Orange County: 1990: THE YEAR IN REVIEW : Decade of Greed Gave O.C. a Large Share of Villains : White-collar crime: Scams proliferated in Orange County. Now it’s pay-back time for victims and the justice system.

She went from princess to prisoner in 1990.

Janet Faye McKinzie spent much of the last decade living in luxury--driving a Rolls-Royce, wearing $1,000 cocktail dresses and hiring the likes of Sammy Davis Jr. to sing at lavish private parties.

Nowadays, she is awakened every morning at 6 a.m. and sent to the showers. She dresses in an orange jumpsuit, eats a very measured breakfast--four ounces of scrambled eggs, an ounce of jelly, eight ounces of milk--and then spends the rest of the day doing laundry. She is locked up at 10 p.m. sharp inside her cell at Metropolitan Detention Center in Los Angeles.

McKinzie was convicted in March of looting Santa Ana-based North America Savings and Loan and sentenced to 20 years in prison--twice as long as Michael Milken, the notorious junk-bond king recently convicted of conspiracy and securities fraud. North America’s 1987 collapse cost taxpayers $120 million.

McKinzie’s reversal of fortune was just one of many signs denoting the end of an era that some pop historians have labeled the Decade of Greed. Some of the highest-flying scams of the 1980s--savings and loan schemes, insider trading cases, defense fraud and consumer rip-offs--came home to roost in 1990, marking the start of a Decade of Reckoning.

“This is the first year of wrenching out the excess,” declared John Owen, a federal thrift lawyer.

There are plenty of local examples:

* Charles H. Keating Jr., former owner of Lincoln Savings & Loan, was jailed for a month after he was indicted on more than 40 counts of securities fraud relating to the sale of bonds to thrift depositors. He swears he is innocent of any wrongdoing related to the $2-billion collapse of Lincoln. He is now free as he prepares for trial.

* FundAmerica founder Robert T. Edwards, whose multilevel marketing company attracted 100,000 members with a promise of instant wealth, was handcuffed and flown to Florida where he was charged with running one of the largest pyramid schemes in history. He pleaded not guilty.

* Hannes Tulving, one of the nation’s largest coin dealers, put his company into receivership after the Federal Trade Commission charged he had run a massive Ponzi scheme and defrauded investors out of as much as $40 million. He denied the charges.

“When they hit this year, they hit the big home run. Nobody fooled around with nickel-and-dime stuff,” U.S. District Judge Dickran Tevrizian said.

Fraud Capital

These and other cases further sealed Orange County’s reputation as one of the fraud capitals of the United States. The distinction has not gone unnoticed.

Hollywood sent producers scurrying southward to try to buy the rights to stories like those of Keating and McKinzie, telling them to soak up the flavor of a society capable of producing such characters.

Taxpayer anger surfaced. Protesters held weekly demonstrations in front of the Newport Beach home of former Denver developer Bill Walters. They were livid that Walters, who defaulted on $100 million in loans and told Congress he was broke, was living in rather grand style.

And tragedy struck. An elderly Burbank man killed himself, leaving behind a scathing suicide note after he lost $160,000 in the Lincoln mess. He had intended to donate all of the money to a center for abused children, where he had done volunteer work for nearly 10 years.

“People forgot what was said so many years ago,” said Richard (Racehorse) Haynes, McKinzie’s attorney. “The only luxury this side of the grave is a clear conscience.”

Judges, prosecutors and criminologists all claim something else significant happened in Orange County and the rest of the nation in 1990--the public realized that white-collar crime was as big of a threat to the nation’s health as violent offenses.

Just consider the $500-billion price tag for the savings and loan crisis--a good deal of it dissipated in Orange County. And the billions of dollars lost on defense fraud when defects are covered up or tests falsified, possibly endangering the lives of soldiers and others.

“A man with a briefcase or a pencil can steal more than a man with a gun,” Tevrizian said. “Prosecutors are finally concentrating on the magnitude of white-collar crime. It doesn’t just amount in money being taken but in people being laid off and in institutions crumbling.”

The question now resounding throughout Orange County is why things got so bad in the 1980s and how come this region more than any other was to blame.

“In a sense, Orange County is the last white-collar criminal frontier in the country,” Assistant U.S. Attorney Steven E. Zipperstein said. “It’s the Wild West of the 19th Century revisited, except the weapons this time are pen and paper instead of gun and holster.”

Another view is offered by Chief Assistant U.S. Attorney Terry Bowers. “If the scam hasn’t been invented in this district, it’s been perfected here,” he said.

Consider the case of FundAmerica Inc.

Founder Robert T. Edwards had spent 20 years traveling the globe concocting alleged pyramid schemes in Australia, England and Canada. He could have picked anywhere in the United States as his next target but he decided on Orange County.

FundAmerica was bringing in big money--documents filed in Florida indicated that the company took in $33 million in just the first four months of this year. Business luminaries like newsletter publisher Howard Ruff and supply-side economist Arthur Laffer were members.

Edwards and FundAmerica are now both facing criminal charges in Florida, charged with running a pyramid scheme--making profits from the recruitment of investors rather than the sale of a product. Edwards, who has pleaded not guilty, could receive as much as 65 years in jail if convicted.

Then there was the insider trading. Four years after Ivan Boesky admitted to profiting on insider trading, the Securities and Exchange Commission continues its push to clean up the markets. It landed its biggest fish--junk bond pioneer Milken--this year.

But it also landed smaller ones, including several in Orange County.

In two unrelated cases, the SEC charged local stockbrokers and their compatriots with making illegal profits by using information culled from advance copies of Business Week.

Among those pleading guilty to insider trading was Newport Beach investor Stephen R. Rasinkski. The SEC claims Rasinkski, with the aid of his stockbroker and a printer, got early copies of the magazine and used the non-public information to make at least $115,000.

Orange County seems to attract rogues for some of the same reasons it attracts everyone else--sun and fun. “If you’re going to steal $50 million, why live in Buffalo?” one federal regulator joked.

Once the con artists are here, their schemes multiply as some low-level employees use the lessons they learned to open similar businesses on their own. “It’s almost like a cancer,” said Bowers. “You see a tendency for these things to proliferate.”

Money at All Costs

Some local psychologists, however, say there is more to Orange County’s reputation as a criminal layover than just climate--it’s driven by money. Gilbert Geis, professor emeritus of criminology at UC Irvine, cites the spiel given on a Newport Harbor boat tour as proof.

“Money is every third word. This house sold for that much, this house for this much,” Geis said. “I love the tour but every other sentence is about money. He doesn’t say look at this house because it has an exquisite architecture, but because it was recently sold for such and such. It’s all about money.”

Because Orange County is still a relatively new area--without the social history of New England for instance--money was sometimes the sole criterion in the last decade for entry into the area’s finest restaurants or the nicest country club.

“You were judged on your personal possessions, how much plastic and glitter and glitz you accumulated,” Tevrizian said.

The high fliers of the 1980s were still luxury addicts in 1990, continuing to live like royalty even after they were in trouble.

Keating, for instance, stayed at one of Washington’s most posh hotels at the same time he was testifying before Congress, when his company was bankrupt and he was nearly destitute.

“He had to stay at the same place where Abraham Lincoln was inaugurated,” said Ronald Rus, an Orange attorney working on cases involving both Keating and Walters.

Edwards paid himself grandly--more than $5 million in a few months--before regulators shut down most of his business.

He also transferred more than $11 million to mysterious offshore bank accounts before his arrest. The company he founded filed bankruptcy a month later.

David Ross, the chairman of Calprotech Inc., an Anaheim electronics company, drove a Porsche and lived in a million-dollar house at the same time his employees were saving him time and money by covering up defects on parts installed in important military equipment including the MX missile.

Sentenced to three years in prison and fined $25,000, Ross was condemned by a federal judge for endangering the lives of U.S. soldiers now stationed in the Persian Gulf.

Even some not charged with wrongdoing fueled the public’s rage.

Walters, a business associate and friend of Neil Bush, the President’s son, defaulted on loans from Silverado Savings & Loan. He testified in Congress that he was destitute when he was dividing his time between a $1.9-million Newport Beach mansion, a $1-million desert retreat and a Laguna Beach mobile home.

“These people think they are immune,” Rus said.

Personal Tragedies

This brazenness was in sharp contrast with the helplessness that enveloped thousands of investors and the rising anger displayed by many taxpayers now footing the bill.

Jorretta Wilhelm, for instance, had entrusted Robert J. Corsaut--a fellow member of the Joy Christian Fellowship in Costa Mesa--with her life savings of $70,000.

He raised $1.3 million, telling fellow parishioners their money was completely safe and that they’d earn a 12% interest rate.

What Wilhelm didn’t know was that Corsaut had a record of investor fraud in Michigan and was spending a good chunk of her money and everyone else’s on himself.

Wilhelm soon developed Lou Gehrig’s disease and decided she wanted her money back so she could spend her final months in a home of her own.

The money was gone and Wilhelm’s wishes went unfulfilled. She died this summer in a Long Beach nursing home.

“She needed the money to find a place to live and to get medical care,” said Lisa French, Wilhelm’s daughter. “Near the end, she looked at me and one of the last things she said was, ‘He didn’t even seem sorry.’ ”

Corsaut was indicted in June on 39 counts of mail and securities fraud and has pleaded guilty to four of those charges. He is scheduled to be sentenced next March.

Anthony Elliott, 89, was so upset about losing his savings of $160,000 in the Lincoln debacle that he slashed his wrists.

The Burbank resident wanted to leave some kind of mark on the world, planning to donate his money to a center for abused children. The money, however, disappeared with Lincoln.

“Government is supposed to serve and protect, but who?,” he wrote in a suicide note. “Those who can gather the most savings from retired people?”

The public is constantly warned about scams--officials tell them that if it seems too good to be true it probably is--but the fact remains it’s not hard to get fooled.

“The hallmark (of a con man) is superficial charm without real depth, solicitous concern early in a relationship, promising things that seem too good to be true, dressing too well for the circumstances, driving cars that reflect a greater income than one has earned, vagueness about where one has come from, name-dropping to suggest associations with the rich and famous. . . .”

Newport Beach psychiatrist Park Dietz said. “That sounds like a lot of Southern California people. If you were in Milwaukee, that would be an obvious clue. Out here it’s harder to tell them from the rest of the people.”

Surprisingly, many criminologists, psychiatrists and even prosecutors agree that the average white-collar crime isn’t premeditated--people begin these things with only the best of intentions.

“There is a common theme in a lot of these cases--the defendants started out along the road to making money and very soon along the way they came to a fork in the road. One leads them to the path of criminal wrongdoing and the other lead to honest business practices,” Zipperstein, the assistant U.S. attorney, said.

The common rationalization is they will pay the money back someday. Most never did.

Deregulation Era

The result was a seeming tidal wave of white-collar crime, which many experts blame on the atmosphere of laissez-faire regulation spawned by the Reagan Administration.

The deregulation of the savings and loan industry, for instance, allowed real estate developers and others to buy thrifts for a few million dollars and gain control of hundreds of millions of dollars in deposits in return.

“They were trying to live ‘Lifestyles of the Rich and Famous’ without the slightest idea of how to run an institution,” Bowers said.

Because of the public’s red-hot anger, everyone from the SEC to the local district attorney is winning some reinforcements--stricter laws, tighter regulations or simply an increase in manpower.

The U.S. attorney’s office in Southern California now has 50 or more staff lawyers working on white-collar cases at any given time, an increase of more than 500% since the early 1980s. Thirty-five additional attorneys were hired in the past three months alone, and some of those will work on what the U.S. attorney’s office calls major fraud and public corruption cases.

The SEC recently had its powers expanded too--in October the federal agency gained permission to seek fines in any kind of securities case, not just those involving insider trading. Federal and state officials say next year will be a sequel to 1990.

Edwards is scheduled to go to trial in a couple of months. So is Keating.

And Walters will spend much of 1991 trying to defend himself against accusations he tried to hide his assets through his wife.

Though prosecutors say most of the big boys tumbled in 1990, they expect to bring cases against those who helped them in the coming months.

“Congress wants some heads to roll over here--the guys who have crippled the financial institutions whether they be appraisers, bank presidents, developers and accountants,” Judge Tevrizian said. “You ain’t seen nothing yet.”

Year in Review / A TIME OF RECKONING

‘80s Highfliers Grounded in 1990

If the 1980s was the Decade of Greed, the 1990s may be the Decade of Reckoning. There is plenty of evidence of this in Orange County. The following is a selection of criminal and civil cases involving local business executives that came into the public eye this year.

Savings & Loan Fraud

Charles H. Keating Jr. The former owner of the defunct Lincoln Savings & Loan was charged in September with 46 counts of state securities fraud. Keating and three former executives of Lincoln’s parent company are charged with misleading thousands of investors into buying more than $200 million in bonds that became worthless. Lincoln’s collapse is expected to cost taxpayers $2 billion. Keating has pleaded not guilty.

Janet Faye McKinzie. The former consultant was convicted in March of looting Santa Ana-based North America Savings & Loan and later sentenced to 20 years in prison. She is now in Metropolitan Detention Center in Los Angeles, serving the harshest sentence handed out so far in California stemming from the nation’s thrift disaster. Taxpayers are expected to pay about $120 million for North America’s failure.

Bank Fraud

Douglas P. Blankenship. The Capistrano Beach resident allegedly used aliases, corporate fronts, phony tax returns and false financial statements to mastermind a $25-million fraud against financial institutions in seven states. Blankenship has pleaded not guilty to charges filed in November, alleging racketeering, bank and mail fraud and fraudulent transportation but is being held without bail in Washington.

Kent B. Rogers. Sentenced in October to eight years in prison and ordered to pay $70.7 million in restitution. A former Orange developer, Rogers played a key role in a huge mortgage-loan scam that cost Bank of America $118 million. The restitution was the largest ever ordered in a bank-fraud case.

Defense Fraud

David Ross and Calprotech. The chairman of an Anaheim electronics company, Ross was sentenced in November to three years in prison and fined $25,000 for covering up defects and falsifying safety tests on parts installed in critical military equipment, including the MX missile. Calprotech--his now-defunct company--was fined $1 million.

Swedlow. The Garden Grove maker of aircraft windows pleaded guilty in June to lying to the Air Force about flaws in windshields it made for the B-1 bomber and agreed to pay a $400,000 fine.

Boiler Rooms

M.S. Sawyer & Co. and B. N. Goldberg Associates. Some 20 telephone sales agents worked out of the two county firms, conning hundreds of investors to part with about $5 million for what turned out be phony precious-metals contracts. Five men were convicted in August and later received sentences ranging from five years in prison to three years on probation.

Thomas J. Neavitt Sr. The Brea man was sentenced in August to two years in jail and fined more than $600,000 for defrauding investors of $2 million in a bogus scheme over oil and gas exploration.

Consumer Fraud

FGS Insurance Agency. The state Department of Insurance is seeking to revoke the company’s license to market auto insurance, accusing FGS of systematically defrauding customers. The company, which provides car insurance for nearly 200,000 Californians, has filed a damage complaint against the state agency, saying the case is absurd.

Friendly Ford. The Huntington Beach-based car dealer was hit with a $3-million complaint accusing it of misleading sales tactics. The Department of Motor Vehicles, state attorney general and county district attorney filed the action. Friendly filed for Chapter 11 bankruptcy protection from creditors and has since been sold to new management.

Pyramid / Ponzi Schemes

Robert T. Edwards and FundAmerica. The company and its founder were charged in August with organized fraud, securities fraud and illegal lottery activities for allegedly running a pyramid scheme in seven states. Edwards was accused in the past of creating similar schemes in Australia, England and Canada. He has pleaded not guilty to the charges in Florida. The company is reorganizing in Chapter 11 bankruptcy.

Hannes Tulving. The Federal Trade Commission charged Newport Beach-based Hannes Tulving Rare Coin Investment--once of the nation’s largest dealers in rare coins--with running a Ponzi scheme that defrauded investors of more than $40 million. Chairman Hannes Tulving denied the charges but agreed in August to settle the civil complaint by agreeing to place the company in court-appointed receivership.

Affinity Scam

Jose Manuel De la Jara. Federal investigators said the Peruvian businessman and Santa Ana resident is under investigation by a federal grand jury for a Spanish-language Ponzi scheme that has defrauded 700 investors out of more than $8.2 million. The victims are nearly all working-class people, few of whom speak English. De la Jara was convicted in April on money laundering charges involving his investment firm, American Finance & Investment Group (Inversiones Y Finanzas Americanas).

Insider Trading

Business Week. Five county residents were charged with either criminal or civil wrongdoing for insider trading in a widening scandal involving advance copies of Business Week magazine. So far, 13 individuals nationwide have been charged in several separate cases with criminal or civil wrongdoing for using advanced information from the “Inside Wall Street” column to profit in the stock market.

Gerald Hellberg. The father of a former Alpha Beta official in Irvine, Hellberg was found to have engaged in insider trading when he used confidential information from his son about a possible merger with Lucky stores to make $328,000 in the stock market. The Securities and Exchange Commission is seeking to have those profits returned as well as impose a penalty.

Source: Files from state and federal courts and from The Los Angeles Times.