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Ambassador Nominee’s Company Is Scrutinized

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Times Staff Writer

Those who know Roland E. Arnall describe him as a down-to-earth billionaire, one who is as comfortable pitching in at an animal shelter as he is commanding his business empire.

A Jewish refugee who survived the Holocaust as a child in France, Arnall co-founded the Simon Wiesenthal Center and is one of the nation’s top political contributors. The holiday bash last year at his 10-acre estate near the Playboy Mansion in Los Angeles was attended by Gray Davis and Arnold Schwarzenegger. And on July 28, President Bush nominated Arnall as ambassador to the Netherlands.

His fortune, an estimated $2 billion, was built refinancing homes for people unable to get traditional bank loans because of heavy debt, blemished credit or other issues. Ameriquest Mortgage Co., the company he founded more than 25 years ago, prides itself on helping these borrowers “achieve their homeownership dreams and meet their financial goals.”

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This same company, however, has been accused of a wide range of violations by federal and state authorities, community groups, angry customers and even former employees -- including allegations that Ameriquest runs “boiler rooms” of loan agents who sock borrowers with hidden fees and higher-than-promised interest rates.

Lawsuits allege that Ameriquest agents have engaged in fraud, falsification of documents and bait-and-switch sales tactics to boost their commissions. Former Ameriquest agents have described a workplace that, despite an official policy of adhering to industry “best practices,” richly rewards those who close deals by any means necessary.

Ameriquest, based in Orange, has denied any pattern of wrongdoing, but it recently set aside $325 million to cover liability from a 30-state investigation of complaints about deceptive lending and appraisal practices. In June, it agreed to pay as much as $50 million to settle a California class-action suit accusing it of bait-and-switch tactics.

How much these allegations and settlements reflect on Arnall’s stewardship is a matter of debate.

Arnall is by at least one account highly knowledgeable about his firm’s operations, but Ameriquest contends that any violations have been the work of rogue employees operating in defiance of company policy -- and that Arnall and his top executives are committed to rooting out problems when they find them.

Critics, however, say that Arnall, as founder, chairman and principal owner of parent company Ameriquest Capital Corp., must share some blame for the run-ins with regulators, which date back nearly a decade.

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“He may be a very compassionate person, but the head of a company must ultimately take responsibility for a pattern and practice like this, especially when it’s repeated,” said Robert Gnaizda, policy director at the Greenlining Institute in Berkeley, which lobbies on behalf of low-income communities.

Arnall, 66, declined repeated requests for interviews. Despite his prominence in the lending industry -- not to mention in politics and philanthropy -- he avoids the media and has rarely been interviewed. Even after his recent nomination for the ambassadorship, neither Ameriquest nor the White House would release a photograph of Arnall.

Friends and associates, however, say they cannot imagine him condoning shady dealings.

“I don’t know about companies; I’m sure big companies like that can be complicated,” said Rabbi Marvin Hier, dean of the Wiesenthal Center, who has known Arnall for 28 years. “But I would find it difficult to believe that he’s a chameleon who changes when it comes to business. I know he’s a straight guy.”

Even some of Arnall’s harshest critics concede they have trouble reconciling their impressions of him with the accusations about Ameriquest.

“If you know him personally, you would never think the company would be engaged in the kind of practices [Ameriquest] is promoting,” said Nativo Lopez, chairman of the Mexican American Political Assn., who has met with Arnall several times. “His companies have targeted poor people and minorities to fleece them, under the pretext that they are people with no credit, or poor credit, or bad credit.”

Ameriquest disputes those assertions, saying its computer systems exclude ethnic and social bias from lending decisions. It calls itself “among a handful of lenders” that have sliced 25% off of the cost difference between so-called prime loans for low-risk customers and the “sub-prime” loans available to higher-risk customers. Ameriquest says its customers typically are middle-class but can’t qualify for prime loans because of tarnished credit, an undesirable income history or “life issues” such as divorce.

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At the Greenlining Institute, which recently took the rare step of returning a $100,000 donation from Ameriquest, Gnaizda said Arnall was uncharacteristically unavailable to discuss the allegations of illegal and high-pressure sales tactics.

“I’ve met with him many, many times. I like the guy,” Gnaizda said. “He’s highly intelligent, very incisive -- a nuanced thinker. He’s as impressive as any CEO we’ve met with, and I’ve met with at least 40 CEOs over the last few years.”

Yet Gnaizda and other critics say the record demonstrates that Arnall hasn’t done enough to stop sales-driven loan agents from taking advantage of customers under financial duress. Others are concerned that Ameriquest’s lobbying and political donations are aimed at blocking laws that would crack down on abusive lending practices.

Ameriquest’s lobbying-activity reports to the California secretary of state show that the company has spent more than $1.2 million since 2001 to lobby Sacramento officials on proposed laws governing predatory lending, corporate exposure to lawsuits and other issues.

Arnall, his companies and his wife, Dawn, have made more than $8 million in political donations in California during that time, according to campaign finance reports filed with the state, putting him among the top contributors in the state. Those include huge gifts to Schwarzenegger’s committees, the state Republican Party and business-oriented causes, and also large contributions to Democratic stalwarts such as Atty. Gen. Bill Lockyer, Treasurer Phil Angelides and the Legislature’s Latino Caucus.

At the same time, the Ameriquest chairman and his wife gave $5 million to a group that supported Bush’s reelection.

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“This isn’t campaign money -- it’s government access money, and that’s what we should call it,” said Bob Stern, president of the nonpartisan Center for Governmental Studies in Los Angeles. “If you have strong convictions, you’re not going to give to both sides.”

Early this decade, as the Legislature considered bills aimed at curbing abusive lending tactics, Ameriquest lobbied on bills sponsored by prominent Democrats including former California Assembly Speaker Herb Wesson of Los Angeles and current Senate President Pro Tem Don Perata of Oakland, noted Steve Blackledge, legislative director for the California Public Interest Research Group.

Wesson, whose bill was considered weak by consumer groups such as CalPIRG, received $53,000 from Arnall and his companies in 2000 and 2001, and Perata got $10,000.

In late 2001, the Legislature passed a law backed by the lending industry. When Oakland approved a tougher mortgage-lending ordinance, Perata rallied a successful push to have the state law override it. Ameriquest gave him an additional $78,200 in 2003 and 2004.

A New York-based public relations firm hired by Ameriquest said Arnall gave to candidates he believed in, regardless of party affiliation.

“Like many Americans, Mr. Arnall tries to look past party labels and ideology,” the firm said in a statement. “If he likes a candidate and thinks they’re the right person for the job, he supports them. Many are longtime personal friends he supports even though he may differ with them on some issues.”

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As for his role at Ameriquest, the PR firm said that Arnall in recent years had “principally played the role of strategist and visionary for the company.”

Associates say Arnall is a charismatic presence at company sales conferences -- handing out instant bonuses to star employees, signing autographs like a celebrity and delivering inspirational speeches that appear to be off the cuff.

Judith Hopkinson, a former Ameriquest chief operating officer who worked for Arnall for 18 years, says his strength is as a big-picture leader who sets the agenda and motivates employees.

Even so, she described him as a workaholic capable of intense hands-on management at crucial times, such as when Arnall spun off a piece of his company in a public offering in the 1990s.

Robert T. Barnum, a former savings and loan executive, said he fretted when he joined Ameriquest’s board in 2003 that Arnall wouldn’t be focused enough on the company -- a worry that proved unfounded.

“I was amazed at the detailed stuff he knows at Ameriquest,” Barnum said. “I observed that he really understands at a very operational level what’s happening at the company.”

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Ranked at No. 106 on the Forbes magazine list of richest Americans, Arnall entered the mortgage business after early success in real estate development. His vehicle was Long Beach Savings, which he started in December 1979.

Federal law requires banks and thrifts to make loans in low-income areas. Major banks had largely ceded these customers to higher-cost finance companies. Arnall realized early on that sub-prime lending could be less risky than it was widely perceived to be, and saw an opportunity where others saw an obligation, according to accountant Donald Murray, who got to know Arnall while auditing Long Beach Savings’ books.

Arnall became one of the pioneers in modernizing sub-prime lending practices, using computers to identify prospective borrowers, predict and limit losses and speed up the loan process.

In 1994, Arnall began expanding into the mortgage industry nationally. Two years later, the U.S. Justice Department alleged that Long Beach Savings charged more for loans to minorities, women and people over 55 than it did for loans to younger white men with similar financial profiles.

The company said the variance reflected different degrees of risk, and blamed any problems on the independent brokers who initiated most of its loans. But it agreed to repay borrowers $3 million and set up a $1-million consumer-education fund.

In 1997, Arnall sold the part of Long Beach Savings that worked through outside brokers. He kept the part that made loans directly to consumers and renamed it Ameriquest. Now, Ameriquest Capital and its subsidiaries employ more than 15,000 people at about 300 U.S. offices, generating $82.7 billion in loans last year -- making it the No. 1 sub-prime mortgage lender in the country.

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Arnall has kept the company private, employing family members in key posts. Brother Claude E. Arnall, 60, formerly headed a unit. His second wife, the former Dawn Mansfield, 47, whose background is in commercial real-estate management, has been Ameriquest’s co-chair since about the time of their marriage in 2000. Nephew Adam J. Bass, 39, is the company’s vice chairman.

According to a company biography and associates, Arnall was born in Paris in 1939, the son of a Jewish family from Eastern Europe. When the Nazis invaded France and the police began rounding up Jews in late 1941 and 1942, “like other French Jews, they had to run for their lives,” said Hier, of the Wiesenthal Center.

After the war, Arnall’s family settled in Montreal, then moved to California in the late 1950s, where he began his entrepreneurial career selling flowers with his brother on Los Angeles street corners.

Arnall transformed the street trade into a small business, hiring employees and earning enough to purchase his first home, according to Ameriquest’s public relations firm. He later sold the house to buy an investment property, the first in a series of successful real estate deals.

Before he was out of his 20s, Arnall had established himself as a commercial developer with a knack for befriending politicians.

In 1968, he and Los Angeles City Councilman Art Snyder proposed using public land in Snyder’s Eastside district as a site for 500 housing units, some for low-income residents. Critics accused Snyder of pushing the project because of a $1,000 campaign donation from Arnall, who as the lone bidder paid the city $75,000 for the 30-acre parcel.

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In the end, the deal fizzled over issues including zoning and financing. Snyder said that what he recalled from that period was a young developer with a pronounced accent, large dark-rimmed glasses, an ironic sense of humor and a social conscience.

“He was willing to come into the poor community and try to help, even though it didn’t work out,” Snyder said.

The setback didn’t do much to slow down Arnall, who over the next decade became established enough to pursue grander ambitions in philanthropy, business and politics.

When Hier left Vancouver, Canada, for Los Angeles in 1977, determined to establish a Holocaust memorial and human rights organization, he already had financial backing from Canada’s wealthy Belzberg family. But it was Arnall who, after hearing Hier speak at a synagogue, provided him a place to drum up support for what became the Wiesenthal Center.

“Roland gave me a desk at his business there right off of Olympic and Bundy,” Hier recalled. “Whoever vacated a desk each day, that’s where I sat.”

Two months later, the rabbi and his enthusiastic young friend went to Vienna to ask Wiesenthal, the famous Nazi hunter, to lend his name to the center. “It was just the two of us who talked to him,” Hier said, “and Simon gave his permission.”

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Arnall’s first wife, Miriam Sally Arnall, with whom he had a son and a daughter, helped plan the first fundraising banquet for Hier’s center, and Arnall is one of three co-chairmen for the institution.

Many others have also benefited from Arnall’s philanthropy. Cyrus Mejia, an artist who operates a large Utah animal shelter, said Roland and Dawn Arnall didn’t just give him money -- they showed up to work with dogs and cats at the shelter and arranged an exhibit of his art at the Russell Senate Office Building in Washington. Acquaintances say Dawn Arnall is a strong advocate for the humane treatment of animals.

Several associates mentioned Arnall’s quickness to ensure that friends and employees had the best medical care and legal assistance when they needed it. In one case, former Ameriquest executive Hopkinson recalled, Arnall provided “hundreds of thousands of dollars” so an outside business associate could wage a legal battle with a larger company that had wronged him.

Arnall’s generosity to politicians is documented in campaign finance reports, which show a long list of donations mostly to Democratic candidates beginning in the 1970s, including Tom Bradley for governor, John Van de Kamp for attorney general and John Burton for state Senate.

Arnall loaned $25,000 to Edmund G. “Jerry” Brown Jr. in his 1978 gubernatorial bid, and Brown later appointed Arnall a trustee of the California State University system.

Arnall also played a key role as an advisor to Davis in his 1998 bid for governor, according to Davis strategist Garry South.

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During initial planning for that race, South recalled, Arnall told Davis that he would have to find at least 20 backers good for $250,000 each. He then volunteered to be the first such “partner,” corralled several other big donors and wound up spurring Davis’ fundraising to legendary levels, he said.

“Roland was responsible for Gray becoming governor,” South said.

When Roland and Dawn Arnall were wed two years later, Davis performed the ceremony.

A few years later, Arnall became a major backer of President Bush and Schwarzenegger, both Republicans.

In addition to the millions given toward Bush’s reelection, Arnall and his companies were the largest backers of the inaugural, providing $1 million for the bash.

White House spokeswoman Erin Healy wouldn’t comment on the president’s relationship with Arnall. But an Arnall friend, Rep. Tom Lantos (D-San Mateo), said Bush’s vigorous response to the Sept. 11 terrorist attacks struck a chord with the billionaire Holocaust survivor.

A longtime supporter of Israel, Arnall issued a statement after 9/11 describing Bush as “a leader with great integrity and courage who will rid the world of the scourge of terrorism.” He joined the Committee on the Present Danger, a Cold War-era group revived after Sept. 11 to battle Islamic extremism.

Arnall’s decision to switch his support from Davis to Schwarzenegger in the 2003 recall campaign came as the Democratic governor came under fire from business groups.

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“People generally had become very upset with California’s business climate, and Roland was shifting to that point of view well before Arnold identified himself as a candidate,” said Duf Sundheim, chairman of the California Republican Party.

Arnall has declined to state a party affiliation since 1998, voter records show, after registering as a Democrat at least as far back as 1982.

Beginning with the 2003 recall, the Arnalls have given more than $3 million to Schwarzenegger, committees he backs and the state GOP, campaign donation records show.

On his home turf in Los Angeles, Arnall for decades has supported a host of political figures, mostly Democrats, including the new mayor, Antonio Villaraigosa.

When Villaraigosa was Assembly speaker, Ameriquest gave $75,000 to a political committee he controlled. The company hired him in August 2001 after he left the Assembly, paying at least $10,000 for “business development and business consulting” -- tasks Villaraigosa told The Times were “strategic thinking and problem solving.” And the Arnalls, their company and top executives have contributed more than $15,000 to Villaraigosa’s mayoral campaigns.

If the Senate confirms Arnall as ambassador to the Netherlands, he would be required to resign as chairman of Ameriquest, though he would remain the principal owner. The management team that has run the business on a day-to-day basis for several years would continue to do so, Ameriquest’s public relations firm said.

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No formal opposition to the appointment has been launched, and at least one critic said Arnall was well-suited for the job.

“I think he’d be an excellent ambassador,” said Gnaizda of the Greenlining Institute. “I’ve watched his social skills at our meetings -- he’s nuanced, he’s charming, and he’s multilingual. Most Western European countries would appreciate a U.S. ambassador like that.”

Times staff writers Dan Morain and Jeffrey L. Rabin, researchers Scott Wilson and Lois Hooker, and special correspondent Mike Hudson contributed to this report.

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