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The Darts: Fear, Loathing, And Foam Cups


People: DYNASTIES

THE DARTS: FEAR, LOATHING, AND FOAM CUPS

Just before midnight on Sept. 9, 1993, a new home belonging to the secretive billionaire Kenneth B. Dart was doused with diesel fuel and set ablaze. No one was hurt; the house was not yet occupied. But the $1 million structure in Sarasota, Fla., burned to the ground.

Who did it? Sources say Ken Dart gave authorities a couple of possibilities.

Maybe it was Brazilian bankers. They were enraged because Dart, who owned 4% of that nation's foreign-held debt, was trying singlehandedly to scuttle a $35 billion debt restructuring.

Maybe it was Thomas J. Dart, Ken's older brother, who believes Ken cheated him when the family trust was restructured. He has sued to regain what he says is his share of the family billions.

Or maybe it was just some neighborhood kids making mischief.

TAX REFUGEES. The crime has not been solved. Tom Dart denies any role, and Brazilian banking authorities declined to comment. But the arson spurred Ken Dart to take a step he had been mulling for some time. Three months later, Ken, now 40, and his younger brother, Robert, 37, renounced their U.S. citizenship, State Dept. records show. Their new mother country is Belize--though neither lives there--and both have obtained Irish citizenship, too. Ken lives in a guarded compound in the Cayman Islands, while Bob lives in London. The brothers' move, several sources say, really had more to do with tax avoidance than security. Expatriating with them? Not their parents, wives, or children, but their tax attorney, Richard J. Rastall.

The Darts' expatriation was but the most dramatic step in an odyssey that has taken the enigmatic clan from Mason, Mich. (pop. 6,768), to the exotic worlds of international finance and Caribbean tax refugees. Although few have heard of the Dart brothers or their father, William A., BUSINESS WEEK conservatively estimates their fortune at $4.4 billion. While the Darts dispute this figure, it would place them among the world's wealthiest families. Over the past decade, Ken Dart multiplied the family's already substantial assets through investments so savvy they suggest he may become one of the world's most successful financiers. The Darts are the second-largest shareholders of Salomon Inc. and once owned 11% of the Federal Home Loan Mortgage Corp. Though Ken Dart failed to block the Brazil debt restructuring, which cut the value of the family's $1.4 billion stake by about 30%, Dart still makes plays in such emerging markets, traders speculate, as Poland and Ecuador.

The Darts, say several sources, feel overwhelmed by what they regard as intense public and government scrutiny of their lives and financial affairs. Ken and Bob declined comment for this article. But the shroud of secrecy around their dealings has parted recently, as lawsuits filed by three members of the family against other members shed light on the Darts' wealth and ways.

That wealth began with the prosaic plastic cup: Dart Container Corp. is the world's largest manufacturer of foam cups, a dull but intensely profitable business. Dart has 13 plants and between 3,000 and 4,000 employees worldwide, and industry sources say that its U.S. market share exceeds 50%. Based on figures provided by Tom Dart and a Coopers & Lybrand appraisal performed for him, Dart Container has annual revenues of about $1.2 billion and a gross profit margin of 26%. A spokeswoman says revenues are much lower but wouldn't provide a specific figure. Ragen MacKenzie Inc. analyst Daniel F. Nelson, who follows Dart Container rival James River Corp., says that if Dart were a public company, it would probably be valued at an earnings multiple of 15, or $2.63 billion, a figure the Dart spokeswoman disputes.

Like all the family's undertakings, Dart Container is swathed in secrecy. In the late 1950s, William A. Dart and his father, William F. Dart, a small-time manufacturer, developed a machine that could cheaply mold expandable polystyrene beads into cups. They never patented their invention--that would mean revealing how it works--and ever since have kept outsiders and even most employees from seeing the machines.

Dart Container's two-story headquarters features mirrored windows and a tall barbed-wire fence. The company won't even join the Mason Area Chamber of Commerce. "We don't know what's going on out there, either," says the Chamber's executive director, Joe Watkins.

SIBLING RIVALRY. When the boys were young, the Darts lived in a modest ranch house within sight of the plant. Townspeople say they were low-key and unremarkable. The boys attended the University of Michigan, but only Ken graduated. The rancor that would divide the family developed after Tom started working for the company. He became enamored of the then-booming oil and natural-gas business and wanted to siphon off much of Dart Container's excess cash into Dart Energy Corp., which he founded. But after Ken earned his chemical-engineering degree and joined the company, he vehemently opposed the oil and gas venture.

By 1986, the youngest, Bob, took Ken's side. The family restructured a trust, set up by William F. Dart, that divided assets equally among the brothers. Under the new agreement, Tom's trust received Dart Energy plus a $55 million payment to make up for the greater value of Dart Container, now owned by the trusts of Ken and Bob.

Tom later became convinced that his father, who controls the trusts, and his brothers had wildly undervalued Dart Container. He sued, and the case is winding through the Michigan courts. Tom's estranged 17-year-old son has also sued for his share of the family assets. Tom's biggest fears, though, are that his father and brothers are borrowing against Dart Container's U.S.-based assets and transferring the cash offshore--charges the Dart spokeswoman denies--and that his father will expatriate also. Then, even if Tom wins his case, "it's going to be a game of `Find the Assets,"' he says.

The 1986 trust restructuring enabled Ken Dart to begin playing the stock market with Dart Container's rich profits, and the budding financier's investments proved even more profitable than foam cups. The few investments Ken has made that triggered mandatory public filings with the Securities & Exchange Commission reveal a remarkable record of triple-digit returns (table).

G. Bruce Papesh, a Lansing (Mich.) stockbroker who has done business with the Darts for years, says Ken has a gift. Says Papesh: "How do you describe genius? He certainly has the capability [to be the next] Warren Buffett." By several accounts, Dart makes most trading decisions himself, though he employs financial analysts and number-crunchers at his base on Grand Cayman. He also relies on Paul Masco, Salomon's head emerging-markets trader, for advice. Masco declined to comment.

From interviews with relatives, competitors, former employees, and others who know Ken Dart, a picture emerges of a driven loner. He lives in self-imposed exile, traveling the world in his private jet or aboard a 220-foot yacht named after his mother, Claire. His wife, Janice, and their three daughters live in Sarasota. So do William and Claire Dart, now retired.

In April, 1994, local records show, Ken Dart bought a small Grand Cayman resort, the West Indian Club, for $5.3 million to use as his primary residence and as a compound for the extended family. Before that, says Tom, Ken had considered living on his yacht, which he had armored to withstand torpedo fire. Tom's take on his brother's reasoning: If the yacht never left international waters, Ken would be a stateless investor. Ken Dart won't comment.

By expatriating, Ken and Bob avoided hundreds of millions of dollars in income taxes on distributions Tom says they later took from their trusts. They also avoided capital-gains taxes on their investments. But both still own homes in the U.S. and benefit from federal contracts awarded to the family business. Although a Dart spokeswoman says that from 1992 through 1994 the company did $4.5 million worth of business with the General Services Administration, GSA records show that Dart Container won contracts worth $181 million in that period. "They're essentially having it both ways, and that's not fair," says Representative Sander M. Levin (D-Mich.), who has worked to close a tax code loophole that lets rich Americans expatriate and escape tax bills.

Although sources say Ken is devoted to his family, he's apparently willing to forgo their company to elude the taxman. "I've dealt with a lot of wealthy people, and there are two kinds," says a former Dart executive. "One kind just likes to win but isn't really trying to destroy the competition. Ken Dart is the other kind, like a primitive warrior who glories not just in winning but in standing in the battlefield with his foot on the chest of the slain foe."

Outside of making money and playing the piano, Ken is intensely interested in the workings of the brain. He has funded several scientists' research through the Darts' charitable foundation. Ken is an "obviously intelligent layman," says J. Christian Gillin of the University of California at San Diego, who conducted a Dart-funded study of how sleep deprivation affects brain function. "The brain as a frontier is a fascination" for Ken, says Frank M. Ochberg, a Michigan psychiatrist and terrorism specialist who has worked for the Secret Service and the FBI and is a regular recipient of the Dart foundation's largesse. Tom Dart says the fascination has a practical application. In 1991, he claims, Ken theorized that research might make it possible to keep his brain alive after his body died, enabling him to avoid estate taxes for eternity. Ken won't comment.

For his part, Robert C. Dart, Ken's quiet younger brother, is pursuing his own novel and aggressive estate-preserving strategy. On Feb. 4, he served his wife, Katina, with divorce papers filed a day earlier in British courts. The couple, who married in 1980, had lived in London just over a year--and Britain requires a year's residency before it will hear a divorce suit. In court papers, Katina accuses Bob of "forum-shopping" and of moving her to England expressly to avoid U.S. taxes and divorce her. She says his fortune alone is $1 billion.

If her allegation is true, Bob's strategy is darkly ingenious. In the U.S., a couple without a prenuptial agreement generally splits assets acquired during a marriage. But in Britain, the wealthy can use a tactic called "the millionaire's defense." The wealthier spouse pays an amount, set by the court, to provide for the other spouse's lifetime expenses. In so doing, the "millionaire" ducks any requirement to disclose his net worth. The richest such settlement in British history, says John F. Schaefer, Katina Dart's American attorney, has been $14.4 million.

Though Katina sued to move the case to Michigan, the Michigan judge has so far said only that he has jurisdiction over their children, who remain U.S. citizens. In June, a British court ruled it had jurisdiction over the division of property. So Bob may free himself of his marriage, as he did from his country, on the cheap.

Katina Dart's court filings reveal how the family may have gathered information on its debt positions. On Mar. 18, they say, the Darts' London home was raided by police because Bob Dart allegedly obtained classified "in-country reports" on Poland, the former Czechoslovakia, and Hungary early this year. The documents allege that these "top secret" reports, compiled by the CIA and British intelligence, were taken from the Special Air Services camp in Hereford, England. Consequently, Katina alleged, the couple could be deported before their case can be decided. British intelligence authorities wouldn't comment. A local police spokesman says it's "most unlikely [the raid] happened at all."

Even if Bob gets his millionaire's defense, he probably shouldn't rest easy. In a clan this contentious, you're never sure of your allies, Tom notes wryly. With the divorce, the allegations of stolen spy papers, and deportation in the air, "this would be an opportune time for Ken to squeeze Bob out," he says. The Dart spokeswoman says the notion is "outrageous and untrue." Still, says Tom, "Wealth and power can be incredibly seductive. With my family, it just gets more distorted and extreme." The argument has a certain logic. After all, half of $4.4 billion doesn't buy what it used to.

The Darts' Savvy Trades

Thanks to Ken Dart's canny investment plays, the family has seen its wealth swell

SALOMON INC.

-- Began accumulating stake in days following firm's August, 1991, Treasuries-market scandal. Eventually spent approximately $269 million for 8.85% stake

-- In March, 1994, shorted 7.6 million shares, netting $379.3 million. Made $56.8 million selling some shares outright

-- Still holds a 7.6% stake, presently worth $331.9 million

-- Gain: $499.0 million, or 186% thus far

IMMUCOR INC.

-- Bought 5.3% stake in late 1987 for about $811,500

-- Sold 1.3% stake in July, 1991, for $1.9 million

-- Bought more shares in mid-1994 for $1.9 million. Stake now worth $4.6 million

-- Gain: $3.8 million, or 469%

BRAZILIAN DEBT

-- Purchased 4% of Brazil's $35 billion debt in 1991 and 1992 for about $375 million

-- After a debt restructuring in 1994, the stake was worth $980 million

-- Gain: $605 million, or 161%

FEDERAL HOME LOAN MORTGAGE CORP.

-- Purchased 10.8% in 1991 for approximately $300 million

-- Sold in stages beginning in 1992, for approximately $1.3 billion

-- Gain: About $1 billion, or 333%

DATA: BUSINESS WEEK ESTIMATES; SECURITIES & EXCHANGE COMMISSION FILINGS; BLOOMBERG FINANCIAL MARKETS; THOMAS J. DARTBy Elizabeth Lesly in Mason, Mich.


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