2 O.C. Thrift Owners Begin Fraud Trial Over Land Deal
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 Southern California criminal trial of thrift owners since the national savings and loan debacle began to unfold in the mid-1980s.
The charges include bank fraud and conspiracy in a Palm Springs real estate deal that prosecutors allege led to the collapse of Ramona Savings & Loan in September, 1986, and a subsequent $65.5-million federal bailout of depositors.
Both suspects 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 spent about $25 million, or a quarter of the thrift’s assets, building a Palm Springs condominium project called Cherokee Village, which enriched the suspects rather than Ramona.
When just seven of the 180 condominium units had sold by mid-1985, Zipperstein argued, Molinaro and Mangano engaged in a complicated series of fraudulent transactions designed to unload the failed project at a handsome profit to themselves.
But Gerald V. Scotti, Molinaro’s attorney, said that Cherokee Village was a good deal for Ramona and that the investment fell within the boundaries of liberal banking regulations in the mid-1980s--which have been 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.”
The S&L; industry was deregulated in 1982, with banking regulations relaxed considerably, encouraging thrift executives and owners to look beyond single-family mortgages to more speculative investment vehicles as ways to make money.
“They (regulators) wanted new blood strongly infused in the S&L; industry, and they encouraged bold investments,” Scotti said.
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:
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 northern Palm Springs, which was transferred from Ramona to the fourth corporation.
Based on Phony Windfall
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 based on the phony windfall from the deal, 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.
But Scotti told jurors that the Cherokee Village transactions were legal and legitimate.
‘An Innovative Method’
“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 aboveboard in every way.”
Ramona was founded in 1927. For more than 50 years, the thrift wrote traditional single-family mortgages.
After Molinaro and Mangano acquired the S&L; in 1984, they began investing depositors’ funds in real estate. At the time, banking regulations allowed 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 land deals.
The Federal Savings and Loan Insurance Corp. has filed a civil lawsuit, scheduled to begin trial Oct. 24 in U.S. District Court in Santa Ana, alleging that Molinaro and Mangano were planning to drain the institution systematically of its $55 million in assets.
$3 Million Recovered So Far
So far, the agency has recovered $3 million from bank accounts that Molinaro had set up in the Caribbean.
Before opening statements in the criminal trial began Thursday, U.S. District Court Judge David V. Kenyon ruled that prosecutors could not tell jurors about Molinaro’s 1987 conviction for passport fraud. Molinaro was arrested in a San Francisco passport office after he presented the birth certificate of a dead man; thrift regulators have contended that he was planning to flee the country to avoid prosecution.
Scotti has denied allegations that his client had been plotting to leave the country.
The trial is expected to last four to six weeks.