How Orange County Institutions Foundered : Time Finally Runs Out for 2 Thrifts
The plug wasn’t pulled until Monday, but American Diversified Savings Bank and North America Savings & Loan appeared doomed once regulators took control of them in 1986 and 1987.
Both Orange County institutions had run up big losses under their private owners, and the red ink gushed even more freely under the new managers hired for the S&Ls; by federal regulators.
The managers had begun liquidating the S&Ls; last summer, and federal regulators announced Monday that they would finish the job of dismantling the institutions by paying a record $1.35 billion to depositors. Individual accounts will be insured up to $100,000, said Kathy Nagle, director of the Federal Savings and Loan Insurance Corp.’s insurance division.
The two S&Ls;’ downfalls followed different paths. Before regulators stepped in, American Diversified was one of a breed of aggressive S&Ls; that have taken advantage of industry deregulation to invest in untraditional areas.
American Diversified was led by Ranbir S. Sahni, a former Indian Air Force and commercial pilot. He bought a small S&L; in Lodi called Tokay Savings in June, 1983, merged his development company into the S&L; and renamed it. American Diversified’s assets then grew over the next two years from about $120 million to more than $1 billion.
The dramatic growth was supported by an influx of $100,000 certificates of deposit, high-interest accounts that are costly for financial institutions and that sometimes are abruptly shifted to yet higher-paying institutions.
Sahni ran a complex business that was described as a development company with an S&L; charter. Its primary business was putting together limited partnerships to buy real estate around the country, but it had 20 subsidiaries involved in a multitude of activities.
Those activities included such enterprises as two ethanol plants, three wind farms, a contract to collect manure for a planned co-generation facility in Chino, a national paging system and a cable-TV system for American Diversified’s apartment complexes and other properties in 22 states.
Thomas J. Haupert, the manager hired by regulators to oversee the operation, has called American Diversified one of the most complex businesses he has ever seen.
American Diversified, which lost more than $400 million under Sahni, lost another $500 million under managers hired by regulators since the February, 1986, takeover, according to FSLIC figures. In the end, its liabilities exceeded assets by $606 million.
North America Savings was a less complex operation, but was victimized by fraud, federal officials charged.
Opened in September, 1983, North America was used by its late owner, Duayne D. Christensen, and others partly to fund their own investments, according to a pending federal lawsuit.
The lawsuit charges that Christensen and Janet F. McKinzie, his confidante and companion, funneled up to $40 million out of the S&L;, and that the money cannot be found. State regulators, who seized the S&L; in January, 1987, called the operation the worst case of insider fraud in state S&L; history.
In addition, the real estate he was using as part of the capital base turned out to be worth a little over $2 million, much less than the $10 million to $17 million he had claimed it was worth.
But, regulators said, poor lending also buried North America Savings.
Christensen, a Westminster dentist who gave up his practice to make investments for other dentists and doctors, worked through his and McKinzie’s friends and relatives to place more than 25% of the S&L;’s assets in home mortgages in Alaska. Nearly half of those investments went sour.
Under pressure to raise $6 million in capital by noon on Jan. 16, 1987, Christensen died when his car crashed into a bridge support early that morning. His will and a trust left everything to McKinzie, and nothing for his ex-wife and their three children.
McKinzie is the sole beneficiary of Christensen’s $10-million life insurance policy, whose payout is being held in escrow by the U.S. District Court while litigation continues.
North America Savings lost more than $12 million under Christensen’s ownership. Under the control of regulators last year, it lost another $111 million. It ended up with a $117.6-million deficit.
Main story, Part I, Page 1. Other stories, Pages 9 and 10, this section.
HISTORY OF NORTH AMERICA SAVINGS A chronology of key dates in the history of North America Savings & Loan Assn.:
September, 1983: Duayne D. Christensen, a Westminster dentist, invests $6.37 million to open North America Savings, originally located in Huntington Beach.
November, 1986: North America, now based in Santa Ana, loses $8.9 million for the first 11 months of 1986 and has a negative net worth of $1.5 million by the end of November.
January, 1987: Christensen is killed when his car crashes into a bridge support on the Corona del Mar Freeway. Within hours, North America Savings is declared insolvent by state regulators. When evidence of widespread fraud is detected, the state turns the institution over to the Federal Savings and Loan Insurance Corp., and the FBI and the state attorney general’s office begin criminal investigations. Charles Bottomley is hired by FSLIC to manage the S&L.;
February, 1987: Federal regulators sue Janet McKinzie, Christensen’s business manager and confidante, charging that she and Christensen defrauded the institution of more than $20 million and caused its collapse.
March, 1987: Lawyers for federal regulators operating the S&L; revise the amount missing, up to $40 million.
December, 1987: After moving to new offices in Costa Mesa, North America puts its art and collectibles up for auction. Regulators estimate the savings and loan paid more than $250,000 for the office decorations.
HISTORY OF AMERICAN DIVERSIFIED A chronology of key dates in the history of American Diversified Savings Bank:
June, 1983: Ranbir S. Sahni, a former Indian Air Force and TWA pilot, buys Tokay Savings & Loan in Lodi and merges it with about $100 million of assets from his development, mortgage and real estate businesses. The S&L; is renamed American Diversified. The Lodi office is American Diversified’s only branch operation.
December, 1985: Federal and state regulators examine the books of American Diversified, saying that warning flags have gone up. American Diversified had grown controversial with investments in such enterprises as a wind farm and ethanol production facility, a cellular phone business and commercial real estate.
February, 1986: Regulators declare the S&L; insolvent, fire Sahni and his associates, and place American Diversified in conservatorship. At the time, assets totaled $977 million. Pacific Savings Bank, Costa Mesa, is hired by the Federal Savings and Loan Insurance Corp. as manager.
February, 1986: Less than a week after the seizure of the S&L;, federal regulators file a $76.6-million lawsuit against Sahni and Lester Day, the former president, alleging that the two committed acts of fraud and racketeering while officers of American Diversified. According to the suit, the two men caused the S&L; to lose at least $60 million since it was founded.
September, 1986: A new management team, headed by industry consultant Thomas J. Haupert, is installed at American Diversified, replacing Pacific Savings Bank.
October, 1986: American Diversified plans to lay off nearly 170 employees and sell 15 real estate properties, a move designed to generate cash.
July, 1987: Sahni sues American Diversified for $270 million, alleging that regulators are causing interest earnings, fees and other income due him to be withheld.
March, 1988: Sahni’s company, American Development Corp., files bankruptcy under Chapter 11. As part of the bankruptcy filing, the Huntington Beach company sues federal regulators and others for $200 million, claiming interference with the operation of the company and conspiracy to destroy it. The company had been the manager of 62 real estate investment limited partnerships controlled by American Diversified.
June, 1988: Federal regulators announce that they will close and liquidate American Diversified Savings Bank along with North America Savings & Loan, and distribute $1.3 billion to depositors.
