They were unlikely millionaires -- Julian Pernell, 39, the lanky one-time short-order cook who favored chartered, $10,000-a-day jets, and his partner Barry Toombs, 37, short and pudgy, an avid, self-educated arts buff who once paid $50,000--in cash--for a Mercedes and a '57 Thunderbird.
Federal prosecutors, on the trail of suspected drug traffickers, found the pair fascinating. "They looked and acted out of place," says Karen Tandy of the U.S. attorney's office in Alexandria. When investigators spying on Toombs' mail discovered a suspicious number of auction catalogues, they canvassed more than 30 Madison Avenue art dealers. "Everybody," says one federal agent, "remembered Barry Toombs."
Toombs, it turned out, had assembled the world's largest collection of Tiffany glass, an $867,000 cache stored in a New Jersey warehouse.
It took federal law enforcement officials two years of detective work, in a crowded basement room in Old Town, to piece together the source of Toombs' and Pernell's wealth: marijuana, an estimated 190 tons of it, smuggled into Northern Virginia "stash houses" aboard planes, boats and trucks from Colombia, South America.
Both men, extradited from Costa Rica where they had fled, have been convicted in U.S. District Court in Alexandria on charges growing out of what prosecutors say was one of the Washington area's biggest drug smuggling rings. Pernell pleaded guilty to engaging in a continuing criminal enterprise and was sentenced to a 10-year prison term without hope of parole. Toombs was found guilty of a racketeering conspiracy charge and possession of 33,000 pounds of marijuana and given a 15-year sentence.
Twenty lesser ring members or associates--among them a former Justice Department tax lawyer--have entered guilty pleas. The tax specialist, W. Stephen McConnell of Annandale, was sentenced to 18 months in prison after pleading guilty to preparing false income tax returns for members of the ring. He was accused of playing a key role in the ring--helping it launder $30 million in profits through fictitious corporations.
Only the 23rd man charged, Leon Durwood Harvey of Fairfax County, remains a fugitive.
The investigation, detailed in court papers and in recent interviews with law enforcement authorities, turned on clues as slender as a telephone number on a slip of paper. One critical piece of evidence was an address book with a phone number and the notation "Doc"--Pernell's nickname. A confidential informer, "in fear for its life" according to an FBI affidavit, also agreed to testify about the ring's financial activities.
The trafficking flourished despite the arrests of junior ring members near Chesapeake Bay and in Southside Virginia, South Carolina and Haiti. Pernell and Toombs sometimes paid their lawyers' fees and bail bond costs. "Money was no object; they were throwing it around," says Tandy. "They threw money at their problems."
Investigators say they found a secret empire with pockets so deep it was undaunted by the loss of a $100,000 light plane or a $167,000 sailboat, both bought with cash and seized in drug arrests before the ring had been discovered. Agents also uncovered a sophisticated money laundering operation that spirited millions in drug profits to banks in the Bahamas and Grand Cayman Island. The funds, the investigation showed, were reinvested in legitimate U.S. businesses that earned Toombs and Pernell still more profits.
A total of $7 million in assets, including real estate, cars, boats, glassware, antiques, art, certificates of deposit, cash, profit interests and partnerships, eventually was seized by the government under a 1978 antismuggling statute, making the Justice Department part landlord and part land development partner as a result.
Prosecutor Tandy and her agents, spurred by Reagan administration efforts to stop illegal drug trafficking and tax evasion through offshore straw corporations, used some tough new tactics. One key step was winning Justice Department approval to seek a search warrant for an Annandale lawyer's office. Another was the decision, approved by Justice and the Treasury Department, to submit sensitive tax information to a grand jury in Alexandria investigating the suspected drug trading of Pernell and Toombs.
In 1980, however, says prosecutor Tandy: "We started with less than scratch."
According to court records, James Mittica, a Washington-based Drug Enforcement Administration agent, then knew two things. He knew that massive shipments of marijuana were being smuggled into the East Coast. Between 1978 and 1980, there were at least five major arrests by local police and federal officials in Haiti, Maryland, Virginia and South Carolina. The authorities seized about 10 tons of marijuana and realized that even more was getting through.
Mittica also knew that Toombs, Pernell and Harvey had past drug smuggling convictions. The agent's task was to determine whether the two pieces of information could be matched up.
Slowly, according to an FBI affidavit, Mittica began to accumulate "connectors," evidence that suggested Pernell, Toombs and company were back in business.
Before dawn on April 29, 1979, Charles County, Md., sheriff's deputies, believing a drug smuggling operation was active, arrested six men in an isolated area near Smith Point on Chesapeake Bay. One was Julian Pernell. Later the same day, customs agents boarded a 51-foot sailboat, Centaurus, off Smith Point and found 6 1/2 tons of marijuana. Its wholesale value, the agents said, was $5.3 million.
Later, Mittica discovered a series of telephone calls charged to the Fairfax County home of Barry Toombs. The calls were made at pay telephones "at three locations along the Virginia coastline in a sequence paralleling the most probable route of the Centaurus," according to an FBI affidavit.
It was a year before the next break. Customs agents tracking a light plane from the Gulf of Mexico to an airstrip in Southside Virginia discovered 703 pounds of marijuana aboard. And in an address book seized from the pilot, William Dickerson, they found the name "Doc" and a telephone number. "Doc," Mittica knew, was Pernell's nickname. In another search of telephone records Mittica also found a series of calls from Dickerson to Toombs.
Two months later, in June 1980, the trail got hot. In Ridgeville, S.C., police stopped a camper driven by Andrew Jackson Finch Jr. and found 1,320 pounds of marijuana. "Finch was observed throwing pieces of paper away as he fled from police officers," an FBI affidavit said. On one of the papers was Pernell's phone number in Fort Lauderdale, Fla.
And 10 days later, Coast Guard and customs officers searching the "Green Sea," a boat abandoned off Ocean City, Md., discovered not only 5,082 pounds of marijuana but the same telephone number belonging to Pernell. Mittica also knew that 14 months earlier, police who boarded the "Centaurus" had found a license renewal application for a vessel called the "Free Spirit." The "Green Sea" and the "Free Spirit" were the same boat. Mittica went to see prosecutor Tandy.
"It was the hardest kind of drug case," says the 29-year-old, Texas-born lawyer. "We had no undercover agent inside the suspected ring , no informer, no one close to the group who could confirm our intelligence. It took Mittica three to six months to get me moving on the case, the outlook was so bleak."
Other "connectors" surfaced, however, and the investigation continued.
Customs patrol officers and a Virginia State Police investigator, watching chartered jet flights in the Washington area, reported that on June 5, 1980, a "Dr. Thompson" who fit Pernell's description flew from Washington to Nassau, the Bahamas, and back with two fellow passengers. "All three passengers carried luggage with them . . . even though they planned to return . . . later that same day," a government affidavit said. "Pernell paid $11,000 in cash for this one-day, turn-around trip to the Bahamas."
In August, a Washington lobbyist and friend of Leon Harvey's, Phillip Marinovich, also flew by chartered jet from National Airport to Nassau, according to the affidavit. This time a confidential informer, identified in court records only as "C.I. No. 2," told Mittica "it observed 'Phillip' open a large suitcase at Bahamian customs which appeared to C.I. No. 2 to be filled with United States currency in $100 bills." Prosecutors later alleged that the cash totaled $800,000.
Concluding that cash was being routinely shipped abroad to banks, the DEA, in the person of Mittica, went to the Internal Revenue Service. With the approval of the Treasury and Justice departments, Special Agent Patrick Lydon of the IRS' criminal investigation division joined the case.
Although Lydon had access to tax return information, federal law prohibited him from revealing any of it, even to Mittica. Government officials insist that no tax data were provided to other law enforcement agencies until finally, in February 1981, a special grand jury investigation was begun in Alexandria. Inside the grand jury room, Mittica and Tandy learned what Lydon knew: according to tax returns, Pernell and Toombs had no valid explanation for their wealth.
In March, with the grand jury only one-month old, the FBI was contacted by an unidentified source who said "it had personal knowledge of substantial amounts of cash . . . flowing in and out of escrow accounts" at former Justice Department lawyer McConnell's Annandale law firm, according to an FBI affidavit.
The informer, C.I. No. 3, said "Julian Pernell and his family members are the primary sources of this money and have been for several years," according to the affidavit. "Although C.I. No. 3 is in fear for its life if its identity is revealed, C.I. No. 3 has agreed to testify" before the grand jury.
The source began funneling a wealth of secret information to authorities: it had seen Pernell bring in as much as $275,000 at once in cash, sometimes in a paper bag; it knew Pernell and his family had deposited up to $1 million in cash in the firm's escrow accounts; it said Toombs and others were or had been McConnell's clients, too. The informer gave detailed descriptions of diaries, ledgers and records kept at the firm and even furnished the layout of the office.
"It was our break," says one official.
Tandy and her agents decided to ask for a court-approved search warrant for the lawyer's office, a rare step because of constitutional safeguards governing attorney-client communications. Lowell Jensen, head of Justice's criminal division, gave his approval. On July 14, 1981, a U.S. magistrate in Alexandria signed the warrant and within days the search was carried out.
The seized files revealed a hidden business empire, "like a diversified corporation," said an agent. Straw companies had been established in the Grand Caymans to handle the drug profits: Atlantic Fidelity Ltd. for Pernell, Pacific Fidelity Ltd. for Toombs, Mill Reef Ltd. for a third defendant, James Dwight.
In Pernell's case, Atlantic Fidelity shuttled funds back to the United States to a second, Pernell-owned company, First Dominion Development Co. First Dominion invested the money in such legitimate concerns as South Lakes Joint Venture and Reston Industrial Joint Venture, both Northern Virginia development firms.
Banking laws in the Bahamas and Grand Caymans effectively placed the drug money beyond the reach of U.S. investigators, since financial records there are strictly off-limits to outsiders. "If we asked an American company where their financing was coming from, they could simply say 'foreign investors,' " says one agent familiar with the case. "End of trail."
Investigators discovered, however, that not all of the ring's money left the United States. Some of the funds left tracks.
In February 1980, the seized records showed, McConnell established B.W.I. Joint Venture, the centerpiece of the ring's business dealings, a Grand Cayman shell company with the combined financial resources of Pernell, Toombs and Dwight. B.W.I. had a single purpose: to lend $1.8 million in capital to Long Cove Club Associates, a legitimate firm developing a portion of Hilton Head Island, the luxury South Carolina resort.
Besides almost $300,000 in interest on the loan, Toombs and company were to receive 50 percent of after-tax profits from Long Cove until 1990. Federal officials estimate that would have meant between $5 million and $12 million. "They would have been set for the next 10 years," one official says.
"If the scheme had worked as it was supposed to," he adds, "it would have been much harder to unravel."
The $1.8 million was to be paid out to Long Cove in increments, from February to June 1980. On June 12, the Alexandria grand jury later charged, McConnell sent a courier to the Caymans to pick up a laundered, $870,000 cashier's check. On June 23, a second check, for $211,266, was brought back from the Caymans.
Other funds, however, were transferred directly by wire to the developers from McConnell's law firm escrow accounts. Another $120,000 had to be converted from cash to cashier's checks in the Washington area. In a single day, minions fanned out to 16 area banks, hurriedly changing the cash into 25 checks. Each check was for less than $5,000, apparently, says an official, because someone mistakenly believed banks were required to report larger cash transactions to the IRS.
(The law in fact requires that the IRS be informed of transactions above $10,000. "They could have gone to half as many banks," the official says.)
The evidence of financial dealings inside the U.S., more accessible to federal agents, helped strengthen the case that would have been presented to a jury had the matter gone to trial.
In December 1981, as the grand jury investigation went on--aided by testimony from junior ring members who had been "flipped," or persuaded to help the prosecution--Pernell, Toombs and four others fled the country to Costa Rica.
That was also a miscalculation. Once a haven for such fugitives as financier Robert Vesco, Costa Rican officials, eager to improve their country's image, were willing to cooperate with American lawmen. Last July, Tandy secretly traveled to Costa Rica. She flew south again on Aug. 4. The next day, Pernell, Toombs and the others all were arrested by Costa Rican police.
Last December and January, they were returned to Alexandria in chartered planes, this time as guests of the U.S. government. CAPTION: Pictures 1 and 2, Pictures used as evidence in court show, a Northern Virginia "stash house" used to store marijuana, and Centaurus, a 51-foot ketch that agents seized off Smith Point on the Chesapeake Bay as it was carrying 6 1/2 tons of marijuana valued at $5.3 million. Photos by James M. Thresher -- The Washington Post; Picture 3, Karen Tandy . . . "they looked and acted out of place." Pictures 4 and 5, JULIAN PERNELL and BARRY TOOMBS . . . Their tastes in cars, planes and art fascinated investigators. Map, Pernell-Coombs case. By Richard Furno -- The Washington Post;