Financier Knapp Found Guilty of Lying to Get Loan

Charles W. Knapp, the financier whose business strategies led to the collapse of the nation’s largest thrift in the 1980s, was found guilty Wednesday on criminal charges of lying to obtain a loan from a savings and loan in Arizona that later failed.

After nearly four days of deliberations, a federal jury in Los Angeles convicted Knapp on two counts of making false statements and one count of conspiracy, but he was acquitted on a third charge of making false statements.

Knapp, 58, faces nine years in prison and fines totaling $750,000, said Assistant U.S. Atty. Carolyn Kubota, who prosecuted the case. Sentencing is scheduled for Aug. 30.

“We’re obviously pleased with the jury’s decision,” Kubota said. “We think Knapp is someone who has been long deserving of the attention of law enforcement.”

Knapp and two former business associates were accused of conspiring to concoct financial statements that grossly overstated the assets of a Knapp-owned company in order to qualify for an unsecured loan from Western Savings & Loan in Phoenix. The company later defaulted on the loan, authorities said.

One of those associates, Anthony C. Sarno, was also convicted Wednesday on the same three counts as Knapp. The second associate, Joseph V. Nash, was convicted on single counts of conspiracy and making false statements.

Nash, currently serving a federal prison term on unrelated fraud charges, was Knapp’s accountant and Sarno was his financial consultant. Sarno also faces the same penalties as Knapp; Nash faces another seven years in prison and a $500,000 fine.

As he left the courtroom, Knapp declined to comment. But his lawyer, John J. Bartko, said he would appeal the convictions. “The jury tried hard,” Bartko said. “It was a difficult case.”

As U.S. District Judge Stephen V. Wilson read the verdicts, Knapp sat ramrod straight and grim-faced as he stared ahead at the jury.

Dressed in a navy blue suit, white shirt, and red-and-blue-striped tie, he showed no emotion behind his steel-rimmed glasses until Wilson left the court. At that point, Knapp walked over and kissed his wife, actress Lois Hamilton.

Knapp remains free on $385,000 bail.

Ironically, the conviction was unrelated to American Savings, once the nation’s largest savings and loan, which exploded in size in the early 1980s before collapsing. Knapp headed American Savings’ parent company, Financial Corp. of America. Knapp’s actions at American Savings were the focus of a criminal investigation that lasted several years, but no charges were filed against him in connection with the thrift’s failure.

Knapp was indicted in March on charges that his now-defunct Trafalgar Holdings--an investment firm he formed in 1984 after being ousted from American Savings & Loan--made false statements to obtain a $15-million loan from Western Savings.

The conviction Wednesday was only the most serious in a long string of setbacks for Knapp, who during his heyday was known as a flamboyant charmer who piloted vintage airplanes and cruised on his yacht in the Mediterranean.

In September, Knapp and Hamilton, his third wife, filed for personal bankruptcy protection to reorganize their deteriorating finances.

The petition was spurred in part by a $750,000 judgment that the Federal Deposit Insurance Corp. obtained after Knapp’s inability to repay a business loan. Heavy alimony obligations to Knapp’s second wife, Brooke Knapp, and taxes owed to California also led to the filing.

Knapp told The Times in 1990 that he had become a “business leper” because of his well-publicized problems.

Knapp had formed Trafalgar Holdings in 1984 after regulators removed him as chief executive of Financial Corp. of America and turned American Savings into a virtual ward of the federal government.

Massive runs on its deposits and mounting bad loans nearly forced American Savings to fail, but regulators lacked the financial resources to pay off depositors and shut it down.

Regulators eventually sold American Savings in 1988 to Texas billionaire Robert M. Bass. Now called American Savings Bank, the thrift is still operating, but the bailout cost U.S. taxpayers about $1.7 billion.

While at Financial Corp. of America, Knapp became something of a role model for aggressive thrift executives who wanted to quickly expand the assets of their financial institutions after industry deregulation in the early 1980s.

American Savings fueled its rapid growth by quickly raising high-cost deposits through professional money brokers and, simultaneously, making loans in high-risk real estate and construction ventures.

Knapp later jumped into the merger mania of the 1980s by forming Trafalgar Holdings, which launched several takeover bids and agreed to provide financing to other corporate raiders. But published reports later showed that in many cases, Trafalgar let its own bids lapse and failed to actually help fund takeovers directed by others.

Trafalgar, which at its zenith operated several subsidiaries, dissolved as Knapp’s personal financial problems began mounting three years ago.