Ex-Banker Allegedly Bilked 25 Investors : Crime: Federal prosecutors charge that John Bennett (Whitey) O’Donnell persuaded clients to invest more than $2.3 million in a nonexistent stock options mutual fund.

The returns seemed astronomically good: In just 30 to 45 days, a former South Bay banker promised, investment clients could expect to make as much as 25% on their money.

The deal, federal prosecutors say, was too good to be true.

Late last week, federal fraud charges were filed against John Bennett (Whitey) O’Donnell, former president of Republic Bank in Torrance. Federal prosecutors charge O’Donnell bilked at least 25 South Bay residents of more than $2.3 million by persuading them to invest in a nonexistent stock options mutual fund.

Instead of investing his clients’ money, prosecutors charge, O’Donnell used it to buy a palatial $1.3-million Dallas home and to fill Swiss bank accounts for himself.

O’Donnell did not respond to messages left at his Dallas home and an office he maintained in Gardena. His attorney, James Chalfant, said the allegations against O’Donnell are flawed, but would not elaborate.

At the alleged scam’s peak last year, a prominent South Bay defense attorney had introduced 20 of his friends and business associates to O’Donnell’s investment pool, including Judge Cecil J. Mills, supervising judge of the Los Angeles Superior Court’s criminal division.

The biggest single investor was Nikki Tennant of Manhattan Beach, who wired $160,000 into O’Donnell’s bank account after he told her a deadline was nearing for the deal, officials allege. Tennant, who could not be reached for comment, is not related to a Los Angeles City Council aide of the same name.

O’Donnell appeared Friday in Dallas federal court, where a magistrate set bail at $100,000. A court clerk said O’Donnell posted $5,000 bond and was released, pending a federal court hearing in Los Angeles next week.

O’Donnell’s lawyer said he believes the investors will be paid.

“The government has put its case together in a big hurry and they’ve made a lot of mistakes,” Chalfant said. “I really can’t (say more) except that Mr. O’Donnell has been working . . . and will continue to work on behalf of the investors. (They) are screaming for their money and Mr. O’Donnell is going to work to see that they get paid.”

Chalfant said he believes money is available to reimburse all the investors.

“I certainly hope it is there and that’s my expectation,” he said.

FBI special agents searched O’Donnell’s home and offices Thursday afternoon, Assistant U.S. Atty. John Libby said. Results of those searches were not disclosed.

O’Donnell, a former official with the Federal Deposit Insurance Corp., was president and chief executive of Torrance-based American Republic Bancorp and its Republic Bank unit until May, 1990. At that time he abruptly resigned, telling the firm’s boards in a letter of resignation that he “may have inadvertently engaged in activities which appear to be inconsistent with company policy,” company officials said. They would not elaborate.

According to an affidavit filed in support of last week’s federal search warrants, O’Donnell began soliciting South Bay investment clients in May, 1991, for a stock option fund he said was operated by Dreyfus Management Inc., a well-known investment firm in New York.

“In truth and in fact, as O’Donnell well knew, the money he obtained from investors by means of these representations was not placed in any fund at Dreyfus, but was diverted to his own personal use and benefit,” FBI special agent Denise M. Deppa said in the affidavit.

O’Donnell first attracted investments from Torrance dental surgeon D. Patrick Slavens, who entrusted $150,000 to O’Donnell between July, 1991, and late 1992, the affidavit said.

Within a few weeks of Slavens’ initial $20,000 investment, O’Donnell told the dentist he had earned $6,250 on his money, the affidavit said. O’Donnell said he would reinvest most of that money, but gave the dentist a $1,250 check as “spending money,” the affidavit said.

Thrilled with the returns, Slavens told his attorney, William MacCabe, about the deal. O’Donnell told MacCabe that an old friend at Dreyfus had given him access to the “Dreyfus Preferred Customer Option Pool,” which he said operated for 30 to 45 days at a time and paid interest of as much as 25% after each investment round, the affidavit said.

MacCabe told FBI agents that he invested $20,000 in September, 1991, and began telling friends about the deal after O’Donnell returned his initial investment plus $5,000 profit after 30 days.

MacCabe told agents he and his friends continued investing until late last year, when O’Donnell stopped returning principal and profit checks. In December, MacCabe flew to New York for a meeting with O’Donnell and his friend at Dreyfus. O’Donnell did not appear for the meeting and the Dreyfus official told MacCabe he had never heard of O’Donnell, the affidavit said.

MacCabe flew home and confronted O’Donnell, who allegedly admitted that he had used the Dreyfus name to attract investors to a lesser-known options fund run by a smaller firm, the affidavit said.

The alleged head of that firm, however, told federal agents that no such firm or options fund exists. The Securities and Exchange Commission is investigating the case, the affidavit said.

FBI agents researching activity on O’Donnell’s personal bank accounts noted in their affidavit that several checks from investment clients were deposited to his personal accounts and that escrow funds for his Dallas home were transferred from those accounts.

In addition, the affidavit alleges, O’Donnell wrote checks to an overseas firm that endorsed the checks over to a Swiss bank account.