After only a decade in business, the two brothers-in-law from Brooklyn had put together the country's second largest computer leasing firm, renting hundreds of millions of dollars' worth of IBM equipment to some of the country's biggest institutions.
Competitors viewed their success, which came largely from offering computer leases at sharply discounted rates, with a mixture of envy and skepticism. But details about the operations of the company, O.P..m. Leasing Services Inc., were impossible to come by. The reason: Mordecai Weissman, 33, the president, and his cofounder, 34-year old Myron Goodman, executive vice president, were the only stockholders, and there were 11 of their relatives on the payroll, some of them in key positions.
With success, the young entrepreneurs followed the lead of other successful city boys and fled to suburbia, settling on neighboring estates in wealthy Lawrence, Long Island.
Then, in February, their bubble suddenly burst, sending shockwaves bouncing among the corporate, financing and legal communities. According to court documents and other sources, Rockwell International Corp. discovered that banks and other financial institutions had lent millions of dollars to O.P.M. to finance computers supposedly for leasing to Rockwell -- computers that Rockwell never ordered or received. Rockwell reported the discovery to the New York and to the Securities and Exchange Commission.
In March, a number of creditors on those loans sued O.P.M., Weissman and Goodman alleging they had created phony documents to borrow the millions of dollars.
It has now been learned from sources close to O.P.M. that Rockwell was only one of a number of companies whose name appears on computer lease documents that O.P.M. allegedly used fraudulently to obtain loans. Since February, federal investigators have turned up about $200 million in loans to O.P.M. from banks and insurance companies based on allegedly fraudulent computer leases and sales contracts.
On March 11, the company filed for protection from creditors under the federal bankruptcy laws. Weissman and Goodman have also filed for personal bankruptcy.
Meanwhile, a federal grand jury, at the direction of U.S. attorney John Martin, has begun probing the fraud allegations against the company and its two principals.
The amazing growth enjoyed by O.P.M. paralleled that of the computer leasing industry. Instead of laying out huge amounts of capital to buy computers, corporations and other institutions generally prefer to lease machines and let someone else finance them. There are, moreover, valuable tax advantages to renting the equipment rather than owning it.
O.P.M. and other leasing companies act as middlemen between the financiers and the users of the equipment. Normally, O.P.M. would buy a computer from IBM with financing provided by banks, insurance companies, pension funds or other sources. The user of the computer would agree to a lease that allowed O.P.M. to pay off its loan and earn a percentage. Then, once the lease expired in four years or so, O.P.M. would find a secondary market for the used machine.
An important reason why big institutions don't want to own costly computers is that they can become obsolete virtually overnight -- which is precisely what happened in 1977, when IBM came out with a new line of computers that were faster, smaller and cheaper than anything then on the market.
It was a monumental event in the leasing business, and it resulted in the destruction of Itel Corp. of San Francisco, at the time the Big Daddy of the leasing industry and now in bankruptcy. The news from IBM put Weissman and Goodman, whose O.P.M. ranked No. 2 behind Itel, in a similar squeeze.
The chief reason why the two companies were hit so hard by announcement of the new IBM line was that both, as sales gimmicks to attract customers, allowed users to cancel their leases without penalties.
Itel, at least, had managed to get an insurance policy from Lloyds of London covering losses from cancellations, but the British insurer has been slow to pay claims on the policy. O.P.M., however, offered the cancellation feature without even having the insurance policy.
No sooner did IBM start manufacturing its new computer line, than O.P.M.'s customers began to cancel their leases in droves. What's more, the used computer market soon was swamped with machines discarded by users switching to the new IBM line.
Coincidental with the pressure created by the IBM announcement, O.P.M. was indicted in 1980 by a federal grand jury in New Orleans and pleaded guilty to charges of kiting checks worth hundreds of thousands of dollars using two Louisiana banks. Weissman and Goodman had been major stockholders and board members since 1978 of one of the banks, Bank of Jefferson Parish. Sources note that the overdrafting came during the time O.P.M. was pressed for cash.
O.P.M.'s leasing customers included such blue chip companies as Bell Telephone Laboratories, F.W. Woolworth Co., American Express Co. and Rockwell International, along with hospitals and other institutions all across the country.
The financing for this equipment was provided to O.P.M. by the likes of Manufacturers Hanover Trust Co., Prudential Life Insurance Co. and Occidental Life Insurance Co.
Typical of the suits is one filed March 13 againt Weissman and Goodman by a creditor group that included Avco Corp. Retirement Income Trust and Paul Revere Life Insurance Co., among others.
The suit claims that through February 1981, O.P.M. arranged financing for $7.5 million in computers from Avco. The computers were leased by Rockwell.
The complaint alleges: "O.P.M. misrepresented the lease agreements with Rockwell to have a longer term, to provide for greater monthly payments and to cover more expensive equipment than they in fact did so as to be able to issue notes of significantly greater amounts than the actual leases support."
In the suit, the creditors allege O.P.M. gave different documents to Rockwell than it did to the lenders. The payments on the loans were made through O.P.M., which allegedly altered them to agree with the loan terms. Finally in February 1981, the suit alleges, Rockwell and the lenders realized that the $7.5 million loan drawn by O.P.M. for the equipment was far more than the value of the computers it was meant to finance.
O.P.M. also raised funds, allegedly used to finance the purchase of computers, through deals arranged by some of Wall Street's more prominent firms, including Goldman, Sachs & Co. and Lehman Brothers Kuhn Loeb Inc.
From 1971 to 1980, O.P.M. and its two principals were represented by the New York law firm of Singer Hutner Levine & Seeman. According to Joseph L. Hutner, his firm at times had 12 attorneys working on O.P.M., which contributed "substantial" fees to the firm.
Last June, for unexplained reasons, Singer Hutner enlisted the dean of Fordham University Law School, Joseph M. McLaughlin, to advise the firm on matters of attorney-client relations and privilege.
An affidavit by the dean, filed in connection with the civil suits, said the law firm resigned in September 1980, when it first learned of "certain information concerning O.P.M."
Dean McLaughlin's affidavit also disclosed that the New York firm of White & Case, which represents some plaintiffs suing Weissman and Goodman, and the federal grand jury are seeking access to Singer Hutner's files concerning allegedly fraudulent loan transactions. But Dean McLaughlin says he had told his client firms "to assert attorney-client privilege until otherwise directed by the court."
Leasing industry sources say they are amazed at how some major lending institutions apparently went for years without ascertaining whether the money they lent to O.P.M. was, in fact, used to finance the computers indicated in the loan agreements. But one attorney familiar with the case says that the financial institutions may have been dazzled by the blue chip users of the computers and didn't consider O.P.M.'s middleman role.
Not all financial institutions were enamored of O.P.M., however.
Riggs National Bank in Washington was approached last year to finance computers worth about $2.5 million each. The deal was about to go through, but the loan officer, who is no longer with the bank, says he turned it down because O.P.M. was "unwilling to provide any financial statements of bank statements."