Jury Selection Begins in Trial of S&L; Chief : Banking: Former Columbia Savings CEO Thomas Spiegel, charged with 45 counts, is a major government target.
In an echo of the 1980s, jury selection began Tuesday in the criminal trial of Thomas Spiegel, the once high-flying thrift executive who federal prosecutors say systematically looted millions of dollars from Columbia Savings & Loan of Beverly Hills before it was seized by regulators in 1991.
Spiegel, a major player in the cast of the long-running S&L; debacle, is the biggest government target to come to trial since Charles H. Keating of Lincoln Savings & Loan. But Spiegel’s prosecutors face a different problem, local lawyers say.
Unlike in the Keating case, where the government could portray the defendant as a villain and small investors as his victims, the alleged victims in the Spiegel case are the taxpayers, noted Paul Turley of the Los Angeles district attorney’s office, who helped lead the successful Keating prosecution.
This time, the prosecution “doesn’t have a little old lady to put up on the stand and testify that she has lost her life savings,” Turley said. “Instead, Spiegel’s (alleged) fraud hurt the nameless, faceless U.S. taxpayer. That doesn’t really stir up the jury’s emotion.”
Spiegel, now 48, faces 45 felony counts ranging from bribery and fraud to misuse of Columbia’s funds. If convicted on all counts, he could spend the rest of his life in prison and face fines in the millions of dollars.
Spiegel, dressed in a navy blue shirt and royal blue tie, looked confident and relaxed as U.S. District Judge Robert M. Takasugi summarized the federal charges against him for a group of about 50 potential jurors in a Downtown Los Angeles courtroom. When asked beforehand whether he’d beat the charges, Spiegel smiled and replied, “I hope so.”
A memo filed by Spiegel’s defense team paints him as a brilliant banker who built Columbia into an S&L; powerhouse only to have it crushed after the federal government ordered all of the nation’s thrifts to dump their junk-bond holdings in 1989. Item by item, his attorneys seek to legitimize such actions by Spiegel as the use of Columbia funds to buy a condominium and to build a gun collection.
But a pretrial memo from lead prosecutor John F. Walsh indicates that the government will attempt to paint Spiegel as a greed-driven banker who used Columbia as a tool to line his own pockets.
“Although defendant Spiegel was by a considerable margin the highest paid savings & loan executive in the United States, receiving salaries and bonuses of between $5 (million) and $10 million each year, those millions were simply not enough in his mind . . ,” the memo states.
Spiegel became Columbia Savings’ president and chief executive in 1977. After the deregulation of the S&L; industry in the early 1980s, the thrift began investing heavily in high-yield, high-risk junk bonds--nearly all of which were purchased through Drexel Burnham Lambert and its infamous “junk bond king,” Michael Milken--and its profits began to soar.
Columbia’s earnings peaked at $194 million in 1986, and Forbes magazine named it the best-run large S&L; in the nation. Spiegel earned $9.03 million that year, making him the highest-paid executive in the history of the thrift industry.
But Spiegel’s huge pay drew the ire of federal regulators, who called it “unreasonable.” He was allowed to keep the money but agreed to have his future compensation reviewed by experts.
Spiegel never paid himself that much again. The stock market crash in October, 1987, sent the value of Columbia’s junk-bond portfolio tumbling, and its earnings fell in lock-step.
The thrift’s finances continued to deteriorate, and it lost a staggering $591 million in 1989. Spiegel, under pressure from regulators, resigned effective Jan. 1, 1990.
Columbia was seized a year later at a cost to taxpayers of about $1.2 billion.
By the time of Spiegel’s resignation, thrift regulators had launched a secret investigation after they became suspicious of Columbia’s spending on vacations, plane trips, guns and other items.
Although attorneys for both sides declined to discuss their strategies in advance of Friday’s scheduled opening arguments, the government’s memo indicates that many of the 45 felony counts that Spiegel faces are tied to that spending.
In one instance, for example, the prosecution alleges that Spiegel secretly accepted for himself--instead of for Columbia--a so-called “equity-kicker” from Drexel Burnham with a potential for him to earn $7 million on his $132,000 investment in exchange for helping to persuade Columbia to invest nearly $100 million in one of Drexel’s deals.
In another, the prosecution alleges that Spiegel caused Columbia to loan and invest nearly $30 million in a luxury auto dealership owned by one of his friends.
The government also says he used Columbia funds to purchase a $1-million Palm Springs condominium for his exclusive use and had the thrift pay tens of thousands of dollars for more than 40 firearms, including assault weapons and at least one Uzi submachine gun.
Walsh said he has about 30 witnesses and more than 300 letters, checks and other pieces of evidence to prove that Spiegel illegally “used Columbia Savings’ funds as if they were his own” over a four-year period beginning in 1986--about the same time that Spiegel began taking heat from regulators over his salary.
But lead defense attorneys Brad D. Brian and Richard Marmaro maintain that Columbia was forced by the government to mark down and sell its entire portfolio of high-yield junk bonds in a market still shaking from the ’87 crash, causing it to become insolvent just one year later.
The defense notes that Spiegel and his family, who owned more than half of the thrift, suffered major losses from Columbia’s collapse.
The defense also says that Spiegel eventually turned all of his profits from the Drexel-related investment over to Columbia after learning that it should have been approved in advance by its board of directors.
The Palm Springs condominium was purchased as “part of Columbia’s very successful investment in . . . numerous properties” in the area, the defense claims, and the firearms purchases were legitimate and are being raised “solely to inflame passions and prejudices over the hot-button issue of guns.”
