The First Pension Fallout in O.C. : Litigation: Supreme Court has limited suits by defrauded investors against third parties. But a local bank and a thrift are still worried about potential liability.

In the wake of First Pension Corp.’s failure, some companies that did business with the Irvine pension management firm are worried that investors who lost money in the collapse might try to put part of the blame on them.

Despite a U.S. Supreme Court ruling in April that limits lawsuits by defrauded investors against third parties--lawyers, accountants and bankers--CommerceBancorp of Newport Beach and Monarch Bank of Laguna Niguel, both of which held funds for First Pension, are concerned about their exposure.

“We’ve done fairly exhaustive legal and audit work to recover records. I went through every wire transfer myself,” said Lynn Caswell, president of Monarch, a two-branch community bank founded in 1980. “The cash assets are all accounted for, and we don’t think we have any liability.”

CommerceBancorp went even further. On June 27, the thrift, which is undercapitalized and at risk of being taken over by federal regulators, put off a $14-million stock offering that would have brought in badly needed cash.

“We postponed it until we can quantify what liability exists,” said Dale E. Walter, the thrift’s president.

The bankers’ concern is that people who used First Pension to direct their retirement investments may take legal action against not only the management firm’s owners but also against companies with which it had dealings. Lawsuits by investors in securities fraud cases in the past have targeted “deep pocket” companies--such as banks, law and accounting firms hired by the perpetrators--because the promoters were broke, having either spent or lost the money they gained illegally.

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While there is some comfort in the Supreme Court decision, it does not erase the banks’ fears that they might be caught up in costly and time-consuming First Pension-related litigation that could be damaging even if they are cleared, a banking attorney said.

“Even with the recent ruling, bankers take this very seriously,” said Thomas J. Prenovost, a banking attorney in Santa Ana who is helping to evaluate Monarch’s situation. “I think the dollar amounts involved with First Pension make it much more of a concern, and I think that’s why Commerce pulled their stock offering.”

The Securities and Exchange Commission has alleged that First Pension operated an elaborate pyramid scheme, misleading clients into investing in nonexistent mortgages. As much as $124 million of investors’ money may have been lost to fraud and outright theft, the SEC has said. The company, which had an estimated 8,000 clients and accounts valued at $350 million, filed April 22 for liquidation under federal bankruptcy laws.

Attorney James Krause, who filed a class-action lawsuit for First Pension investors on Thursday against the investment company’s owners, said the court ruling does not give banks immunity from investor lawsuits. He expects more legal action to follow.

“I believe we can still sue them, all third parties, if they did something wrong, but it may be for state negligence or other viable claims,” Krause said. “If we think there was a legitimate cause for claims, we would take action.”

Of the two Orange County financial institutions, CommerceBancorp, which held about $10 million in First Pension deposits, would appear to be at greater risk because of its precarious financial condition.

With assets of about $158 million, the thrift, as of March 31, had a capital-to-assets ratio of just 2.14%, far below the 6.5% required by federal law. The company’s stock was taken off the Nasdaq trading system earlier this year and now trades on Nasdaq’s SmallCap Market, a system for companies with little capital and low stock prices.

Because the bank has postponed its stock offering, it cannot beef up its capital as planned. “The longer the delay, the greater chance of actions taking place” by regulators, Walter said.

If the bank were seized by regulators, the Federal Deposit Insurance Corp. might cover any existing First Pension deposits for up to $100,000 in each account, depending on the circumstances, said Andrew Porterfield, spokesman for the FDIC in Irvine.

“We may cover for fraud after the bank is closed, but it would depend on many factors, such as how the deposits are booked and what the collateral was,” Porterfield said.

Monarch Bank officials express confidence that they will not be harmed from their business association with First Pension, for which the bank served as a trustee from July, 1992, to September, 1993, Caswell said.

“I won’t say we have no concern whatsoever,” bank President Caswell said, “but as far as we can tell, every penny that we handled is accounted for.”

But Andrew Snyder, trustee for Summit Trust Services, the custodian bank formed by Cooper in Denver to handle First Pension retirement funds, said he was examining wire transfers from Monarch to other First Pension entities.

“I’m not yet in a position to say that everything is kosher with Monarch,” Snyder said. Monarch, which held as much as $5 million in First Pension funds at times, Caswell said, is also planning a stock offering, a $2.5-million issue that it would use for a five-year expansion plan and to raise its capital level.

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Also, Monarch had more than a custodial relationship with First Pension. One of First Pension’s three principals, Robert E. Lindley, was Monarch director from January, 1992, to January, 1994, and owned 4% of the bank.

Lindley left the board three months before First Pension’s bankruptcy filing, citing business troubles and saying he was moving to Arizona, Caswell said.

“We did a lot of due diligence on Mr. Lindley before he joined our board. We came up with nothing,” Caswell said. “He seemed like a straight arrow and was well-known in the business community in south Orange County.”

Another company that could be affected by First Pension’s failure is the national accounting firm Coopers & Lybrand, which was listed in promotional material as a reference for the investment management company. It is not clear, however, whether the firm ever actually audited First Pension.

In testimony to the SEC, Ana Maritza Golan, First Pension’s operations manager, said: “We have never been audited by anyone since I’ve been here, which is in my opinion a slight miracle.”

And a former employee of First Pension’s brokerage division, Roger Rusch), told the SEC that he requested a “full-blown” audit of the investment firm’s mortgage pools several times. But William E. Cooper, one of First Pension’s principals, stalled, Rusch said.

“Every justification that you could think of . . . over a period of time was used,” he told the SEC.

Several investors stated at a recent First Pension bankruptcy hearing that Coopers & Lybrand did, in fact, audit one of the company’s mortgage pools.

Mark Garrett, general counsel for Coopers & Lybrand at its New York headquarters, said last week that he was not familiar with the First Pension situation and that, as far as he knew, the accounting firm had no connection with the pension fund administrator.

“People will put our names down for the damnedest things,” Garrett said. “They list us as a reference, and we don’t even know about it. As far as I know, we’ve never been dragged into a legal case when we’ve just been listed as a reference.”

The First Pension Pyramid

First Pension Corp. operated through a tangled maze of affiliated companies, allegedly operating an elaborate pyramid scheme that resulted in the disappearance of more than $124 million in retirement money.

First Diversified Financial Services Inc., Irvine: Holding company owned by William E. Cooper, Valerie Jensen and Robert E. Lindley.

First Pension Corp., Irvine: Pension fund administrator formed in May, 1980. Managed clients’ retirement funds.

Vestcorp, Irvine: Brokerage division that marketed 218 allegedly fraudulent real estate limited partnerships.

Amerispec, Orange: A 6-year-old company with assets of $2.5 million and more than 200 franchises that provides home inspection services. Allegedly formed with funds diverted from First Diversified.

National Identification Systems, Irvine: First Diversified has a controlling stake in this company, which has been under contract with the state of New York to make driver’s licenses since 1992.

CommerceBancorp, Newport Beach: As custodian for First Pension from 1990-1993, held about $10 million in clients’ retirement funds.

Tiffany Escrow, Anaheim: Terri Cooper, wife of William E. Cooper, was president of this company.

Monarch Bank, Laguna Niguel: Held about $3 million in clients’ retirement funds as custodian for First Pension from July, 1992, to September, 1993.

Summit Trust Services, Denver: Trust company formed by Cooper, Jensen and Lindley in late 1993. Seized by Colorado state authorities on April 21.

Ernest-Edwards & Associates, Phoenix: Name consists of Cooper & Lindley’s middle names. An allegedly phony company that siphoned $25 million of investors’ funds.

Source: Times reports; Researched by DEBORA VRANA and JANICE L. JONES / Los Angeles Times

First Pension’s Downfall

Irvine-based First Pension Corp. is accused of defrauding thousands of investors of more than$124 million in what officials described as an elaborate Ponzi scheme. A chronology of events:

1980

* May 8: First Pension Corp. is incorporated with the California Department of Corporations. Co-owner Valerie Jensen is listed as the registered agent. The other owners are William E. Cooper and Robert Lindley.

1987

* Aug. 12: First Pension files notices with a California agency, contending that each of 23 virtually identical real estate investment pools are exempt from regulation as a public securities offering because they would be offered to no more than 35 sophisticated investors.

1994

* Feb. 10: Summit Trust Services, a company in Denver created by First Pension’s chairman Cooper to manage client funds, purportedly holds its annual board of directors meeting in Aliso Viejo at an address that an investigation later revealed was actually a Mailboxes Etc. location where the company had a registered postal box.

* April 5: Jensen, First Pension’s president, resigns, citing job stress.

* April 21: Colorado banking regulators seize Summit Trust. Regulators appoint Andrew C. Snyder to take charge of the assets.

* April 22: First Pension files for protection from creditors in an Orange County federal bankruptcy court. Stunned investors flood the firm’s switchboard with calls.

* May 13: FBI and Securities and Exchange Commission officials allege that First Pension used a massive pyramid scheme to defraud investors out of as much as $124 million.

* May 26: A preliminary injunction requested by the SEC is issued to freeze First Pension’s assets along with the assets of its three principals.

* May 31: Approximately 150 angry investors pack federal bankruptcy court in Santa Ana. Snyder, the court-appointed receiver for Summit Trust, tells investors that only about 30% of investor funds are accounted for.

* June 1: Investigators reveal that Cooper, Jensen and Lindley have signed agreements to cooperate with the U.S. attorney’s office in Los Angeles, while also agreeing to plead guilty to as-yet-unspecified fraud charges.

* June 10: SEC officials ask a federal judge to jail First Pension owners Cooper, Jensen and Lindley for contempt of court for refusing to turn over financial records under a court order. The request is subject to a hearing scheduled for Tuesday.

* June 28: CommerceBancorp in Newport Beach postpones a stock offering that would have brought in desperately needed capital, citing liability concerns over its past business dealings with First Pension.

* July 7: Investor group files a class-action suit against First Pension in a Santa Ana court, hoping to regain some of the money they lost in dealings with the failed pension management firm.

Source: Times reports; Researched by JANICE L. JONES / Los Angeles Times