Behind the Fallen Thrifts : Key figures in several S&L; failures lived high and played it loose. Now, some are broke and face prison--but some are unscathed.

With the national spotlight fixed on the mounting crisis in the nation’s savings and loan industry, the calls are growing louder in Washington to accelerate the prosecution of those who played significant parts in causing hundreds of thrift collapses in the past six years.

“Those who are corrupt, those who break the law, must be kicked out of the (savings and loan) business and they should go to jail,” President Bush told Congress earlier this month.

Who is responsible for these failures? Where are they now? Are they going to jail? What kinds of sentences are being handed out?

Based on court documents, public records, news reports and interviews, here are the stories of five ex-thrift executives whose questionable banking practices sparked criminal investigations.

David L. Butler

David L. Butler, erstwhile wonder boy who once owned and operated Bell Savings in San Mateo, Calif., is a pale shade of his old self.

The $50,000 Jaguar is gone, replaced by a gray Mercury four-door. So is the cockiness that accompanied having a net worth of between $70 million and $80 million at age 31. “I’m broke,” he said in an interview last week in a Sacramento coffee shop. “I’m zeroed out.”

Now 36, Butler is headed to jail next month to serve a two-year term for insider bank fraud after pleading guilty to loan fraud and misusing millions of dollars of Bell Savings’ money. He was also placed on five years’ probation and must perform 500 hours of community service.

Considering the severity of the crime, the sentence has angered some law enforcement officials. “That’s a dumb message: ‘Crime pays,’ ” one regulatory official said.

The U.S. Attorney’s Office in San Francisco, which handled the prosecution, had asked for a relatively light three-year sentence on the grounds that Butler had cooperated with the government and had made a convincing case that he had turned his life around.

“Two years was less than we would have liked,” prosecutor John Lyons said.

Butler’s cooperation with the government led to fraud charges against two former business associates, but those charges were eventually dropped when prosecutors were unable to corroborate the accusations, Lyons said.

Butler epitomizes a new breed of bank crook--sophisticated and well-educated--who lived a prince’s life on customers’ savings and kept pushing the investment rules until he finally broke them. Raised in a middle-class milieu in upstate New York and Florida, Butler is a college graduate and former navigator in the Air Force.

In last week’s interview, he attributed his downfall to good intentions gradually gone awry. Sounding matter-of-fact and not overly contrite, Butler said the lines between right and wrong blurred as time went on and business difficulties mounted.

“I did not see the savings and loan as a way to come in and commit grand larceny,” he said.

But he freely admits now that he broke federal banking laws by having Bell Savings lend money on development projects in which he had a concealed interest. The loans were made on projects that had gotten into trouble, including a 14-story high-rise in downtown Sacramento known as One City Centre.

“The long and short of it is, I tried to solve problems on projects in which I had an interest,” he said.

Butler and a business partner bought control of financially ailing Bell National, the parent company, in 1982 by putting up nearly $4 million in cash and giving Bell ownership of Butler’s troubled development company. Butler planned to restore the thrift to health by making construction loans.

For a while, Bell National made money on large loan fees, as much as $13 million a year. “On paper, it was great,” Butler recalled.

He received cash compensation of $668,800 in 1983, and a bonus of $629,434 in 1984 on top of his monthly salary. His company car was a Jaguar, while the other thrift executives and directors drove Mercedeses. One lending official, Butler’s girlfriend at the time, was given a red Ferrari, according to a shareholder lawsuit.

But Bell Savings ultimately failed because its construction loans, made mostly in Texas and the Silicon Valley, lost more than half their value after the two regions were hit hard by economic downturns in the mid-1980s.

For all his past problems, Butler is down but not out. He still has a home, family and, until recently, a job as general manager of a dental products firm near Sacramento. He is mulling the possibility of a book about bank fraud and does not appear frightened about spending time in jail.

Where does he want to spend his period of incarceration? “I asked for the Hyatt Regency,” he quipped. “I told them I wouldn’t go out of my room.”

Don Ray Dixon

When historians record the turbulent times of the thrift industry in the 1980s, the name of Don Ray Dixon is sure to get prominent mention.

He was arguably the highest of the high-living real estate developers who, attracted by vastly expanded investment powers for thrifts, flocked en masse into the savings and loan industry early in this decade.

Dixon bought control of Vernon Savings, a thrift in north Texas, and used the financial institution to finance European junkets and a fabulous life style in San Diego. When the thrift was seized by regulators nearly two years ago, nearly all its loans were in default.

According to court records, Vernon’s possessions included a corporate jet, a Falcon 50; a $2.6-million yacht known as High Spirits; a Ferrari and Rolls-Royce dealership in La Jolla; a $1-million home in Solano Beach, and a $2-million home in Del Mar, where Dixon lived rent-free.

Dixon is now paying for the good times. He has filed for personal bankruptcy, been targeted in a $540-million civil fraud suit filed by the government and is among dozens of executives under criminal investigation by an FBI and Justice Department task force in Dallas.

These days, Dixon works out of a small office building in Laguna Beach, but precisely what he does is something of an enigma.

Dixon’s criminal lawyer in Dallas, William M. Ravkind, says Dixon “was trying to make a living being a broker, but I don’t even know what he was brokering. The bankruptcy pretty much wiped him out.”

According to one recent newspaper report, Dixon frequently plays golf at La Costa Hotel & Spa resort in San Diego and “dabbles” in off-shore insurance companies. Also, according to the report in the Wall Street Journal, he is said to have received a target letter from criminal prosecutors in Dallas, indicating that he may be indicted soon.

But that report was denied by Dixon’s attorneys, who say he has not yet received a target letter, is not involved in off-shore insurance and has not played golf at La Costa in years.

Dixon is traveling in Israel and could not be reached for comment. In the past when he has discussed Vernon Savings, he justified the perquisites and life style as necessary for a backwater thrift to attract important business.

“You don’t access Florida development loans or Southern California construction loans by taking a Greyhound bus out of Vernon, Tex.” he said in an interview with The Times last year.

One notorious company-paid trip to Europe was a whirlwind eating binge at some of France’s best restaurants that lasted 10 days. The journey was supposedly part of a marketing study for a plan to open a fancy restaurant in Dallas.

In a 17-page diary of the trip, Dixon’s wife, Dana, described the time as a “flying house party” and a “gastronomique fantastique.” Dixon, however, offered a more mundane view of the trip.

“You think it’s easy eating in three-star restaurants twice a day six days a week?” he asked a Chicago Tribune reporter last summer. “By the end of the week, you want to spit it (the food) out.”

Charles W. Knapp

It has been 54 months since Charles W. (Charlie) Knapp was ousted from his post as chairman and chief executive of Los Angeles-based Financial Corp. of America, then the nation’s largest savings and loan company.

Cushioned by a $2-million severance payment at the time regulators forced him to resign, Knapp quickly bounced back from the debacle, forming his own merchant banking company in Westwood known as Trafalgar Holdings that now dabbles in everything from corporate takeovers to mortgages.

FCA never bounced back, though, nor did its operating subsidiary, American Savings & Loan. After years of horrendous losses on Knapp-era real estate development loans, American Savings failed last fall and was placed in government receivership. Stripped of its only substantive asset, FCA filed for bankruptcy.

American Savings was later turned over to Texas billionaire Robert M. Bass as part of a federally assisted rescue expected to cost at least $1.7 billion--funds that will be paid by the U.S. taxpayer and the savings and loan industry.

One of the strongest criticisms of Knapp came in an internal FCA study done in 1986 that accused his management team of causing loan losses of more than $400 million. FCA had also deliberately pumped up its earnings and assets “to inflate the market price of its stock, all for (Knapp’s) own personal financial gain and self aggrandizement,” the report said.

Knapp, 54, has argued in court papers and past interviews that he has been made a scapegoat for the failings of regulators and the management that succeeded him. He could not be reached to comment for this article.

FCA’s past lending activities have been the subject of a criminal investigation by the FBI for several years, public documents show. But Knapp has not been accused of wrongdoing by any government agency, nor is he likely to be, according to his attorney, Arthur N. Greenberg.

“The information that I have is that there is no basis for criminal or civil actions by the government,” Greenberg said. “Nothing was done that was wrong or illegal.”

A regulatory official in California, who asked not to be identified, agreed, saying: “I think he’ll slide.”

But another government official, who also asked to remain anonymous, confirmed that a criminal investigation of FCA is continuing, adding that it is ultimately going to be up to the U.S. Attorney’s Office in Los Angeles to determine what to do with the FBI’s findings.

“If something is going to happen,” he said, “it will be within the next few months.” Robert C. Bonner, the U.S. attorney in Los Angeles, declined to comment.

J. William Oldenburg

J. William Oldenburg, one-time owner of the now-defunct Los Angeles Express football team, is brokering mortgage loans as usual from his office in the Transamerica tower in San Francisco.

But these are hardly usual times for the 50-year-old financier, who faces a 42-year prison term and $44,000 in fines if convicted on all charges in a bank fraud indictment filed last month against him and three former colleagues.

The nine-count indictment charges them with conspiring to defraud State Savings & Loan in Salt Lake City by using $21.5 million in thrift funds toward the purchase of an overpriced piece of property he owned in the San Francisco Bay Area.

Oldenburg bought the 363-acre property in 1973 for less than $1 million and later sold it for many times that amount to State Savings, which he also owned. Appraisals on the property exceeded $50 million, but they were “deficient, exaggerated and unreliable,” the indictment said.

Oldenburg could not be reached for comment, but his lawyer, Joseph L. Alioto, scoffed at the charges, saying they were handed down simply because the five-year statute of limitations was about to run out. “He’ll be acquitted for sure,” said Alioto, who was San Francisco’s mayor from 1967 to 1976. “It’s a phony case.”

Still, the indictment is the latest in a series of setbacks for the flamboyant Oldenburg, a short, stocky one-time vacuum-cleaner salesman who later billed himself as a “self-made billionaire.”

Oldenburg once stunned the sports world by agreeing to give quarterback Steve Young a $36-million lifetime contract to play for the Express, which was a part of the United States Football League. The team folded in 1985.

Oldenburg built an empire as a mortgage broker who specialized in helping thrifts to buy loan participations in residential and commercial developments.

But, according to a recent congressional committee report on bank fraud, Oldenburg ended up arranging for thrifts around the nation to participate in bad loans. Several of the institutions later failed. Oldenburg was “involved in various capacities with a number of insolvent S&Ls;,” the report said.

State Savings was closed in 1985 after regulators declared the institution insolvent in what was at the time one of the most expensive failures in savings and loan history.

Daniel W. Dierdorff

Last July, Sun Savings founder Dan Dierdorff pleaded guilty to illegally transferring more than $200,000 in thrift funds to a secret account and forging a signature on a $2,000 check. Last Monday, the former varsity wrestler at San Diego State College got his punishment from U.S. District Judge John S. Rhoades--an eight-year prison term and an order to pay fines and restitution of more than $212,000.

The tough sentence completed the downfall of the 52-year-old Dierdorff, a man whose plight had sparked widespread support for him among well-known San Diegans. Among those who wrote letters on his behalf were San Diego City Manager John Lockwood and former San Diego Charger football player Kellen Winslow.

One friend, banker Dan McSweeney, characterized Dierdorff as a naive businessman who had risen too fast in the thrift world and was “in over his head.” McSweeney argued that Dierdorff be allowed to perform community service chores rather than be forced to spend time in jail.

But Assistant U.S. Atty. Yesmin Saide, in pre-sentencing arguments, painted a far different portrait, calling Dierdorff a “greedy, ruthless, power-hungry man driven to fatten his own wallet” through a scheme of loan fraud and kickbacks.

Founded by Dierdorff and opened Oct. 6, 1980, Sun Savings had a short shelf life. It was seized by thrift regulators and declared insolvent in July, 1986. Dierdorff served as Sun Savings’ chief executive and chairman until he resigned in late 1984.

According to prosecutors, Dierdorff received exorbitant salaries for running a financial institution that made high-risk and imprudent loans. He was “motivated by personal benefit and greed and involved Sun Savings in business transactions that were never in the institution’s best interest,” the government said in a pre-sentencing report.

In one case, Dierdorff set up a phony bank account, known as the “Danzer account,” into which he deposited more than $200,000 in funds that he later admitted came from loan kickbacks, court papers show.

To hide the account and conceal the funding source, Dierdorff misled the thrift’s outside auditors and lied to regulators, saying the money came from gambling winnings in Las Vegas. Dierdorff admitted to regulators last summer that the money came from bribes or kickbacks on Sun Savings’ deals, the prosecution said.

“Flat broke,” according to his attorney, and in tears before his sentencing, Dierdorff told the court that he never intended to “hurt anybody, including Sun Savings.” Free on $75,000 bond, Dierdorff is expected to enter prison March 27.