Convicted Felons Handle Gates Fortune

Microsoft Corp. Chairman William Henry Gates III, with $6.8 billion of Microsoft stock, is one of the world's richest men. Helping manage his fortune are a handful of people - but none quite like Andrew Evans and his wife.

Evans and his wife, Ann Llewellyn, are convicted felons who have served time in jail. Evans also has a history of legal troubles with the Securities and Exchange Commission.

Yet Evans has power of attorney over a Gates personal partnership, William H. Gates L.P., which is a well-known trading account on Wall Street that just last month bought a 9.3 percent stake in Ligand Pharmaceuticals Inc. Evans also trades part of the Gates fortune and his own money through another account called Dominion, which is a big buyer of hot stock offerings. And he manages Gates' quarterly million-share sales of Microsoft stock.

"All I do is give Bill some advice as a friend," Evans says.

Gates, 37, and Evans, 41, have been close friends since 1978. They got to know each other in Microsoft's early days when they shared two passions: fast cars and hot technology stocks. Gates is the godfather to all three of the Evanses' children, who call him "Uncle Bill." Gates is also a friend of Evans' 40-year-old wife, who works closely with her husband.

But despite the couple's past problems, Gates, who as one of America's richest entrepreneurs could have his pick of the nation's best-known money managers, has chosen his two old friends to help handle his fortune.

No one has suggested that Evans or his wife have mishandled the software tycoon's money. And the Evanses have bounced back from their misadventures. Thanks to his management of Gates' big personal sales of Microsoft stock, Evans has enormous clout on Wall Street and can push around the biggest investment banks.

In recent months, for example, Goldman, Sachs & Co., Morgan Stanley & Co. and Alex. Brown & Sons have separately showered the Gates accounts with thousands of shares of red-hot stock offerings, including those of Peoplesoft Inc. and Compuware Corp. These allocations of initial public offerings enabled Gates and Evans to reap immediate, substantial paper profits.

Also recently, the SEC has begun quietly gathering information about the Dominion account from the compliance departments of several Wall Street securities firms. The SEC's Division of Enforcement declines to comment.

Despite repeated requests, Gates declined to comment for this article.

THOSE WERE THE DAYS

Evans, who grew up in Northern California, says he has always loved hot stocks and fast cars. As a boy, he habitually read two sections of the newspaper: the stock page, and the sports page to find stories about auto racing. He married Ann while both were attending Whitman College in Walla Walla. Later, working as an analyst and over-the-counter stock trader, he first met Gates in Microsoft's early days. Evans says he represented a company that sought to license a Microsoft computer language.

Evans reminisces about the days when he, Ann and Gates had more fun and less money. They ate $3 dinners at Burgermaster while Gates talked about technology. Evans would think about stocks, and they put together investment "strategies that worked," Evans says.

"It was one of the most important friendships" all three had, Evans says. When they weren't talking about technology stocks, they talked about cars. "Bill always liked fast cars," Evans says. "He had an old green Porsche 911. . . . He used to tell me stories about his trips down the highways of New Mexico. The spinning 360s that he did. They were the best days of our lives."

LEGAL TROUBLES

In 1980, Evans and his wife started a Seattle-area brokerage firm, Evans Llewellyn Securities. Facing big expenses and strapped for cash, Evans says they badly needed money to keep up with regulatory capital requirements. He says he took out a large bank loan and signed documents saying it was to buy real estate.

In January 1985, the SEC suspended Evans from the securities business for 30 days for aiding and abetting a customer's sale of restricted stock in 1981. Evans settled the SEC administrative action by agreeing to the suspension, without admitting or denying wrongdoing.

Later in 1985, Evans and his wife pleaded guilty in Seattle federal court to charges related to the earlier bank loan. In their plea, they admitted that they helped a bank officer fraudulently transfer $525,000 out of a Barclays Bank PLC branch. They were sentenced to six-month jail terms on charges related to bank fraud and agreed to pay restitution to Barclays.

"We knew we were breaking the law, but we thought we could pay it back," he says. We "were 30 years old, stupid and naive. We just didn't know how to quit; we didn't know how to throw in the towel."

In 1986, the SEC filed a civil complaint in Seattle federal court against Evans, alleging insider trading, market manipulation and other securities-law violations. The complaint cited his alleged activities as a corporate board member and trader in the stock of CMC International Inc. The complaint alleged that Evans learned of an impending loss at the technology company and dumped a large stock position prior to the public announcement.

Evans settled the charges, without admitting or denying any violations; he consented to a permanent injunction that could subject him to civil or criminal charges for any future securities violations. The SEC says he was barred from the securities industry, with the right to reapply after several years.

Gates was in the federal courtroom when his friends were sentenced to Geiger Field Prison in the bank scam. "He came to visit us in jail," Evans says.

BACK ON TRACK

At the time of his legal troubles, Evans says, he was in serious financial difficulty. Today, he is living the good life - the result of long hours devoted to trading stocks, says Llewellyn, who adds: "Nobody has given us anything."

Evans now has his own racing team, Scandia Motor Sports. Photos of Evans and two Scandia cars, in brilliant colors, were featured in a recent racing yearbook. Evans also helped drive the Scandia team to a third-place finish at the Miami Grand Prix last month. To reach the tracks, Evans and his wife fly around the country in a leased private plane.

Evans and his wife work from their home in Mill Creek, about 10 miles from Gates' house. They are up about 5 a.m., dialing brokers and trading stocks for accounts that handle the Gates money and their own. Gates is the sole general and limited partner in William H. Gates L.P., according to filings with Washington state. As for Dominion, Evans and his wife may be the only ones who really know what goes on.

"Dominion is the vehicle by which Ann and I invest our own personal funds," he says in one of a series of telephone interviews. Dominion is also "the name that is known on the Street as the account Ann and I have limited power of attorney to buy and sell for Bill," he says.

Evans says two former Microsoft officials who also give Gates financial advice, Craig Watjen and Steven Gray, "get a report." Watjen retired as assistant treasurer of Microsoft in June 1990 and today handles much of Gates' bond investments. Gray retired as Microsoft's comptroller in May 1991 and became Gates' personal accounting assistant about a year ago to help the billionaire watch his money.

Until a year ago, Evans kept the revenue generated from Gates' sales of Microsoft stock for investment purposes. Today, the proceeds go to an account over which Watjen has power of attorney. Now, Watjen says, "Andy has a set pool of cash, to which I don't add." Both Watjen and Gray say they review - but don't audit - Evans' operation. They say they know how much Evans and his wife manage for William H. Gates III L.P. but decline further comment to protect Gates' privacy.

Gray says he simply receives a monthly summary of Evans' trading, most of it in initial public stock offerings. Gray says: "I don't know Dominion, what it is, or what it's intended to be." The summaries may not specify the trading accounts used; Gray says he heard of Dominion only "about 10 days ago."

Evans and his wife, Gray says, "have the money, and the influence, they have the relationships" with Wall Street. He says: "I think these people (the brokers) would rather not do business with Ann and Andy if it wasn't for Bill."

Each quarter, Gates normally sells about a million Microsoft shares from his mammoth personal stake of 81 million shares. The sales can enable the lucky Wall Street firms that handle them to make millions of dollars. In addition, brokers want the prestige of dealing with Gates' personal shares and the market-making power in Microsoft stock.

Evans' management of these sales, a role confirmed by Watjen and Gray, gives him significant influence on Wall Street. Evans says he hands these shares out to Goldman Sachs, Microsoft's main investment banker, and to Alex. Brown in Baltimore.

HOW INFLUENCE WORKS

How does Evans' influence work? Hot initial public offerings are highly prized on Wall Street; individual investors frequently can't buy the shares at the offering or get only a handful.

One of Goldman's hottest deals last year was the Nov. 18 initial public offering for Peoplesoft, a Walnut Creek, Calif., software company, at $17 a share. On the first day of trading, the stock soared 80 percent to $30.25.

Goldman initially allocated the William H. Gates L.P. account a modest 5,000 shares. But Evans demanded more stock. Forget the Bill Gates name or the Microsoft banking relationship with Goldman, he says; the Gates accounts are an important source of commission dollars for Goldman, he says, so, "I don't need to use the Bill Gates name."

Evans wanted at least 10,000 more Peoplesoft shares. "This is what allocation we expect, given all the business we were doing," Evans says. He adds that Goldman Sachs did allocate another 10,000 shares. Goldman declines to comment.

On Dec. 8, Evans flew to New York to visit Goldman's 85 Broad St. headquarters. He had breakfast in Goldman's Dining Room 7 with Lawton Fitt, a Goldman investment banker who, Evans says, is "the captain" of Goldman's science and technology stock offerings. Donald Opatrny Jr., a Goldman partner, joined Evans and Fitt at the breakfast. Evans says they talked about Microsoft, stock deals and Evans' interest in Fitt's deals. "She wanted to find out how we worked and how we made our decisions," Evans says.

Evans says he also met with Goldman Managing Partner Roy Zuckerberg, "a very important man." Evans continued to put big money into Goldman deals.

That's what Evans did on Feb. 11, when Goldman sold 4.6 million shares for Sequent Computer Systems, of Beaverton, Ore., at $21.125 each. A Gates account bought 150,000 shares, Evans says. And to help Goldman support the stock after the offering, he says he ordered another 400,000 shares in the open market. Big "aftermarket" orders like that are critical for underwriters such as Fitt; they support prices of the new stock and can help make the deals successful.

Even with the Evans order, Sequent shares soon slumped below $20 a share, embarrassing Goldman. "I am sure she (Ms. Fitt) is unhappy about that," Evans says. "We made some money in Peoplesoft, but we are also under water in Sequent," he says.

On Feb. 18, Goldman handled a 500,000-share sale of Gates' Microsoft shares. The next day, Alex. Brown did a 625,000-share sale of Gates' stock. "We rotate between Alex and Goldman," Evans says. "Morgan Stanley would like that business."

Last Dec. 18, Alex. Brown underwrote an initial offering of 4.4 million shares for Capitol American Financial Corp., a Cleveland-based insurer, at $24 each. The stock soared 19 percent on its first day of trading. The Dominion account received a 40,000-share allocation, but Evans says he can't remember whether he bought for Gates or for himself and his wife. "Sometimes we put in, and sometimes we don't," he says. "We don't have the money Bill has."

A.B. Krongard, Alex. Brown's chief executive, says, "Dominion is, as far as I know, a well-established, well-thought-of institution that trades on the Street. When people think of Dominion, they think of Bill Gates. Ultimately, that is the money for Dominion."

Morgan Stanley executives have also accommodated Evans and the Gates money with generous stock allocations.

On Dec. 16, Morgan Stanley priced an initial offering of 8.2 million shares for Compuware, a Farmington Hills, Mich., software company, at $22 each. William H. Gates L.P. got 30,000 shares. The stock soared as much as 28 percent on the first day of trading.

On Jan. 20, Morgan Stanley offered one of the year's hottest deals - the 4.4-million-share initial offering for General Nutrition Cos., a Pittsburgh-based nutrition-supplement retailer. Morgan Stanley priced the stock at $16 a share, and it rose as much as 37.5 percent on the first day and kept rising in subsequent days. The Dominion account received a 30,000-share allocation.

"I am the one that decided to go after General Nutrition," Evans says. "I am the one that has the discretion." He adds: "I don't know if Bill knows anything specifically about General Nutrition. He believes in diversification from technology companies, and he gives me discretion."

PRINCES GATES

Morgan Stanley recently took an important step toward getting closer to Evans and the Gates fortune.

Managing Director Joseph O'Connor Jr., who runs Morgan Stanley's private banking unit in Switzerland, flew to Mill Creek and made a presentation to Evans.

O'Connor had once been in charge of dealing with wealthy people such as Gates from Morgan Stanley's Los Angeles office.

Evans says O'Connor invited him to make Gates a partner with Morgan Stanley and others in a private investment fund called Princes Gate. Evans says he committed $50 million of Gates' money to the private fund.

Morgan Stanley won't comment about Princes Gate or its dealings with Evans. But the private fund has already been useful to Morgan Stanley and a client. Last fall, Barnes & Noble, the debt-heavy bookseller, tried to sell stock with Morgan Stanley's help. The public offering was shelved, and Morgan Stanley bought the stock itself with the Princes Gate fund. About $7 million of Gates' money is in Barnes & Noble stock, Evans says. "All the managing directors review the deals," says Evans, expressing confidence in Morgan Stanley. "There's good due diligence on each deal."

STANDOFF WITH EVANS

But not all Wall Street firms deal with Gates' money on Evans' terms. Although Merrill Lynch & Co. has had an account in the name of William H. Gates L.P. in its San Francisco office for a few years, Merrill officials are apparently unwilling to sell it new stock offerings. The officials won't comment, citing client confidentiality, but it is known that Merrill Lynch has never handled sales of Gates' personal stock.

Merrill recently reinforced its standoff with Evans. On Dec. 18, Merrill handled a hot new stock offering of 5,347,500 shares for Maybelline Inc., the Memphis-based cosmetics company, at $23.50 each. When Merrill was putting together the allocation list, it received an inquiry from Smith Barney, Harris Upham & Co. for stock for an account called Lincoln Management. The name sounded a lot like a giant Chicago money-management firm, Lincoln Capital Management.

Merrill officials asked who Lincoln Management was and were told it was Gates' money. They then called contacts around the country to find out whether Gates or Evans was behind the Lincoln name.

Evans says he sometimes uses the Lincoln name. Merrill officials refused to sell any Maybelline stock to the Lincoln account. Maybelline shares climbed 16.5 percent on their first day of trading.

Evans says he got Maybelline shares anyway through Smith Barney.

A Smith Barney spokesman says, "The assertion that our syndicate desk went to Merrill asking for stock for the transaction is untrue."

FRIENDS AND MONEY

Evans says he has put his friend's money into a lot of other deals on Wall Street and made money every year for the already wealthy software king.

Evans says it is simple.

Dominion trades for Bill Gates and Andy and Ann. Evans says he sometimes pays a little more for stock bought for his personal account than Gates does. "So there is no conflict," he says. "Or I would buy in the aftermarket."

"All I am is Bill's friend," Evans says. "I have no official capacity. I don't get compensated for this at all."

Reprinted with permission of The Wall Street Journal. Copyright 1993, Dow Jones & Co. Inc. All rights reserved