McKinzie Guilty of Looting S&L; : Fraud: Fairy tale ends as jury convicts ex-North America official on racketeering and conspiracy charges. Collapse of her institution cost taxpayers $120 million.

Janet Faye McKinzie was convicted Thursday of looting the now-defunct North America Savings & Loan, ending what had once been a fairy tale existence of Rolls-Royces, $1,000 cocktail dresses and lavish parties with entertainment provided by the likes of Sammy Davis Jr.

A jury of six men and six women deliberated eight days in U.S. District Court before finding McKinzie guilty of 22 of 26 counts including racketeering, conspiracy, bank fraud, wire fraud and interstate transportation of stolen property. She faces up to 175 years in jail.

McKinzie, 40, wept as the verdict was read.

During the eight-week trial, defense attorney Richard (Racehorse) Haynes portrayed McKinzie as a helpless victim duped into carrying out the fraud because she was being pumped full of prescription drugs by the thrift’s chairman, Duayne Christensen.

Christensen mysteriously died in a car accident only nine hours before federal regulators took over the thrift in 1987. The former dentist was named an unindicted co-conspirator in McKinzie’s case.

Federal prosecutors had portrayed the couple as a modern-day Bonnie and Clyde, stealing millions of dollars from North America to enrich themselves.

They each had a Rolls-Royce--hers with the license plate XTACI. And McKinzie spent hundreds of thousands of dollars at Neiman-Marcus, much of it after regular store hours as a preferred customer. FBI agents found that the pair had spent $125,000 on a gold eagle statue, $18,500 on a letter opener and $500 on a gold paper clip.

McKinzie’s 37th birthday in 1986 was celebrated with a dinner for hundreds of guests at the Newport Beach Marriott. Sammy Davis Jr. was on hand to sing a mix of tunes including “Happy Birthday.”

McKinzie officially was a consultant to North America. She was also Christensen’s business manager and confidante. Prosecutors, however, say she was the thrift’s de facto chairman.

The collapse of North America, one of several Orange County thrifts to fail in recent years, eventually cost taxpayers more than $120 million. Thursday’s verdict was hailed by regulators.

“The North America case was probably one of the top three investigations in the last five years in terms of how egregious the fraud was,” said William Davis, chief deputy of the California Department of Savings and Loan. “Justice finally prevailed. I’m delighted.”

McKinzie is the first person to be convicted under the RICO statute--the Racketeer Influenced and Corrupt Organizations Act--in connection with a savings and loan failure on the West Coast.

Federal prosecutors employed the RICO statute so the government could try to claim the proceeds from Christensen’s $10-million life insurance policy, which named McKinzie as sole beneficiary.

The jury in the McKinzie case is scheduled to reconvene next month to decide if she must forfeit that money to the U.S. Treasury Department. The money is currently being held in a government-controlled escrow account.

Because the jury still has some unfinished business, both prosecutors and defense attorneys were reluctant to say much Thursday.

Assistant U.S. Attys. David J. Schindler and Paul L. Seave would only say they were pleased with the verdict.

Michael M. Essmyer--Haynes’ co-counsel--expressed disappointment. “Ms. McKinzie’s judgment was impaired by the prescription drugs to the extent that under the law she should have been found not guilty,” Essmyer said.

McKinzie had pleaded not guilty by reason of insanity, a highly unusual plea in a white-collar-crime case.

Haynes, one of the nation’s leading defense attorneys, repeatedly told jurors that McKinzie was “a washed-out zombie” simply following Christensen’s orders. Hundreds of prescriptions were introduced as evidence, indicating that McKinzie was taking massive doses of drugs that included anti-anxiety medications such as Xanax.

During closing arguments two weeks ago, Haynes said Christensen was the Jim Jones of the savings and loan industry, a reference to the cult religious figure who led 900 of his followers in a mass suicide in Guyana.

The defense even showed jurors pictures of McKinzie before and after her relationship with Christensen. The first photo shows her svelte and healthy. In the second, McKinzie appears emaciated and pale.

“The smiling, charming blonde had become an 89- to 93-pound, prescription-drug-addicted, mentally diminished person who almost died in February, 1987,” Essmyer told jurors.

McKinzie didn’t even drink coffee before she met Christensen, Essmyer said.

Essmyer paraphrased Christensen as saying: “Just help me a little bit. It’s my money, it’s my savings and loan. And here, have a few pills.”

Christensen died in 1987 when his Jaguar crashed into an overpass piling on the Corona del Mar Freeway. He was 57. The Orange County coroner classified the cause of his death as undetermined, failing to rule on whether it was an accident or suicide.

Jurors sided with the government, which said McKinzie was fully aware of what she was doing.

Federal prosecutors focused exclusively during the trial on two schemes that they claimed McKinzie directed personally.

According to the prosecution, an escrow-accounts fraud succeeded in bilking North America of $11 million between August, 1985, and March, 1986. The thrift’s board of directors approved the deposit of millions of dollars in what they thought were escrow accounts to be used by McKinzie to purchase properties with the help of a real estate speculator named David L. Morgan.

The escrow accounts were phony.

McKinzie went so far as to order an underling to get blank stationery from the two banks where the deposits were supposedly held. Shortly thereafter, North America executives received letters that appeared to be from the banks reassuring them that the deposits were safe and sound.

“To give all parties concerned a good comfort zone, prior to any of these funds being released, North America Savings will be immediately notified,” one letter said.

The letters were forgeries--done at McKinzie’s instruction--and the $11 million was long gone by the time they arrived in North America’s mailbox.

“The money was dispersed to the four corners of the Earth,” Seave said during closing arguments.

One letter--purportedly written by the manager of one of the two banks--even praised McKinzie.

“I can assure you Jan McKinzie, her Plaza Group reputation and the business she provides to our bank is well respected,” the letter said.

“That was very nice of Jan McKinzie to write that about herself,” Seave said during closing arguments. “A nice self-serving touch.”

The second scam McKinzie engineered, jurors were told, involved two residential projects that North America was financing.

Using old invoices from those projects, McKinzie instructed secretaries to white-out key information, such as dates and amount paid, and put in new information including much larger amounts due.

North America wrote $5.6 million worth of checks based on those phony invoices, some of which went directly to McKinzie and Christensen. The two even formed a shell company called Central State Construction which was used as a funnel for some of the ill-gotten gains, the prosecution said.

“These schemes are not complicated,” Seave told jurors. “They just required a lot of hard work, and Janet McKinzie was a very hard worker.”

McKinzie--along with several other officers and directors at North America--still faces a civil lawsuit brought by the Federal Savings and Loan Insurance Corp. FSLIC attorney Eric Isken said the agency has no plans to drop its action.

“We have always intended to pursue all remedies against Janet McKinzie,” Isken said. “We intend to continue to purse that vigorously.”

The failure of North America was one of the more unusual of a series of savings and loan collapses in Orange County in the 1980s.

Just last month, two Orange County businessmen were sentenced after convictions of fraud and conspiracy that led to the 1986 collapse of Ramona Savings & Loan in Santa Ana. They received prison terms of 27 years between them and were ordered to pay $6.8 million in restitution to the Federal Deposit Insurance Corp.

And numerous criminal and civil investigations are under way involving Irvine-based Lincoln Savings & Loan. The thrift, which undertook risky real estate investments, was seized in April by federal regulators and is expected to cost taxpayers more than $2 billion.

THE SAGA OF NORTH AMERICA SAVINGS & LOAN

September, 1983: Duayne D. Christensen, a Westminster dentist, invests $6.4 million to open North America Savings & Loan 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. Nine and a half hours later, North America 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 thrift.

February, 1987: Federal regulators sue Janet Faye 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 thrift revise the amount missing 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 thrift paid more than $250,000 for the office decorations.

June, 1988: Federal regulators announce that they will close and liquidate North America. The failure is estimated to cost taxpayers $120 million.

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 that they looted the institution of more than $16 million.

November, 1989-January, 1990: Three of McKinzie’s associates plead guilty to criminal charges in connection with alleged fraud at North America.

Jan. 9, 1990: Federal racketeering and bank fraud trial of McKinzie begins in Santa Ana.

March 29, 1990: McKinzie is found guilty of 22 counts of racketeering, conspiracy, wire and bank fraud and interstate transportation of stolen property. She could be sentenced to up to 175 years in prison.

Source: Los Angeles Times files