Jensen Role in First Pension Scam Detailed : Inquiry: Memo to prosecutors describes how ex-president of Irvine firm set up phony accounts and diverted funds.

IRVINE — Valerie Jensen, former president of failed First Pension Corp., set up phony investor accounts routinely and diverted funds offshore but balked at putting aside $8 million of clients’ money to cover legal fees for the three principals of the Irvine pension management firm, according to documents obtained by The Times.

In a memo written by her lawyer and sent to federal investigators, Jensen, 47, is portrayed as a knowing participant in criminal deeds but as a follower, not an instigator. “She, for the most part, acquiesced rather than directed,” reads the memo, which was written by Jensen’s Los Angeles attorney, Donald Smaltz, and gives an inside account of events at First Pension.

Jensen, along with other company principals William E. Cooper and Robert E. Lindley, pleaded guilty Aug. 1 to fraud in connection with a First Pension scheme in which investors lost $121.5 million by putting their money into phony second trust deed mortgage funds.

The three are to be sentenced on Oct. 6. Each faces a maximum fine of $500,000 and a prison term of up to 10 years.

In the memo, sent to investigators in May, Smaltz states that Cooper and Lindley, knowing that First Pension was a scam and expecting a massive and costly criminal investigation, asked Jensen to put aside investor funds to cover anticipated court costs and to improve their position with investigators.

Jensen was told in March to take $8 million “out of the system for future use in defending each of them against criminal prosecution and to use the money as a bargaining chip as restitution,” the memo states.

Jensen refused to do so, the memo says, and was asked by Cooper a few days later to resign.

Russell Hayman, Lindley’s attorney, said in an interview Wednesday the request that Jensen divert the money was a “misguided concept” that was later dropped.

“It never happened. There was no attempt to take the money and run,” he said. “At worst, there may have been a misguided concept that, if they took the money and moved it to another pot and then presented a big check to the U.S. attorney’s office, it would help their case. But no such transfer ever occurred.”

Cooper’s lawyer, Robert Bonner, could not be reached for comment.

The memo portrays Jensen, a native of Bakersfield, as an eager employee who was merely following the lead of her mentors, Cooper and Lindley.

Jensen began her career as a messenger for CPI Pension Administration Co. in Newport Beach in 1976, the memo states. Though she did not have a college degree, it continues, she worked her way up to a management position at CPI and joined First Pension in the mid-1980s as vice president and operations officer.

As the company began running into financial trouble in the early 1990s, the document states, Jensen began diverting investors’ money into three offshore accounts that were trusts for herself, Cooper and Lindley. The accounts were set up, the memo states, because of the three principals’ concerns that the Internal Revenue Service might seize assets of some First Pension affiliates. The memo estimates that about $1.5 million of investors’ funds went into each offshore account and was then moved back into related First Pension entities.

In addition, the document states, Jensen set up phony client accounts that were used to divert money to other First Pension businesses.

“At night, Valerie would access the computer database and alter the accounts to reflect money in the account,” the memo states, adding that about $4.4 million was involved.

Jensen did so, however, after “being prodded” by Cooper and Lindley with stories of “a financing just about to happen, a purchase just about to occur, a turn of events just around the corner,” the memo states.

“The diverted funds did not only go to pay the operating expenses of the entities, but also to invest in a series of companies which were believed to have a high potential for success and, when the success was achieved, would enable the entities to repay all the money owing and thus fill up the ‘hole,’ ” the memo states. “The principle became ‘betting on the come’ in an effort to strike it rich and pay off the indebtedness.”