Owners of Failed Ramona S&L; Guilty of Fraud : Case Shows Juries Can Understand Complex Trials, U.S. Officials Say

In the first criminal trial of owners of a failed savings and loan in Southern California, a federal jury on Wednesday found two men guilty of bank fraud and conspiracy in connection with the 1986 collapse of Ramona Savings & Loan in Orange.

“The jury loudly and clearly sent a message that the public will not tolerate looting and stealing of depositors’ money by those who own and operate a savings and loan association,” said Assistant U.S. Atty. Steven E. Zipperstein, who prosecuted the case.

Donald P. Mangano Sr., 52, was found guilty on 31 charges of bank fraud and conspiracy. His partner, John L. Molinaro, 48, was found guilty on all those charges plus two more of causing false entries to be put into Ramona’s books.

Sentencing is scheduled for Nov. 13. Molinaro faces up to 165 years in prison and $8.3 million in fines. Mangano could receive a 155-year sentence and $7.8 million in fines.

“To say the least, it’s been a nightmare and quite an education,” Mangano said after the verdict was read.

Plan to Appeal

The attorneys for Molinaro and Mangano said they would appeal.

During the 11-week trial, the defense argued that Ramona’s failure was the result of lax federal regulations and not a conspiracy by Molinaro and Mangano to rob the institution. They noted that banking laws in the early 1980s were changed to encourage thrift owners to invest up to 100% of their assets in real estate so they could earn a better return on depositors’ money.

“The only reasons the two defendants are in court is because of the failing policies of the Federal Home Loan Bank,” said Gerald V. Scotti, Molinaro’s attorney.

The case, which encompassed 350 exhibits of evidence and 35 witnesses, illustrated how exacting prosecutors must be to win convictions in those complicated thrift fraud cases.

Government officials have worried that juries might be unable to follow the complex transactions surrounding such fraud. For example, a six-month trial of the allegedly fraudulent transactions surrounding Dallas-based Empire Savings & Loan’s collapse recently resulted in a hung jury.

Prosecutors took encouragement from Wednesday’s verdict.

Molinaro and Mangano bought Ramona and its $55 million in assets for $4 million in April, 1984. The thrift was taken over by regulators in September, 1986, and subsequently required a $65.5-million bailout.

Followed Industry Trend

As was the case with many failed savings and loans, Molinaro and Mangano had no experience running a financial institution before buying Ramona. Mangano was a real estate developer and Molinaro was a former carpet salesman.

The new owners followed an industry trend by changing the institution’s business plan from writing single-family home mortgages to riskier real estate investments.

Federal regulators alleged in a civil suit filed shortly after Ramona’s collapse that the two men systematically drained the 57-year-old institution of its assets through a series of complicated schemes, including a disastrous condominium project in Palm Springs called Cherokee Village.

The criminal trial focused almost exclusively on Cherokee Village, which was built with $25 million--or a quarter of the thrift’s assets--by Mangano’s construction company.

But Cherokee Village was a flop--only seven of the 180 condominiums had sold by the summer of 1985. So Molinaro and Mangano devised a scheme, prosecutors said, to rid themselves of Ramona and its biggest liability--Cherokee Village--while making a handsome profit at the same time.

They set up several dummy corporations with the help of three friends and then sold Cherokee Village to those companies to get the project off Ramona’s books, prosecutors said. The idea was to make Ramona look healthy to regulators and a potential buyer.

Mangano then became the owner of the corporations and therefore Cherokee Village. Once the two men found a buyer, they transferred Cherokee Village back to Ramona, depicted in its records as 23 acres of vacant land.

Ramona booked a $4-million profit on the bogus deal. Molinaro took a $2-million dividend based on the profit.

Defense attorneys told jurors the Cherokee Village transaction was legitimate and was done for tax reasons and to protect Mangano’s credit worthiness in the event the project went belly up.

Nine months after Ramona was seized, Molinaro was arrested in San Francisco when he tried to use the birth certificate of a dead man to obtain a passport. The FBI searched a bag Molinaro was carrying and found numerous business cards from the Cayman Islands, bank records and travel brochures on Eastern Europe and China.

Federal investigators also found a notebook containing a handwritten list of at least 60 personal reminders such as “consider bouncing (money) on-shore, then off-shore again.”

Molinaro pleaded guilty to passport fraud and served nearly two years in prison.

‘Obviously Pleased’

The federal government has recovered $3 million from accounts Molinaro set up in the Caribbean. Molinaro said the accounts contained his personal savings but regulators said the money was from Ramona.

Pretrial motions in the civil suit, which seeks the $65 million it cost the federal government to shut down Ramona and pay off depositors, are scheduled to be heard in December in U.S. District Court in Santa Ana.

“Obviously we are pleased with the verdict,” said Mark Lee, an attorney representing regulators involved in the civil case. “If it has an effect on the civil trial, it will be a positive one.”

Times staff writer James Bates contributed to this story.