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Incident on 17th Street

The ballroom of the Westin Tabor Center was filled with hundreds of couples one Saturday night this past March. Supporters of the Colorado Easter Seal Society had gathered to fete the winners of the society's most prestigious honor, the Edgar F. "Daddy" Allen Award, given annually to the group's biggest boosters.

The winners were Walt and Georgia Imhoff, a Denver couple well-known in charity circles and in Denver's 17th Street financial district. Imhoff is the chairman and founder of Hanifen Imhoff Inc., one of Denver's most prestigious financial firms. Imhoff has made millions through his downtown brokerage, and he and his wife are regularly honored for their support of several local charities.

Today Hanifen Imhoff occupies three and a half floors in the Bank One building on 17th Street and has 280 employees. In 1996 the firm underwrote $2.1 billion in municipal bonds and generated $58 million in revenues.

But for many people in Denver, Walt Imhoff has always been more than just a highly successful businessman. The son of a construction worker, he grew up during the Great Depression and attended local Catholic schools. His conquest of 17th Street has long been celebrated as one of Denver's best examples of a poor boy who made good.

"To Walt and Georgia...With Love" was the theme of the Easter Seal tribute, and Denver's high and mighty gathered to toast the couple. The glittering crowd included such Denver power brokers as US West CEO Richard McCormick, developer Jordan Perlmutter and former Channel 7 general manager John Proffitt.

However, at the same time Imhoff was being feted at the Westin, a very different portrait of the financier was being painted in the local courts. Imhoff and the company he founded are being sued by seven former employees in four separate lawsuits, three of which were filed within days of the Easter Seal gala. All four lawsuits make similar allegations, accusing Imhoff of conspiring to defraud loyal employees of several million dollars.

The first of the quartet of lawsuits was filed last September by Steven Leatherman, the 51-year-old former president of Hanifen Imhoff's investment division and a member of the company's board of directors. That lawsuit stunned many people on 17th Street, since Leatherman is a widely respected investment banker and well-known Democratic activist who has earned his own reputation as a self-made man.

The seven employees together owned about 15 percent of the company's private stock, and they allege that Imhoff and other top executives fired them in the spring of 1996 so they could force them to sell their stock back to the firm for roughly $21 a share. Imhoff was secretly negotiating the sale of the company at the same time he got rid of the employees, the suits allege, and was able to defraud them of as much as $7 million when he sold the company for $97.2 million--about $70 a share--sixteen months later.

Imhoff declined to be interviewed for this story. "I've been advised by legal counsel we should make our comments to the courts, not the newspapers," says Imhoff. "I'm bound by counsel not to comment."

But for those who are now suing their former boss, Walt Imhoff has fallen from the lofty regard in which they once held him.

"For twenty years, I put him on a pedestal," says Bruce Brauer, a former Hanifen Imhoff bond salesman who had worked at the firm for nearly two decades when he was fired. "I admired him a great deal until this happened. I never in my wildest dreams thought he would do this to people who had worked there for so long and been so faithful to him."

Brauer had no experience in the bond business before signing on with Hanifen Imhoff, and he felt enormously loyal to the company for giving him the chance to break into the industry. "I really liked working at Hanifen," he says. "I had no reason to suspect Hanifen wasn't the best company on 17th Street to work for."

Brauer was paid entirely on commission and drew no salary, and he says that made it even harder for him to understand why the company was laying him off. "That's why it made no sense," he says. "It was so phony. They said they were downsizing. They called us in on Tuesday and said, 'We'd like you out by today or the next day at the latest.' They acted like I'd stolen something."

For years, Brauer had been acquiring shares in Hanifen Imhoff as part of the company's profit-sharing plan. By the time he left the firm, he says he owned 13,812 shares. At the book value set by the company, he was paid about $290,000 for his stock. If he'd been on board when the company was sold to Fiserv sixteen months later, he would have earned $953,000 for those same shares.

 

At first "surprised and confused" by his abrupt dismissal, Brauer says he began to question the company's motive for firing him after talking with other colleagues who had been let go. "I don't think they thought the seven of us would ever get together and talk to each other," he says. But when the ex-employees heard about Leatherman's lawsuit last fall, he says, the pieces began to come together.

Leatherman claims he repeatedly told Imhoff that paying employees the "book value" of the stock was wrong and possibly illegal. Under federal law, companies are required to pay employees "fair market value" for shares they've acquired as part of their employment.

In May 1996, after the firm laid off Brauer and five other employees who together owned thousands of shares of company stock, Leatherman says he confronted Imhoff and the other company officers, including president Gary Wilson and director George Johnson, during an executive meeting. (Like Imhoff, Wilson and Johnson declined to comment for this story.)

"I pulled out the book and said, 'Look at the regulations. It says we have to pay fair market value,'" Leatherman recalls. "I saw them look at each other and the room was just quiet...Obviously, they had a meeting after that and said, 'This guy is a dangerous guy to have around.'"

A few weeks later, Leatherman was out the door, terminated abruptly after a deal he tried to make to buy out the investment division he had launched fell through. As one of the firm's top executives, Leatherman owned about 3.4 percent of the company's shares. At the $21 price the company paid him for his stock, Leatherman received about $1 million. He estimates his stock would have been worth as much as $3.5 million if he had been paid the $70-per-share price Hanifen Imhoff would garner when it was sold to Fiserv.

Leatherman says the decision to sue Hanifen Imhoff caused him much anguish, but he felt it was the right thing to do. Even though he stands to make several million dollars if his lawsuit is successful, he insists the case is about more than just money.

"There's a higher principle here," says Leatherman. "There are a lot of other people besides myself who were screwed here. There's a lot of good people at Hanifen Imhoff and a few people at the top who aren't good."

Walt Imhoff and Steve Leatherman had a lot in common even before they crossed paths on 17th Street. Though they were born almost fifteen years apart, both grew up in working-class families in south Denver, attended St. Francis de Sales High School and worked their way through college. Leatherman attended the University of Colorado on an ROTC scholarship, while Imhoff graduated from Regis University. As young men, both found their way to Denver's growing 17th Street financial district and rose through the ranks to positions of influence and wealth.

In the 1930s and '40s, Washington Park was home to working families whose fathers held modest jobs. Imhoff's father managed to find construction work during the brutal years of the Great Depression. Imhoff himself worked after school as a soda jerk and sold Christmas wreaths door-to-door. Later, while working his way through Regis, he ran heavy construction equipment with his father and helped build the Cherry Creek Reservoir.

Leatherman's father worked for the post office, and as boys the two men enjoyed the same simple pleasures of a close-knit neighborhood where life revolved around outings to the park, basketball games and church socials. "I still get together with my classmates at the Bonnie Brae Tavern," says Leatherman. "Most of them are cops and firemen, as is typical of that neighborhood. I still have a lot of friends who live over there."

Imhoff began his career in the 1950s at Coughlin & Company, a venerable downtown investment house. He was selected by the head of the business school at Regis to interview for one of three jobs with the company. The young Imhoff knew little about investment banking, but he took a liking to it and proved to be a fast learner.

"He started with us," recalls James Coughlin, president of the company. "He came right out of Regis and learned the business from us. It was our firm that exposed him to it."

Coughlin, who has worked in the business founded by his father for the past forty years, remembers Imhoff as bright and eager to get rich. "I think the money was right up there," he says. "That was an incredible motivation."

At the time, investment banking was still a somewhat obscure profession and an unusual career choice for someone without family connections. "In those days, it wasn't the kind of business that had a lot of visibility to the average man on the street," says Coughlin.

 

Coughlin says he has no idea what went on at Hanifen Imhoff to prompt the recent lawsuits. But he notes that large sums of money have a way of fostering court cases. "We're in a much more litigious society than we used to be," he says. "When the stakes get bigger, litigation becomes more common."

In 1960 Imhoff and two friends, Ed Hanifen and Norbert "Sam" Samford, decided to launch their own investment-banking firm, borrowing $14,500 to rent an office and hire a receptionist. The firm opened just as Colorado entered a long boom period, and the company prospered by specializing in municipal-bond financing, as cities and school districts all over the state floated bond issues to fund sewers, roads and new schools. Imhoff was known to put in a full day at the office, then spend his evenings meeting with school boards and city councils around Colorado.

While Imhoff was helping to finance the infrastructure for thousands of new Colorado residents, Leatherman was launching himself on a similar career path. After graduating from the University of Colorado at Boulder in 1969, Leatherman served with the Army in Vietnam, then returned to Boulder to earn his MBA. After a stint with the First National Bank of Chicago, he came back to Denver and spent the next twenty years working for several financial firms, including Dain Bosworth and Boettcher & Company.

Leatherman's involvement in politics also grew over the years. He ran unsuccessfully for the Democratic nomination for the U.S. Senate in 1984 and was a founding boardmember of the Democratic Leadership Council, a national organization that has pushed the Democratic Party to take more pro-business positions and whose early members included Arkansas governor Bill Clinton. Leatherman is frequently called upon to host candidate's forums, and he remains an important player in the Colorado Democratic Party.

Since being fired by Hanifen Imhoff two years ago, Leatherman has started his own investment company, which specializes in finding funds for medium-sized companies. He's also heavily involved in the Bard Center for Entrepreneurship Development at the University of Colorado at Denver, which links up students who are interested in launching their own businesses with mentors in the business community.

Leatherman's odyssey through Hanifen Imhoff began in 1991, when he agreed to head up the company's corporate finance department. Although Leatherman was familiar with the Imhoff legend and had met Walt Imhoff briefly while working on 17th Street, he says he didn't know the company founder well when he went to work for him.

According to Leatherman, the corporate finance department was in disarray when he arrived and was losing money. By 1994 Leatherman had overseen the launch of a $60 million Mezzanine Fund, which raised capital for medium-sized companies, and the corporate finance division had become a big moneymaker for Hanifen Imhoff.

Later that year the company was reorganized, and Leatherman was appointed president of a new department, Hanifen Imhoff Investments. That same year, Leatherman says, he began to tell the company's executives that the practice of paying employees book value for their stock should be re-evaluated, since the market value of the company had increased dramatically. (Book value was based on a formula that combined shareholders' equity, plus the value of the company's seat on the New York Stock Exchange, divided by the number of shares.)

When he started at Hanifen Imhoff, Leatherman says the book value of the company and the fair market value weren't that far apart. But the company's largest division, known as Hanifen Imhoff Clearing Corporation, was doing a huge business providing back-office services to dozens of other brokerages. Leatherman says Clearing's profits had increased threefold between 1993 and 1995.

"By 1994 the fair market value and net book value were totally in different worlds, and I told them that," says Leatherman. He felt so strongly about the issue that he even wrote a memo to Hanifen Imhoff's other officers, albeit with some trepidation.

"It was an environment where it was fairly risky to say things," says Leatherman. "When I wrote that memo and put it in writing, I was worried."

Several former employees who spoke to Westword say Hanifen Imhoff was not the sort of place where authority could be questioned, especially if that meant challenging Walt Imhoff. "That simply didn't happen," says one former broker with the firm.

Leatherman, Brauer and the other plaintiffs all say the company regularly pressured its employees to buy stock, sending quarterly memos from Imhoff himself with suggested purchase levels. "Any employee that did not comply with Imhoff's policy was labeled a 'non-performer' and would merit a meeting with, and pressure from, Imhoff directly," claims Leatherman's suit.

 

Leatherman's suit paints a picture of gradually escalating conflict over the question of the value of employee's shares. That issue became more urgent as the company quietly began negotiating with Fiserv Inc., a Wisconsin financial-services company that would eventually buy Hanifen Imhoff in the fall of 1997. The two companies signed a confidentiality agreement in November 1995 to pursue a possible buyout (although for the next year Imhoff would repeatedly tell the local press the company was not for sale).

By April 1996, says Leatherman's suit, Fiserv had made a bona fide offer to purchase all of Hanifen Imhoff's outstanding stock. Leatherman says Imhoff and the company's other officers then told Fiserv that the deal couldn't go through because of problems with the "terms and conditions" of the offer, but not with the price.

Leatherman says that was a delaying tactic, and the company's management then began a campaign to force out senior officers and other employees who owned about 20 percent of the stock. While the company claimed it needed to downsize because of a slowing municipal-bond market and hinted that some of the dismissed employees weren't performing up to expectations, Leatherman says that was a smoke screen.

"They called me in and said, 'We've decided to fire these five guys in municipals,'" recalls Leatherman. "They said they weren't productive and the department wasn't doing well. I felt they were productive employees and I couldn't fathom how anybody could say they weren't good employees."

The employees fired that May included Russell Jansky, a former Hanifen Imhoff board director and vice president; Pam McCuskey, the firm's municipal-syndicate administrator; and Bruce Brauer, Brian Williams, Pamela Higgins and Jeffrey Wall, all of whom were involved in sales. All of these former employees have filed suit against Hanifen Imhoff in federal court.

By forcing out minority shareholders and paying them about $21 per share, all of the lawsuits allege, Imhoff and the other corporate officers were conspiring to concentrate ownership of the company and increase the value of their own stock, which they knew they could sell for about $70 a share to Fiserv.

"Lots of times in business, things are shades of gray," says Leatherman. "This was black-and-white. I think they treated a lot of people wrong."

While Leatherman and Jansky both owned shares worth at least $1 million, several of the other plaintiffs had far more modest holdings. McCuskey, for example, had just 1,800 shares, while Higgins owned 3,182 and Wall held 5,700 shares. Like many other employees, they acquired their stock through the company's retirement program.

After Jansky's dismissal, he was replaced by Mike Imhoff, Walt's son, in a management shuffle that raised eyebrows all over the company and made many wonder if the color of money at Hanifen Imhoff was blood red. Jansky's suit alleges that "despite the expressed intent to downsize Jansky's department, Mike Imhoff was retained to handle trading and syndicate responsibilities in Jansky's place."

Leatherman's own career at the company was also about to come to an end. In June 1996 Leatherman began negotiating with the company to buy out the investments division he headed. He says Hanifen Imhoff president Gary Wilson stunned him by informing him that if an agreement couldn't be reached, Leatherman would be terminated.

Since Leatherman owned a substantial chunk of the company's stock and he knew the firm would likely soon be sold for a sum far in excess of the stock's book value, he was willing to do anything to stay at the company. So he offered to work in the mail room for minimum wage.

While the prospect of a well-known 17th Street investment banker delivering inter-office mail might seem ludicrous, Leatherman claims he was dead serious. With millions at stake, he says, he would have gladly taken up the same occupation as his father to protect his interest in the company.

"If you had a million bucks of stock you knew was worth $3 million, it was a very rational thing to say," he insists. Leatherman says Wilson later told him, with a straight face, that there were no openings in the mail room.

During this tense period, Leatherman continued his negotiations with Imhoff and Wilson. At one point, says Leatherman, they had all but reached an agreement that would have allowed him to buy out the investments division. Then Leatherman's father died suddenly, and he was gone for the rest of the week.

When he returned the next Monday, Leatherman says, Imhoff and Wilson repudiated their tentative agreement to sell him the investments side of the company and abruptly fired him.

 

Fifteen months later the deal with Fiserv was announced. Under the agreement, Fiserv took the lucrative Clearings division but allowed Imhoff and his partners to keep control of the flagship investment-banking and brokerage side.

All four lawsuits against Hanifen Imhoff allege that in the months leading up to the Fiserv sale, the Denver company violated the federal Employee Retirement Income Security Act (ERISA), which requires that employee shareholders be paid "fair market value" for their stock.

In 1995 the federal Pension and Welfare Benefits Administration, apparently alerted by disgruntled workers, investigated Hanifen Imhoff's practice of paying employees the book value for their shares. Although the agency didn't take any action against the firm, it did send Hanifen Imhoff a letter advising the company to get an independent appraisal of the stock's value, saying "it is highly unlikely that the current book value represents the fair market value of the common stock."

Bob Weber, associate director of the agency's regional office in Kansas City, says he can't confirm or deny if a new investigation is under way. "What we do is not in the public venue," he says. Weber does acknowledge that his agency has seen the lawsuits.

However, several sources say they have been contacted by the agency recently and questioned about Hanifen Imhoff. If the pension administration is conducting a new investigation--and if the agency finds that Hanifen Imhoff broke the law--it has the power to require that the company pay former employees all lost earnings from the sale of their stock with interest.

The only public response Imhoff has made so far to the allegations was a brief comment last month in the Denver Post. Imhoff told the newspaper that he had sold 60 percent of his personal stock, worth millions of dollars, at the same book-value price paid to the fired employees. He also said the company had authorized appraisals that showed the book value price was appropriate.

Leatherman scoffs at these assertions. He says the company did bring in an accountant from Price Waterhouse to review the book value of the stock, but Leatherman believes the auditor was never informed of the cash offer from Fiserv. (The Chicago-based accountant who reviewed the company's books declines comment, saying the work his firm does is confidential.)

And Leatherman insists that once Fiserv made its cash offer, the actual value of the stock could no longer be in question. "Once the Fiserv offer came in, that was tangible, real-world evidence," says Leatherman. "A third party came in and offered cash. That was compelling."

Ask people in Denver what they think of Walt Imhoff, and the response is like something out of the epic film Rashomon: Different people view the same person in entirely different ways.

For many, Imhoff is a protector of abused children and patron of countless charitable causes, a man with a profound commitment to Denver and its citizens. For others, Imhoff is a Wall Street-style profiteer who has somehow managed to convince Denver's news media that he walks on water.

A gushing Post profile last year is typical of the local coverage of Imhoff's firm. "Blazing the muni-bond frontier, it epitomizes the American dream," the paper wrote. "Born into a family that struggled through the Great Depression, Walt Imhoff achieved millionaire status a long time ago. Today he's the king of 17th Street--and a living legend."

There are dozens of references to Imhoff and his wife, Georgia, in the society columns of Denver's daily newspapers. Dawn Denzer, society writer for the Rocky Mountain News, has referred to them as "easily two of the most compassionate people on the planet; if you are a friend in need, they are friends indeed."

Many people share that view of Walt Imhoff. "There's no question he's deeply rooted in this community and has a very strong commitment to giving back to the community," says Carrie Nolan, president of the Kempe Children's Foundation. "When you think about who the leaders are in this community, I don't think there's many who would doubt Walt Imhoff is in the top five."

Denver's Kempe Children's Center, which specializes in the prevention and treatment of child abuse, has been a longtime favorite charity for the Imhoffs. Walt Imhoff chaired the fundraising drive for the center's $4.4 million headquarters building and personally donated $800,000 to the cause. To honor the Imhoffs, the center's new building was named the Georgia and Walt Imhoff Pavilion last year.

"They've done everything from volunteer time and donate money to networking and recruiting volunteers," says Nolan. "They're a very major force here."

Others credit Imhoff for his support of causes as diverse as the Food Bank of the Rockies and the American Diabetes Association. In interviews, Imhoff has attributed his desire to help the less fortunate to the influence of the Jesuit priests who taught him at Regis.

 

"Walt has always been very supportive of a number of charities," says John Schafer, general manager of the downtown Hyatt Regency hotel, where many society fundraisers are held. "He's always been a very big contributor behind the scenes and in front of the scenes."

However, others take a more skeptical view of Imhoff's charity whirlwind. "When you make a lot of money and screw a lot of people, you can be a good philanthropist," says one longtime 17th Street broker. "He's one hell of a promoter, but he's not the nice guy everybody thinks he is."

Several former executive-level employees at Hanifen Imhoff who worked with Walt Imhoff portray him as anything but a nice guy. "He's so well-known around town for giving to charity, but he's a total Jekyll and Hyde," says a veteran broker who worked for Imhoff as a senior manager for several years. "Everyone who is a former [upper-management] employee of that firm feels the way I do. If Walt had a party for all the 300 ex-employees, I'd be surprised if three would show up."

Another former Hanifen Imhoff executive (who, like the others, asked that his name not be used) describes the atmosphere within the company as poisonous. "They really screwed over people for their own benefit," he says.

Many people on 17th Street are hoping the four lawsuits against Hanifen Imhoff will proceed to trial, since they believe the testimony that would ensue would open a sensational window into the inner workings of one of Denver's most prestigious investment houses.

Leatherman's suit was filed in Denver District Court, but Hanifen Imhoff's attorneys are fighting to have it thrown out, arguing that the dispute should be submitted to arbitration under the rules of the National Association of Securities Dealers. Leatherman signed an agreement to subject himself to NASD's rules when he was hired.

In a response filed as part of his lawsuit, Leatherman agrees to arbitration for his claims of wrongful discharge and outrageous conduct, but he asserts that his other claims for breach of fiduciary duty, shareholder oppression and securities fraud are brought in his capacity as an investor in the firm and are not subject to the arbitration requirement.

The three other lawsuits were filed in federal court and may be combined into one case by U.S. District Judge Richard Matsch. Hanifen Imhoff may request arbitration of those claims as well. If the cases do go to arbitration, the firm would likely be spared the media attention of a high-profile trial.

As the lawyers take over and the plaintiffs begin what may be a long journey through the court system, former Hanifen Imhoff employees like Bruce Brauer are left to ponder their careers at one of Denver's best-known bond houses.

"I wouldn't have worked there unless I believed in Walt Imhoff's integrity," says Brauer. "I really respected him. It makes me feel stupid now.

"Walt Imhoff has more money than God," Brauer adds. "But money makes people do strange things."

Brauer had hoped to use his company stock to fund his retirement, but those plans are off now. He says he still gets calls from former clients at Hanifen Imhoff asking him for investment advice. But after decades of working in investment banking, Brauer says he has no desire to go back into the field. He still hasn't decided what he'll do next.

"I was hoping to retire at Hanifen," he says.


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