Two Men Being Held in Embezzlement From Sterling S&L; : Fraud: FBI agents say the pair, who were arrested in Colorado, worked a scheme involving checks written to fictitious entities and deposited in phony bank accounts.
Two California men have been arrested near Denver on charges of embezzling $1.2 million from Sterling Savings & Loan here, according to law enforcement authorities and a federal complaint unsealed Thursday.
Darrell Dean Knox, 46, of Fallbrook and Richard Russell Holtby, 44, of Murrieta are accused of embezzling the money from Sterling Builders Inc., a subsidiary of the Irvine-based thrift, according to a criminal complaint filed in U.S. District Court here.
Knox, formerly controller of SBI, was arrested Sept. 5 in Englewood, Colo. He was using the alias Darrell McCormick and had a loaded .357-caliber revolver and several ammunition clips in his possession, according to Jim Donckels, head of the FBI’s white-collar crime unit in Orange County.
Holtby, a business associate of Knox, was arrested Aug. 31 in Englewood after police stopped the car he was driving for speeding. Donckels said Colorado police found a loaded .45-caliber semiautomatic pistol, ammunition clips and a 16-inch machete in Holtby’s car.
Knox allegedly issued SBI checks in 1988 to fictitious entities and then had Holtby and other friends assist him in laundering the money through several bank accounts, FBI Special Agent Dan Ray claims in an affidavit filed in District Court. The FBI also claims that the two men sometimes forged the endorsement signatures on checks made out to SBI customers and deposited those checks in bank accounts they controlled.
Last week a U.S. magistrate in Denver ordered both men held without bail. They are scheduled to be transferred to the Metropolitan Detention Center in Los Angeles. The U.S. attorney’s office in Los Angeles has 30 days to seek an indictment before the charge of federal bank fraud is dismissed.
Asst. U.S. Atty. Steven E. Zipperstein said the investigation is continuing. He declined to comment further. The criminal complaint was filed Aug. 9, but only unsealed Thursday.
About $340,960 of SBI’s money was sent to an account named O’Brien Telcom at Bank of America, according to the FBI affidavit. Daniel O’Brien, who has known Knox for three years, said he set up the account at Knox’s request, according to the affidavit, which did not further identify O’Brien.
“In 1988, Knox approached O’Brien and asked him to help Knox launder funds that Knox was embezzling from SBI,” the affidavit said. “Knox told O’Brien that he would let him keep one-third of the embezzled funds as his share of the embezzled and laundered monies.”
Besides using banks, authorities claim, the two men cashed at least five SBI checks at Colombo’s Bar in St. Louis.
SBI discovered the alleged scheme early this year after making a routine call to Larry’s Weld-All, a former SBI supplier. During the conversation, Larry’s was asked to confirm that it had received a $1,590 check made out to the company.
Larry’s said it had not received the check and hadn’t done work for SBI in 1988. The check was deposited in a Texas bank where Larry’s has no accounts, the affidavit said. The FBI then traced the money to Knox and Holtby.
Knox was hired by SBI in 1986 as a computer consultant and promoted to controller in January, 1988. He was fired by the end of the year because he “had fallen behind in his work and was not cooperating with SBI’s outside auditors,” the affidavit said.
Sterling executives could not be reached for comment Thursday. But they said in an interview with FBI agent Ray, recounted in the affidavit, that they would ask the Federal Savings and Loan Insurance Corp. to reimburse the institution for the missing $1.2 million.
Sterling, which had assets of $162.3 million as of March 31, was California’s top performing thrift last year based on its return on assets, a major barometer of an institution’s performance. It earned $6.3 million, which amounted to a return of 3.35% on its average assets. In the first quarter this year, the thrift earned $1.4 million.
But Sterling’s profits have come primarily from its real estate development projects, investments that thrifts must sell off under a new industry regulations. Sterling executives are trying to sell the thrift, without its two real estate units. They have been negotiating for more than a year with one prospective purchaser.
Times staff writer James S. Granelli contributed to this article.
