commission.
Q.: But it seems, judging from the internal U.S. Trust memos we looked at, that there was some discussion and concern at your bank about the propriety of the loans to Mr. Lafferty?
MAURER: The issue was raised that Mr. Lafferty required some funds. A suggestion was made by one of the attorneys that rather than go to court, loaning the money would be the most expeditious way of getting him funds, under the circumstances.
Tony Marshall (a senior vice president at the bank) initiated the request for loan with our bankers. Our bankers wrote up the loan and said: This isn't a loan we normally like to make, because there is only one source of repayment, the expectancies. Normally, we at the bank like to see two or three possible ways we could be repaid.
And they raised the issue: Isn't this a conflict of interest?
I was able to exercise business judgment on the credit element, basically saying that I'll take chances - if the will be admitted, the loan will be repaid.
We asked the counsel about the potential for conflict of interest, and the counsel said that they thought the loan was proper. So we made the loan.
Q.: What would happen if the will isn't admitted to probate?
MAURER: If Mr. Lafferty didn't receive anything from the estate, U.S. Trust would have made a bad loan, and we would have lost the money.
Q.: There were also issues about U.S. Trust continuing to employ illegal aliens on Ms. Duke's estate?
MAURER: We did not hire illegal aliens. The illegal aliens were working for Ms. Duke. Her will requested that her employees be retained.
We knew they were illegal aliens, but we tried to carry out Ms. Duke's wishes, retaining the illegal aliens but also making sure they had counsel and that they were working on getting their green card.
Q.: Were you aware of complaints about Mr. Lafferty's excessive spending and drinking? Was policing him part of your duty as co-executor?
MAURER: One of the allegations was that we knew about Mr. Lafferty's binges, that we helped cover them up, bailed him out. We deny all of that.
And as an industry if we had to be concerned every time a co-fiduciary of a trust company went out and had a binge, we'd be in a different business.