A Dream of Luxury Turned Into Nightmare : Fraud: Over 200 people poured $12 million into a dynamic salesman’s real estate development firm, lured by promised high returns and by the trappings of his success.
To those who knew him, Amway distributor Al Keranen seemed to personify the dream of instant riches.
With a sprawling house in Woodland Hills, fancy cars, a private plane and a second home at a Utah ski resort, the former high school football coach-turned-salesman radiated prosperity as brightly as the sun that glinted off his gold Rolex watch and diamond pinky ring.
It was Keranen’s obvious success in Amway--where some estimate he was earning $20,000 monthly--that induced hundreds of people, including many subordinate Amway distributors, to pour millions of dollars into his Woodland Hills real estate development company, the California Anchor Group.
Lured by promises of receiving interest rates on their investments of 25% or more, people grabbed what they thought was the golden ring that would lead to a similar lifestyle.
Single mothers with limited incomes refinanced their houses to raise a stake; professionals--bankers, doctors, dentists and engineers--took assets, including IRAs, out of safer investments; and senior citizens, fearing inflation, gave him their meager nest eggs.
All told, more than 200 people in California, Oregon and Washington poured more than $12 million into Cal Anchor. The company, started in 1983 in the midst of a hot real estate market, was supposed to build or refurbish, then sell, San Fernando Valley apartment buildings at tremendous profits.
But in May, 1987, investors’ dreams of luxury turned to financial nightmares when Cal Anchor closed the doors of its plush Warner Center office for good, after a raid by agents of the U.S. attorney’s office.
Keranen and two former vice presidents of the group, Robert Dumas and Ronald Stoliar, are to be arraigned today on federal fraud charges for allegedly operating what prosecutors said was one of the largest and longest-running Ponzi schemes ever in Southern California.
In the 1920s, a Boston newspaper exposed a former vegetable peddler, Charles Ponzi, who ran the first of what came to be known as Ponzi schemes, convincing newly arrived immigrants that he could produce a 40% return on their money by exploiting a quirk in international postal conventions. In fact, the money Ponzi returned to investors came from money provided by later victims.
Similarly, Cal Anchors’ investors were paid their monthly interest with new investors’ dollars, rather than with revenues from profitable real estate deals as they thought, said Assistant U.S. Atty. Anita H. Dymant.
Keranen, who now lives in Beaverton, Ore., where he has started a company called Double Win International that sells water filtration devices and motivational tapes, referred questions to his lawyer, Richard H. Kirschner.
Kirschner said his client founded Cal Anchor as a legitimate business, then entrusted its daily operation to its vice presidents.
“He did not have some clever Machiavellian plan,” Kirschner said. “Although he realizes the buck stops with him, he was not the one who began or implemented what was wrong with the company. He did not run the company on a day-to-day basis. He was an absentee manager.”
Kirschner, who said his client has no criminal record, portrays Keranen as a naive victim, whose talents as a salesman were abused by unscrupulous subordinates
“He did recruit the investors . . . but he would be the first to admit that he was not a real estate developer, and he left it in the hands of others who he thought could do that,” the attorney said. “He was victimized.”
Kirschner said his client is determined to pay back everyone who lost money in Cal Anchor. Nine civil lawsuits--with more than 100 plaintiffs--have also been filed against Keranen, who filed for bankruptcy in Utah in 1988.
Dymant agreed that Keranen’s fantastic salesmanship, particularly his success in Amway, a direct consumer-marketing company, was a major factor in keeping the scheme afloat for nearly four years.
“Normally, a Ponzi scheme will collapse of its own weight sooner, but Keranen had a built-in audience of potential investors that was very substantial,” Dymant said. “He had clout and a credibility that you wouldn’t get from another investment scheme.”
Because he rose quickly within Amway, by selling products and sponsoring many new distributors, others thought he had tremendous business acumen and were eager to hitch their stars to his.
“He showed the lifestyle that everybody dreamed about,” said Corky Bassler, a West Hills printer and Amway distributor who invested $140,000 in Cal Anchor. “He was a very dynamic person.”
Before joining Amway, Keranen, who is married and has two young boys, was a high school football coach in Oregon for several years, his attorney said. He began selling life insurance and after that borrowed money to begin a computer software sales business.
But Keranen suffered a major setback when his car was rear-ended by a bus on the freeway and his neck was broken.
“Through sheer will and determination, he managed to get himself out of bed in two months,” Kirschner said. “He could have gone into bankruptcy at that time, but he vowed to pay everybody he owed.”
It was shortly after the accident, in 1981, that Keranen got involved with Amway, and he built a flourishing business in a phenomenally short time, other Amway distributors said. They estimated that when Keranen founded Cal Anchor--two years after he had joined Amway--he was earning nearly $20,000 a month with the business.
With a super-optimistic, can-do attitude, Keranen became a popular motivational speaker at Amway gatherings where he shared his life story. He also sold tapes, with such titles as “You Too Can Be a Millionaire.”
Even now, Cal Anchor investors remember him as “dynamic,” “bigger-than-life,” the “stereotypical back-slapping salesman” and a powerful speaker.
“He was the type of guy that gets up in front of a large group and says, ‘Honey, you can own the world,’ ” said a 47-year-old single mother who lost her North Hollywood house when Cal Anchor collapsed. “His Rolex watch was certainly a symbol of his strength.”
A West Hills physician and former Amway distributor who asked that his name not be used said that “people trusted Keranen because he was in a network of people that were mostly nice, honest-working people.” Keranen was “surrounded by all this legitimacy,” he said.
It was Keranen’s reputation and prestige in Amway that kept Cal Anchor running; it was when Keranen was kicked out of Amway, in March, 1987, that Cal Anchor began to collapse.
Keranen was asked to leave Amway because he had violated company policy by recruiting distributors whom he had not personally sponsored into Cal Anchor, company spokeswoman Kim Bruyn said. But, she said, Amway officials were unaware that Cal Anchor was not a legitimate business.
“Word spread like wildfire” that Keranen had been forced to leave Amway, Dymant said. Suddenly, Keranen could not attract any new investors, and the next month’s interest checks all bounced, she said.
Two months later, in May, 1987, federal investigators raided the office and the company shut down for good.
When the scheme collapsed, investors who had refinanced their houses to raise investment money lost them. Others, who had been told by Keranen that they could roll their IRAs over into Cal Anchor, had to pay huge penalties to the IRS.
Charles Mathis, 56, a Milpitas engineer, lost his savings of about $120,000 and paid penalties for investing his IRA in Cal Anchor.
Cal Anchor interest checks had allowed Raymond Rothschild, 62, to close his West Los Angeles dental practice and take an early retirement. He bought a condo in Palm Springs and began eating at expensive restaurants.
“The money was coming in and here I was spending it like a kid at Disneyland. Little did I know it was my own money,” Rothschild said. The collapse cost Rothschild and his mother a total of $400,000.
Bassler, who once flew in Keranen’s private plane to the Utah ski cabin for a weekend getaway, said he left his job as a marketing director for a check-producing firm because “Al convinced me that I could make the same kind of money by living off the interest, and on commissions I would make by helping him sell investments.”
Now, he said, he is back in the printing business, but “I don’t have any retirement” money left.
Even though they lost their shirts, some people still insist Keranen was basically an honest man, obsessed with keeping his word.
Bassler said that Keranen in his lectures and tapes repeatedly stressed the importance of fulfilling a promise. “He . . . said that if you can give them your word and keep it, that is the way things should be done,” Bassler said.
When real estate sales failed to generate the income he needed to keep his promises, some victims speculate, Keranen began tapping new investors as an income source. “I don’t think he planned to steal people’s money,” Bassler said.
But prosecutor Dymant said that although the group did purchase some properties, mostly in the northeast San Fernando Valley, new investors’ money was paid to earlier investors from the beginning. The properties were later lost in foreclosure.
“There was never a time during the operation of this company when the real estate interest was enough to pay the investors,” Dymant said.
Still, many of the investors blame themselves for their losses, saying they had trusted Keranen with their money without adequately investigating the company.
“Each and every one of us has to ‘fess up to being greedy,” said the single mother who lost her North Hollywood house and now lives in Los Angeles. “We were all victims, yet at the same time, we all went and willingly participated in this adventure.”
But others said that they did their best to verify that Cal Anchor was legitimate. They said that the promised rates of return were reasonable in the 1980s real estate market in the Valley.
The West Hills physician, who with his mother-in-law lost $600,000, said of the scheme: “It was very hard to see through, very hard to read as being crooked. I guess the lesson here is that if it seems too good to be true, it is probably too good to be true.”
