Wallace Groves
Wallace Groves was an American financier and fraudster. After release from federal prison in 1944, he moved to the Bahamas where he founded and operated a free trade zone, resort, and casino development at what would become Freeport, Grand Bahama. He is credited with the development of the modern Bahamian economy of offshore banking. He was suspected to have links with the Meyer Lansky syndicate operating offshore casinos from Miami Beach.
Early life and education
Wallace Groves was born in Norfolk, Virginia on 20 March 1900. He attended Ursinus College and Georgetown University and was admitted to the Maryland Bar in 1925.Pre-war financier
He moved to New York from Baltimore, where he was a bond salesman. Groves made an early career in financial transactions on Wall Street. He was "a young, flashy, and successful investor, he was involved in several businesses and had controlling interests in several others, including the United Cigar Store and the Whelan Drug Store chain."In 1931, Groves began to assemble a collection of investment trusts and other companies through complex transactions, which came to follow a certain pattern. At the time, he was reported to have a net worth of $19 million.
Chain and General Equities
In 1931, Groves obtained control of Chain and General Equities by underwriting an offering to the stockholders of additional stock and then caused the election of officers of his choice to the board of directors, according to the SEC. Groves then sold to the company "642,517 shares of common stock of Interstate Equities Corp. for appr. $1,325,000 with a gross profit of $369,000 to said Wallace Groves." The stock had "little or no asset value."Suspicions
Two other companies, Interstate Equities of New York and Yosemite Holding of Detroit, also came under the control of Groves's Equity Corporation, by December 1932, netting Groves the market value of these companies "with the expenditure of very small amount of money." Stockholders filed suit against Groves and his associates. In 1933, Groves sold his control of Equity Corp to David M. Milton and Ellery Huntington Jr. His transactions caught the attention of the Securities and Exchange Commission, and from 1933 until his imprisonment in 1941, he was frequently in the news for legal or regulatory matters. Numerous other suspect transactions of similar nature were revealed to the public by the SEC.Phoenix Securities
In 1936, Groves was president of the Phoenix Securities Corp., with Philip de Ronde, chairman, and Walter S. Mack, Jr., vice-president. This company acquired control of, among others, the South Coast Co., the Celotex Co., and Allied Products. Corp. Groves acquired Phoenix through a hostile take-over in 1931. Phoenix then obtained control of Autocar, United Cigar, Certain-Teed Products, Whelan Drug Stores and other companies. By 1936, Groves revealed that he, as sole owner of offshore Company Montana of Panama, could carry out transactions through it without incurring taxes. This and other uses of foreign tax havens caused the Treasury Department to report Groves, de Ronde and others to the Congressional Joint Committee to Investigate Income Tax Avoidance and Evasion, alleging "financial legerdemain". Groves then also owned Nassau Securities, Ltd, a Bahamian shell company; de Ronde owned a similar shell. The Bahamian companies served as depositories for funds drained from U.S. companies in the orbit of Groves.Legal troubles
On 1 December 1938, the United States indicted Wallace Groves, his brother George S. Groves, Ernest B. Warriner and de Ronde on fifteen counts of mail fraud and conspiracy to defraud.The case attracted considerable attention in financial circles, where Groves was socially prominent. After lengthy, contested proceedings, on 21 February 1941, the two Groves brothers were convicted. Wallace got two years in federal prison at Danbury, Connecticut. George got eight months. They were each fined $22,000. After his release, Wallace Groves moved to the Bahamas.
Post-war interests in the Bahamas
Abaco Lumber Co
Groves first became interested in running a real business in the Bahamas through a lumber and sawmill operation on the largely undeveloped Grand Bahama Island 81 miles off the Florida coast. He used the Abaco Lumber Co. as the springboard for further business ventures. Grand Bahama was deforested in the process.Hawksbill Bill Creek agreement
From 1946, Bahamian finance minister and Member of Parliament Stafford Sands served as Wallace Groves's lawyer and helped pave the way for his business interests. In 1955, Groves secured the seminal Hawksbill Creek Agreement with the colonial government, ceding to him 211 square miles of Grand Bahama Island upon which to develop a free-trade industrial and resort zone. The agreement freed the Grand Bahama Port Authority from paying taxes, tolls, and excises for 25 years, and exempted it from other Bahamian laws, notably immigration laws. By 1965, 416 companies operated under license to the main exempted company. The zone gradually became the most modern, well-run, and prosperous part of the colony, although it was described as only nominally Bahamian.In 1963, after internal self-government was granted to the Bahamas, Groves further secured the right to operate gambling establishments at Freeport, using the services of Stafford Sands. At the same time, Sands and other high government officials received payments exceeding $1,000,000 from the Grand Bahamas Port Authority.
Investigations
The complex system of continuing payoffs to the "Bay Street Boys" — the white elite who controlled the Bahamas government — was detailed by the Royal Commission of Inquiry of 1967. The payments from the three casinos continued until the United Bahamian Party lost power in the 1967 elections.These payments were subject to investigation by the 1967 Commission of Inquiry. They were also detailed in an extensive exposé in Life Magazine, 3 February 1967. It was later reported that the decision to operate the casinos was taken in Miami Beach in 1961, at the mob-run Hotel Fontainebleau at which Meyer Lansky and other mob kingpins were present, and the hotel architect had included a central interior 9,000 sqft "squash ball court" which became the casino. According to Life, the Groves domains were merely the most lucrative component of a complex network of state-sanctioned criminal activities centered on off-shore companies, including money laundering and insurance fraud.
One source holds that Groves had fronted for Lansky "since 1951, when he sold valuable Key Biscayne property" for him, but another holds that Louis Chesler moved Groves into the Lansky orbit in 1961. The American public came to know first of the situation in the Bahamas on 5 October 1966, when the Wall Street Journal published a detailed exposé of the trades involving Groves, Sands, Lansky and others. The Journal also wrote that an unpublished tell-all book, The Ugly Bahamian, written by Alan Witver, a former employee of Groves, had been bought up and repressed by Sands.
Groves controlled his company both directly and through various partners. His wife Georgette was part owner, as was a British subject Keith Gonsalves. But Life noted that Groves's "silent partner in all three gambling salons and spokesman for the Syndicate is Lansky." The mob's take from the casinos were then estimated over a million dollars a year.
Freeport
The Freeport development, complete with a first-rate airport, became very successful and created a prosperous enclave catering primarily to American tourists, including cruise ship passengers, and to expatriate Americans choosing to live in stylish comfort close to U.S. shores. The Lucayan Beach Hotel became well-known and its casino, the Monte Carlo Room, attracted U.S. high-rollers. Reports in the 1960s were that the hotel was struggling, but the casino was exceptionally profitable, and the skim was transferred to the Miami mob. Groves's businesses could not, by statute, be audited in the Bahamas.Groves was also affiliated with the mob-owned La Costa Country Club in San Diego County. He promoted the development in the 1960s on behalf of Moe Dalitz, and was a frequent guest.