O.C. Firm’s Collapse Stuns Investors--and Employees : Bankruptcy: First Pension workers had no inkling of alleged pyramid scheme that left $124 million missing.
It was midafternoon on April 21 when the shaken employees of First Pension Corp. gathered around company Chairman William E. Cooper, standing nervously in his coat and tie in the middle of the company’s Irvine headquarters.
Shellshocked from answering nonstop phone calls from angry investors demanding their pension money, the employees, some with eyes red from crying, waited in their top-floor offices of their two-story building to hear Cooper’s explanation.
Employees were especially alarmed that day by the sight of several cars across the street quickly being loaded with computers, boxes and other documents from their parent company, First Diversified Financial Services.
With his voice choking at times from emotion and tears welling in his eyes, Cooper told the 20 employees, almost all women, that although it hurt him, and it was the hardest thing he’d ever done in his 30 years in the mortgage business, he was filing to place the company into bankruptcy. Then he handed out paychecks, all of which later bounced, and left.
“Now, I think about what he said that day, and it’s laughable,” said one former employee. “We just had no idea what was going on. I wish I could’ve smashed him in the face.”
First Pension, with an estimated 8,000 clients and accounts valued at $350 million, declared bankruptcy April 22, the day after Cooper met with employees and one day after Colorado state authorities seized Summit Trust Services, a Denver-based firm established by Cooper to manage clients’ money.
On May 13, the Securities and Exchange Commission alleged that the three company principals, prominent Orange County businessman Cooper and his two long-term associates, Robert E. Lindley and Valerie Jensen, ran a scheme that used money from later investors to pay dividends to earlier ones. The myriad of companies run by the threesome allegedly enticed investors to put money in mortgages that did not exist with promises of annual dividends of up to 28%.
On Friday, the First Pension offices--in a small office park near John Wayne Airport--were dark, with the doors locked, the parking lot empty and the grass needing mowing.
SEC documents and interviews with numerous former employees reveal that many workers at First Pension and sister company Vestcorp Securities Inc., were unaware they may have been participating in what could be one of Orange County’s most elaborate pyramid schemes, with possibly as much as $124 million of investors’ money lost to fraud or theft.
“We never even dreamed that these mortgage pools did not have underlying assets,” said Ana Maritza Golan, former operations manager at First Pension. “Not at any point. Even the brokers at Vestcorp didn’t know--one of them had $250,000 of his own money in the pools. We were all taken.”
First Pension acted as a pension fund administrator, serving people who wanted to make choices about where to invest their individual retirement accounts, Keogh accounts or other retirement savings. Many of its customers were persuaded to put at least some of their money into the real estate pools by brokers at Vestcorp, which marketed the partnerships.
Although several former First Pension employees said they became concerned about the company when Jensen, its president, abruptly resigned on April 5 citing job stress, they did not suspect the company itself was in trouble. Even during the final week of operations, employees said they were “still trying to do their jobs,” administering pension plans and pitching the latest limited partnership investments to investors.
But by Thursday, April 21, employees began to believe that something was terribly wrong. The switchboard was ablaze with calls; several investors were threatening to come down to the office and physically take their money back. Some investors had already heard about the Summit seizure, while others were upset at learning that pension fund checks they had mailed to First Pension had been cashed, but the monies never credited to their accounts.
“All the employees were sitting at their desks saying, ‘I just can’t take another call, “‘ remembers one employee. Managers decided to lock the doors about noon, shut down the switchboard and send everyone to lunch. Then they called Cooper, who usually worked across the street at parent company First Diversified.
“People were looking to each other for support. The rumor mill was rampant, with people saying, ‘Oh, this investor told me this,’ or ‘I heard this,’ ” a former employee said.
Debbi Settle, a pension consultant in First Pension’s San Diego office, said it wasn’t until that Thursday that she knew something was seriously wrong.
“The rumor was embezzlement of funds and we heard it was a substantial amount,” said Settle, who said she is owed about $10,000 in back salary and commissions. “My heart just stopped when someone told me. I couldn’t do any work after that.”
In the days following the SEC’s allegations, probably the most asked question by observers, investors and even employees is: “How could this have happened?”
Those in the best position to know--principals Cooper, Lindley and Jensen--aren’t talking. None have spoken publicly. In response to SEC questioning, Lindley and Jensen refused to answer all queries, repeatedly invoking the Fifth Amendment. Cooper refused to appear at all. Lawyers for the three principals say they are all intent on cooperating with authorities.
One ex-employee who is talking is Kurt Linn. At 26, after graduating from college and working various jobs, he started as a broker with Vestcorp in Orange, where the company was originally based. But 14 months later in 1990, he quit.
“I just began not to feel comfortable with things,” said Linn, now a stockbroker with a regional investment bank.
Although he was young at the time and it was his first brokerage job, Linn said he had a gut feeling something was amiss at First Pension.
A favorite of Cooper’s because of his success at selling the various investments marketed by Vestcorp, Linn was asked to lunch with the chairman at a ritzy restaurant. A wealthy investor had told Linn he wanted to put up to $1 million in the real estate pools--but wanted to see the trust deeds and visit the properties.
Linn had gone to the courthouse to check on the deeds, but could not find any recorded, as they should have been under state law, the SEC said. When he asked Cooper at the lunch, the chairman told him that the registration costs, about $10 per deed, were prohibitive but assured him that the mortgages did really exist.
“It just seemed to me he was too secretive about how the investments worked,” said Linn, who decided to quit just days after the lunch. “I didn’t know for sure the trust deeds didn’t exist, but not being sure, I didn’t feel comfortable allowing clients to invest. So I took a job with Merrill Lynch and I informed my clients of my reasoning.” But his boss at the time was not so savvy.
Rodger Rusch, former president of Vestcorp, told the SEC on May 10 that he knew as far back as 1989 that the trust deeds were not registered. That year, prompted by increasing concerns about the partnerships, he went to a local Orange County title company and asked what it would cost to run a title search on real estate partnerships being marketed by Vestcorp.
“They called me back an hour later and said we won’t charge you anything because there’s none,” Rusch said in SEC testimony. “There isn’t a single thing recorded in these partnership names. My heart went to my throat.”
Cooper tried to reassure Rusch in 1989, telling him the same story he told Linn about the costly court fees. Though Cooper was a man who claimed he had made about 14,500 loans valued at more than $390 million, he told Rusch it was economical not to register the deeds.
“Mr. Cooper . . . would, you know, stonewall, he would intimidate, he would do all the things” to keep things private, said Rusch, who quit in 1992.
In interviews, former employees of parent company First Diversified and its subsidiaries First Pension and Vestcorp said these were companies where “you never dared question anything or you’d be gone.”
Although employees at the three affiliated companies met for employer-catered Halloween and Christmas parties and played volleyball together at summer picnics, former employees say their corporate family was a dysfunctional one.
Many employees at First Pension, while remembering Jensen as a “mentor and friend,” called Lindley and Cooper “pompous and cold.” Cooper, who was rarely in the office, was known as a controlling man with whom employees couldn’t get close.
Cooper tried to control the mail coming into and out of the First Pension office during late March and April, the same time when tax deadlines meant pension contributions would be at their peak, the SEC said. During that time an unknown period of clients’ checks disappeared, many of which were deposited in other bank accounts opened by Cooper and Lindley, according to the SEC.
In SEC testimony, employee Tracy Reiter said she told Cooper that distribution checks prepared to be sent out around April 2, many of which were used to pay clients’ living expenses, were not being delivered. Cooper blamed it on “our damn postal service,” Reiter told the SEC.
Testimony gathered by the SEC reveals that Cooper’s companies were a financial “maze” and show that computer transactions transferring money from various accounts were mysteriously deleted and that parent company First Diversified was sending packages to Rarotonga, Cook Islands.
Even more unbelievable was the annual meeting purportedly held by the board of directors of Summit Trust, a company created by Cooper to manage client funds. When the board gathered Feb. 10, the minutes show, they met at 27068 S. La Paz Ave., Suite 426 in Aliso Viejo.
That happens to be the address of a Mailboxes Etc. location; and No. 426 is the registered postal box for the company. The minutes show only Cooper and partner Lindley attended the meeting.
