STARS AND BARS : Better Known fo Hollywood and beaches, Southern California is also considered the white collar crome capital of the United States.

Drugs, gangs and drive-by shooting may grab the headlines, but the most serious crime problem in the Los Angeles area, according to law enforcement officials, is white-collar crime.

State and federal investigators say white-collar crime in Los Angeles has been on a rapid rise throughout the 1980s, giving the Southland the dubious distinction of being dubbed the fraud capital of the nation.

“That’s what we are,” says U.S. Atty. Robert C. Bonner, one of the most visible and vocal officials in a veritable army of white-collar crime fighters in the Southland.

According to Bonner, Los Angeles has “a greater number of fraud cases and in larger dollar amounts than any other district in the country, by far. In just about every area except the Wall Street insider trading cases we have a more significant problem--in terms of losses to investors, financial institutions and government--than New York.”

Just three weeks ago, U.S. Atty. Gen. Dick Thornburgh announced the formation of a national task force of six U.S. Attorney’s offices, including Los Angeles, to intensify the fight against securities and commodity fraud.

Virtually every state and federal law enforcement and regulatory agency in Southern California is engaged in the battle. The FBI is involved, along with local police and sheriff’s departments. But there are also agencies involved here such as the Internal Revenue Service, U.S. Postal Inspection Service, Federal Trade Commission, Securities and Exchange Commission, Commodities Futures Trading Commission and Environmental Protection Agency. There’s even a federal agency that looks for nothing but defense industry fraud and a county agency watching only for consumer rip-offs.

Definition of Category

The offices of the state attorney general, the district attorney and the U.S. attorney each have their own units specializing in major fraud. All say their investigators and prosecutors are swamped with work.

Also called business or economic crime, white-collar crime is defined by one government prosecutor as “when a business person--usually through their affiliations with companies--makes money illegally through fraud, embezzlement, stock manipulation, tax or antitrust violations.” Thornburgh recently labeled it “crime in the executive suites.”

Why is Southern California such a hotbed of white-collar crime?

“My guess is that it’s due in part to the fact that law enforcement staffs have not been growing in proportion to the population, so it’s easier to do things here and get away with it,” said Irving M. Einhorn, regional administrator for the SEC. “In Chicago, you see police cars on the street in numbers that would shock someone who’s lived here all their lives. Law enforcement presence is not as evident here.”

Another reason, Einhorn believes, has to do with the nature of Los Angeles itself. “You have a huge transient population and a thriving entrepreneurial spirit here, so no one thinks anything of a new business opening up. You simply rent an office, give a few dollars to charity, get some publicity and all of a sudden you’re an accepted part of the business community. That’s not as easily done in Cincinnati. It’s a curiousity to me.”

The current white-collar crime wave in Los Angeles runs the gamut from multimillion-dollar bank and securities frauds, such as the ZZZZ Best Carpet Cleaning case, to usually unreported incidents of consumers being overcharged on auto repairs or being deliberately short-changed at a retail checkout counter.

Many More Complaints

In between are a myriad of defense procurement, investor and bankruptcy frauds, environmental crimes and crimes by computer. All are on the upswing, according to authorities.

“Five years ago we received about 1,000 complaints of bank fraud in Los Angeles,” said Bill Stollhans, the assistant special agent in charge of the FBI’s white-collar criminal investigations unit here. “Now we’re getting between 6,000 and 7,000 complaints a year.” And the dollar amounts of the frauds have increased dramatically as well, Stollhans said. “In the early 1980s, a $100,000 bank fraud was considered a very good case. Now a big case is eight digits. We have many between $20 million and $60 million.”

Not surprisingly then, the Los Angeles office of the FBI ranks white-collar crime as its highest priority, with bank fraud and defense procurement fraud accounting for 60% of its agents’ efforts.

The FBI is aided in its battle against defense fraud by the Defense Criminal Investigative Service, an agency created by the Defense Department in 1982 specifically to investigate corruption in the defense industry.

The DCIS office in Laguna Niguel is the largest and busiest in the country, said Rodney Hansen, the special agent in charge.

According to Hansen, in just the last few years in the Southern California region, DCIS investigations have led to 97 indictments and recovered more than $50 million for the government. “We could double our staff and still have an overwhelming amount of work to do,” he said.

No Regard for Safety

The DCIS’ top priority is a trend among unscrupulous defense contractors toward “product substitution,” the use of inferior components in the construction of military aircraft or weapons systems.

“In a lot of cases, the contract calls for the testing of parts, and some contractors are doing things like using an inferior grade of steel to increase their profit margins and then falsifying the testing,” Hansen said. “This is greed to the point where they are abandoning any regard for user safety.”

The No. 2 priority of Hansen’s agency is kickbacks and bribery. “In the last couple of years in Los Angeles we’ve had 30 indictments of buyers for corporations who received kickbacks from vendors in return for awarding a contract,” Hansen said.

Bank fraud and defense procurement fraud have the the broadest impact on society at large, at least in terms of cost, law enforcement officials say, but investor fraud can have the most devastating effect on individual victims.

Perhaps no single location comes up more often in discussions of the white-collar crime problem than Newport Beach in Orange County. In recent years, according to state and federal officials, the Newport Beach area has become the center of investor scam operations, so-called boiler rooms where high-pressure con artists use banks of telephones to push bogus investment plans to targeted retired or elderly victims.

And why Newport Beach? “Simply because its sounds classier over the phone than, say, Pomona,” one investigator said.

Fraud investigators relate countless horror stories of gullible retirees who were persuaded over the telephone to put their life savings in such flaky investments as discounted precious metals.

Some Hefty Losses

“I’ve been here 21 years and I’ve never seen a problem as bad as the boiler room situation is today,” said Wes Fisk, and investigator for the California Department of Corporations. “Written complaints coming into our office have tripled in the last three years, up to 9,000 a year.”

According to Fisk, the average victim of a boiler room scheme loses between $40,000 and $50,000. “And I know of one victim who invested $400,000 on a single telephone call.”

“It’s not uncommon to find boiler rooms where the gross take is between $2 million and $3 million a month,” he said. “I don’t know of anything that has that kind of return except narcotics.”

Although white-collar crime traditionally has been nonviolent, that may be changing, according to Fisk.

“We’re we’re finding more and more organized crime moving into boiler rooms, and we’ve had two incidents of violent acts,” he said. “One group tried to run off a competitor with a crossbow, and when that didn’t work, they shot him with a .45 twice in chest and once in the head.”

According to Gary Fees, head of the major frauds division of the U.S. Attorney’s Office in Los Angeles, his unit has successfully prosecuted more than 300 individuals in boiler room cases in the last three years--and there are still several hundred operations currently doing business.

Several Kinds of Crime

Fees ticked off a long list of other white-collar crimes that are currently thriving in the Los Angeles area:

“Real estate fraud. Insurance fraud is a big business here. We have a serious staged-accident problem. Arson-related insurance fraud is one of the most difficult crimes to deal with--something like 90% of the cases result in no charges being filed because it’s such a tough crime to prove. We have a lot of Medicare and Medicaid fraud.”

With a staff of 14 prosecutors, the major fraud division of the Los Angeles District Attorney’s Office handles about 120 white-collar crime cases a year, according to Deputy Dist. Atty. Allen D. Field, who heads the unit.

“These cases can be a nightmare to prosecute because they require a great deal of investigative time, involve boxes and boxes of complex documents and the normal defense tactic is to keep asking for trial continuances, thinking the victims, witnesses and prosecutors will eventually get tired and give up,” Field said.

Another problem law enforcement faces in battling white-collar crime is the relative lack of a deterrent factor, according to Field. “Under state law, the maximum time anyone spends in custody on these cases is 5 1/2 years, no matter how much money they steal,” he said.

The federal response to white-collar crime has also, at least until recently, needed fortification, according to U.S. Atty. Bonner.

But Bonner said he recently obtained approval from the Justice Department to hire 24 new prosecutors, a 15% increase.

“The common denominator in all this white-collar crime is that there has been a deterioration in business ethics and our ethical values in general,” he said. “Because of the growth of Los Angeles, we are reaping the results of that erosion.”