Foreign Investors Helped Simon’s Group Buy Thrift

Two foreign investors operating through separate Caribbean front companies helped finance the acquisition of a Hawaii savings and loan by former Treasury Secretary William E. Simon and his partners.

In return for the investment of about $800,000, the Simon group placed 4.9% of the stock in the savings and loan in the two offshore companies, Pandora Investments and Deep Water Ventures, according to sworn depositions and an interview Friday with one of Simon’s partners.

In addition to the investment, the offshore companies made personal loans of an undisclosed amount to at least one of Simon’s partners. The loans, in turn, were used to purchase stock in the S&L; by the partner or partners.

The investment and loans were part of $17.5 million used by the Simon group to purchase Hawaii’s biggest thrift, Honolulu Federal Savings & Loan--a deal conducted under the auspices of the Federal Savings and Loan Insurance Corp., which provides federal insurance for deposits and is struggling to contend with hundreds of failing thrifts.

The 1986 transaction was a key step in Simon’s plan to create an international financial empire based in California.

Pandora and Deep Water were incorporated in the offshore secrecy and tax haven of Grand Cayman Island and both are registered with the same law firm there.

Their existence was revealed in depositions, which are sworn statements, that are part of a civil lawsuit filed against the Simon group and others in connection with the acquisition of the savings and loan, known as Honfed.

Until the depositions, there had been no previous public mention of foreign investors or offshore companies in the deal, although foreign investors had been involved in some of Simon’s other transactions.

Larry B. Thrall, a Los Angeles attorney and one of Simon’s partners, said Friday that the financial contribution of the offshore companies and the identities of the investors had been reported to federal regulators, as required by the law. He said their involvement had not been disclosed in public documents because the entities owned less than 5% of the stock in Honfed.

“We’ve been very open about attracting foreign capital,” Thrall said. “It is just in this case that the foreign investors do not want their identities made public.”

Thrall said the foreign investors had contributed capital to the holding company created to acquire Honfed and had made personal loans to at least one partner. Thrall said the investors paid proportionately the same for their stock as the Simon partners, which would be about $800,000 for 4.9%.

The exact amount of the personal loan or loans was not revealed in the depositions and Thrall declined to say how much was borrowed by the Simon partners from the offshore companies.

Partner Received Loan

The disclosure that at least a portion of the $17.5 million was borrowed fits Simon’s business formula, which calls for putting as little of his own money as possible into a deal.

One reason federal regulators cited for allowing Simon’s group to purchase Honfed was the promise that the group would infuse the ailing thrift with capital. But the capital can be borrowed.

For instance, Preston Martin, a former vice chairman of the Federal Reserve Board, bought 5% of Honfed for $844,000 and put up only $127,000 of his own money.

Martin, chairman and chief executive of H.F. Holdings, the company set up to acquire Honfed, said Nov. 23 in a sworn deposition that either Pandora or Deep Water loaned money to either Simon, Thrall or another partner, Los Angeles lawyer Gerald L. Parsky. (The other partner, developer Roy Doumani, was not mentioned.)

Martin said he had forgotten how much had been loaned by Pandora and Deep Water.

In a session that was withheld from the public record at the insistence of Honfed lawyers, Martin apparently provided identity of the investors behind the offshore companies.

Martin said he did not receive money from the offshore companies. He said he borrowed $717,000 of the $844,000 he used to buy his 5% of Honfed from H.F. Holdings.

In a similar deposition Nov. 19, Thrall said the two offshore investors were not involved in management of the S&L.; As with Martin, detailed discussions of the role and identity of the foreign investors occurred in a portion of the deposition that was kept secret.

The Thrall deposition contained the only public hint that the investors were foreign. James Ventura, the lawyer who was questioning Thrall, asked about the investors and referred to them as “these two gentlemen whose names I cannot pronounce.” Thrall later confirmed in an interview that the investors were foreign.

In an earlier deposition, one of Honfed’s lawyers confirmed that stock was issued to Pandora and Deep Water on Nov. 20, 1986, the day the Simon group officially took over the thrift.