Ousted S&L; Chief Knapp Adds Bankruptcy to List of His Woes
The fortunes of Los Angeles financier Charles W. Knapp--once head of the country’s biggest savings and loan--have taken a sharp turn for the worse.
Citing heavy legal obligations and credit card bills, Knapp and his wife, movie actress Lois Hamilton, filed a Chapter 11 bankruptcy petition in Los Angeles last month to allow them breathing room to reorganize their deteriorating finances.
At the same time, a long-running federal probe into Knapp’s ties with defunct Western Savings & Loan in Phoenix is intensifying, sources close to the investigation say. Western Savings failed in 1989, and Bank of America acquired its branches a year later.
Federal authorities are expected to seek an indictment against Knapp within the next several months, according to sources. A grand jury in Los Angeles is now hearing testimony in the case.
Knapp, chief executive of the parent company of Stockton-based American Savings & Loan until his ouster in 1984, referred all questions to his attorneys.
“I’d be happy to talk to you about anything but myself,” he said in a brief telephone interview from his home in Century City.
Federal banking regulators removed the outspoken and colorful Knapp from his post at fast-growing American Savings because they believed that he had run the financial institution recklessly. An FBI probe of his activities at American Savings and the parent company, Financial Corp. of America, did not result in any charges.
The current criminal investigation is believed to parallel a civil racketeering lawsuit filed in June by the Resolution Trust Corp. against Knapp, 57, and former officers of Western Savings. The RTC was created to sell the assets of failed savings and loans.
The probe is being spearheaded by Assistant U.S. Atty. Carolyn J. Kubota. She has consistently declined to discuss the progress of the investigation, but she has confirmed in previous court testimony that the probe is going on.
Ralph Bernardino, Knapp’s attorney, said he has repeatedly heard reports that the current investigation is coming to a head, but added that nothing has ever been confirmed. He has heard nothing lately, he said.
Bernardino said the investigation has put a “gray cloud” of suspicion over Knapp and has gone on far too long. “If this was a good case, they would have done something already,” said Bernardino, a former attorney for the U.S. Justice Department. “Good cases don’t get better with time.”
The RTC filed its racketeering suit in federal court in Phoenix against--among many others--Knapp and former Western Savings Chief Executive Gary H. Driggs. The court papers allege that a company owned by Knapp--Trafalgar Capital--misused a $15-million line of credit obtained from Western Savings in 1988. According to the lawsuit, Knapp and Driggs worked out a secret deal whereby the money would be used to prop up Western Savings’ troubled investments, not as a general line of credit.
The court papers allege that Trafalgar inflated the value of its assets by more than $40 million. The firm falsely claimed in its income statements that its major asset was a half interest in a huge residential development in Austin, Tex., the suit said.
Meanwhile, Knapp’s personal bankruptcy filing was prompted because he cannot pay a $750,000 court judgment that the Federal Deposit Insurance Corp. obtained against him, according to his bankruptcy attorney, Terry A. Ickowicz. The judgment resulted from a business loan that Knapp could not repay, he said.
Other unpaid debts include nearly $1 million in alimony to his ex-wife, Brooke Knapp, and nearly $100,000 in 1980 and 1981 state taxes owed to the California Franchise Tax Board.
He also has unpaid credit card and legal bills, including nearly $23,000 on one of his American Express cards and more than $85,000 owed to the Century City law firm of Greenberg, Glusker, Fields, Claman & Machtinger, court papers show.
The papers also contend that Knapp’s financial services company, Trafalgar Holdings, is worth nearly $18 million.
A statement issued by Ickowicz said Knapp had “ample assets” to cover his debts and stands ready to pay all his bills once he has the time to reorganize and restructure his affairs.
