Newport Executive, Former Columbia VP Indicted : S&L; fraud: Charges are handed down on the same day that thrift regulators act to force the two and another former Parker North American officer to pay $25 million in restitution.
A Newport Beach executive and a former Columbia Savings & Loan vice president were indicted Wednesday on charges of bilking more than $11 million from the now insolvent thrift in what prosecutors said is one of the largest S&L; fraud cases in Southern California.
A federal grand jury here indicted Michael E. Parker, founder of Parker North American Corp. of Costa Mesa, and Jeffrey S. Worthy, Columbia’s former director of financial planning, on charges of racketeering, money laundering, paying and receiving kickbacks, and bank and tax fraud. Parker was also charged with tax evasion. The two engineered the alleged fraud through the sales of so-called leveraged leasing packages to Columbia, the indictment charges.
In a separate action, the federal Office of Thrift Supervision said Wednesday that it will seek $25 million in restitution on behalf of Columbia from Parker, Worthy and Brian W. Fink, former vice president of PNA. The agency also is seeking to ban the three from the thrift business. The restitution sought by the OTS is the third-highest such sum ever sought by the agency, exceeded only by actions against former Lincoln Savings & Loan owner Charles H. Keating Jr. and former CenTrust chairman David Paul.
The indictment includes 46 counts against Parker and 43 against Worthy. Federal authorities also filed two charges against Fink: conspiracy and tax evasion. The conspiracy charge stems from the preparation of phony lease documents submitted to Columbia.
In yet another related indictment, the grand jury charged Gilbert Fuentes, former chief financial officer of Columbia, with one count of tax evasion. Prosecutors allege that Fuentes failed to report a $200,000 check from Parker as income in 1986.
Prosecutors said the joint investigation by the FBI and Internal Revenue Service is continuing.
The indictment alleges that Parker, 43, paid more than $1.5 million in kickbacks to Worthy, 33, of Downey, from April, 1985 to November, 1987. Prosecutors said that in exchange Worthy recommended approval of the $166 million in lease deals to Columbia, even though the leases were often bogus. Columbia ultimately forwarded $31 million in cash to PNA.
“During the operation of the enterprise . . . Parker allegedly diverted over $11 million of this money to himself, Worthy, Fink, Fuentes and others,” said a statement issued by the office of Lourdes G. Baird, U.S. attorney for the Central District of California.
Parker has adamantly denied the charges in the past, as has Worthy. On Wednesday, Worthy declined comment through his attorney, and Fink and Fuentes could not be reached.
FBI and IRS agents arrested Parker at 6 a.m. Wednesday at his $1.4-million home in the posh Big Canyon neighborhood of Newport Beach and took Worthy, 33, into custody in Downey at about the same time. Fink, 42, waived indictment and was not arrested, possibly indicating that he is cooperating with prosecutors.
Prosecutors said the case is among the largest incidents of fraud against an S&L; in Southern California. And in what the U.S. attorney’s office said was one of first efforts of its kind in an S&L; fraud case, prosecutors will ask the courts to confiscate about $2 million in assets they claim were bought with proceeds from the alleged fraud.
Those assets include Parker’s Newport Beach house, Worthy’s home in Downey and a condominium he bought in Lake Havasu City, Ariz. The Internal Revenue Service has already seized the three homes.
The indictment and the seizures of property “enable us to prosecute corrupt financial services executives,” said U.S. Atty. Gen. Dick Thornburgh, in announcing the actions in Washington, “and, at the same time, lessen the financial burden to the American taxpayer.”
At a bail hearing in federal court in Los Angeles on Wednesday afternoon, prosecutors asked U.S. Magistrate John R. Kronenberg to keep Parker in jail without bail until his trial. Parker, they said, was likely to flee the country and pose an “economic danger to the community.”
Kronenberg denied Parker bail until Monday, when his lawyers will argue in another hearing that Parker should be released. Parker was led in handcuffs back to jail from the courtroom complaining bitterly about the bail.
“This is ridiculous,” he said outside the courtroom. “ ‘No bond’ is ridiculous. I’ve been in and out of the country 10 times this year. The idea I’m a flight risk is absurd.”
Parker appeared in court wearing blue jeans, Nike shoes and a green jacket embossed with an emblem from the Great Western Hugh O’Brian Youth Foundation Invitational. Worthy wore blue jeans and a blue rain slicker that said: “Worthy Construction Company--Simply Better Building.” During the hearing, Parker and Worthy did not speak to one another.
Worthy was released on a $200,000 bond secured by his father’s home. Fuentes, a former Irvine resident who now lives in San Diego, was unable to secure a $25,000 bond and remains in custody in San Diego County.
The indictments cap a nearly yearlong federal investigation that was touched off by tips from Columbia and employees at PNA, said Assistant U.S. Atty. James R. Asperger. The probe surfaced publicly after Columbia filed a civil suit against Parker in August alleging that he had fraudulently diverted more than $13.5 million in thrift funds for his personal use.
At one point last year, according to the indictment, Parker offered a lawyer for Columbia $5 million in cash and $5 million worth of stock in Parker Automotive Corp.--another firm he founded--to settle their differences and to prevent Columbia from “revealing alleged kickbacks received by Columbia corporate officers” from PNA.
The indictment says Parker--with help from Fink and other employees and associates of PNA--sold nonexistent tax shelters to Columbia and manufactured “bogus paperwork” to cover up the fraud between 1983 and 1987.
PNA, which is now in bankruptcy proceedings, leased equipment such as automated teller machines to banks and thrifts, borrowing most of the money to buy the equipment. PNA then sold each lease to investors like Columbia, who were seeking to shelter income from taxes. When the lease expired, the equipment belonged to the investor, who could then sell it. The practice is called leveraged leasing.
Parker allegedly began paying Worthy kickbacks in 1985, according to the indictment, while Worthy was in charge of Columbia investments. The thrift was thriving then, but has since been seized by federal regulators, largely because of risky investments.
Some of the leases Columbia was sold did not exist, according to the indictment, and others were inflated beyond their real value. Parker and the others, according to the indictment, faked signatures on these leases from other, valid leases.
Since some of the leases are nonexistent and others inflated, Columbia also unwittingly took phony tax breaks on them. Federal regulators estimated Wednesday that with penalties those unpaid taxes amount to $13 million. With the money the agency alleges that Parker and his associates stole from Columbia, the agency is asking the courts to order the three to pay a total of $25 million in restitution.
Worthy left Columbia in 1987. In an earlier interview, he denied that he accepted kickbacks and said that he is the scapegoat for Columbia’s own mismanagement.
Hundreds of thousands of dollars of the more than $11 million in Columbia money that Parker diverted ended up in Lake Tahoe, including a $100,000 cashier’s check made out directly to Harrah’s casino in 1986, according to a bankruptcy examiner’s report and the indictment.
Indeed, Parker lived a lavish lifestyle that included expensive cars, fancy dinners at posh restaurants, a handsome house and generous donations to the Republican Party before everything started to unravel in March, 1989, when Parker resigned from PNA one day before it filed for bankruptcy.
Substantial amounts of his generous income, prosecutors now allege, were never declared to the IRS.
Parker has denied the allegations in the Columbia suit--many of them repeated in the criminal indictment--and has said he is a victim of the mismanagement at Columbia.
Meanwhile, PNA creditors claim that at least $3.5 million from PNA was funneled to Parker Automotive Corp., a Costa Mesa-based maker of engine-cleaning supplies that he founded in 1987.
Those creditors of PNA say they’re owed about $40 million, but say the company’s operations are likely to yield only about $10 million. They too have moved to seize many of Michael Parker’s assets, including thousands of dollars worth of art and jewelry.
Parker denies the charges made by PNA creditors and has resisted their efforts to claim his assets or those of Parker Automotive.
Publicly held Parker Automotive began to falter last year and earlier this month obtained a substantial cash infusion from Connie Charles Armstrong Jr., a Texas investor who immediately changed the company’s name to Carbon Clean International. Parker was forced to resign from the company’s board as part of the deal.
Armstrong said FBI agents visited Carbon Clean Wednesday morning to question employees about Michael Parker. “They are not after the company or any of its assets,” Armstrong said. “They just want to talk to people who worked with Parker to see what they know. They are looking for information for the bail hearing.” Parker is still the largest shareholder in Parker Automotive, owning nearly 3 million shares. But he has signed control of that stock over to Armstrong as part of the acquisition deal. Armstrong has an option to buy the stock later.
Meanwhile federal prosecutors won’t say whether they’ll go after more of Parker’s assets, including perhaps his stock in Parker Automotive. They also declined to say whether they had traced any of Columbia’s money into Parker Automotive.
“That’s something we can’t comment on,” said Alejandro Mayorkas, an assistant U.S. attorney.
Times staff writers Gregory Crouch and John O’Dell contributed to this story.