Defendant Says Regulators Told Him He Wouldn’t Be Prosecuted

The former chairman of a failed Orange County savings and loan firm 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.

Mangano is one of only a 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 when an S&L; fails, 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 by FSLIC.

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 Ramona 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; 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 during the last six years. In June, FSLIC paid $1.35 billion to liquidate two other failed Orange County savings institutions, American Diversified Savings and North America Savings, both in Costa Mesa.

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Mangano’s lawyers have told a federal judge that they suspect that 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, perhaps citing his Fifth Amendment rights, according to his lawyers. Instead, he voluntarily answered questions posed by FSLIC lawyers over four days last year.

When criminal charges are filed while 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 and Loan Task Force, created by the criminal fraud section of the Justice Department. “There is no clear winner.”

Tomko said the 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,” he said.

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 of last year, six months after a lawyer for FSLIC said no criminal prosecution would be recommended, according to Mangano documents in the court file.

Indicted for Fraud

If Mangano succeeds, he would become the first criminal defendant ever to win dismissal based on such claims, according to Tomko.

Mangano, 52, and Molinaro, 47, were both indicted in May on charges of 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.