Investors, Lenders May Lose Millions : Car Dealer’s Vision Blurs Into Tale of Doubt, Deceit

Four months before he disappeared, Eminiano (Jun) Reodica, the president of one of the fastest-growing car dealerships in the country and the pride of California’s Filipino-American community, videotaped an appeal for investors to share his vision of the future.

As the strains of “To Dream the Impossible Dream” swelled in the background on the April videotape, Reodica proclaimed: “We are very hopeful that this year we should achieve our goal of becoming the largest dealership in the whole United States, and most likely, the world.”

A small, self-assured man who had arrived from the Philippines 17 years earlier, Reodica, 44, seemed well on his way. Promising to help others avoid the problems he faced in buying a car when he first came to America, he catered to fellow immigrants by hiring salesmen who spoke their languages and offering easy credit--in the process selling thousands of cars and building the biggest minority-owned enterprise in Southern California, Grand Chevrolet Inc.

Using his forceful personality and sales tools such as the videotape, he also invited virtually everyone who came into the dealership’s Glendora showroom to invest in his businesses--and thus got about 1,000 people to put their money into promissory notes backed by no security, only his signature and good word.

He also worked his charm, along with impressive ledger sheets, with equal success on banks and savings and loans, obtaining huge credit lines.

Then, last month, Reodica vanished as his empire collapsed. And since then, as the damages continue to be calculated into the tens of millions of dollars, evidence has emerged that nothing was what it seemed:

- Many of the immigrants Reodica claimed to be helping had been billed for car options they never ordered or received, or made to sign paper work they did not understand, the Department of Motor Vehicles said. His much-heralded sales force included members of a Filipino gang, police said, and his booming sale figures had been inflated by a series of schemes.

- The 1,000 investors, some of whom had mortgaged homes or spent retirement funds to share in Reodica’s dream, have been told they likely will never recoup their investments--as much as $42 million in all--that Reodica had suggested were as safe as bank deposits.

- Several major banks and savings and loans allege they were bilked out of additional millions of dollars through forged car loan records, likely bringing total losses to more than the $70 million that federal prosecutors say was lost when the ZZZZ Best carpet cleaning company collapsed last year, also amid allegations of fraud.

Subject of Fraud Probe

Reodica and his companies now are being investigated by the Los Angeles County district attorney’s Major Fraud Unit, the DMV, the FBI and other agencies.

Meanwhile, authorities are searching for the man once described as “a role model for everyone coming to this country” by an aide to Gov. George Deukmejian, who appointed Reodica to the state board that oversees the Department of Motor Vehicles.

“He was the golden boy,” said Alfredo Bautista, Deukmejian’s liaison to the state’s Asian community.

Even Reodica’s closest associates say they do not know where he is. He was last reported spotted in the lobby of the Manila Hotel in the Philippines, picking up documents under an assumed name. That was Aug. 4, the day the first of his companies declared bankruptcy; three others quickly did the same.

Reodica’s wife, Hilda, left Los Angeles for the Philippines a week later. Shortly before departing, she transferred about $2 million from her personal accounts to a bank in the Philippines, according to an attorney for the trustee now directing the bankrupt companies.

Recently released records show that, not long before he vanished, Reodica had been put on notice that his largest creditor, Imperial Savings & Loan of San Diego, suspected substantial wrongdoing.

Terminated All Contracts

On July 25, Imperial Vice President Rocco J. Fabiano wrote Reodica that the savings and loan was terminating all its contracts with his auto financing company because it had been “falsifying and/or forging” documents, forwarding false loan payments and selling duplicate loans.

The next day, however, Reodica sent his individual investors a reassuring letter reporting: “We have now come to terms with our lenders . . . You will be informed of these resolutions within the next five days.”

“As our investor, you are very special to me,” Reodica wrote on company stationery. “You trusted me. During these critical moments, the single most important thought that kept me going is my concern and my love for all of you.”

The investors never heard from Reodica again.

Instead, within weeks, they found themselves summoned to creditors’ meetings at the glass-walled showroom in the San Gabriel Valley that had been the centerpiece of Reodica’s cluster of companies. There they got the bad news from bank officials, who had begun the painstaking task of deciphering the complex corporate records, that substantial sums were unaccounted for.

Even so, many Grand investors held out hope that somehow things would turn out all right--that Jun Reodica would return to right his sinking ship and save its passengers.

‘It’s All a Bad Dream’

“I still feel like it’s all a bad dream,” employee Carol Garcia said, “that I will wake up soon.”

Reodica had built his car sales empire by inspiring confidence among customers and his 600 workers, in part through his own inspirational rags-to-riches story, which drew favorable attention from the media and powerful political figures as well.

Reodica readily told how he came to the United States with a college degree in accounting but had to look for jobs as a busboy, eventually finding work as an attendant, “only a shade over a porter,” he said, in the showroom of General Motors’ Detroit headquarters.

Within four years, he was vice president of an Encino Chevrolet dealership and, in 1978, he mortgaged his home and took out other loans to buy Grand Chevrolet.

His unusual sales approach targeted minority car buyers who had a hard time obtaining credit elsewhere, but who Reodica maintained were good risks because they were reliable and worked hard. Whereas other car dealerships relied on advertising, he looked to his salesmen, who spoke languages ranging from Arabic to Korean, to recruit customers from the civic and religious organizations to which they belonged.

“People would tell me they need a car and I would sell them a car,” said Richard Tillmann, a part-time Grand Motors salesman. “Grand is where people go when they’ve been turned down for loans by every other establishment.”

2% Delinquency Rates

As proof that his faith in new immigrants was well placed, Reodica reported that delinquency rates for his car loans were no higher than the industry average of 2%.

By this year, Reodica’s auto empire had grown beyond Grand Chevrolet to include Grand Wilshire Leasing, Grand Wilshire Finance Corp., Grand Rizal Finance--which acquired real estate for the operations--and Grand Motors, an auto brokerage firm with 28 branches throughout the state, most of them modest storefront offices in immigrant communities to which customers would come and order cars out of catalogues.

Although not among Auto Age magazine’s top 500 dealers the year before, Grand Chevrolet in 1987 reported that it sold 12,618 cars and trucks--about 35 a day--and took in $146 million, statistics that ranked it third among car dealerships in the nation.

Attaining preeminence in the field had become “the whole philosophy of Jun Reodica,” one Grand Motors branch manager said.

In his April videotape, Reodica stressed the importance of dethroning Longo Toyota of El Monte, America’s highest-volume dealership. In 1987, he bought the five-acre site in El Monte that had been Longo’s original location, an objective outlined in red on an aerial photograph on his office wall, not far from a picture of him with Deukmejian.

‘Just Sort of Blossomed’

“His company was considered the flagship of Filipino entrepreneurs in America,” said Willy Gaa, the Philippines’ acting consul general in Los Angeles. “He just sort of blossomed in this area.”

Reodica was idolized by Filipinos here and abroad. He published a local Filipino newspaper, produced a Tagalog radio show and organized a project to extend no-interest loans to needy families in the Philippines, where newspapers called him “the man to run to in Los Angeles.” He said he planned to purchase vast tracts of California farmland where unemployed immigrants could work.

Reodica lived in a comfortable, but not extravagant, Glendora foothills home, where he, his wife Hilda and their four children inscribed their names in a cement walkway next to the front door. He drove a red $38,000 Jaguar.

By all appearances, he was the model of a successful capitalist with a heart.

But as early as 1985, the Department of Motor Vehicles was spotting cracks in the facade.

That was when DMV investigators accused Grand Chevrolet of charging customers for expensive accessories and extras they neither requested nor received. In at least 17 cases, buyers unwittingly signed documents that sold the cars back to the dealership, then to them again, DMV spokesman William Gengler said. With each transfer, extra charges were added, ranging from minor smog inspection fees to a $1,927 insurance policy, he said.

Insurance Fraud Ring

In 1986, the dealership drew the attention of the California Highway Patrol’s insurance fraud unit, Los Angeles police and the U.S. Customs Service, which were investigating an insurance fraud ring whose members were shipping new cars to the Philippines and then reporting them as stolen. At least 50 of the approximately 60 cars that investigators examined had been purchased at Grand Chevrolet, Highway Patrol investigator Susan Mustaffa said.

Grand benefited from the scheme--its finance company was the one paid by insurers when the cars were reported stolen--but none of the six Filipinos eventually charged in the case worked for the dealership, Mustaffa said. “Some employees there we knew had knowledge of it,” she said, “but we just couldn’t prove it.”

In August, 1987, both Glendora police and the Los Angeles police Asian Task Force looked into an incident in which a Grand employee nearly lost his eyesight when he was beaten and shocked by a stun gun as he got out of his car in the dealership’s parking lot.

The employee said he had been attacked because he refused to go along with a sales manager’s practice of selling cars to people with bad credit and collecting a commission, then quickly repossessing the cars and selling them again. He was beaten, he said, by members of a Filipino gang called “Magic Diablos,” who were on the payroll as salesmen.

‘Scared Hell Out of Him’

“They scared the hell out of him,” said Detective Tony Capistrano of the Asian Task Force.

A Grand Motors sales manager, Ernesto Alvarez, was arrested on suspicion of extortion and two of his employees for assault with a deadly weapon, but all three fled before they came to trial, Capistrano said.

The employee who was beaten, who said that as many as 50 members of Magic Diablos were on Grand’s payroll, recalled that he later asked Reodica why the dealership employed gang members after some attacked him. Reodica told him to “forget it,” he said, and not to report their names to the DMV, which was conducting another investigation.

“So I just kept my mouth shut,” the employee said.

Glendora police received another unusual report about the dealership late last year when a local resident told them a salesman had offered him “the services of a prostitute” if he would buy a car, Sgt. Jerry Powell said. But because the man declined to file a formal complaint, police did not pursue the matter, Powell said.

There were serious consequences, however, when the second DMV investigation last year culminated in citation of Grand for about 1,500 state Vehicle Code violations. Reporting that Grand sometimes sold used cars as new and frequently failed to submit registration information to the state on time, the DMV imposed a $100,000 fine. Only two other auto dealerships had ever been fined that much.

Gets Deukmejian Appointment

The sanction did not prevent Deukmejian, to whom Reodica and his firms had donated almost $20,000 since 1985, from reappointing the car dealer in February to the state New Motor Vehicle Board. Deukmejian said he was satisfied that the fines were the result of “sloppy business practices” that had been corrected.

Indeed, although law enforcement agencies were picking up hints of serious problems at Grand, Reodica’s image in the business community was never stronger.

Late last year, full-page advertisements in national publications such as the Wall Street Journal and Fortune trumpeted Reodica’s “management history and track record.” The ads were taken out by the General Electric Credit Corp., a subsidiary of the electronics giant, to announce that it had extended an “unprecedented” $250 million line of credit to the company of a man who “saw a way to do things differently.”

GE Credit was only one in a series of mainstream financial institutions to back Reodica’s expansion over the years, starting with a $1-million credit line from Bank of America. And GE Credit soon was replaced by Imperial Savings & Loan as the principal lender.

“In a large part, you’d have to say that once he was established, you have to go with the other lenders’ credit ratings,” said Fabiano, Imperial’s executive vice president for mortgage banking and consumer lending, explaining how his institution came to provide $174 million in backing.

Bought Package of Loans

In Imperial’s case, as with some other financial institutions, the support came largely through the purchase of packages of auto loans. Imperial agreed to finance thousands of car sales, expecting to profit from the interest payments, but relied on Reodica’s on-the-scenes finance company, Grand Wilshire, to arrange the loans and act as the collection agency.

Ironically, the chain of events that sent the Grand empire into bankruptcy began when Imperial officials became suspicious this spring because the default rates on the loans they were buying were substantially lower than the industry average, according to Victor Vilaplana, a lawyer for Imperial.

In June, Imperial asked a team of accountants to examine Grand Wilshire’s books, the start of scrutiny that would lead the creditors to conclude that perhaps $35 million worth of the same loans had been sold more than once by Grand. Imperial officials now estimate that at least $20 million of the loans they purchased may be uncollectable.

“We don’t know the magnitude of it yet, only that it’s incredible,” said Vilaplana. “This is one of the more elaborate and well-conceived scams imaginable.”

Grand officials say the last year was a particularly high-pressure time within Reodica’s companies. With the enterprises seemingly expanding without bounds, they say, there was a frantic effort to bring in capital and impress creditors. That, in turn, meant inflating sales figures and hiding the fact that the dealership’s loan record was far worse than reported.

Loans to Shaky Customers

Late last year, Grand Wilshire even began lending money to customers who would not have qualified under the firm’s already liberal credit policies, according to Frank Villasenor, a Grand Chevrolet business manager.

Reodica created a new finance company, dubbed “Finance Two,” to offer financing to “C” and “D” level loan applicants--the poorest of credit risks. By the middle of this year, Villasenor said, the default rate on loans was so high that Grand was repossessing about 20% of the cars it sold, or about 300 vehicles each month.

But such damaging data was concealed from Imperial and other creditors, the savings and loan alleges, because Grand Wilshire itself made monthly payments on the loans and submitted false credit reports to portray unreliable customers as good credit risks.

Nor did the creditors learn until it was too late just how Grand Chevrolet had risen in the national sales charts. At a hearing in federal bankruptcy court last month, DMV chief counsel Alan Mateer disclosed that state investigators had uncovered evidence of “massive fraud and deceit and grand theft involving not just Mr. Reodica, but managers at virtually every level of the operation.”

In one scheme, known as the “Employee Purchase Plan,” salesmen were urged to obtain loans in their own names to buy cars from the dealership, with the understanding that the dealership would make the loan payments.

Financed Second Time

The cars would remain on the lots, however, then be sold to customers and the deal financed again--bringing a new injection of cash into Grand.

“We had no reason to question it or think it was illegal,” said Art Guzman, a manager of the El Monte outlet of Grand Motors. “When you’re making $13,000 or $14,000 a month, you don’t complain. We were just ‘yes’ people. We didn’t do anything but follow policy.”

Max H. Rush, an attorney for bankruptcy trustee Irving Sulmeyer, who was appointed to preside over Grand’s affairs, said the dealership also routinely prepared multiple owner registration forms and sales documents.

Employees would type duplicate copies of purchase agreements, Imperial’s Fabiano said, and several proficient forgers would sit in a room at Grand’s finance company and sign the customers’ names to the duplicate documents. Grand also obtained additional copies of ownership documents, or “pink slips,” from the DMV by filing notices that the originals had been lost, he said.

Imperial Savings & Loan, First Los Angeles Bank, Philadelphia National Bank, Heller Financial Inc. in Chicago and General Motors Acceptance Corp. all purchased duplicate loans, according to documents released during the bankruptcy proceedings.

Constant Source of Revenue

While the scheme required Grand to pay off more than one loan on the same car, it had a source of revenue to keep creditors at bay--Reodica’s “Grand Wilshire Commercial Paper Program.”

Although Reodica long had sought private investors in his company, in April he began an aggressive push for new ones through the sale of unsecured promissory notes, offering interest rates twice as high as banks offer.

“It is just like walking into a credit union, just like walking into a bank and making a deposit of your funds,” he said in the videotaped sales pitch, which employees were told to play for family and friends.

Gloria Duldualo of El Monte became an investor after she wandered into the Glendora showroom in May, shopping for a new car. She had bought a car from Reodica years earlier, she said, and was amazed when he remembered her, walking out of his office with a smile and saying, “Gloria, long time no see.”

The next thing she knew, she had invested $10,000, promised a 13% return.

Like other investors, she got an embossed certificate with the amount of her investment filled in--others gave up to $1.3 million--and the time period, from 30 to 270 days.

Employees were urged to put part of their salary into the program. One woman who worked in Grand Chevrolet’s business department recalled that she authorized a $25 deduction from each paycheck. “It’s just like putting savings in the bank,” she declared. “This way it will help the company.”

$50,000 Lines of Credit

Reodica also arranged for some employees to get credit cards from Imperial with limits as high as $50,000, then had them use the credit to buy his certificates.

“Once we saw what was really happening, we canceled the cards,” said Imperial Vice President Fabiano.

Imperial’s suspicions intensified after the June audit. The accountants realized that something was amiss, but because of the scheme’s complexity, could not figure out what it was, an attorney for the savings and loan said.

In its July 25 letter, Imperial informed Reodica that it wanted to begin collecting the car loans itself--dropping Grand Wilshire as an intermediary.

According to documents released by the savings and loan, Grand Wilshire then refused to forward any loan payments at all--a move Imperial officials interpreted “as a bargaining chip” to get them to back off.

In an Aug. 4 letter, Richard J. Annen, an Imperial senior vice president, demanded that Grand Wilshire “stop the fraudulent diversion of loan payments.”

By then, Reodica was no longer around. The day of the letter, other top Grand officials authorized a Los Angeles law firm to begin bankruptcy proceedings. There was no accounting of Grand’s assets, but the companies listed nearly $200 million in debts, most of that owed Imperial. And Grand representatives said the individual investors were owed about $42 million.

DMV Suspends Licenses

On Aug. 5, Grand Chevrolet and the branch offices around the state were closed when the DMV suspended their sales licenses. (Soon, Reodica was no longer one of the overseers of DMV--Deukmejian removed the car dealer from his state post, calling him a “great disappointment.”)

Since the businesses closed, security guards hired by the creditors have kept watch over them, protecting the approximately 2,000 cars on the lots and barring former employees from company offices.

Many employees have begun searching for new jobs, but are finding car dealers unwilling to hire anyone associated with Grand. Others are waiting to see whether Grand will reopen under the bankruptcy trustee’s control.

Sulmeyer has argued that for anyone to get his money back, Grand must begin selling cars again. There have been negotiations with major creditors, whose approval is needed if the businesses are to resume, but “so far all we have are empty promises,” said Rush, the trustee’s attorney.

The doors were opened last month, however, for a meeting of investors. About 400 people attended, but much of the talk was about the man who wasn’t there.

“We have to stand by him because no one has proved that he’s guilty of anything yet, “ said Dr. Artemio G. Pagdan, a Filipino physician who was one of those who invested in Reodica’s certificates. “If he’s guilty, we’d like to know it because we’d be the first to crucify him; because he is one of us.”

Applaud Loyal Expression

Most present applauded Pagdan’s expression of loyalty. But they were silenced moments later when Lawrence A. Diamant, one of the bankruptcy attorneys, lectured them:

“There is one particular individual you can point to who has caused you a hell of a lot of trouble.”

Everyone knew whom he meant.

“He was supposed to be the American success story, one of us,” said Gatt Maggay, another Filipino who managed Grand Motors’ Monterey Park office. “I don’t know if people can forgive him for what he did. While on one hand he opened the way for us, now it’s kind of closed until this thing is cleaned up.

“Jun Reodica must have been a good salesman to convince a lot of people to share his dream. But at the end, he’s not there to carry his dream through.”

Times staff writer Craig Quintana in Glendora and Times researcher Dolly Amor in Manila contributed to this story.