A Lawyer Vanishes, Leaving a Trail of Fraud
by David Margolick
ONE FRIDAY NIGHT in February 1988, a client and friend of Peter G. Schmidt was startled to encounter Mr. Schmidt in the arrival area at the Miami airport. Hours earlier, he had spoken to Mr. Schmidt in New York, and had arranged to see him there over the weekend. Something had come up suddenly, Mr. Schmidt told them. But he said he'd return shortly, and suggested they meet for dinner the next day.
Mr. Schmidt never did show up for the dinner. In fact, for more than a year the 52-year-old lawyer has not shown up anywhere. He has simply vanished, leaving behind his livelihood, his family, Federal investigators, chagrined bar officials, a host of embittered friends and clients and a Federal judge who called him a "fraudsman extraordinaire."
Federal authorities have a sealed complaint against Mr. Schmidt, a lawyer turned entrepreneur who
disappeared as several clients -- who had entrusted him with large amounts of money that he
apparently used for his own purposes -- began closing in on him. His victims include foreign
businessmen, European nobility and some of his closest friends. But little can be done as long as he
remains at large.
Mr. Schmidt owes money to a former wife, to a wife who is divorcing him, to his lawyers, to his clients. To one of them, an Austrian count, he acknowledged stealing $1 million. But perhaps the hardest-hit victims are the heirs of the late Michael Burke, onetime president of the New York Yankees and chairman of Madison Square Garden.
They claim Mr. Schmidt stole nearly $2 million of the $2.5 million left to them -- money used they say, to repay another client he victimized. It was a common tack for Mr. Schmidt, now disbarred for dipping into clients' funds, whose practice largely consisted of robbing Peter to pay Paul, and then robbing Paul as well.
"It has been a devastating experience," said Timothy Burke, Mr. Burke's second wife and mother of three of his children. "We really trusted Peter Schmidt. He was a very urbane and charming and intelligent man. But he turned out to be a consummate liar and a cunning crook."
Despite the efforts of Federal authorities and Interpol, no one -- including his four daughters -- admits to knowing where Mr. Schmidt is, or even if he is still alive. One daughter, 25-year-old Alexandra Schmidt is, said members of her family had heard from Mr. Schmidt "occasionally" since he left, but not "for quite some time."
Some say Mr. Schmidt is in Haiti or Europe, others that he was killed in Brazil. Speculation centers on the Bahamas, and it was to the Graycliffe Hotel in Nassau, a place Mr. Schmidt once frequented, that two embittered associates sent him a sardonic season's greetings in December. "Merry Christmas from all of your ex-friends," the card declared.
'He Had the Charm, Wit and Know-How'
Whatever his whereabouts, it is an unlikely end for Mr. Schmidt, the son of a Fordham Law School professor whose clients included Cardinal Spellman. The younger Schmidt was a New York University Law School graduate, an active parent at the Convent of the Sacred Heart on East 91st Street, and an alumnus of two prominent corporate law firms: Breed, Abbott & Morgan and Battle, Fowler. It's also a far cry from Xenon, the Manhattan discotheque that he partly owned, and Southampton, where he spent his summers, played at the Meadow Club and ran his own horse farm.
Mr. Schmidt's friends, many of whom were also Mr. Schmidt's victims, still debate whether he was intrinsically venal or suddenly, tragically got in over his head. All agree, however, that his disappearance was a spontaneous act of desperation rather than some carefully choreographed plot. One aggrieved businessman, Mark Savet, said he was "the best one-sided record that ever existed" and added: "He had the charm, the wit, the know-how to have made even more money legitimately. But he needed money just like a junkie needs a fix."
Others' still enchanted by his roguish panache, are more bemused than bitter. "Peter wasn't handsome, but you felt he was because there was an aura around him," said another associate, Gerald Feldman of the National Patent Development Corporation. "He made everyone feel you were his closest friend. Peter had 50 'closest friends.' He ripped me off, but I'm still fond of him."
In a World of Grays, A Bright Red Office
From his earliest days of practice, Mr. Schmidt had an individualistic, entrepreneurial streak seldom found in -- or tolerated at -- conservative corporate law firms. In Breed, Abbott's world of grays and beiges, he dressed flashily and painted his office bright red. His was also the only room with its own bar and convertible couch.
Eventually, he left there and moved to Battle, Fowler, the firm of the labor mediator Theodore Kheel. But, like many lawyers, he found himself drawn more to deal-making than deal-breaking and on April Fool's Day 1980, he went out on his own.
His new firm had no law library, nor did it really need one. Mr. Schmidt was more financial advisor and money manager than lawyer. He charged by the deal rather than by the hour. His ability lay in spotting business opportunities, making connections, speaking simply and, it seemed, sincerely. Mr. Schmidt took personal care of his clients. He squired them around New York, helped them buy their co-ops, found them their decorators, got their children into private schools. In return, they put their affairs -- and, often their finances -- into his hands.
"He had whatever a lawyer has comparable to a doctor's bedside charm, a very parental, avuncular way even with his contemporaries," said Howard Stein, who once ran Xenon and now own Au Bar.
Playing Jet-Setter And Country Squire
There were some prominent American clients -- among them Orin Atkins, then chairman of Ashland Oil Corporation, and his son Charles. But it was to wealthy foreigners seeking to invest in the United States that he particularly appealed. Many were Englishmen, like John Kidd, nephew of Lord Beaverbrook; Charles Vere-Nicoll; Lord Ashcombe, and Prince Lichale of Kent, for whom Mr. Schmidt once gave a party at the "21" Club. He had Italian French and Japanese clients as well.
Mr. Schmidt was also middleman in the sale of 40 Wall Street to interests representing Ferdinand and Imelda Marcos. "He was the first lawyer in New York I could understand, and he was a very nice guy," said Constantine Dumba, the Austrian count who claims Mr. Schmidt robbed him of $1 million.
Mr. Schmidt owned a duplex maisonette at 775 Park Avenue, and a summer house in Southampton. With several partners, including Andrew Crispo, the art dealer later imprisoned for tax evasion, he bought and refurbished a horse farm (though rarely, if ever, could he be seen riding his horses). He boasted of driving the first Mercedes station wagon in the Hamptons.
The role simultaneously satisfied Mr. Schmidts apparent craving to gain Old World respectability. He bought a house in the Belgravia section of London, took Italian lessons, wore Dunhill suits, and carried his effects in a leather pouch and his cigarettes in a silver case.
Playing jet-setter and country squire at the same time he was not cheap. And his life grew more costly still in 1984, when he divorced his wife of 24 years, Dina -- part owner of the restaurants Summerhouse and Juanita's -- and married Barbara Leigh, a former Playboy bunny who was once involved with Elvis Presley and whose centerfold Mr. Schmidt kept in his desk drawer. Friends speculate that these huge expenses, along with the readily available money of his clients, proved to be Mr. Schmidt's undoing.
In 1981 a Life Begins to Unravel
The undoing began in 1981, when Mr. Schmidt was asked to hold $1.5 million in escrow for H.C. Sleigh, Australian holding company. Five years later, when Sleigh asked Mr. Schmidt to return the money, he stalled. Initially, he said the funds were in a Swiss account and could not be withdrawn. Later, according to court papers, he confessed to taking them, but promised to repay. The funds, he said, would come from a wealthy English friend, Henry Edward Cubitt, Lord Ashcomb. In fact, Lord Ashcomb had no such intention, though he told Sleigh's American counsel, Francis X. Markey of Jones, Day, Reavis & Pogue of Washington, D.C. that he did.
According to the Burkes' lawyer, John Lankenau of Lankenau, Kovner & Bickford, the money Sleigh received came not from Lord Ashcomb but from the Burkes, whom Mr. Schmidt began began representing shortly after Mr. Burke's death in February 1987.
Mr. Schmidt was a close friend of both Mr. Bruke's eldest daughter, Patricia Bruke, and her fiancé, Fergus Sloan, a New York investment adviser. In the summer, Mr. Schmidt and Mr. Sloan often shared seaplanes to and from the Hamptons. Given his international ties, Mr. Schmidt seemed ideal to handle the complex affairs of Mr. Burke, an Irish citizen at his death. He also made a good impression on the family, treating them to dinner at fancy London restaurants and taking them to "Phantom of the Opera."
A Desperate Attempt To Buy Some Time
But as Mr. Schmidt's world unraveled, friends and clients watched him grow ill-humored, tensed and distressed and said he fidgeted and smoked constantly. Checks from him arrived late and often bounced. He broke promises to old friends and started avoiding them, doing what one called "the Madison Avenue shuffle" when he saw them on the street.
In fact he was trying desperately to buy time to straighten out his affairs. Already, to forestall the humility of certain public disbarment from his admission in the Sleigh case, he had sought to resign from the bar. Now, to delay things further - he began furnishing information, including possible improprieties by several law firms, to the United States Attorney's office in Manhattan, the Internal Revenue Service and the Securities and Exchange Commission.
In early 1988, Mr. Dumba, the Austrian count, learned that the investment of Mr. Schmidt had purportedly made for him were suspicious and that Mr. Schmidt had used the power of attorney Mr. Dumba had given him to steal $1,019,500 from his bank account. On Feb. 25, 1988, after staking out Mr. Schmidt at his apartment building for seven hours, Mr. Dumba confronted him. Mr. Schmidt acknowledged that theft as well, but vowed to make him whole, handing him a check for $250,000.
The check bounced. The next day Mr. Schmidt disappeared. To his wife, who thought he was headed off for the Hamptons, he left a two-page hand, written apology, which she read and promptly tore up.
'I thought he was God when I first met him," said Barbara Schmidt, who has since moved to California and filed for a divorce. "He was just the kindest man - considerate, loving, understanding. But he never told me boo. He left me high and dry, without a penny."
Once Mr. Dumba's lawyer, Thomas Engel and James McCarney, told the disciplinary committee of Mr. Dumba's fate, the panel suspended Mr. Schmidt. In October 1988 it moved for his disbarment, calling him "a clear and present danger to the public, his clients and the integrity of the Bar." In February, a year after his disappearance he was disbarred.
All this was too late to do Mr. Burke's family any good. Five months earlier, they had sued Sleigh to recoup the funds, which, they claimed, the company should have known were ill-gotten. But while conceding that Mr. Schmidt was a " fraudsman extraordinaire, " the judge Charles J. Haight Jr. of the Federal District Court in Manhattan rejected their attempt. The case is now on appeal.
Until then, the family has little recourse but reflection. "Michael lived very modestly, " Timothy Burke said. "He really wanted this money for his children. He'd never had any money when he was young, and he wanted them to enjoy themselves earlier in their lives than he had." It was Mr. Schmidt who was going to make this happen. So close did she feel to him, she recalled, that she invited him to Mr. Burke's memorial service at St. Patrick's Cathedral.
"He told me he came but no one saw him," she said. "Now, I'm not sure he was really there."