By Robert Bryce

JUNE 7, 1999:  In retrospect, the solutionto the mystery should have been obvious. David Waters had a motive. He had the opportunity. He had a violent criminal history, and most of all, he hated Madalyn Murray O'Hair. And yet, for a variety of reasons, the Austin Police Department and the Travis County District Attorney's office ignored those facts. Instead, they allowed Waters to remain free after he admitted stealing $54,000 from O'Hair's atheist organizations. And for nearly four years, they continued to ignore those facts, even as more and more clues began pointing the finger of guilt at Waters.

Now, four years after Waters admitted to the theft, he has pleaded guilty again -- this time to federal weapons charges. But in making their case against Waters, 52, on the weapons charges, federal law enforcement agents have also accused Waters of participating in the kidnapping and murder of O'Hair, 76, her son, Jon Garth Murray, 40, and granddaughter, Robin Murray-O'Hair, 30, all of whom disappeared in September of 1995. Last Wednesday, May 26, the day before Waters appeared in U.S. District Judge Sam Sparks' courtroom for a pretrial hearing, federal authorities released a 36-page affidavit alleging that Waters and three other men "executed the scheme to abduct, kidnap and murder" the three atheists "for the purpose of stealing at least $600,000 from the United Secularists of America."

Waters' lawyer, Patrick R. Ganne, derided the affidavit, saying it "looks like a script for Oliver Stone's next movie. It's full of speculation and guesses and nothing more."

According to the affidavit, which was used to obtain a search warrant for Waters' apartment on North Lamar, Waters and three accomplices killed the atheists and then disposed of their bodies by stuffing them into blue plastic barrels. The affidavit speculates that Waters, Gerald Lee Osborne of Ft. Worth, Gary Paul Karr of Novi, Michigan, and Danny Raymond Fry of Naples, Florida, participated in the murder scheme. Later, Waters and Karr turned on Fry, says the affidavit, "and killed him. They then dumped the beheaded and handless body of Fry in Dallas County, Texas."

It's a gruesome tale of greed and murder. It's also a gruesome tale of law enforcement lethargy. Despite pleas from O'Hair's son, William J. Murray, several briefings from federal agents, and solid leads developed by members of the press, the Austin Police Department sat on the sidelines of the O'Hair investigation for nearly three years. And now, thanks to its apathetic approach toward the investigation, the APD, the agency that should have been leading the search for the O'Hairs, has been excluded from the investigation. Meanwhile, investigators from the Internal Revenue Service, Federal Bureau of Investigation, Bureau of Alcohol Tobacco and Firearms, and the Dallas County Sheriff's Office are working together on the case. Last week, just before Waters pleaded guilty to the weapons charge, a federal agent was asked to discuss APD's actions in the O'Hair case. His only response was to roll his eyes in amazement.

Commander Gary Olfers, who heads the APD's central investigation division, admits that the APD has had a "falling out" with federal authorities on the O'Hair case. And he acknowledges that the O'Hair investigation was not the department's finest hour. "In hindsight, there are a number of things we would do differently," Olfers said.

The Oldest Motive: Revenge

The affidavit of Edmund I. Martin, a special agent with the Internal Revenue Service, quotes a source known as "CS-2" as saying that it was Waters who stole the equipment and bonds. Waters' attorney, Ganne, identified CS-2 as Patti Jo Steffens, Waters' former girlfriend. The affidavit says that according to Steffens, Waters tried to use the computer "and to negotiate the bonds but failed and he ultimately destroyed the computer and the bonds."

Emboldened by his successful heist of the bonds and computer, Waters, who was now working as the atheists' office manager, set his sights on the organization's bank accounts. In 1994, while the three atheists were in California defending themselves in a $6 million lawsuit brought against them by a lawyer representing the estate of deceased atheist James Hervey Johnson, Waters began pilfering their bank accounts. Between March 30 and April 8, 1994, Waters wrote checks to himself totaling $54,415. When the atheists returned from California and found what Waters had done, they were outraged. They immediately went to the Austin police. But according to a July 1995 article in the American Atheist Newsletter, written by Madalyn Murray O'Hair, "the police were reluctant to make an investigation. Everything had to be undertaken by American Atheists." O'Hair continued, writing that although Waters' name was typed on every check he had cashed, "the police simply refused to pick him up. If Mr. Waters had stolen this amount of money from any church, or had invaded the home of any minister, he would have been arrested within hours, tried and convicted within days, and would even now be serving a term in the Texas state penitentiary."

Rosemary Lehmberg, first assistant in the Travis County District Attorney's office, confirms that investigators were less than zealous in their investigation of the theft. Lehmberg says police "had to satisfy themselves" that the O'Hairs hadn't participated in the theft. Whatever the reason for the delay, O'Hair's article shows that the DA and the APD repeatedly delayed their investigation and prosecution of Waters. For instance, Waters was not indicted for the theft until July of 1994. At that time, he posted a $10,000 bond even though a grand jury had recommended setting the bond at $50,000. Over the ensuing 10 months, Waters' trial date was reset 14 times. "On two of these occasions, Mr. Waters' attorney did not even bother to come in to court, but the trial was set over each time anyway," wrote O'Hair.

Finally, on May 22, 1995, Waters appeared in court and pleaded guilty to theft. According to Lehmberg, the O'Hairs realized that if Waters were sent back to prison (a habitual criminal, Waters had numerous prior convictions, including murder, assault, and forgery), they would never see the $54,000 again. So they asked that he be ordered to pay restitution instead. Lehmberg says prosecutors agreed.

But in the end, Madalyn Murray O'Hair was apparently far from pleased with the disposition of the case. Waters was given deferred adjudication, meaning that if he paid back the money and stayed out of trouble for 10 years, the theft charge would be removed from his record. O'Hair was infuriated. "We hope you understand," she wrote in the newsletter, "how betrayed we have felt; how discouraged with 'law and order' this makes us feel."

O'Hair couldn't get even with the police, but she did try to get even with Waters. In the same article in the newsletter, she detailed every one of Waters' prior crimes, including a 1977 battery charge in which Waters beat his own mother. O'Hair called the incident "especially chilling" and said it "included his beating her with a broom handle, breaking wall plaques over her head, cursing, urinating in her face and demolishing her apartment."

O'Hair may have enjoyed writing about Waters, but her poison pen may have cost her her life. According to agent Martin's affidavit, Steffens -- Waters' former girlfriend -- said that after the article appeared, "Waters had serious change of attitude [sic] regarding the O'Hairs. Waters mentioned that he would like to get revenge for what had been written and expressed fantasies of killing Madalyn. He spoke about seeing Madalyn suffer and snipping off her toes."

The Plot Is Hatched, Executed, Covered Up, Then Ignored by APD

But Waters had a problem: He had to convince the cops that he was innocent of any wrongdoing in the disappearance of the O'Hairs. And for nearly four years, he was successful. Looking back on the episode, Lehmberg says, "Waters fooled everybody, including the police and us."

The question is: Why were they snowed so easily? The easiest answer is that Waters is a skilled liar. Last fall, during interviews with the Chronicle, he gave three or four different responses to the same question and was always able to somehow make them sound plausible. In addition, Waters was able to cloud the investigation from the beginning by showing investigators documents indicating that the O'Hairs had stashed money in a New Zealand bank. Lehmberg says Waters also showed investigators credit card receipts and letters that seemed to indicate that the O'Hairs had been planning to disappear.

But why didn't APD investigators look harder? Spike Tyson, the former office manager at the atheist headquarters, told me last fall that the APD only talked to him once. And when they did, "They asked me if I knew where the O'Hairs were," said Tyson. "And I said no. That was it." Tyson knew many of the details regarding friction between Waters and the O'Hairs. He also knew many details about the condition of the O'Hair's home immediately after the disappearance. But the police never asked Tyson about the condition of the home, or any of the details concerning their last days at the office.

Police also apparently discounted the O'Hairs' fear of Waters. In her article in the newsletter, O'Hair wrote that she, Jon, and Robin had asked authorities to issue a restraining order against Waters, but according to O'Hair, the judge in her case refused to issue one.

Up until August of last year, the APD may have been justified in their approach to the O'Hair case. There was no proof that foul play was involved -- little evidence at all, in fact -- and it appeared quite possible that the O'Hairs could have simply decided to disappear on their own.

But several events occurred last August that should have changed the APD's approach. First, APD investigators were given a complete dossier on the O'Hair disappearance by an anonymous source, who provided names, dates, and contact information for all of the principal players in the plot to rob and kill the O'Hairs.

Then, on August 16, John MacCormack of the San Antonio Express-News ran a story that at all but named Waters as the lead suspect in the case. The story detailed Fry's disappearance and noted the number of phone calls Fry had made from Waters' apartment. About the same time, federal authorities met with APD investigators to discuss the case. The federal agents laid out their theories in the case and asked if the APD wanted to get involved in the investigation. But the APD's Olfers, who was not at the meeting, says the meeting still did not give APD investigators enough information to proceed. "There were a lot of theories presented, but no evidence," Olfers said.

At that meeting, the federal authorities quickly became exasperated. "Their attitude was, if you want to be a part of the investigation, fine. If not, we are going to go on with our investigation," Olfers said. And that's exactly what happened: the FBI, IRS, and ATF pushed their investigation, which has already resulted in Waters' conviction on the weapons charge.

What Happens Now?

Waters faces up to 20 years in prison and a fine of up to $500,000 on the weapons charge, to which he pleaded guilty. Sentencing is scheduled for July 30. But he could also be brought back into state court here in Travis County for violating the terms of his deferred adjudication in the theft of the $54,000 from the O'Hairs. And according to Lehmberg, a local district court judge could sentence Waters to any length of time in prison for the theft. Meanwhile, federal and state authorities are hoping to convict Waters of murder. But while both Waters and Karr are suspects in the presumed murder of the three atheists, federal authorities have a problem: They don't have any corpses. A Good Friday search of a ranch near Camp Wood with dogs and a backhoe found nothing. The FBI returned to the same site, west of San Antonio, last month, but again, came up empty-handed.

However, Gerald Carruth, the assistant U.S. attorney for the western district of Texas, appears unconcerned. Speaking on the steps of the federal courthouse after Waters pleaded guilty on the weapons charges, Carruth said, "I hope justice was served here today." He refused to discuss the O'Hair case or the damning affidavit. But he reminded reporters that there is no statute of limitations on murder. When asked about the lack of corpses in the O'Hair case, he casually mentioned the name of Colleen Reed, a 28-year-old Austin woman who was kidnapped and presumed murdered. Kenneth Allen McDuff was executed last November for the 1991 abduction and slaying of Reed, an accountant. McDuff was convicted of the murder in 1994, even though Reed's body had not been found. Reed's remains were finally found last October in a shallow grave near Marlin. But prosecutors may not have to go that route; if Waters is charged with murder any time soon, it will likely be for the murder of Fry. In that case, authorities have a body, and according to the affidavit, they appear to have some other physical evidence. They also have strong circumstantial evidence linking Waters and Karr to Fry shortly before Fry disappeared.

But even if Waters is indicted for murder in the O'Hair or Fry case, the charge won't be made by the APD. Instead, the prosecution will come from federal authorities or the Dallas County Sheriff's Office. And that angers William Murray. Murray, the chairman of the Religious Freedom Coalition in Washington, D.C., said he is gratified that the mystery surrounding the disappearance of his mother, brother, and daughter appears to be coming to a resolution. But he says that resolution has nothing to do with any effort put forth by the APD. The APD, says Murray, "treated this case as if they were investigating the disappearance of a prostitute."

But pinning all the blame on the APD may be too easy. The O'Hairs' fellow atheists also deserve some blame. Right after the three atheists disappeared, Ellen Johnson, the new head of American Atheists, assured reporters that nothing was amiss. "Madalyn is just fine," she said. "This has nothing to do with her health."

And neither Johnson nor Tyson ever asked the APD investigate the disappearance. That was left up to Murray, even though he lives a thousand miles away, in the Washington, D.C., area. Of course, some of the atheists' reluctance may have been due to their strained relationship with the APD, but it shouldn't have precluded them from demanding that the police do a thorough investigation.

Certainly, there is plenty of blame to go around. And APD's Olfers said he is sorry to hear of Murray's disappointment in his department's work. But, he says, "hindsight is always 20/20." That is certainly true. But it's also clear that the APD is having a hard time explaining why it virtually ignored one of the most publicized murder mysteries of the past decade.

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