Stolen Without A Gun

by Walter Pavlo Jr.

Hilby persuaded Mann and a handful of other 900 impresarios to back him in a new company catering to the “wholesale” side of the business. Telemedia Network, Inc. as it came to be known (TNI), bought long-distance minutes from MCI wholesale and resold them to 900 information providers. Hilby thus could argue that he was only providing a dial tone, not the smut itself.

the money was so good that Hilby found himself a loophole. A TNI affiliate offered callers a chance to speak with “the beautiful blonde women of Sweden” or told them the “snow bunnies are all tied up” but that the caller could hang up and have the bunny call back—collect.10 Inconveniently for Hilby, the Federal Communications Commission bans such return-call schemes and later fined him $49,000.

Hilby was personally pocketing half-a-million dollars a year from TNI by 1995,12 and that May he bought out Mann’s interest by giving him $600,000 worth of free long-distance to use in his own 900 businesses.

TNI itself was running a monthly bill of about $1 million with MCI, and by February of 1996 had a $2 million past-due balance.

MCI’s salary-increase cap punished those who had started out at low levels and rose quickly through the ranks. His senior manager salary had been capped at $63,000, while others who had arrived at MCI after him, with the same rank, were earning as much as $90,000. The scheme was so screwy that Pavlo had been forced to offer lower-level newcomers as much as he was making to attract them.

Now that they were facing a crisis, the order had come down that no customer would be “permitted to deteriorate,”14 to run up any further debts. Henceforth, it would be “zero tolerance” for the company’s credit junkies.

During all his discussions with Benveniste, Pavlo never once mentioned it to anyone at MCI, let alone getting someone up the ladder to approve it. Instead, he allowed Benveniste to proceed as though Pavlo had the blessings of MCI Chief Financial Officer, Doug Maine, himself. The day finally arrived when all the legal paperwork had been finalized and printed, ready for signatures.

MCI not only didn’t have written policies about what types of contracts Pavlo could and couldn’t approve, its guiding light, Bill McGowan, had once even threatened to fire anyone caught writing a systems and procedures handbook.

Unofficially, only company officers were to sign such important contracts. That would have taken forever and probably killed the financing entirely. Pavlo managed to blow past his misgivings by reminding himself that everyone at MCI was on the make. Sales sneaked deadbeats onto the network. Finance wrote worthless promissory notes. Accounting created the bookkeeping to hide MCI’s past-due balances. The company credo seemed to be, “Better to beg for forgiveness than ask for permission.”

The Finance Agreement outlined the terms under which Manatee would lend to MCI’s reseller customers, and included an Indemnity Agreement under which MCI guaranteed up to $40 million in loans of any customers that defaulted.

The bank’s own policy required that loan guarantees be accompanied by a certificate of a corporate representative’s authority to act, and a legal opinion supporting that authority.18 But this time, all the bank did was have a loan officer call MCI’s switchboard to verify that Pavlo worked there.19 That call, along with Pavlo’s Georgia Club performance in front of Roger Smock and his National Bank of Canada bobble-heads, was the sum total of the banks’ due diligence.

So he blithely signed the papers on behalf of MCI, documents to back transactions that could put the company on the hook for $40 million. It was a big moment in Pavlo’s career. He had negotiated a major contract that could pull MCI’s bacon out of the fire, all by himself, without even telling Wanserski.

He felt sure this was a good deal. At least as good as Cam-Net’s. Besides, business was booming. MCI’s formerly pissant little rival WorldCom was now a member of the mighty S&P 500 index.20 Demand for bandwidth was infinite. So he’d signed a little loan guarantee. What was the worst thing that could happen? MCI would get stuck for debt it wasn’t going to collect anyway? More likely, it would be bought out and all its dirty little secrets would be buried forever. Fuck ‘em all! Pavlo thought.

Pavlo arrived first and killed time browsing the Wall Street Journal. He noticed an item about MCI’s new Internet 2000 initiative. The company planned to spend $2 billion over the next four years tripling its network capacity.

It was all part of a myth propagated by WorldCom and swallowed whole by the U.S. government, no less—that bandwidth demand was doubling every hundred days.

Zero Tolerance might be MCI’s new policy, but nobody seemed too anxious for Pavlo to actually implement it. It seemed to be more of a bargaining ploy.

That April, two pairs of regional phone companies, Bell Atlantic-NYNEX and Pacific Telesis-SBC, announced merger plans,3 and AT&T’s equipment arm, Lucent Technologies, did the largest public stock offering in history.

Like a cold-blooded assassin, Pavlo planned when and where he was going to ambush Hilby. He’d scored an invite from Cindy Shaw to MCI’s skybox at Fulton County Stadium for the opening game of the Brave’s 1996 season. It was a good score. The Braves had won the World Series the year before. He asked Shaw to have Hilby join him,5 knowing Hilby would jump at the chance to see the game and find out whether he’d hooked Pavlo with his offer.

Pavlo didn’t know it at the time, but Mann owed Hilby more than $600,000 for telephone usage in addition to the $600,000 in credit that Hilby gave him when he bought Mann out of TNI. One of Mann’s objectives now was a squeeze play on Hilby that would cancel out Mann’s debt to TNI.

“It’s different this time,” Hilby said, his voice rising slightly. He had good reason to think so. Pavlo was the MCI guy threatening to drive him out of business—the same one he had offered a $300,000 job.

They agreed to meet at Taco Mac, which was far from MCI, and close to Mann’s office.

Mann knew exactly what was going on at MCI. Deadbeat balances were being shoved into every hidden corner and crevice they could find. Who’d miss a lousy $2 million if MCI wrote it off or shifted it onto one of those worthless promissory notes that were piling up in Accounting? And who was going to feel sorry for Hilby for being shaken down for a few hundred grand?

If we pocket Hilby’s money, pretty soon MCI’s gonna shut down TNI for not paying the debt he thinks you’re gonna cover. Then he’s gonna say you were supposed to pay it and we’re fucked.” “As far as MCI’s concerned TNI will be a model client,” Mann said. “You already told me all the ways you guys’re making other carriers’ debts disappear. Just make TNI’s disappear.

“Spare me the sermon, Wally,” Mann said, waving a hand. “Hilby and the rest of ’em are out-and-out deadbeats. You guys at MCI aren’t any different. Just better dressers.” “C’mon, Harold.” “C’mon, my ass! You guys’re cookin’ the books over there and you know it. Everybody cheats. That’s the way the world works. Your problem, Wally, is that you haven’t figured out how to make money at it.”

If MCI had been paying him what he was worth, treating him fairly, he reasoned, he’d have less to complain about. But he was getting screwed, too. Sixty-three thousand dollars a year to play nanny to two billion!

The scheme Mann was describing, Pavlo told himself, was no worse than what MCI’s customers were doing to MCI, or what MCI was doing to its shareholders. Embezzlement was the legal term for Mann’s proposal. But it wasn’t like he was going to trick old ladies out of their savings or bash anyone over the head. It was victimless embezzlement—unless you counted hustlers as victims.

Hennessy was one of MCI’s financial plumbers. He knew which levers to pull to post customer payments, issue credit memos and, when necessary, “improve” invoice dates or apply loose cash to help the team make the numbers at the month-end lapping parties.

Mann started by declaring confidently that he had the pull at MCI to get it to accept a “sizable” discount on the $2 million that it was demanding Hilby pay immediately. After the discount, Mann would pay the balance himself. He was so confident, in fact, that he could negotiate MCI’s “rack rate” way down that Hilby would have to pay him just $1.5 million over time to cover the debt.

Pavlo couldn’t help thinking that only in the insane telecom business would such a story evoke anything other than derisive laughter. Pavlo was supposed to buy the notion that Hilby’s ex-partner, who didn’t trust him, was suddenly eager to put up over a million dollars to bail him out, with no due diligence.

Mann had already set up a Delaware corporation to handle their new “financing” business. He dubbed it Orion Management Services, reflecting his fascination with astrology, which Mann looked to for financial rather than metaphysical insights. Mann had a glossy brochure put together, replete with a stylish logo of the mythological warrior and the claim that the new venture “provides a solution to telecommunications companies that experience resource constraints, debt concerns or poor cash-fow.”

Pavlo was in charge of collecting MCI’s money and deciding– using MCI’s creative accounting methods–how the cash was posted. The dual responsibilities had been handed to him to increase efficiency, but the system was utterly lacking in prudent checks-and-balances. It was, in fact, an invitation to commit fraud.

The regional Bells sent Carrier Finance about thirty invoice sheets each month showing payments MCI was supposed to credit to a couple of dozen still-active 900 content providers. Hennessy had discovered about twice as many inactive 900 accounts, and that MCI was sitting on about $3 million in cash whose owners were unknown.

The rest bore the name of Wanserski, thanks to MCI’s practice of accepting email printouts as certified documents. All he had to do was cut and paste from a legitimate email, print it out, and, presto–the boss had signed off without knowing it.

THE YOUNG TURKS meeting for April 1996 produced a fresh wave of grim news. Hi-Rim had been disconnected the month before, sticking MCI with $27 million in unpaid network usage plus $8 million in penalties.1 That was on top of Caribbean Tel’s demise.

To lighten the mood, Pavlo added with as little spin as possible that Bob Hilby had managed to pay off TNI’s entire $2 million balance. He was amazed at how easy it was to slide such news about a chronically delinquent customer past the staff.

Telecom Management Systems, Inc. was a discount reseller near Malibu, California doing only $300,000 a month on MCI’s network. But it had gotten behind a few years earlier and issued MCI a $1.6 million promissory note.2 Now it was starting to fall behind on both its current invoices and the payments against the note.

So he arranged a conference call with Ward and Douglas Dickson, her chief financial officer and “life partner,” which Pavlo gathered was Californian for common-law husband. He gave the sermon about their obligations and MCI’s power to put them out of business. When Ward sounded like she was about to burst into tears, Pavlo switched gears and tone.

Mann sent his financial sidekick, Dave Wickett, to California to go over TM Systems’ books. Dickson insisted MCI have a presence at the meeting, so Pavlo gave Hennessy a free junket to Malibu. Wickett reported back that the company was foundering mainly because Ward and Dickson were taking big salaries for themselves, and paying salaries to Ward’s mother and sister.4 Pavlo studied their usage and became suspicious that they were siphoning off funds to launch a junk fax venture that specialized in polluting the world with mortgage pitches.

none of that mattered much, except to prove that Ward and Dickson were destined for bankruptcy court one way or the other. The cat was on the roof. Next Mann went to visit the couple and charmed them with tales of his world travels, his wine collection, and his East Cobb Equestrian Center. By the time he got to the “loan fee” of $175,0006 and the $22,000 a month they’d have to pay to Orion Management to get rid of $2 million in debt, the only thing they wanted to know was where to sign.

For the first time his legitimate efforts to help MCI by offering its clients financing through Manatee were getting mixed in with his illegitimate efforts to help himself via Orion.

Like a mobster, Mann had gotten control of a company, its assets, and its cash flow, which he would then methodically milk dry.

As far as MCI was concerned, Manatee was still an invisible partner. Pavlo worried that some earnest young Carrier Finance analyst would go to one of his bosses a month or two down the line asking why the checks pay...

In theory, signing up deadbeat clients did reps no good since they were supposed to give back commissions on bad debts. In practice, once commissions were paid out it was almost impossible to reverse them. Sales reps would threaten to quit the company or convince their superiors, who also got paid based on sales, to find an excuse to overrule any give-back requests.

Pavlo had started demanding that reps get new customers to put up deposits equal to three months’ estimated usage before they could get on the network. Relations between Sales and Finance, always testy, deteriorated into trench warfare.

Pavlo began the process of creating the aura of legitimacy about Manatee by approaching Marketing Director Leonard Dedo who was in charge of new promotions. Pavlo presented the Manatee program to Dedo as having been developed inside MCI.

With Dedo on board, Pavlo had no trouble convincing Dennis that Manatee was a great innovation.

Pavlo met Benveniste for drinks and after a suitable amount of liquor, they came up with a name they believed struck the perfect balance between financial propriety and fast money: Rapid Advance. The reps loved it. MCI Marketing turned Rapid Advance into the centerpiece of a big push to drum up new business in April, 1996.

That included “switchless” resellers—the group hopping on MCI’s network without owning a penny’s worth of their own gear. They were like junkies and Rapid Advance was their high-grade heroin.

To get Rapid Advance off the ground, MCI Marketing and Manatee each chipped in $60,000 and hired Atlanta ad agency Adair Greene.9 It came up with a Rapid Advance logo showing a green dollar sign zipping along and the snappy slogan “Answering the Call for Instant Capital.”

Soon, Rapid Advance coffee mugs, stop watches and banners were popping up around Concourse and MCI was marketing it nation...