$71-Million Restitution Set in Fraud Case

A Los Angeles federal court judge Monday imposed a 15-year prison sentence on David A. Feldman of Palos Verdes, convicted of a massive bank fraud, and ordered him to pay $70.7 million in restitution to Bank of America.

Federal prosecutors said they believed that the restitution award is the largest imposed in a bank fraud case. It was unclear, however, whether Feldman has the resources to make restitution.

U.S. District Judge Dickran M. Tevrizian imposed the stiff sentence on Feldman, 50, who was convicted of three counts of felony mail fraud in June.

The judge issued stinging criticism of Feldman, who graduated near the top of his class at West Point. “The only thing he has demonstrated to me is that he has no conscience,” Tevrizian said.

Feldman and two others were indicted in May, 1989, in connection with a scheme to sell more than $144 million in mortgage loans to 20 banks and savings and loans, all of which operate outside California. Feldman controlled National Mortgage Equity Corp., which allegedly made false representations and concealed material facts in selling mortgage-backed securities to financial institutions.

Feldman assured financial institutions their investments were protected against defaults in various ways, including independent underwriting of borrowers’ ability to pay and of the value of the real property securing the loans. However, Feldman and his co-defendants concealed the fact that there was no independent underwriting because the brokers, insurance firms and borrowers all were controlled by the same persons.

Feldman, according to court documents, diverted millions in investor funds through fictitious borrowers to a bonding firm, Glacier General Assurance, to enable it to pay off its obligations on prior defaulted loans.

Feldman also used NMEC investors’ money to purchase apartment complexes in Houston for a firm owned by co-defendant Kent B. Rogers of Huntington Beach. Prosecutors charged that Feldman gave Rogers $24 million of investors’ money for construction loans without placing controls on Rogers’ use of the funds to refurbish and convert the Texas apartments to condominiums. Rogers pleaded guilty and awaits sentencing.

Most investors’ losses were covered by Bank of America, which acted as an escrow agent and trustee for all but three of the mortgage pools, according to Assistant U.S. Atty. Leslie A. Swain and California Deputy Atty. Gen. Sharon McCaslin. The bank has sought to recover its losses through civil litigation. Bank senior counsel John C. Fauvre estimated the losses at $117.7 million.

Tevrizian denied Feldman bail pending appeal. Prosecutors said he will spend the next 60 days at Metropolitan Detention Center in downtown Los Angeles and then be assigned to another prison. Prosecutors recommended that prison officials keep an especially close watch on Feldman, noting that he perpetrated some of his crimes while serving a prison term for an earlier fraud conviction.