For James E. Stewart, It Was A Wonderful Life

This volume has it all. Glamour: a CEO jet-setting with Elizabeth Taylor. Mystery: missing files and tales of document destruction. Exotic travel: a $50,000 two-week jaunt to the Far East.

A torrid potboiler? No, it's the just-completed inquiry into the expense account of Lone Star Industries Inc.'s former chairman, James E. Stewart. The report, which also looks into expenses charged to the Stamford (Conn.)-based company by five current or former executives and directors, claims Stewart charged Lone Star almost $1.1 million for "purely personal expenditures."

Stewart's controversial expenses first came to light in a BUSINESS WEEK story (BW--Nov. 5). The revelations led to Stewart's stepping down from his posts at the company in January. Neither Stewart nor his lawyer answered BUSINESS WEEK's pleas for an interview. But when asked in March about the expenses, Stewart told BUSINESS WEEK: "That's all dead hash."

Not to shareholders of the cement supplier, which now is mired in bankruptcy court, where the report was filed. Stewart's successor, David W. Wallace, ordered the probe after investors threatened to sue. Conducted by the New York law firm Cahill, Gordon & Reindel, the inquiry focused on Stewart, former director Sheldon Kaplan, Lone Star President William M. Troutman, current director Rex D. Cross, and former executives Carmine J. Muratore and Robert W. Hutton. The report exonerates Troutman, but it claims the rest charged a total of $343,749 in purely personal expenses to the company between 1985 and 1990. "It's all absolute utter nonsense," says Muratore, the only one tarred by the report who was willing to comment.

ODD CHORD. Where did it all go? Stewart flew Liz on Lone Star's jet to Palm Springs, Calif., and to the Caribbean with golfer Raymond Floyd. (Neither Taylor nor Floyd could be reached for comment.) The report says Lone Star paid about $135,000 to the late Carl Eberhard for "consulting services." The service? Playing the piano. It also says Lone Star paid about $42,000 of a $60,000 tab for a wedding reception for Stewart's daughter held at the Hotel Ritz in Paris.

The report alleges as well that Stewart covered up the expenses. It says he ordered his secretary, who declined to comment, to destroy documents. Investigators also found statements from Stewart's personal brokerage account at Salomon Brothers Inc. that showed deep troubles in his margin account. The report notes that the statements are dated near the time that Stewart, who earned $551,995 in 1990, engaged Salomon on Lone Star's behalf at a fee of $1 million. A Salomon spokeswoman says she has "no idea" about any tie between Stewart's account and the firm's Lone Star work, and the report says that Kaplan denied any connection.

Shareholders will not be amused. They'll use the report, says lawyer Melvyn I. Weiss, to show that Stewart and others at Lone Star played "fast and loose with company moneys." Says another lawyer for shareholders, Myron Trepper: "You've got to scratch your head and say, `Who was watching the store?' "

Wallace explains that the board was unaware of most of the abuses but now has investigated them all. "No one has escaped our net," he says. Yet Cross, who the report says owes the company $66,282, remains on the board. Wallace isn't sure if Lone Star will try to recover the dough. Right now, he says, his focus is on fixing the company and bringing it successfully through Chapter 11. "The Stewart thing is titillating," he says. "It's a sideshow." But what a sideshow.

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