Charles Knapp: Once a Money King, Now a ‘Business Leper’
The troubled world of maverick money man Charles W. Knapp appears to be wilting around him.
Knapp has thrown in the towel on Trafalgar Holdings, the private Los Angeles-based financial-services firm that he founded in late 1984 to start life anew following his tumultuous tenure and ouster as head of the former parent of American Savings & Loan. Once the nation’s largest thrift, American’s failure in 1988 led to one of the biggest federal thrift bailouts ever.
“There is little left of the Trafalgar enterprises,” the controversial financier acknowledged. “We have been unwinding our activities and my own involvement in these companies.”
Sounding variously aloof, resentful and unyielding, Knapp made his remarks in writing in response to specific questions about his business and personal life. He now works as a business consultant and said he is writing a book on what went wrong in the savings and loan industry.
In recent times, Knapp has been bedeviled by unpaid bills, setbacks in a messy divorce battle and even the crash of one of his vintage airplanes. The FBI is also probing a Trafalgar subsidiary’s default on an unsecured $15-million loan from Western Savings & Loan in Phoenix, people familiar with the investigation say. Evidence regarding Trafalgar’s alleged misrepresentation of its finances may be presented to a federal grand jury by year-end, sources say.
“It was a very unique loan,” said a former bank official who asked not to be identified. “Western Savings was not in the business of making unsecured loans of that size.”
Knapp’s attorney, Michael Artan, confirmed that a federal probe is under way but denied that Knapp did anything wrong. Knapp confirmed that the loan, which he said was used to buy real estate in Texas and Arizona, is in default, but added that he is trying to refinance the debt.
“The market in these areas has been exceedingly difficult in recent months and (real estate) values have diminished rather significantly,” he said.
A spokesman for Western Savings declined comment, as did officials at the FBI and U.S. Attorney’s Office in Los Angeles. Western Savings was declared insolvent last year and has been operating in government receivership. BankAmerica recently acquired Western Savings’ deposits and some of its assets for $81 million.
At its zenith, Trafalgar Holdings and its operating subsidiaries had more than 150 employees and several offices in Southern California that handled corporate financings, mortgage-loan sales and securities transactions.
Following heavy losses and continued staff turmoil, those offices were closed. Knapp today is operating out of an office in Beverly Hills with only a skeleton support staff. A mortgage-loan and reinsurance business in Orange County continues to operate under the new name of Atlantic Funding.
A lesser figure in corporate takeovers, Knapp made his biggest public splash at Trafalgar in 1985 when he attempted an unprecedented hostile takeover of Minebea, a Japanese firm that makes miniature ball bearings. The effort was eventually dropped after Minebea put up a heated resistance.
Knapp blamed his business problems on negative publicity. But Trafalgar and its subsidiaries were also hurt by shortages of capital, unfavorable market conditions and erratic management that caused instability and insecurity among employees.
Knapp portrays himself today as a misunderstood entrepreneur “hounded” by his enemies, including the press. He said he has had to spend millions of dollars in legal fees “defending myself from at times ridiculous charges.”
He denied that he is broke, as some former associates have suggested privately. “I do have considerable debts, uncollected receivables and considerable assets,” he said. “I am neither broke nor rich. I am, however, tired of paying from my personal income obligations of companies with several other shareholders.” He did not elaborate.
Knapp, 55, is a magnetic but decidedly mercurial figure viewed by detractors as a major reason why the nation’s S&L; industry needs a massive taxpayer bailout.
Forever outspoken, Knapp so angered federal regulators with his fast-growth policies that he was ousted as head of Financial Corp. of America in August, 1984. FCA’s operating subsidiary was American Savings.
Knapp received a $2-million severance payment in return for his agreement to resign as chief executive of FCA. A subsequent internal investigation concluded that business practices under Knapp had resulted in major losses at American Savings.
FCA went out of business after heavy loan losses forced American Savings into insolvency. The thrift was sold to Texas billionaire Robert M. Bass as part of a federal rescue effort expected to cost the government about $1.7 billion.
Knapp’s attorneys point out that he has never been charged with a crime, though he left FCA and American Savings more than five years ago. They also note that he has won repeated victories in civil litigation resulting from FCA’s problems.
Formed by Knapp several months after he left FCA, Trafalgar Holdings used to operate from tony tenth-floor digs at Murdock Plaza in Westwood, not far from UCLA. But the holding company vacated those offices in January after failing to pay rent for several months, court papers show.
Building owner Frederick W. Field has sued Trafalgar Holdings for $85,000 in back rent. Knapp said he expects the dispute to be settled soon.
According to Knapp, negative publicity about Trafalgar “caused a total erosion of my business activities. I have in essence become a sort of business leper, and calls are not returned even by those whom I have helped stay in business over the years.”
He added at another point: “Very few of my old pals have stuck by me in difficult periods, and as to those few I am grateful. I have my wife and family, and they give me unconditional love. This makes me invincible and indifferent to the outside world.”
Some of Knapp’s other troubles include the more than $35,000 in debt on his American Express platinum card, which American Express Centurion Bank wants him to pay back, court records show. Knapp has disputed some of the charges but predicted the dispute will be settled shortly.
In addition, a Knapp associate, Robert Guilford, crashed one of his airplanes--a P-51 Mustang--just after takeoff from the Santa Monica airport last September. No one was killed in the crash, but a home in Mar Vista was heavily damaged. Knapp said the plane was “fully insured.” Guilford refused comment.
One of the sharpest daggers in Knapp’s side continues to be an unseemly dispute with former wife N. Brooke Knapp, whom he divorced several years ago after agreeing to annual support payments of more than $300,000.
Knapp stopped making payments last May and now owes his ex-wife well over $400,000, court records show. Faced with a contempt citation, Knapp sued his former spouse late last year, seeking to cancel the support agreement on grounds that he was acting irrationally when it was signed in 1986.
As part of his suit, Knapp contended that he had been in an “extremely pathologic state” since being forced out at FCA. A judge dismissed the case in April.
A hearing on Knapp’s failure to make the support payments has been continued until summer while a compromise is sought. Knapp called the matter a “gossip column item and I will not comment except to indicate we are actively working on a settlement.” He is now married to movie actress Lois Hamilton.
Knapp has also had several bitter disputes with former close associates, such as Texas real estate broker William R. Morgan. No one is more public in his anger with Knapp than Morgan, whose company, Nepenthe Group, filed a civil racketeering suit against Knapp, Trafalgar and its operating companies in U.S. District Court in Austin, Tex., in late 1988.
As an aside in the suit, Nepenthe charged that Trafalgar Capital had obtained a $15-million line of credit from Western Savings by using a “materially incorrect and fraudulent” financial statement prepared by Knapp’s financial advisers in late June, 1988.
According to Nepenthe, Trafalgar Capital’s financial statement claimed a $71.6-million interest in an Austin real estate development known as the Circle C Ranch when, in fact, the investment had not been consummated.
Knapp defended the financial statements, saying they “speak for themselves.” His attorneys have labeled Nepenthe’s lawsuit a “sham.”
Ownership of Circle C is still at issue, legal papers show. Morgan was trying to broker a half-interest in the property to Trafalgar Capital when the deal bogged down amid allegations of chicanery, misunderstandings and lawsuits, according to court records and interviews.
Though Nepenthe recently dropped its federal suit, Morgan vowed to refile it if he can afford to do so. He says he has already spent more than $100,000 pursuing Knapp.
Nepenthe is now operating in bankruptcy court. “I believed in Charlie Knapp,” an embittered Morgan said in a telephone interview from Dallas, where he lives now, “and he let me down.”
