Southlanders Charged With Defrauding Banks : Fraud: A grand jury in Seattle alleges that 15 people, many of them Californians, tried to bilk institutions in seven states out of $25 million.

Federal authorities said Friday that 15 people--including five Orange County and two Los Angeles-area residents--have been indicted in Seattle in what they described as a $25-million fraud and racketeering scheme against financial institutions in seven states.

The figure behind much of the fraud was Douglas P. Blankenship of Capistrano Beach, who was arrested Thursday, authorities said.

Blankenship was described by prosecutors as a Gatsby-like character who traveled the country obtaining loans and services with phony tax returns, false financial statements, corporate fronts and aliases.

“He used those records to create the illusion he was a man of substantial wealth,” said Asst. U.S. Atty. Bob Westinghouse.

The victims--some of whom thought Blankenship had a net worth of $76 million when he really had few assets--included such well-known institutions as Great Western Bank in Beverly Hills and American Savings & Loan in Irvine. The single largest victim was Puget Sound National Bank of Tacoma, which was allegedly defrauded of $4.5 million in a real estate deal.

A federal grand jury in Seattle on Wednesday issued a 300-page indictment alleging 33 acts of racketeering, as defined under the Racketeering Influenced Corrupt Organization statutes. The alleged racketeering involved two enterprises, the indictment said. At least nine of the 15 indicted have been arrested.

The 15 are accused of inflating assets in forms they filled out, creating shell corporations and bouncing titles and papers back and forth, to skim off money from each transaction. The schemes, which began about 1982, occurred in Washington, California, Idaho, Texas, Florida, Ohio and Hawaii, the indictment said.

Blankenship was charged with five counts of bank fraud and one count each of mail and wire fraud and fraudulent transportation. His attorney, James L. Waltz, said he was innocent. If convicted, Blankenship could face as much as 65 years in prison.

Besides Blankenship, the FBI arrested his common-law wife, Stephanie, Larry Gene Frankhouser of San Juan Capistrano, Long Beach accountant Ewald Frank Neisch, Beverly Hills real estate agent Frank Anthony Pugliese and Charles E. Hayes of Tustin. Richard Mansford Cauble of San Juan Capistrano was indicted but an arrest warrant was not issued, according to the FBI.

Westinghouse described Blankenship’s San Clemente firms--Pacific Coast Development, Pacific Coast National Development Corp., Pacific Coast Plaza Inc., B.B. Steamers and Ortega Professional Plaza Inc.--as fronts for the fraudulent enterprises.