Ex-Ramona S & L Chief, Seeking Case Dismissal, Says FSLIC Lied

The former chairman of a failed Orange County savings and loan has claimed that federal regulators won his cooperation in a civil investigation with a promise not to prosecute him on criminal charges, but then reneged.

Donald P. Mangano Sr., who owned half of the now-defunct Ramona Savings & Loan in Orange, says in a lawsuit filed in U.S. District Court in Los Angeles that he was lulled into helping regulators by their false assurances. The suit seeks dismissal of the charges.

Mangano is one of the few S & L executives nationwide to be accused of criminal fraud.

His case highlights an issue raised in congressional hearings last summer: How do courts balance the occasional clash in objectives between Federal Savings and Loan Insurance Corp. regulators, who try to recover as much money as possible, and federal prosecutors, who attempt to put wrongdoers in jail.

Federal prosecutors are resisting a bid by Mangano’s lawyers to explore in depth the relationship between investigations by the FBI and the FSLIC.

The FSLIC seized Ramona in September, 1986, and operated it until February, 1988, when it closed the S & L and transferred most of its assets and deposits to Midwest Federal Savings in Minneapolis. The S & L’s losses are expected to cost FSLIC more than $65 million.

Mangano sold his interest in the S & L to the other half-owner, John L. Molinaro, in May, 1985. Mangano is charged with 28 counts of bank fraud, carrying a 140-year maximum prison term, and Molinaro is accused of 36 counts of bank fraud, carrying a 180-year maximum term.

Ramona is one of 21 Orange County banks and savings and loans seized by state and federal regulators over the past six years. In June, the FSLIC paid out a record $1.35 billion to liquidate two other failed Orange County savings institutions, American Diversified Savings and North America Savings, both in Costa Mesa.

Voluntary Answers

Mangano’s lawyers have told a federal judge they suspect that the FSLIC, while preparing a civil lawsuit naming Mangano and others involved with Ramona, generated information later used by prosecutors in the separate criminal case.

Had Mangano not been misled, he would have refused to cooperate and might have cited the Fifth Amendment and refused to answer questions, according to his lawyers. Instead, he voluntarily answered questions posed by FSLIC lawyers over four days last year.

When criminal charges are filed while the FSLIC is pursuing a civil lawsuit, things can get complicated, as the Ramona case shows.

“Both sides stand to lose in a parallel proceedings situation,” said Edwin J. Tomko, an attorney in Dallas who until two months ago was with the special Texas Savings & Loan Task Force, created by the criminal fraud section of the Department of Justice. “There is no clear winner.”

Parallel cases “create all sorts of problems for civil litigants,” said a Los Angeles lawyer familiar with FSLIC operations.

“It’s why traditionally, civil litigators have not been real keen on filing criminal referrals, because it just mucks up our case and makes it far more difficult to get hold of the assets,” the lawyer said.

Tomko said the ever-present potential for conflict when both civil and criminal cases are being pursued “puts the defendant in a tough position.”

“If they talk to regulators, it can be used against them in (any) later criminal case. If they take (the Fifth Amendment), they can be slammed in many civil proceedings,” Tomko said.

Letter’s Contents Sought

Mangano has asked a judge to force prosecutors to disclose the contents of an FSLIC letter to federal prosecutors asking for a criminal investigation and outlining possible charges. The document was sent in June, 1987, six months after an FSLIC lawyer said no criminal prosecution would be recommended, according to Mangano documents in the court file.

Added problems can arise as prosecutors--and sometimes grand jurors--seek to examine the same documents and business records that FSLIC lawyers need.

Mangano’s lawyers suggest that prosecutors used the civil investigation to help make their criminal case, a procedure they characterized as unfair and potentially illegal. To support the allegation, they filed a sworn statement in which George W. Porter, Mangano’s original lawyer in the civil case, recalled a conversation with the chief lawyer for the federal bank regulators, Richard Fruin.

Fruin “stated to me that as counsel for FSLIC, he did not intend to refer the case to the Justice Department or request criminal prosecution. He told me he had discussed the issue with the Federal Home Loan Bank Board (or possibly FSLIC) in Washington, D.C., and had been specifically instructed not to do so,” according to Porter’s statement. Porter claimed he was not told of the criminal investigation until last September, long after Mangano had given the statements.

The prosecutor, Assistant U.S. Atty. Harriet Leva, pointed out in court papers that FSLIC lawyers have no authority to make decisions on potential criminal prosecutions and denied that anyone from FSLIC had made any promises.

Success Would Be a First

Fruin, the FSLIC lawyer, cannot recall stating there would be no criminal prosecution and denies outright having given Mangano any assurances, according to prosecutors.

If Mangano’s suit succeeds, he will become the first criminal defendant ever to win dismissal based on such claims, according to Tomko, the former Dallas prosecutor.

The issue first arose 10 years ago when several defendants accused of securities fraud briefly won dismissal of criminal charges by claiming that Securities Exchange Commission lawyers lured them into settling a civil case while improperly urging prosecution. An appellate court later ruled that while misconduct had indeed occurred, it was not sufficient to justify dismissal of criminal charges.

Since then, SEC policy requires its lawyers, when asked if criminal prosecution will occur, to tell potential defendants to “assume the worst,” Tomko said. After more recent problems, FSLIC has developed a similar policy, according to Tomko.

Mangano, 52, and Molinaro, 47, were both indicted in May for fraud, conspiracy and making false statements in running Ramona.

Molinaro was arrested in July, 1987, while attempting to leave the United States with a false passport. He is serving a two-year prison sentence for a passport violation while awaiting trial on the bank fraud charges.

Mangano’s bid to look into FSLIC actions and documents is pending before U.S. District Judge David V. Kenyon in Los Angeles.