May 31 2001 -- Christopher Whalen has filed a multi-million dollar countersuit in Ohio against Carlos Hank Rhon, Gary Jacobs, Laredo National Bank and Peter Halmos. Charges include defamation and libel, emotional distress and abuse of process.


Professor Schulz
Legal Defense Fund

a tale of money,
       lawyers and the
threat to free speech

by Julia Reynolds

Photo, above right: Chris Whalen

There are no heroes in the war on drugs, only martyrs.

The hit movie “Traffic” and last year’s PBS special “Drug Wars” drove home this grim fact. Perhaps for the first time, Americans saw the incredibly complex forces at war in what used to seem a simpler problem: stamping out drugs.

The most recent group to join the ranks of the martyrs are journalists and scholars who investigate the drug trade. These days, those suspected of money laundering and other crimes linked to América’s “narcosistema” don’t send out hit men or mob lawyers to take care of nosy reporters and researchers. Instead, they employ former FBI agents, private investigators and high-powered Washington law firms to keep a rein on the media. They spy, they entrap, and they use lawsuits — not bullets — to silence the press.

And so far, the tactics are working.

The Road to Entrapment

Christopher Whalen is an international business consultant and former editor of The Mexico Report newsletter of politics and finance, which he published from the early to mid-1990s. Whalen would often expose the seamy connections between banks, drug cartels and money laundering. “It was a small publication. I had a couple hundred subscribers. I just decided to do a little truth-telling — and it was advertising for my consulting practice.” That’s when he became something of an expert on Mexico’s powerful Hank family and the law enforcement investigations linking them to drug money; he even testified about the Hanks before a U.S. Senate committee. The Mexico Report dug up some interesting dirt, but for Whalen it was a side gig. He was a consultant in the investment sector.

In mid-1998, Whalen was approached by Lee J. Seidler, a well-known investment banker at Bear Stearns and Co., where Whalen worked. Seidler wanted Whalen to meet a potential client named Peter Halmos, “a crazy rich guy” from West Palm Beach, Florida. Whalen didn’t know it yet, but he was about to enter a trap that would evolve into a binational legal labyrinth of bizarre and epic proportions. He was about to tangle with the Hank family.

Whalen and his new client got together in July. According to Whalen, Halmos presented himself as a wealthy investor interested in buying the Hank-owned Laredo National Bank in Texas. But Halmos was concerned about Carlos Hank Rhon and his family’s alleged links to the drug trade. He needed savvy guidance — perhaps Chris could help, since he was an expert on Mexican business and the Hanks. Because the deal involved the Hanks, something didn’t smell right, Whalen thought, but what harm could come from a meeting or two?

Whalen, Halmos and other Laredo National Bank associates met aboard the yacht “Legacy” at Pier 59 in New York, “probably the biggest sailing yacht that’s been in New York harbor,” says Whalen. “An extraordinary boat.”

“They served me black pasta with clams, pasta vongole,” Whalen recalls. “They knew my tastes. They professed to be non-experts, and then they proceeded to quote chapter and verse on all my work.” That’s when Chris felt an unnerving twinge — maybe these men who knew too much were in on some kind of setup.

Although he had become suspicious, Whalen continued to meet with Halmos, partly trying to warn him off, and partly trying to figure out what was going on. “I told Halmos that this guy [Carlos Hank Rhon] is reputed to be involved in illegal activities,” he says. “But Halmos was insistent, trying to get me involved.”

Then Whalen made a mistake he would come to regret. In a note to Halmos, Whalen wrote in a bragging tone that “through my efforts and those of others,” a bid by Carlos Hank Rhon to buy another Texas bank had been blocked by the Federal Reserve Board. Whalen had provided some background information on the Hanks to the Fed, but it was a stretch for him to claim credit for the Board’s decision. It was a statement that would come back to haunt Whalen.

In late 1998, right after a meeting with Halmos and Laredo National Bank president Gary Jacobs, Whalen says he was contacted by a Drug Enforcement Agency agent who “asked about the Hanks and their reputation for connections to alleged drug trafficking and/or money laundering.” Soon after, Halmos and Whalen had a meeting with Carlos Hank Rhon himself. Whalen mentioned to Hank Rhon he had been contacted by the DEA, but the millionaire bank owner appeared relaxed and unfazed.

Afterward, Halmos called Whalen, saying that Hank Rhon was “going to war” to protect his name in the U.S. And then the contacts ended.

In August, LNB filed suit against Whalen on grounds of “tortious interference,” which means the deliberate harming of another’s business. He was going to spend the next year being dragged through South Texas courtrooms.

LNB’s Gary Jacobs described the Halmos meetings to the Laredo court, under oath, in February 2000. He characterized Whalen as someone trying to hustle a deal, and told the court that Whalen tried “to convince me that Peter Halmos would be a good investor in my holding company.” Straight-faced, Jacobs added, “And I was trying to convince him I didn’t need any more investors.”

Whalen was incredulous — Halmos had introduced him to LNB, not the other way around. Then he and his attorney were startled by news from Washington: Halmos admitted he had investigated Whalen on behalf of LNB. And he said it on the record, in court.

At an ongoing Federal Reserve Board hearing investigating Carlos Hank Rhon for illegal banking activities, Halmos said that he had “misrepresented” himself to Whalen.

It turned out that in early 1998, LNB had set up a contract with Halmos and his Intelligence Services Corporation, via an intermediary. Halmos said he was hired “to provide services in connection with negative publicity in the news media about LNB and Carlos Hank Rhon.” Specifically, Halmos said, he was to target Chris Whalen, who “had published articles that were negative toward the Hank family.”

And through Halmos, LNB had gotten a copy of Whalen’s note in which he boastfully took credit for the Fed’s blocking LNB plans for expansion. (Whalen later admitted the note was “inartfully worded.”)

Note in hand, LNB’s lawyers believed they had a confession of sorts: they would use it as evidence of a Whalen-led campaign to stop the Hanks from doing business in the United States. It was also ammunition to fight what they saw as a vast conspiracy to falsely associate the Hank family and its banking operations with the drug trade. (Ironically, it was not Whalen, but New York Citibank officials who first warned the Fed that LNB’s owners had a less-than-stellar reputation, back in October 1996.)

For the court, Halmos produced the contract that sealed the deal between him and Gary Jacobs at LNB. Halmos told the court that his steps to lure Whalen into LNB’s sphere were “part of my effort to obtain information from Whalen, pursuant to my engagement… for LNB. I did not advise Whalen during these meetings that I was engaged… on behalf of LNB.”

Stephen Meyer, the Federal Reserve Board’s counsel, wrote that if the undisputed facts didn’t make it clear that Halmos was hired to “pose as a buyer” for LNB, “we don’t know what else it would take.” He added that the LNB contract alludes to a “success fee” for Halmos. “Indeed,” Meyer wrote, “they appear to have filed a lawsuit against Mr. Whalen, based on Mr. Halmos’s undercover operation.”

Meanwhile, in the Texas court, LNB president Jacobs never mentioned to the judge that Halmos had been in his hire to investigate Whalen. When he said, “Christopher Whalen was promoting me, I thought, trying to convince me that Peter Halmos would be a good investor in my holding company,” Jacobs clearly wasn’t telling all he knew to the Laredo court.

Whalen and his attorney knew they had to get the Texas court to admit Halmos’s testimony to try to demonstrate that Jacobs’s statements were false and misleading.

But in a trial that grows more bizarre by the minute, when Whalen’s lawyer tried to admit the Halmos testimony, LNB’s lawyer objected on the grounds that it was “hearsay.” Visiting Judge Rey Pérez, sitting in while the regular judge was on vacation, upheld the objection.

Neither Peter Halmos nor LNB attorney Ricardo Cedillo have returned phone calls from El Andar.

Laredo National Bank and the Hanks have always been represented by prestigious and well-connected attorneys. They’ve hired Washington’s best: Akin, Gump, Strauss, Hauer and Feld, along with former Senator Warren Rudman, to represent them in their Fed case.

“That’s the difference between the movie ‘Traffic’ and reality,” says Whalen. “These guys don’t use mob lawyers any more. They use top-shelf national law firms and former government officials and lobbyists.”

Whalen speculates that the Hanks may be counting on their chummy relationship with the Bush administration to ease their woes with the Fed: Gary Jacobs was, after all, one of Bush’s top donors in the Texas governor’s races. And the Zachry family of Texas — long-time Bush friends — have just inked a partnership with Carlos Hank Rhon for a multi-million dollar energy project in Mexico, called Mérida III.

The Professor’s Tale

Today, Whalen’s case drags on in Laredo, where the national press pays little heed to the goings-on.

It has its dramatic moments. Whalen testified in the Laredo court that Gary Jacobs had threatened the life of reporter Dolia Estévez. Jacobs is a man known for blustering outbursts — he told PBS that “those cockroaches in the government are gonna pay” for investigating Carlos Hank Rhon’s bank.

Estévez is one of several journalists likely to be subpoenaed in yet another LNB lawsuit, this time one that was filed against professor Donald Schulz at Cleveland State University and author of a study titled “Narcopolitics in Mexico.”

In the spring of 1999, the Wall Street Journal identified Schulz as the probable source of a leaked government document code-named “White Tiger,” which detailed various criminal investigations of the Hanks and Jacobs. Soon after the story ran, Schulz received a threatening letter from the Hanks’ lawyer, demanding he give reasons why Carlos Hank Rhon shouldn’t sue him. Schulz says his first reaction was “a sinking feeling in the pit of the stomach.”

Then in August, just before his birthday, a man came to the door with a thick packet. “He informed me I was being sued, and I think my response was, ‘Lovely.’ We were hoping [the threat] would go away, but it didn’t,” says Schulz. “It had the effect of spoiling my birthday.”

Schulz is charged with spreading false and defamatory information on the Hanks and their businesses and associates. As part of the discovery phase of the case, LNB’s lawyers indicated that several journalists who reported on the White Tiger document s will be made to depose, Dolia Estévez among them. This case, which Schulz describes as “almost surreal,” promises to drag out into at least 2002.

Schulz doesn’t know how he’ll pay his legal bills “on a humble professor’s salary.” He has established a legal defense fund (see sidebar), and is sending out appeals to fellow academics.

“The object [of the suit], clearly, is to intimidate other researchers, scholars and journalists in order to deter them from investigating the Hanks and their associates,” he wrote to his colleagues. “Whalen, myself and probably others are to be made object lessons to those who might be tempted to write or provide information on the Hanks’ business dealings.” Schulz worries that if the Hanks are successful, other groups will be encouraged to adopt similar tactics. “The result will be a serious blow to academic freedom and free speech,” he says.

Down the Rabbit Hole

Today, Chris Whalen wonders why he bothered to testify before Senate committees, why he supplied DEA agents with information, or why he sent what he knew about the Hanks to the Federal Reserve Board when they asked. He feels let down by the government that he says once went to him for help.

“Why should any banker or private citizen assist U.S. government agencies…,” he asks, “when the U.S. Justice Department and other federal agencies do nothing to protect whistle blowers from harassment and attack…?”

Meanwhile, the trials go on, quietly, without notice. The war-torn reporters who have labored long and hard to cover the narco-business nexus are the same ones facing subpoenas. They can’t talk, admonished by lawyers to remain silent while they wait to depose. At El Andar’s press time, no Washington Post, no New York Times, no CNN has covered the LNB trials.

Across the country, editors won’t touch these stories — they’re too complex, I’m always told. Whalen agrees: “A reporter at the Wall Street Journal basically told me, ‘This is a bunnyhole. We can never explain this to our readers.’” But it’s also no secret that few publishers have the stomach for facing years of ugly lawsuits from billionaires such as the Hanks.

I’d like to just call these guys what I know in my heart they really are, but due to the threat of litigation, I can’t. I can tell you that without a bullet fired, they have silenced the press.

© 2001 El Andar Magazine





Who is
Peter Halmos?

Newspapers call him “litigious,” a modest understatement for a man who is always involved in one lawsuit or another. He once sued the IRS for $40 million. Another suit involved a consultant who, Halmos charged, got him fired from his own company, SafeCard, in 1992. The consultant became CEO of SafeCard and named Jeb Bush and two Bush supporters as directors of the company. Halmos sued for $78 million, and won. The Tampa Tribune called the affair “an embarrassing episode for Florida Governor Jeb Bush.”

By his own admission, Halmos has spent over $35 million on lawyers. His best-known counsel is Stanley S. Arkin, who has worked on the IRS suit with Halmos’s in-house lawyer and now business partner, Robert Arnold. Arkin represents Raúl Salinas, the brother of ex-President Carlos Salinas, now serving a lengthy prison sentence for murder and still under investigation for using Citibank accounts to launder millions in alleged Gulf cartel money. Arkin also defended a former vice president of Citibank who worked in the private banking division that handled the accounts of Raúl Salinas and Carlos Hank Rhon.

Were Raúl Salinas and Arkin the conduits who brought the Hanks and Peter Halmos together? Is there more to Halmos’s relationship with the Hanks than meets the eye?

One thing is sure — the multimillionaire seems a strange choice for multinational bankers to hire as an investigator. I called the state licensing boards of Florida and New York to check if Halmos or his Intelligence Services Corp. were licensed for private investigation — both boards said no. The question is, then, did Halmos break the law by investigating Whalen in those states?

—Julia Reynolds




Professor Donald Schulz, below



Readers who wish to donate to Professor Schulz's defense fund may send contributions payable to the "Donald Schulz Legal Defense Fund" to:

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