Prosecutor Turns Up Heat on White-Collar Criminals : Houston staff takes on a backlog of S&L; and bank fraud cases. Territorial disputes that hurt efforts in Texas are cleared up.


For years now, the saga of fraud and corruption in Texas banks and savings and loan institutions has been playing itself out, with each tale seemingly more sordid than the last.

One ingredient, however, has been lacking: prosecution of the wrongdoers.

A congressional subcommittee report issued late last year spelled out the problem in no uncertain terms, lambasting federal prosecutors in Dallas for excessive spending and naming Houston as the place that had basically dropped the ball in going after the people who had bilked millions from failed banks and S&Ls.;


The U.S. attorney’s office in Houston, the report said, had brought only a few major prosecutions, even though the city was second only to Dallas in failed financial institutions.

“This dearth of major prosecutions is not for lack of referrals,” the report said. “There have been no prosecutions of insiders arising out of the two biggest failures, Mainland Savings and Continental Savings, where serious misconduct has been publicly and privately reported.”

That report came out on the day that Ronald Woods took over as the new U.S. attorney in Houston.

THE PROBLEM: Woods inherited a staff of lawyers in which not a single one was assigned to work full-time on fraud in financial institutions. Five months later, he has 23 lawyers who are doing nothing but fraud work in a newly created division.

“I certainly anticipate a number of indictments this year,” said Woods, who was one of the more vocal critics of the previous U.S. attorney, Henry Oncken. “I’m starting on the ground floor five years behind.”

How that happened was clear enough. Woods’ predecessor, Oncken, concentrated almost all his efforts on non-white-collar crime and did so with numbers that were, on the surface at least, impressive. For three years running, the Houston office led the nation in the number of criminal filings for a federal district.


But Oncken was also criticized by the Texas Bar Assn. and the federal bench for concentrating his efforts on minor drug cases rather than following the circuitous weave of bank fraud. Oncken, for his part, claimed a lack of manpower. U.S. Sen. Phil Gramm did not recommend Oncken for a second term and the Justice Department, at the same time, made it clear that it expected more fraud work to come out of the Houston office.

There were also other problems around the state, including squabbles over jurisdiction for the fraud cases. Most notable was the overlap between the federal task force in Dallas and the U.S. attorney’s office in Beaumont.

Bob Wortham, the Beaumont U.S. attorney, said matters reached a head when he learned that the task force was plea bargaining with defendants over fraud cases in his district. Wortham said there were times when the cases were lumped together in the plea bargaining, even though Dallas investigators did not know the seriousness of the fraud in his jurisdiction.

THE SOLUTION: The overlap problem has been solved. Now, representatives of all four U.S. attorney’s offices in Texas, along with a member of the Dallas drug enforcement task force, meet once a month to discuss cases they are handling. If there is a dispute over who will try the case, a vote is taken. Wortham said the number of FBI agents for his district had been doubled--from one to two--with two more promised.

And Woods said his staff is now sorting through the more than 100 criminal referrals to decide which ones to go after, knowing as well that many more fraud cases will continue to land on his desk. How long is clearing the backlog going to take?

“It’s probably not going to be done in my four years,” Woods said.

Joel Androphy, a Houston lawyer specializing in white-collar crime, said it was time to push forward with the investigations and indictments for the good of those who might be put on trial. He said dozens of people had come to him because they had heard the FBI was looking into their business dealings, then heard nothing more for years.

“Somebody needs to act because too many people are on pins and needles,” he said. “For the last five years, they have been waiting to see if they are going to be indicted. They can’t get on with their lives.”

Woods agreed.

“A lot of people are waiting around to see what happens,” he said.

One small indicator that things are changing came out of the Beaumont office recently. On April 5, Alan Rotherty of Orange, Calif., pleaded guilty to fraud, embezzlement, misapplication of bank funds and self dealing in a case involving a small Texas S&L.; At the time Rotherty was indicted, Atty. Gen. Dick Thornburgh called it one of the top 100 savings and loan fraud cases in the country.