THRIFTS : Trial Under Way in Ramona S&L; Fraud Case

During opening arguments Thursday, a federal prosecutor told jurors that two Orange County men bilked a savings and loan of millions of dollars through a fraudulent land scheme, while a defense attorney argued they were guilty only of following the bad investment advice of regulators.

Donald P. Mangano Sr., 52, and John L. Molinaro, 48, each face more than 30 charges in U.S. District Court in the first criminal trial in Southern California of savings and loan owners since the nationwide thrift debacle began to unfold in the mid-1980s.

The charges include bank fraud and conspiracy in connection with a Palm Springs real estate deal that prosecutors claim led to the collapse of Ramona Savings & Loan in September, 1986, and a subsequent $65.5-million federal bailout of depositors. Both men have pleaded innocent.

“These men used false pretenses, false representations, half truths and deceit as the main tools in their scheme,” Assistant U.S. Atty. Steven E. Zipperstein said in his opening statement.

The federal government has alleged that after Mangano--a real estate developer--and Molinaro--a former carpet salesman--bought the Orange-based S&L; in April, 1984, they proceeded to spend about $25 million, or a quarter of the thrift’s assets, building a Palm Springs condominium project called Cherokee Village that enriched the two men rather than Ramona.

When only seven of the 180 condominium units sold by mid-1985, Zipperstein argued, Molinaro and Mangano engaged in a complicated series of fraudulent transactions in order to unload the failed project at a handsome profit to themselves.

‘Used as Scapegoats’

But Gerald V. Scotti, Molinaro’s attorney, said the Cherokee Village was a good deal for Ramona and that the investment fell within the boundaries of liberal banking regulations in the mid-1980s that are now blamed in part for the savings and loan crisis.

“These individuals were used as scapegoats of the government in terms of the failing savings and loan industry,” Scotti said. “The government will refuse to take any blame, any responsibility. The government is trying to convict them for a failed project. It’s not a crime to be wrong.”

Mangano’s attorney postponed his opening statement until later in the trial.

To illustrate the complicated land transaction to jurors, Zipperstein used three story-boards outlining the following sequence of events in the alleged fraud:

Molinaro and Mangano found three men to set up four dummy corporations and sign phony documents indicating that those companies had bought 173 Cherokee Village units for $29 million from Ramona, which recorded the deal.

The three men then transferred the stock in three of the corporations to Mangano, which made him the new owner of Cherokee Village. For their trouble, the men received a parcel of land in north Palm Springs, which was transferred from Ramona to the fourth corporation.

Even though no money had changed hands, Ramona recorded a $4-million profit on the deal, and Molinaro had the thrift’s board of directors issue him a $2-million dividend, Zipperstein said.

“They tried to cover up and conceal these transfers from their own board of directors and federal regulators,” Zipperstein said. “It was a sham, a charade.”

Zipperstein told jurors that the transactions were designed to make Ramona look like a profitable institution so Mangano and Molinaro could sell the thrift and recoup their investment.

Innovative Method

But Scotti told jurors that the transactions surrounding Cherokee Village were legal and legitimate.

“What they turned to is an innovative method to get Cherokee Village off the books” of Ramona, Scotti said. “Being innovative is not a crime. . . . Everything was done above board in every way.”

Ramona was founded in 1927 and for over 50 years wrote traditional single-family mortgages. After Molinaro and Mangano acquired the S&L; in 1984, they began investing depositors’ funds in a slew of real estate investments. At the time, banking regulations had been relaxed to allow a thrift to invest 100% of its assets in real estate. Those rules have since been rewritten to severely limit the amount of assets that can be invested in real estate.

“They wanted new blood strongly infused in the S&L; industry and they (regulators) encouraged bold investments,” said Scotti.

The Federal Savings and Loan Insurance Corp. has filed a civil lawsuit, slated to begin trial Oct. 24 in U.S. District Court in Santa Ana, alleging that Molinaro and Mangano, had a scheme to systematically drain the institution of its $55 million in assets.