Indicting Hughes

As the capricious and supremely autocratic ruler of a business empire worth billions, Howard Hughes has spent almost as much time and trouble fighting legal problems as the germs about which he constantly worries. In 1973, after a twelve-year court fight, he finally upset a $180 million judgment against him for allegedly mismanaging TWA, and he is currently being sued by his former chief lieutenant, Robert Maheu, for $17 million on grounds of libel.

Last week Hughes faced his first criminal charge. Along with four present or former business associates, including Maheu, Hughes was indicted by a federal grand jury in Las Vegas on charges of perpetrating a stock swindle.

Judge Roger D. Foley ordered the defendants arraigned next week. Because he has extensive business dealings with the Government, which could be endangered if he repeatedly ignores court orders, Hughes eventually may feel obliged to show up in court. But the chances that he will appear for arraignment are roughly equal to those for breaking the bank at one of his gambling casinos in Vegas. For the phantom of hotel penthouses, it was time for another secret move to another set of $1,000-per-day quarters.

Seven days before the indictment was handed down, Hughes and a party of ten roared out of London, where he had lived at the Inn on the Park for nearly a year, and flew by private jet to Freeport, on Grand Bahama Island. Arriving at 4 a.m., the entourage moved into four top-floor suites of the Xanadu Princess Hotel. Among its attractions is that it is in a country that recently refused to extradite Financier Robert Vesco to the U.S. to stand trial on an indictment for using telegraph services to carry out a fraud--one of the violations that Hughes is now charged with.

The case centers on Hughes' campaign to acquire Air West Inc. (since renamed Hughes Air West), a line serving eight Western states and parts of Mexico and Canada. The Government charged that Hughes and associates conspired to manipulate the price of the company's stock up and down by, among many other things, flooding the market with large holdings in an illegal effort to scare its directors to terms. Hughes was charged with seven violations carrying a maximum prison sentence of 28 years and $34,000 in fines.

Besides Hughes and Maheu, who was ousted in an epic power struggle three years ago, those indicted were: Chester Davis, Hughes' longtime No. 1 attorney and chief counsel of Summa Corp., the umbrella organization that holds the casinos, Hughes Air West, Hughes Aircraft Co. and nearly all of Hughes' other properties.

David B. Charnay, president of Four-Star International Inc., of Beverly Hills, a television production company; he became acquainted with Hughes when the billionaire was expanding his television network in the late '60s.

James H. (Herb) Nail, a Hughes official in charge of land acquisition.

Named as co-conspirators but not indicted were Herman (Hank) Greenspun, publisher of the Las Vegas Sun and a longtime Hughes booster; and George Crockett, an old Hughes friend.

Hughes became interested in Air West, which was in financial difficulty, in 1968. He was opposed by a faction on the board of directors who insisted that Hughes' tender offer of $22 per share was too low. Indeed, even after stockholders approved a sellout to Hughes at that price, the board voted 13 to 11 to refuse. At that point, the Government charges, Hughes and his cronies put into motion their strategy.

Two large blocks of stock were owned by Greenspun and Crockett. According to the indictment, Maheu urged Crockett to sell his Air West holdings, assuring him that he would be "made whole" for any losses. Similarly, according to pretrial testimony in the Maheu libel case, Greenspun was assured by an associate of Maheu that "Mr. Hughes isn't going to let you get caught holding the bag" by selling Air West stock at a low price. Around Dec. 31, 1968, the Government charges, Crockett, Greenspun and Charnay unloaded 46,000 snares of Air West stock, or slightly more than 1% of all the shares outstanding. The stock's price skidded from a high of 20 in mid-December to 15% on Dec. 31. Further, the Government charges, the Hughes group harassed recalcitrant board members by filing lawsuits against them. Finally, six of the 13 board opponents changed their votes, and Hughes' offer was accepted.

Approved Application. That did not settle the matter. Under federal law the President of the U.S. must decide that changes in the ownership of American international carriers are in the "national interest." Considering his troubles at TWA plus an even more checkered career as controlling shareholder of Northeast Airlines from 1962 to 1964, Hughes did not seem the ideal candidate for sole proprietorship of Air West. Even so, Nixon approved Hughes' application in April 1970.

By coincidence or not, a Hughes lieutenant by then had already made one of the celebrated $50,000 cash "contributions" that were held for Republican campaign funds by Nixon's pal Bebe Rebozo; the second $50,000 payment was delivered the following July. Rebozo claims that he held the money for three years and eventually returned the same bills to Hughes representatives. That story, as well as the Air West deal and other legal matters involving Hughes, is under investigation by the Senate Watergate committee.

For Air West stockholders, Hughes' arrival turned out to be anything but a smooth ride. Though no wrongdoing has yet been proved, Hughes' bookkeepers declared Air West a "non-going utility," meaning that the carrier had a negative net worth. Since Hughes' offer stipulated that his final purchase price for the stock would depend on the company's net worth, he claimed that the price should be far less than he earlier had trumpeted. Instead of collecting the $22 per share that they had expected, Air West stockholders--some of whom have filed suit against Hughes--wound up selling their shares for about $11 each.

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