Sen. Phil Gramm, the Texas Republican who is a leadin member of the Senate Banking Committee, helped guide a troubled Dallas savings and loan operator in dealings with federal regulators one year after the executive had picked up nearly half of $117,000 worth of building expenses on the senator's waterfront vacation home in Maryland.
Back in 1987, Jerry D. Stiles, then a prominent homebuilder and developer in the Dallas area, took on a construction project for Mr. Gramm and his wife. The Gramms had bought more than 35 acres on a remote part of Maryland's Eastern Shore and needed a contractor to finish construction on the shell of a two-story house.
Mr. Stiles also owned three Texas savings and loans, which later failed. Regulators say the failures will cost taxpayers more than $200 million.
Mr. Stiles assembled a crew of workers in Texas, led by a skilled craftsman, and flew them to Maryland. There, lodged in hotels, they worked for a few months to finish the Gramms' 2,815-square-foot house along the Honga River in southwestern Dorchester County.
In constructing the interior of the house, Mr. Stiles advanced the $117,000 -- interest free -- for labor, materials and travel expenses that the job was said to have finally cost. But he never billed the senator until three months after the work was finished, and then he asked for only $63,000 -- the maximum Mr. Gramm had told Mr. Stiles he was willing to pay.
"I do not believe for a minute that the work on my house was worth more than I paid for it," Mr. Gramm said in an interview earlier this month.
Mr. Stiles' arrangement with the senator was unusual in the construction business. There was no written estimate or contract.
At least two federal agencies, including the Federal Bureau of Investigation, examined the relationship between the senator and Mr. Stiles in 1989 and 1990, according to documents and interviews. But the government decided not to investigate further, partly because the Senate Ethics Committee subsequently decided in January 1990 that the senator had not unethically accepted something from Mr. Stiles and did not owe him any money. The inquiry, which was requested by Mr. Gramm, did not include interviews with important witnesses.
Both he and Mr. Stiles have described the extra expenses to Senate investigators as a cost overrun that Mr. Stiles willingly assumed. At one point, after learning that the FBI was looking into the financing of the house, Mr. Gramm sent a check to Mr. Stiles to cover the difference plus interest. But after the Ethics Committee ruled, Mr. Gramm kept the money.
But an examination of Mr. Gramm's dealings with Mr. Stiles, who is now accused by federal regulators of helping to cause the failure of the three savings and loans, raises questions about Mr. Gramm's ties to members of an industry he helps oversee as a member of the Banking Committee.
Mr. Gramm acknowledged that it was unusual to hire a Texas builder and savings and loan operator -- more accustomed to putting up entire subdivisions -- to help finish a vacation house in rural Maryland. But he said he wanted to stimulate the sluggish Texas economy by providing jobs for Texas workers. And he said Eastern Shore contractors and laborers had reputations for being unreliable. Three or four Texas workers eventually worked on the job.
"I came up with the idea of getting a couple guys from Texas who were out of work," the senator recalled. "Sort of the 'hungry builder approach,' as I think I said to Jerry Stiles."
Mr. Gramm said he had not counted on air fares and hotel bills adding significantly to the cost because he expected that Texas workers, hard pressed to find jobs in a recession, would pay their own way.
The examination also illustrates how the Senate Ethics Committee can help quiet possible scandal. In this case, documents show that the committee's findings discouraged further investigation by both the FBI and the Federal Deposit Insurance Corp. The FDIC was trying to determine whether Mr. Stiles had paid for the work on Mr. Gramm's three-bedroom house with his own money or from federally insured deposits from any of his savings and loans.
In reaching its conclusion, the Ethics Committee relied on affidavits from the senator and Mr. Stiles.
In addition, the committee's ruling described Mr. Stiles as a "prominent Dallas homebuilder," making no mention of his involvement with the three savings and loans, which, regulators say, were used to enrich the Stiles family, according to court filings in Dallas.
Mr. Gramm picked Mr. Stiles as his general contractor at a time when Texas savings and loan executives were pleading for relief in Washington. Their institutions were rolling up huge losses, and Texas real estate values were plummeting.
Mr. Stiles has not returned calls left at his lawyer's office. He has no listed office or home numbers.