Taking the Fifth: A Trend in White-Collar Crime Cases

As civil and criminal investigations close in on Janet F. McKinzie and her role in the collapse of an alleged $40-million fraud at North America Savings & Loan Assn. in Santa Ana, she has turned to a tactic those accused of white-collar crimes are using more and more these days in civil cases.

She has pleaded the Fifth--the constitutional amendment that allows people to withhold self-incriminating testimony.

“I refuse to answer on grounds it might tend to incriminate me” is a frequent refrain heard in criminal court cases, congressional hearings and, of course, in television crime stories.

But anytime the privilege is raised in a civil case in which the defendant also is subject to criminal charges, the result can deal a devastating blow to the plaintiff.

“It ruins a civil case,” said Richard L. Fruin Jr., a Los Angeles lawyer representing government regulators in a civil suit against Orange County banker John L. Molinaro. Molinaro, who also is under criminal investigation, is raising a Fifth Amendment claim in a court hearing Monday to try to halt the civil action.

In McKinzie’s case, her lawyers say they expect that a pending FBI investigation of alleged bank fraud and embezzlement will lead to her indictment on criminal charges stemming from the same conduct the Federal Savings and Loan Insurance Corp. is investigating.

Therefore, they say, she should not be required to reveal in the civil action information that she cannot be forced to reveal to prosecutors in an anticipated criminal proceeding. To do so, the attorneys argue, would violate McKinzie’s constitutional privilege against self-incrimination.

The tactic is not new, but it is being used increasingly as prosecutors start paying more attention to white-collar crime, especially bank fraud, securities fraud, defense industry fraud and claims arising out of the federal Racketeer Influenced and Corrupt Organizations law.

Even Ferdinand E. Marcos, the deposed ruler of the Philippines, is raising the issue in his refusal to answer questions in two lawsuits that the current Philippine government filed against him in Los Angeles to recover $52 billion.

Marcos and his wife, Imelda, both exiled in Hawaii, are accused of fraudulently taking billions of dollars out of the Philippines for their personal benefit.

“To be compelled to say things in a civil suit risks a person’s ability to defend any criminal action and flies in the face of the constitutional right against self-incrimination,” said Kenneth B. Wright, a Los Angeles lawyer who has defended several bank directors caught in the cross-fire of civil suits and criminal investigations.

If McKinzie is successful in invoking the Fifth at a scheduled Sept. 21 court hearing, she could stall for years the civil lawsuit filed against her by the FSLIC and could disrupt an eight-month-long probe by the regulatory agency into affairs at North America S&L;, which it declared insolvent and seized in January.

Civil suits, already clogging court dockets in Southern California, are taking up to five years to reach trial. And a Fifth Amendment claim that halts a civil action until a lengthy criminal investigation, trial and appeal are completed could add years to the time it takes to process civil cases, trial lawyers say.

Delays typically benefit the defendant. Witnesses can die or leave town, and memories fade quickly. And a defendant can continue investing money that may rightfully belong to a plaintiff, who could lose years of potential earnings from an award of money.

“It’s both a boon and bust from the view of a plaintiff prosecuting a civil case,” said Ronald L. Olson, a Los Angeles lawyer and litigation expert.

Although plaintiffs can be slowed down in pursuing civil remedies, he said, they can benefit from the fruits of an intervening criminal trial, where facts are developed that then can be used as uncontroverted evidence in civil cases.

While refusal to answer questions on Fifth Amendment grounds cannot be used against a defendant in a criminal case, a judge or a jury in a civil case is free to draw conclusions from refusals to answer, Olson said.

In the civil suit against McKinzie, confidante and business manager of Duayne D. Christensen, the late owner of North America Savings, the FSLIC claims that she helped Christensen mastermind the biggest fraud state regulators have ever uncovered at a California savings institution.

The agency is seeking records from one of her companies, but McKinzie claims that some of the information could be used against her in a criminal case.

And it is the simultaneous civil and criminal investigations that, her lawyers say in court papers, are forcing McKinzie to choose between two evils.

She can either waive her Fifth Amendment privilege by releasing documents to the FSLIC in the civil action--and potentially incriminate herself in a criminal action--or she can invoke the Fifth, severely weakening her civil case by thus limiting what she can testify about.

For their part, FSLIC lawyers claim the existence of a criminal investigation should not stall civil proceedings because no one can be sure the investigation will lead to criminal charges.

Besides, the agency contends, McKinzie cannot invoke the Fifth because the information the FSLIC seeks would not come from her but from one of her companies. And there is no Fifth Amendment protection for companies, FSLIC lawyers said.

A court-ordered freeze on McKinzie’s assets has helped calm regulatory fears that any assets she has will be spent and unavailable if she is ordered to pay a judgment. But Molinaro, the former chairman of Ramona S&L; in Orange, who was subject to a court-ordered freeze of his assets, allegedly transferred as much as $3 million cash to banks in two island nations in the Caribbean, regulators said.

Molinaro was arrested July 22 when he tried to flee the country using a passport bearing a dead man’s name.

His arrest on passport violations and an FBI investigation into his activities at Ramona prompted him to assert a Fifth Amendment privilege in an attempt to halt all civil proceedings against him. He says that the FSLIC is aiding the criminal investigation and that he cannot be forced to provide information that could be passed along to the FBI.

But regulators said they gleaned information on Molinaro’s offshore bank accounts from public records--exhibits attached to the criminal charges filed against him in the passport case.