John Galanis, Accused of Giant Fraud, Still Defiant

John Peter Galanis, the 44-year-old financier whose career has been a 20-year continuum of big money and big trouble, vividly recalls the day in April, 1986, when his grandiose plans to rebuild a part of Atlantic City, N.J., began to crumble.

For it was on that spring morning that dozens of federal agents, guns drawn, raided a quiet mid-rise suburban office in Greenwich, Conn., looking for records of tax shelter projects in which Galanis was involved.

“Everybody stopped,” Galanis recalled in a recent rare interview. “They froze. You had (video) cameras going. Lights. You had guns on everybody. You had pistols. You know what happens to a secretary when four men are around her with guns? Panic.”

Life has not been kind to Galanis since that raid, and the news seems to only get worse for the colorful ex-convict from Ipswich, Mass., who is sometimes referred to as one of the top 10 white-collar crime figures in America today.

Galanis stands accused of cheating thousands of investors in real estate and petroleum deals and defrauding a California mutual fund. So much money has been lost by investors that Galanis is frequently compared to fugitive financier Robert A. Vesco, who has been accused of looting an overseas mutual fund of nearly $400 million.

Total investor losses and tax losses to the government in Galanis-connected tax shelters since 1982 have been estimated at $500 million and $650 million by prosecutors and former project insiders.

Since the office raid in Greenwich, Galanis’ $104-million project in Atlantic City collapsed, he has been named in three separate securities fraud indictments in New York and he spent from mid-May to early August in jail because he couldn’t make bail. He is also the target of dozens of investor lawsuits.

At the heart of state and federal charges are allegations that Galanis intentionally hid his role in major tax shelter partnership offerings because he and business colleagues operating as his front men didn’t want to reveal his criminal background to investors.

Galanis, though, said he hid nothing and sought to lay the blame for lack of disclosure on executives with whom he worked. He claimed he was merely a consultant to the partnerships, helping with financing and marketing.

“The documentary evidence in my favor is staggering,” he said.

Galanis said he has never before granted an interview, though he did once agree to answer written questions from a reporter in San Diego. The interview with The Times was recorded by a stenographer at the insistence of Brian Barrett, Galanis’ attorney, who was also given a copy of the transcript.

Just last Tuesday--two weeks after the interview--Galanis was reindicted on federal fraud charges in connection with a takeover of three affiliated Oakland-based mutual funds, known as the ISI funds, and a Connecticut savings and loan.

Had Little Information

The “Galanis organization”--which included a former Stanford University football player--received nearly $4 million by selling securities at inflated prices to the ISI investment funds, according to an indictment handed down by the U.S. Attorney’s office here.

If Galanis is worried by the government charges, he disguises it well. He called the evidence in the New York state indictment against him--which focuses on the Atlantic City project known as Boardwalk Marketplace--”slim” and “inaccurate . . . at best.”

He added: “To try to put together what had occurred from those documents would be a little bit like finding the left wrist bone and right kneecap of a pre-humanoid . . . then describing the whole life pattern from that pre-humanoid species. That is how little information they had.”

Galanis made his remarks as part of a recent wide-ranging, hopscotch-style interview in what amounted to a publicity counteroffensive for the controversial tax shelter promoter. Galanis has been the subject of intense media scrutiny in recent months, particularly after New York City and San Diego County police arrested him in a pre-dawn raid on his beachside home in Del Mar, Calif., in mid-May.

Became Prison Activist

Asleep with his wife, his two youngest children in an adjacent room, Galanis said he awoke to the sound of his barking dog and arose to find his home being searched by police who had federal and New York state warrants for his arrest.

After nearly three months in jail in New York City, he was released from custody Aug. 7 after pledging as collateral several pieces of family-owned property and his wife’s jewelry. Galanis by then had lost much of the girth that had earned him the nickname, “Fat John.” He now weighs about 235 pounds, 55 pounds less than he did when arrested. A vegetable diet in prison did the job, he said.

Galanis survived his time in prison seemingly unscathed, though it included several weeks at tough Rikers Island, where accused white-collar criminals are a rarity. While there, Galanis says, he became something of a prison activist, encouraging inmates not to plea bargain solely to get out of Rikers.

Now confined to the New York area by court order, Galanis repeatedly professed his innocence and expressed confidence that the courts will vindicate him once his side of the story is fully explained. Often, he placed a benign spin on events that prosecutors view as criminal.

At one point in the interview, tears welled in Galanis’ eyes when he described how the indictments have divided his family.

Among those now helping prosecutors prepare their case against Galanis is Thomas J. Williams, who used to be married to the sister of Galanis’ wife, Chandra. Williams, 32, had been Galanis’ attorney and close friend until last year.

Confirmed Business Mistakes

Galanis is particularly bitter toward Williams as well as another former colleague, John M. Lewis, 45, who is also helping prosecutors. Williams and Lewis have both pleaded guilty to criminal offenses.

Though Galanis denied any criminal intent, he confirmed business mistakes that led to the collapse of the tax shelter projects, including Boardwalk Marketplace.

He also gave his version of why he received more than $5 million--including payments for personal expenses and unrelated legal bills--from that partnership venture in Atlantic City and how he came to view that project as a means of restoring his battered reputation.

And he explained how he arranged financing for a controversial purchase of ISI Corp., investment adviser to the ISI group of mutual funds. The buyer was Galanis’ pal and drinking buddy, Douglas C. Adams, a Stanford football player in the heyday era of Jim Plunkett. Earlier this month, the 38-year-old Adams pleaded guilty to fraud and conspiracy in connection with his role at ISI. Adams, who lives in Austin, Tex., could not be reached.

The New York state indictment--the one that Galanis belittled as incomplete--centers on the failure to disclose Galanis’ role in Boardwalk Marketplace, which was financed through a series of tax shelter investment partnerships.

The project was designed to renovate several square blocks of rundown residential and commercial real estate just off the Atlantic City boardwalk. The partnerships were run from Greenwich, Conn., by Nashua Trust, also known as Natco.

Though other Galanis-connected partnerships failed, none was as dramatic as Boardwalk Marketplace. Natco, which from 1984 to 1986 raised about $77 million in cash and notes from investors nationwide, had $10,000 in cash when it filed for bankruptcy protection more than a year ago.

Played Architect’s Role

Galanis was the dominant force behind Natco, though he wasn’t listed in the offering materials as an officer or a director, according to the state indictment.

“It was part of the conspiracy to conceal the true involvement of Galanis in the Natco partnerships,” the indictment said. “Galanis was the financial organizer and creative mind behind the scheme. He managed the financial and corporate structure of the conspiracy. He was the person who controlled the acquisition of real estate and the syndication of the limited partnerships.

“He devised the business and marketing concept and supervised its execution. Galanis also recruited other conspirators. It was part of the conspiracy to conceal the background of Galanis in order to facilitate the sale of units in the Natco partnerships.”

Galanis, however, compared his role as consultant to Boardwalk Marketplace to that of an architect for a building.

“Does it add any intrinsic value--or deduct intrinsic value--(to know) who the architect is, if the architect’s role is isolated and insulated from any further event or contact?” Galanis asked. Further, he argued, investors didn’t care anyway. They were motivated by large tax writeoffs and weren’t concerned with who was actually running the partnerships.

“You could have seven pages of John Galanis disclosure,” he said. “It would not have changed a bloody thing.”

This issue of disclosure has dogged Galanis since 1973, the year he was released from federal prison in Danbury, Conn., after serving a six-month term for manipulating the prices of certain stocks. He has also twice been temporarily barred by the Securities and Exchange Commission from selling securities, including limited partnerships.

No Secret to Lenders

Galanis claimed it didn’t matter to him if his name and background were included in the Boardwalk Marketplace offering materials. That was a decision made by lawyers and executives who ran the partnerships, he said.

“I faced this disclosure issue,” he said. “I have been facing it ever since my past problem. It’s not one that I have run away from. It’s not one that I hide from.”

Galanis said that his connection to Boardwalk Marketplace was no secret to lenders. And, he acknowledged, it was this connection that made banks nervous and eventually made it difficult for Natco to obtain construction financing for completion of the Atlantic City renovation work. (The money raised from investors was largely used for property purchases and Natco’s operating expenses.)

“I could not grasp this,” Galanis admitted. “It made an enormous difference to lending institutions.”

Despite his argument that he played only a limited consulting role, Galanis acknowledged that he “got carried away” with Boardwalk Marketplace and that his involvement extended even to approving the color of the promotion brochures for investors. “I fell in love with the Atlantic City project,” he said. “I viewed that, wrongly, as a monument to rebuilding (my) reputation.”

The state indictment also charged that Natco improperly funneled more than $6 million of investors’ funds into Galanis family bank accounts in 1985 and 1986.

Though Galanis confirmed receiving more than $5 million, he claimed they were legitimate payments for consulting fees, financial services and loan repayments.

Galanis explained huge personal living expenses that were paid for with a company credit card as the way Natco repaid him money he had lent the partnerships. These expenses ran as high as $60,000 a month. Galanis said that there are documents to prove that he in fact made loans.

Denies Running S&L;

Natco also paid Galanis’ legal bills in a pending criminal case in which Galanis is charged with misusing loans from Chase Manhattan Bank. Natco covered those bills “in order to keep me available,” Galanis said. “That was part of the cost. That was part of the price.”

Tuesday’s indictment contained new allegations that Galanis and his colleagues took control of Westport, Conn.-based Columbia Federal Savings Bank through “fraudulent misrepresentations” to savings and loan regulators. Arthur D. Mason, a highly decorated Vietnam War veteran and former congressional candidate from Massachusetts, was indicted in connection with this charge.

Mason was once chairman and controlling stockholder of Columbia Federal, a financial institution that lent heavily to acquire property for Boardwalk Marketplace. Mason’s law firm was also legal adviser to the limited partnership offerings.

Galanis helped Mason finance his ownership in the savings and loan, but denied he secretly ran the financial institution. “Did Arthur Mason seek my advice?,” Galanis asked. “Sure, he did. (But) Arthur Mason is his own man. You better believe he is.”

The new federal indictment also says the “Galanis organization” took control of and misused the assets of three mutual funds--ISI Growth Fund, ISI Trust Fund and ISI Income Fund.

According to an indictment summary, the funds bought securities “at artificially inflated prices without regard to the investment merits.” The funds invested several million dollars in Noram Secured Income, an affiliate of Natco’s, and Columbia Federal Savings.

In the interview, Galanis confirmed that he arranged financing for the $3-million purchase of ISI Corp. for Adams last year, partly as a way of funneling money to Natco, which needed capital badly. He also got a job there for his cousin, John Geanoulis, with whom he had grown up. Geanoulis was also indicted Tuesday for fraud.

But Galanis claimed he only recommended purchase of the Columbia Federal and Noram securities; it was Adams who approved them.

Adams was eventually ousted when ISI’s boards of directors, which included Los Angeles lawyer Billy H. Hunt and former Olympic decathlon champion Bob Mathias, learned of his ties to Galanis. Geanoulis was ousted at the same time. ISI has since written off the Galanis-related investments.

Though the charges against Galanis are formidable, those who know the olive-skinned, curly-haired promoter caution against underestimating his instinct for survival. He is, they say, resourceful, persuasive and tough.

“As long as he has the money to hire good lawyers,” said one former colleague, “you should never count him out.”