Ex-San Diegan Traded Big Spending for the Big House
John P. Galanis, a 290-pound symbol of the financial excesses of the 1980s, lives quietly now.
Gone are the real estate partnerships named after presidents and British prime ministers, the savings and loan deals and the exotic stock schemes and tax shelters.
Gone is the power that Galanis, a former San Diego County resident, felt when he raked in $150 million from more than 2,200 investors, including celebrities such as actor Eddie Murphy, who put up $240,375 in cash; Cincinnati Bengals quarterback Boomer Esiason; actress Kirstie Alley; New York Yankees pitcher Mike Witt, and former Los Angeles Dodgers pitcher Don Sutton, each of whom lost tens of thousands of dollars.
Gone are the Ferrari and Rolls-Royce, the beachfront mansion in Del Mar and the Rancho Santa Fe estate, and the glorious food and wine at his $15,958 “thank all the lawyers” black-tie dinner at the four-star Lutece.
His current menu features the medical diet served by his jailers.
What remains is the devastation Galanis caused. At the same time Galanis was coaxing millions from those investors, his organization was gutting two savings and loans and a private bank in Texas in a scheme that is described as the biggest white-collar case in the history of the Manhattan district attorney’s office.
The district attorney’s Frauds Bureau recently won the conviction of Galanis and 12 associates--including three lawyers and three certified public accountants--on fraud and larceny-related charges growing out of the work they did for the Galanis organization during the 1980s.
“I think of the Galanis organization as a pack of wolves,” the chief of the Frauds Bureau, Chip Calhoun, said in an interview. “They betrayed every single trust people placed in them.”
Galanis systematically sought big investments from the rich and famous, purportedly for major real estate projects that would provide big tax breaks. But, according to court documents, the projects never materialized; instead, Galanis used the investors’ money for himself--the houses, the cars and parties--and to gain control of two thrifts and a bank.
He then diverted money from those institutions to maintain his high-flying style of life--eventually taking so much that two of the institutions failed and the other was crippled.
The dismantling of the three financial institutions was merely Galanis’ most recent strategy for making money. In the early and late 1970s, he engineered fraudulent schemes involving oil and gas shelters and offshore mutual funds. “As the economy changed, so did John,” said Thomas A. Jackson, the supervisor of economic investigations for New York Dist. Atty. Robert A. Morgenthau.
His more recent escapades were part of the wider S&L; scandal, which began in 1982 when the Garn-St. Germain Act was signed into law. The bill freed the S&Ls; from many restrictive regulations, creating an opportunity for Galanis and others like him to convert unspectacular but sound thrifts into their personal piggy banks. Collectively, the abuses that occurred nationwide contributed to a fiscal disaster that will cost American taxpayers at least $500 billion to clean up.
The story of how Galanis, now 47, bilked his way into control of the Tri-County Savings & Loan in Maple Shade, N.J.; County Federal Savings & Loan in Westport, Conn., and the Chilton Private Bank in Chilton, Tex., was told to a New York Supreme Court jury earlier this year by a group of former insiders who testified against Galanis. One of those insiders was Tom Williams, Galanis’ brother-in-law and a close observer of the techniques Galanis used to make his money.
Williams, a lawyer, made $3,700 a week working for Galanis. Among his duties was helping Galanis raise money, ostensibly for investment purposes, but which was actually destined to buy a Rolls-Royce and jewelry for Galanis’ wife, a Ferrari for Galanis’ 16-year-old son and a $3-million beach house with servants’ quarters and a swimming pool in Del Mar.
Williams, who pleaded guilty to a felony but received no jail time, was the key prosecution witness at the trial of Louis Rosen, a Galanis executive, who was convicted in April of 37 felony counts and one misdemeanor related to his work for the Galanis organization. Exhibits and testimony presented before Acting Supreme Court Justice Harold Rothwax provide a comprehensive picture of the financial jigsaw puzzle put together by Galanis.
Documents reviewed by Newsday show that the network of schemes began in 1982 with the passage of the S&L; deregulation laws. It was assisted by federal tax rules then in effect that allowed limited partners in real estate investments to shelter income from taxes.
The tax-shelter scam was the first step. Galanis took in millions from investors who believed they would benefit from real estate deals in Atlantic City, N.J.; Chicago, and Florida. He sold his shelters to the rich and the famous with a combination of show business and salesmanship, according to court and partnership records. To promote its interests, for example, the Galanis organization hired production teams to make several videotapes touting Galanis’ deals.
“My job was to locate accountants that had clients, attorneys that had clients and broker-dealer firms. . . . “ said Laurence Handler, a former Galanis employee who testified as a prosecution witness but was not charged. “If we had a meeting, we would show the videotape. We would bring accountants to our office and show them the video and we would mass-mail it out to firms that were interested in the offering.” One of the tapes promoted a venture Galanis dreamed up to turn a 12-block area of Atlantic City into a “theme park” modeled after the restaurants and shops at the South Street Seaport in lower Manhattan. The project never came to pass.
Other witnesses testified that Galanis hired some of the best graphic artists in Manhattan to design sales brochures that were mailed to Galanis’ coast-to-coast network of accountants, tax lawyers and brokers.
But one thing was missing from the videotapes, the brochures and all the other documents: the name of John P. Galanis. Prosecution witnesses testified that Galanis kept his name off the material distributed to the public because of fear that his history of problems with law enforcement agencies and regulators would hurt his ability to raise money.
Athletes and celebrities who depended on those accountants, tax lawyers and brokers for advice were lured by the promise of huge tax breaks and big profits. For example, Eddie Murphy, who grew up in New York and starred in “Beverly Hills Cop” and other movies that have grossed tens of millions, was advised by his financial planners to invest in Galanis’ Atlantic City theme park project.
Murphy, who was promised substantial tax write-offs and large returns, decided to invest $240,375 in cash. But there were no returns--Murphy lost the entire amount--and his tax write-off, like the write-offs for all the investors in all the deals, were disallowed by the Internal Revenue Service.
Athlete Boomer Esiason also lost several thousand dollars to Galanis. In 1984, when he was a rookie with the Cincinnati Bengals, Esiason invested his money in the Polk limited partnership, one of several real estate syndications Galanis named after U.S. presidents.
Don Sutton, who won 324 games during his 23 years as a Big League pitcher, was winding up his career with the Oakland A’s and the California Angels in 1985 when he invested--and lost money--with Galanis in a real estate syndicate. So did teammate Mike Witt, now with the Yankees, who was having one of his best major league seasons in 1985. And so did Kirstie Alley, who has since achieved stardom as Rebecca Howe, the bar manager in the TV show “Cheers.”
After Galanis raised the money, millions of dollars were shifted to “escrow” accounts maintained by Galanis’ lawyers, who used attorney-client confidentiality to mask Galanis’ criminal activities. The investors’ money then was laundered through a second bank account. Galanis withdrew $8 million of the laundered money over several years for his personal use, according to documents. Asked to describe the purpose of the escrow accounts, Williams testified they were conceived “to take money or steal money from the investors and to set up a buffer. . . . “
Then the organization diverted more than $11 million of the investors’ money to buy stock in and take over the two thrifts and the private bank.
The adroit use of financial schemes aside, several people who know Galanis believe the main reason he was able to make so much money was his charismatic ability to make friends with the very people--such as the officers of S&Ls--who; should have been most critical of the deals he wanted them to approve.
In practice, that meant that a lot of experienced businessmen who should have asked impertinent but important questions were simply swept away by Galanis’ schemes. Anyone interested in Galanis could have discovered a substantial body of public information raising serious questions about his past business practices.
Galanis, who declined to be interviewed, is now federal prisoner number 14097-054 at Terminal Island in Long Beach. He is learning to be a janitor.
