Former Norwalk Official Called ‘Front Man’ in Fraud Scheme

Former City Administrator William H. Kraus was described by a federal prosecutor Tuesday as the “front man” in a sophisticated fraud ring that used Kraus’ “good name” as part of a conspiracy to bilk a dozen investors out of more than $1.4 million.

Kraus was one of eight persons from California and Utah who were indicted last week by a federal grand jury in San Diego. In a 23-count indictment, the eight were charged with conspiracy to commit mail fraud, mail fraud and aiding and abetting mail fraud, with each count carrying a penalty of five years in prison and between $1,000 and $10,000 in fines.

The crimes allegedly took place between February, 1981, and August, 1983, while Kraus was city administrator and an instructor at Cal State Long Beach.

‘Air of Legitimacy’

“They (the conspirators) used him (Kraus) as the man with the air of legitimacy,” said Special Asst. U.S. Atty. John Heisner, also a San Diego deputy district attorney, who directed the 20-month investigation that led to the arrests.

In an interview, Heisner said that the fraud ring exploited Kraus’ credentials and reputation, and described the then-Norwalk city administrator as in “on the ground level” when the conspiracy was planned.

Kraus, 46, who is free on $50,000 bail, said in an interview Tuesday that he had “great confidence in the legal system,” and predicted the case against him “will be resolved most satisfactorily.”

He declined comment on the charges against him, as did his lawyer, Anna Ho of Gardena.

Kraus, who became the city administrator in 1973, resigned ten years later on Aug. 20, 1983, after an investigation by a lawyer hired by the city found possible illegalities in Kraus’ private business dealings. That report, which contained charges separate from the alleged crimes Kraus was indicted for in San Diego, was turned over to the Los Angeles district attorney 20 months ago, but that office did not file any charges against Kraus.

Initial Complaint

Last week’s federal indictment in San Diego against Kraus and seven other persons grew out of an investigation that began two years ago when a San Diego investment counselor complained to the San Diego police that one of his clients had been bilked out of $200,000 in a phony investment, Heisner said.

At Cal State Long Beach, where Kraus has taught since 1974, June Cooper, the university’s vice president of faculty and staff relations, said Kraus’ current contract expires in May, and it is “unlikely” that the university would take any action against him unless he is convicted.

Kraus, who has a Ph.D. in public administration, is paid $42,336 a year to teach students in four graduate courses at the university’s Center for Public Policy and Administration, including courses in public administration, management, budgeting and finance, Cooper said.

In Norwalk, where Kraus said he was considering a political comeback by possibly running for the City Council next year, the former city administrator still has loyal supporters as well as detractors.

“I’m not surprised that it (the indictment) happened, and I hope it causes some reflection among those who questioned why the City Council forced him out of office,” said Councilman Lou Banas, who had pushed for Kraus’ resignation.

‘Justice Has Prevailed’

“Finally, justice has prevailed,” said Walter Edsel (Ed) White, a civic activist who reviewed city phone bills and found the city administrator as far back as 1979 had accepted collect calls at City Hall from former business associates who were in prison. One of those who phoned him collect was Edward Elbert Wingender of Long Beach, who was also indicted last week as part of the eight-member fraud ring, said White. His inquiry led to an official city investigation of Kraus.

At the Norwalk Senior Citizen Center, where a photo of Kraus still hangs on the wall, an elderly woman who answered the phone Tuesday said she was speaking for many persons at the center when she said, “Dr. Kraus was very good to us senior citizens. He loved us and we loved him.”

She declined to give her name.

Jesse M. Luera, an assistant to the city administrator who runs the city’s Social Services Center, said that Kraus has “done a lot of good for the community in the past 10 years” and had hired many Latinos to work in city government.

Luera, also a Norwalk-La Mirada Unified School District trustee, said that Kraus told him three weeks ago he planned to attempt a political comeback next year and run for election to the City Council.

Kraus confirmed that he was considering such a move, saying he was disturbed by problems in city government that he blamed on Banas, whom Kraus claimed had a “divisive” effect on city officials. Kraus said that if he wins his case, he may still run against Banas.

Promised Safe Investment

But long before Kraus can run for office he must deal with the 29-page federal indictment, which charges the eight-man ring with allegedly duping investors of between $1.4 million and $2 million by promising safe investments that returned as much as 48%, according to court documents and Heisner.

The alleged scheme involved investments in American Factoring Corp., a Salt Lake City company. For their money, the dozen investors got the right to collect American Factoring’s accounts receivable (money Factoring was owed). Part of the enticement was that for every dollar invested in Factoring, the investors got rights to more than a dollar of receivables.

As a guarantee, the investments were said to be secured by titles to land owned by another company, Lanseair Corp. of San Diego.

But when the investors tried to collect on American Factoring’s receivables, they found the debts were “totally phony,” Heisner said. And when the investors tried to take title to the land owned by Lanseair, they found the titles had liens that were worth more than the land, Heisner said.

Heisner said the land typically had been purchased with no money down and inflated in value by “inaccurate” appraisals. He said the scheme funneled between $1.4 million and $2 million to the defendants, who he said spent the money on cocaine and “luxury items” such as limousines and parties.

Deeds Transferred by Mail

The defendants were charged with mail fraud because some of the deeds were transferred by mail, Heisner said. Kraus was charged in all 23 counts of the indictments.

The victims were an elderly Concord woman who lost her house and a $500,000 settlement that she had received to care for her paraplegic son, and 11 other California and Utah residents, some of whom lost everything they had, Heisner said.

Arrested with Kraus were Wingender, 34, of Long Beach; Lynn Dale Bogart, 36, of San Diego; Charles Carrasco, 50, a former member of the Del Mar Fair Board; Frank Consoli, 26, of San Diego; Rudy Decker Lang, 60, of Borrego Springs; Michael Moore, 46, president of American Factoring, and Alan L. Williams, a San Diego attorney.

The indictment links Kraus to the alleged conspiracy through the purchase of a beachfront condominium in Leucadia on April 15, 1981, from a San Diego doctor. The doctor “wasn’t going to go through with the deal until the person he saw he was going to sell it to was Dr. Kraus,” said Heisner.

Kraus bought the property, deeded it to Wingender, who deeded it to Lanseair, which defaulted on payments to the doctor, Heisner said.

Kraus also paid for real estate appraisals of land acquired by Lanseair Corp. that were later found to be inaccurate, according to the indictment and Heisner. The appraisals increased the value of the property from the purchase price of approximately $350,000 to more than $500,000, Heisner said.

Earlier Investment Scheme

Kraus also had dealings with Wingender in a 1977-78 San Diego County investment deal that defrauded two banks of nearly $80,000 and led to convictions for fraud of Wingender, Bogart and two other men, said Heisner.

Kraus borrowed money on behalf of Wingender and Bogart and wound up owing the banks $80,000, said Heisner. A federal prosecutor, however, concluded that Kraus, like the banks, was duped by the defendants.

In a confidential financial disclosure report to City Council members in January, 1983, Kraus said he knew in 1978 that he was aware that Wingender was “unscrupulous.” The report was made against Kraus in response to allegations of improprieties in his personal business dealings.

“As I became more and more aware of the unscrupulous and perhaps criminal conduct associated in this matter, not only by Wingender. . . . I served as a witness on behalf of the federal attorney in federal grand jury testimony in June, 1978,” Kraus wrote.

In addition to the 1978 charges, and a plea of guilty in 1980 to federal charges of possession of counterfeit money, Wingender pleaded guilty this month to federal charges of distribution and conspiracy to distribute cocaine, said Heisner.