Racketeering Charged by U.S. in S & L Failure
Stepping up the stakes in their war on fraud in Southern California’s troubled thrift industry, federal prosecutors Tuesday unleashed a powerful anti-racketeering law against the former operators and associates of North America Savings & Loan.
A 40-count racketeering and fraud indictment, returned by a federal grand jury in Los Angeles against former executive consultant Janet F. McKinzie and five others, alleges that the now-defunct Orange County financial institution operated as a fraudulent enterprise almost since its inception in 1983.
The indictment, which represents the first use of racketeering laws against a failed savings and loan on the West Coast, alleges that top management of the Santa Ana-based institution looted more than $16 million from depositors in a systematic attempt to use the troubled institution as a front for bogus real estate transactions.
McKinzie, 39, and North America’s now-deceased founder and chairman, Duayne D. Christensen, are accused of using part of the fraudulent earnings to make it appear to regulators that the rapidly failing institution was adequately capitalized long after it began sinking into the red.
The remainder, federal prosecutors allege, was used to finance expensive homes in Newport Beach, a pair of new Rolls-Royces and other luxuries for McKinzie and Christensen, who was 57 when he died in an early morning car crash just hours before state regulators seized the institution in January, 1987.
U.S. Atty. Robert C. Bonner said in Los Angeles that a 15-month FBI investigation concluded that the failure of North America, described by state regulators as the worst case of insider fraud ever uncovered at a California savings and loan, could be directly traced to the fraudulent activities of the institution’s management.
The federal government already has spent $120 million to bail out insured depositors.
“Obviously, this is a very serious problem, one that ultimately affects the integrity of our financial institutions,” Bonner said at a news conference announcing the indictment.
Armed with the federal racketeering statute’s tough forfeiture provisions, prosecutors will stand first in line to recover assets and liquidated funds from the failed lending institution, including Christensen’s $10-million life insurance policy.
The policy, whose sole beneficiary was McKinzie, Christensen’s confidante, executive assistant and sole heir, has been placed in the custody of the court along with other remaining North America assets.
Federal prosecutors are asserting a claim on the policy based on allegations that its premiums were paid with the fraudulent proceeds of a criminal enterprise, according to Assistant U.S. Atty. Nancy Wieben Stock, who will prosecute the case. Most of the remaining North America assets, she said, have already been liquidated and are under the stewardship of the Federal Home Loan Bank Board.
Stiffer Penalties
The racketeering law also provides for stiffer penalties than those available under standard fraud and conspiracy laws. McKinzie faces up to 20 years in prison if convicted on the racketeering count alone.
McKinzie surrendered to a federal magistrate in Santa Ana on Tuesday and was released on $50,000 bail.
The Federal Savings and Loan Insurance Corp., as receiver for North America, has filed a civil racketeering suit against McKinzie claiming that she aided Christensen in defrauding the savings and loan out of more than $40 million. The suit is pending in Los Angeles federal court.
In a brief statement Tuesday, McKinzie’s lawyer, Michael Essmeyer, denied the allegations in the indictment.
“I believe the evidence will show my client had no culpable mental state, and therefore will be found not guilty of all these offenses that have been alleged. She had no intention to commit a crime against anyone,” he said.
Christensen, a former Westminster dentist, was new to the financial industry when he chartered North America in 1983. McKinzie, a real estate broker, acted as Christensen’s executive assistant and was a paid consultant with offices in the executive wing of the institution’s Santa Ana office. The FSLIC claims McKinzie was “de facto vice chairman.”
McKinzie and Christensen, named as an unindicted co-conspirator, are charged with operating North America as a racketeering enterprise through most of its 3 1/2 years of operation, diverting federally insured deposits for their personal benefit at the same time they were artificially inflating the institution’s net worth to create the illusion of profitability.
One of the schemes charged in the indictment alleges that a series of phony commercial real estate escrows were created, into which $11 million in North America funds were deposited and ultimately diverted to the benefit of Christensen and McKinzie.
An additional $5.6 million was allegedly lost through the creation of false billings in order to charge fictitious construction expenses to North America for development of two real estate projects in San Jose and Whittier.
Diversion of Money Told
The money actually was diverted to Plaza Group, an Elk Grove, Calif., company owned by McKinzie that was also involved in the phony escrows, Bonner said.
Also named in the indictment are Victoria R. Walker, 46, office manager for Plaza Group; David L. Morgan, 52, Little Rock, Ark., accused of acting as a prospective buyer for the allegedly phony escrow properties; Frederick Youngdahl, 53, of Newport Beach; Armando J. Vasquez, 52, of Irvine and Thomas C. Clarke, 63, of Vista, all contractors who, investigators said, participated in the phony invoices scheme.
William B. Davis, chief deputy commissioner of the state Department of Savings and Loan, said he was delighted with the indictment.
“We’d like to see more criminal prosecutions. The problem is . . . the justice system is slow,” he said.
Times staff writer James Granelli in Orange County contributed to this article.
HISTORY OF NORTH AMERICA S & L ASSN.
September, 1983: Duayne D. Christensen, a Westminster dentist, invests $6.37 million to open North America Savings in Huntington Beach.
November, 1986: North America, now based in Santa Ana, loses $8.9 million for the first 11 months of 1986 and has a negative net worth of $1.5 million by the end of November.
January, 1987: Christensen is killed when his car crashes into a bridge support on the Corona del Mar Freeway. Within hours, North America Savings is declared insolvent by state regulators. When evidence of widespread fraud is detected, the state turns the institution over to the Federal Savings and Loan Insurance Corp., and the FBI and the state attorney general’s office begin criminal investigations. Charles Bottomley is hired by the FSLIC to manage the savings and loan.
February, 1987: Federal regulators sue Janet F. McKinzie, Christensen’s business manager and executive consultant, charging that she and Christensen defrauded the institution of more than $20 million and caused its collapse.
March, 1987: Lawyers for federal regulators operating the savings and loan revise the amount missing up to $40 million.
December, 1987: After moving to new offices in Costa Mesa, North America puts its art and collectibles up for auction. Regulators estimate the savings and loan paid more than $250,000 for the office decorations.
June, 1988: Federal regulators announce that they will close and liquidate North America Savings & Loan, along with another Orange County institution, American Diversified Savings Bank, and distribute $1.3 billion to depositors.
April, 1989: A federal grand jury in Los Angeles returns a 40-count racketeering indictment against McKinzie and five other former principals of the savings and loan, alleging they looted the institution of more than $16 million.
