S. Calif. Leads in Institutional Financial Fraud


Southern California produced 76% of the total number of financial fraud cases involving savings and loans, banks and credit unions that have been referred to the Justice Department for possible criminal prosecution, Atty. Gen. Dick Thornburgh said Tuesday.

In testimony before Congress, Thornburgh said that about 16,400 of the 21,714 allegations of fraud that the department has received during the current S&L; crisis come from the seven-county area, suggesting that the region may have become the financial fraud capital of America.

Thornburgh called the share "disproportionate."

William J. Stollhans, assistant special agent in charge of the Los Angeles FBI office, said in an interview that the region, which has both a large number of S&L; branches and a high volume of deposits, is a "magnet" to criminals.

Stollhans said that he has assigned 27 additional agents to investigate financial fraud cases in the Los Angeles area and could use 50 or 75 more. "There is no sense going to South Dakota to steal money from a bank--there is not that much in a bank there," he said.

"The (financial) assets are here and the banks and S&Ls; are here and the criminals are drawn here to perpetrate these crimes," Stollhans said. The Southern California counties are Los Angeles, Orange, Ventura, Santa Barbara, Riverside, San Bernardino and San Luis Obispo.

Meanwhile, Thornburgh told the Senate Judiciary Committee that prospects are dim for recovering large sums of money by prosecuting persons who committed fraud at S&Ls.;

"I would mislead you if I said any substantial portion of assets will be recovered," he said. Before the department began its investigation of the S&L; scandal, Thornburgh already had hinted that there would be little chance of recovering much of the money.

Now, with investigations under way at more than 500 thrifts, Thornburgh confirmed his earlier pessimism. "I wish it were otherwise," he said. The assets have been "spent and squandered . . . (and there is) an enormous depreciation in (property) value."

Thornburgh said that the Justice Department will undertake five years of "sustained effort" to investigate and prosecute those involved in S&L; fraud. "Perhaps, by 1995, we can begin winding down and transferring resources to other areas," he said.

Sen. Joseph R. Biden Jr. (D-Del.), the Judiciary Committee chairman, argued that no one in Congress would criticize the Justice Department if the job took longer than five years. "(I) do not believe anyone can predict (the duration of the investigation) with any precision," he said.

Thornburgh agreed. "We don't know what may result from the investigative process, we do not know what criminality may emerge," he said.

Thornburgh said that federal officials have "distilled a list of the top 100" cases of S&L; fraud in order to concentrate investigative efforts. He said that the selection depends on several factors, including the amount of money lost, the number of individuals involved and the notoriety of the thrift collapse.

Justice Department officials now believe that a third of the S&L; failures nationwide contained significant elements of fraud.

Investigators for the Resolution Trust Corporation, the agency that is charged with dismantling and selling or closing ailing S&Ls;, believe that the figure is at least 40%. Some private analysts dispute government estimates and are more inclined to place the blame on a weakening real estate market.

Congress already has given the Justice Department an additional $50 million to pay for hiring hundreds of FBI agents and U.S. attorneys to investigate and prosecute S&L; fraud, and the Senate recently passed a bill to provide $150 million more.

"There is a public perception that we are not going after everyone as vigorously as we should," Sen. Paul Simon (D-Ill.) told Thornburgh.

The attorney general vigorously defended his department, saying that "we are pursuing relentlessly" those who have victimized S&Ls.;

Thornburgh said that the 21,000 allegations of fraud from around the nation include "everything from a major S&L; rip-off to a teller who takes a fiver from the till at the end of the day." He said that most of the complaints, about 83%, involve amounts of $25,000 or less.

In a separate development, the Judiciary subcommittee on antitrust, monopolies and business rights authorized four subpoenas in the panel's investigation of Bluebonnet Savings Bank of Dallas, an institution created in a December, 1988, federal bailout.

The panel, chaired by Sen. Howard M. Metzenbaum (D-Ohio), is looking into whether the now-defunct Federal Savings and Loan Insurance Corp. should have awarded Bluebonnet to James Fail, a Phoenix, Ariz., insurance company owner.

Fail put up only $1,000 of his own money to acquire the S&L; and was selected even though a company he controlled in Alabama had pleaded guilty to fraud in 1976. The subcommittee authorized subpoenas for Thomas Lykos, former assistant director of the FSLIC, and Robert Pennington, former president of an insurance company controlled by Fail.

It also authorized subpoenas for Fail and Robert Thompson, a GOP lobbyist who represented Fail in the deal, but said the two should first be given a chance to cooperate voluntarily. The two have been challenging whether Metzenbaum's subcommittee has jurisdiction over S&Ls.;

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