Ex-Controller Pleads Guilty to Embezzlement : Crime: Darrell Dean Knox, who worked for a subsidiary of Sterling Savings & Loan, plotted to take more than 200 checks from his firm and launder them at banks in Texas and California.

The former controller of a Sterling Savings & Loan subsidiary in Irvine pleaded guilty Wednesday in federal court here to charges of embezzling about $1.2 million from the institution.

In the plea agreement, Darrell Dean Knox, 46, of Fallbrook admitted that he engaged in conspiracy and bank fraud by concocting a scheme to cash more than 200 checks from Sterling Builders Inc., the thrift’s real estate division.

Three other individuals--Richard Russell, 44, of Murietta; Allen Zane Frazier, 38, of Midland Tex.; and Daniel Day O’Brien, 39, of Fontana--were indicted in the Sterling case in September and are scheduled to stand trial Nov. 20.

“Monies were embezzled from Sterling Builders and laundered through banks in Texas and California and then sent around in a great loop that began with Knox and ended with Knox with each of his co-defendants taking a share of the proceeds along the way,” said Assistant U.S. Attorney Steven E. Zipperstein in a proceeding before U.S. District Judge J. Spencer Letts.

Knox, who was controller of Sterling Builders in 1988, issued checks to fictitious entities and then had friends assist him in laundering the money through several bank accounts. Sometimes he forged the endorsement signatures on checks made out to Sterling Builders contractors and then deposited those checks into bank accounts he or the three remaining defendants controlled, the indictment said.

Knox continued embezzling after he was fired by Sterling, using 23 blank checks he stole from the thrift’s subsidiary and making them out to himself on a periodic basis. Those stolen checks accounted for about $200,000 of the $1.2-million scheme.

He could receive as much as 15 years in jail and be fined $750,000, though new federal sentencing guidelines indicate he will most likely receive somewhere between three and five years in jail and would not be eligible for parole. He is scheduled to be sentenced on March 7.

Knox was indicted in September on 16 counts of bank fraud, conspiracy, money laundering and interstate transportation of stolen property. Under the plea agreement, he admitted guilt on two conspiracy counts and one bank fraud count.

Zipperstein refused to say whether Knox was cooperating with federal authorities in the cases against his former associates, who have all pleaded not guilty.

Knox was hired by Sterling Builders in 1986 as a computer consultant and promoted to controller in January, 1988. He was fired by the end of that year because he “had fallen behind in his work and was not cooperating with SBI’s outside auditors,” according to an affidavit filed in the case.

Sterling Savings discovered the scheme early this year after making a routine call to a supplier to confirm that he had gotten paid. The supplier said he hadn’t received a check and hadn’t done any work for the thrift or its subsidiaries in 1988.

Knox, wanted for months by the FBI, was arrested outside Denver on Sept. 5 with a loaded revolver in his car and clips of spare ammunition. He was living there under the alias of Darrell McCormick.

Holtby was arrested in the same area that day and the FBI said he was carrying a .45-caliber semiautomatic pistol and a 16-inch machete in his car.