Businessman Indicted in Bond Fraud : Financial Institutions Allegedly Bilked Out of Millions

An Orange County businessman whose now defunct insurance firm issued worthless guarantees for millions of dollars in real estate loans has been indicted by a federal grand jury on 29 counts of mail and wire fraud.

Named in the indictment is John F. Hayden of Santa Ana, allegedly one of the architects of a massive bond fraud scheme that bankrupted his Glacier General Assurance Co. of Montana, leaving it with claims as high as $783 million against assets as low as $10 million, Montana authorities said.

The indictment alleges that Hayden induced financial institutions to lend money on a number of properties, including several deals involved in a massive swindle in which Bank of America became entwined.

Fraud Alleged

Bank of America has sued Hayden and others named in the federal indictment, claiming that they conspired to defraud the bank of $95 million in a scheme that shocked financial markets when it was disclosed in 1984.

Hayden’s firm issued $102 million in financial guarantee bonds purportedly standing behind loan pools for which Bank of America served as escrow agent. Most of the bonds turned out to be worthless, and the bank made good the losses of several dozen lenders.

In November, Hayden declined to answer several hundred questions posed to him in depositions in a related lawsuit, citing his fear of criminal prosecution and his right against self-incrimination.

At the time, he listed his home as Santa Ana and said he worked out of offices in the Meredith Financial Center in Tustin.

“There are other investigations continuing on the Bank of America matter,” said Assistant U.S. Atty. Terree Bowers. “This indictment focuses on the financial guarantee bonds issued by Glacier.”

A maze of civil litigation surrounds the Bank of America loss. Bank of America has sued Glacier, Hayden and others, and Hayden has countered with claims that bank employees were part of the swindle.

“He (Hayden) was victimized by the gross negligence of others and was not criminally involved, absolutely not,” said John C. Doubek, an attorney who represents Hayden in the Bank of America lawsuit. “This is one the government’s going to lose, I can tell you.”

The indictment alleges that Hayden conspired to defraud investors by issuing financial guarantee bonds when he knew Glacier was insolvent. Hayden also is alleged to have paid himself, family members and firms he controlled $7,286,411 in dividends between 1982 and January, 1985, as Glacier was going bankrupt.

Hayden was indicted on fraud charges involving allegedly worthless financial guarantee bonds two years ago, but those charges were dismissed.

Loan Payments Guaranteed

According to the new indictment, Glacier, a firm with a high rating for financial stability that was formed in 1960, first encountered trouble when it began issuing financial guarantee bonds in 1980. The bonds guarantee repayments of loans to lenders.

Glacier’s first bonds were issued on real estate deals put together by Daniel N. Bailey, a Tustin broker who ran Sierra Realty and Investment Inc. and several other firms.

Within a year, Glacier had issued $42 million in bonds guaranteeing Sierra loans and discovered only $25 million in collateral was available after Bailey defaulted on repayments. Bailey has pleaded guilty to three counts of mail fraud in connection with the Sierra collapse.

Saddled with heavily mortgaged properties taken from Sierra, Hayden and others allegedly began the conspiracy that eventually led to the Bank of America losses.

Also named in the indictment was Marvin Weiss, a Covina loan broker whose firm, Energy Resources Financial, helped generate mortgage transfers on which Glacier could issue bonds, providing cash in an attempt to save the failing firm, prosecutors alleged.

Weiss, 60, has pleaded guilty to mail fraud and been sentenced to serve four years in prison. He has sought repeatedly for the past three months to persuade a federal judge to reduce his sentence.

In the flood of litigation that followed Glacier’s collapse, other businessmen also were alleged to have been involved. They include Orange County developer Kent Rogers and David A. Feldman, head of National Mortgage Equity Corp. of Palos Verdes Estates.

National Mortgage Equity allegedly purchased groups of mortgages that it packaged in pools for sales to a dozen Midwestern and Eastern financial institutions. The loans were insured by Glacier, and Bank of America acted as escrow agent.

Hayden Called a Victim

Rogers headed Pacific American Insurance Co., which according to court files wrote about $28 million in financial guarantee bonds, most of which were worthless after the firm went into receivership. Rogers has served two short prison sentences for bankruptcy fraud.

Hayden’s attorney, Doubek, insisted that Hayden was a victim.

“Jiminy Christmas, all he (Hayden) did was pay,” said Doubek, referring to the Glacier bankruptcy.

“He was the one with the primary liability. The financial guarantee bonds made Hayden’s company the surety on the loans. To think that you’d knowingly become a surety on a crooked deal is incredible.”

Federal prosecutor Bowers said the big transactions were made possible by the “false facade of financial security he (Hayden) was projecting.”

“From the outset, the loans to Bailey ended up in default,” Bowers said. “From the very start of the financial guarantee bond program, they experienced almost total default on the loans.”

Doubek claimed that Hayden had paid out “tremendous” amounts of money trying to honor the bonds and keep Glacier afloat. He said the “cloud” over Hayden has effectively prevented him from doing any business.

Hayden never received the multimillion-dollar Glacier dividends that federal prosecutors claim were part of the fraud scheme, Doubek asserted. The lawyer said the dividends were pledged in advance to a former partner whose stock interest in Glacier Hayden was trying to acquire.

While acknowledging that claims against Glacier exceed $700 million, Doubek said he believes Hayden will prove that the firm was not insolvent while the bonds were being issued.