Statements by Regulators Are Focus of Hearing in Ramona Case

LOS ANGELES — Sharply differing accounts of meetings involving a lawsuit over the collapsed Ramona Savings & Loan Assn. of Orange dominated a hearing Friday as the thrift’s former owners sought to win dismissal of criminal fraud charges against them.

Both John L. Molinaro and Donald P. Mangano Sr. claim that evidence gathered in a $40-million civil lawsuit filed in connection with the thrift’s failure has been improperly used against them in the criminal case.

Friday was the third day of hearings before U.S. District Judge David V. Kenyon on motions that Mangano and Molinaro hope will lead to an end of the criminal proceedings.

Testimony focused on statements made by lawyers for the Federal Savings and Loan Insurance Corp. before criminal charges were filed last fall. The defense contends that FSLIC attorney Richard Fruin assured the former owners no criminal prosecution was expected at that time, leading Mangano and Molinaro to submit to questioning.

1986 Testimony

George Porter, who represented Mangano in the civil case, testified that in late 1986, Fruin said “he did not as counsel for FSLIC intend to refer the matter to the Justice Department for prosecution.”

Had he known that an FBI investigation was under way, Porter said he might have advised Mangano against answering questions in the civil lawsuit, which he did at a later deposition.

Four months later, according to Porter, Fruin again said “he didn’t think there was enough information to show criminal activity and didn’t think there would be any criminal prosecution in the matter.”

But Fruin, taking the stand himself, flatly denied that he had promised he would not seek prosecution in late 1986.

Mangano claims that the alleged promise, which led him to answer detailed questions by FSLIC lawyers, requires that the 27 counts of bank fraud against him, carrying a penalty of 140 years in prison, should be dismissed.

“I deny categorically that I made any such statement or any similar statement to Mr. Porter on Dec. 4, 1986, or on any other date,” Fruin testified.

Also testifying was Jennifer Jones, a field manager for the Federal Home Loan Bank of San Francisco who was in charge of the government audit leading to the forced receivership in September, 1986, for Ramona.

Discovered Wrongdoing

In her final October report, Jones stated that she had discovered wrongdoing that she felt warranted criminal prosecution.

“I saw such blatant unsafe and unsound practices that I had assumed there would be criminal charges,” Jones testified Wednesday.

Lawyers for Mangano, attempting to show that their client had been misled by promises of no criminal prosecution last year, suggested that Jones must have reached her conclusion based on conversations with Fruin and other FSLIC lawyers. But she insisted that the conclusion was her “speculation” about what would follow.

Also Friday, Molinaro and Mangano pleaded not guilty to a new indictment filed against them. Like the previous indictment, it alleges that the defendants engaged in conspiracy and bank fraud in looting Ramona of assets before it was seized by regulators two years ago.

Under the new indictment, Mangano faces a maximum of 155 years in prison if convicted, compared to 140 years under the old indictment. Molinaro now faces 165 years, compared to 180 years under the old indictment.

Fruin, who will again testify when the hearing resumes next week, said he consistently opposed pursuit of criminal charges because of concern over the potential adverse impact on the civil litigation.

Hired by FSLIC as receiver of Ramona to pursue its $40-million civil fraud claim, Fruin also testified that he told Mangano’s lawyers early last year that he saw no grounds for criminal prosecution.

Sought Charges

Less than one month later, at the express direction of FSLIC officials, Fruin’s firm formally requested that the Justice Department pursue criminal charges. Within months, Molinaro had been indicted. Less than a year later, Mangano was indicted as well.

Fruin’s proclaimed opposition to criminal charges underscores a clash of objectives explored last year by a congressional subcommittee on Southern California bank fraud.

Without making any findings about Ramona, the committee found that some bank fraud investigations were hampered in part by a conflict between the objectives of FSLIC, which seeks to recover taxpayer funds jeopardized by thrift failures, and federal prosecutors.

Asked after the hearing if he still felt Molinaro and Mangano should not have been prosecuted, Fruin replied, “I have changed my mind.”