HomeFed Bank Probe Yields Felony Charges : Thrifts: Three former execs of the defunct savings and loan are indicted on fraud and conspiracy counts.
Three former executives of failed HomeFed Bank of San Diego were indicted Thursday by a San Diego federal grand jury on 10 felony counts of conspiracy and fraud. The case stemmed from a federal task force’s two-year investigation of the thrift’s real estate development activities.
The charges focus on an alleged “sham sale” of property in 1990 by the S&L;’s real estate development subsidiary, Home Capital Corp., in order to get around new banking laws that restricted thrifts on the types of developments they could own. The alleged sham was also supposed to have helped HomeFed evade tougher capital requirements imposed by the law, prosecutors said.
Charged with misapplication of bank funds, conspiracy and making false statements in bank books are William Dani, who was chief financial officer at Home Capital Corp.; Donald R. Faye, Home Capital regional director, and Jacqueline Ooley, senior projects manager. The charges carry penalties of up to $1 million in fines and 30 years in prison.
The indictments were sought in connection with an investigation conducted by a white-collar crime task force set up in San Diego two years ago by the U.S. attorney’s office and the FBI. The task force is still scrutinizing the failures of three local thrifts--HomeFed, Great American Bank and Imperial Savings--that cost taxpayers billions of dollars.
Thursday’s charges center on HomeFed’s purported sale of a partnership interest in its Rancho San Diego development to Sacramento developer Robert Coker. Under the 1989 law, full ownership would have required HomeFed to come up with more capital to meet tougher regulatory standards, and the sale was designed to relieve HomeFed of that requirement. Prosecutors allege that HomeFed made $57 million in loans to the new partnership and illegally provided Coker with his $5-million share of the necessary down payment.
The indictment said HomeFed “concealed from both government regulators and the bank’s outside auditors the true nature and extent of the developer’s participation in the purported joint venture.”
The project ultimately failed, and $50 million of the loans was never repaid. Coker is now a witness for the government in its investigation, said U.S. Atty. John Radsan, a task force leader. He added that the group is continuing its investigation of HomeFed.
Sources said indictments of other former HomeFed executives could follow.
Dani’s lawyer, James Riddet, criticized the indictment, saying it reflects a “fundamental misunderstanding by the government.”
“We have been trying for months to convince the U.S. attorney’s office that Mr. Dani has done absolutely nothing wrong with regard to HomeFed Bank or any of its subsidiaries,” Riddet said. “And I believe that Mr. Dani will be completely exonerated of these charges. I believe he should never have been indicted.”
HomeFed was seized by regulators in July, 1992, after it had lost $1.05 billion over two years. The thrift at one time was the nation’s fifth-largest S&L;, with $18 billion in assets and 210 branches. HomeFed holds the dubious distinction of being the largest of the 750 thrifts that have gone under in the last decade. The failures have cost taxpayers about $90 billion.
Before its fall, HomeFed gained a preeminent position in the thrift industry under the leadership of former Chairman Kim Fletcher and Chief Executive Bob Adelizzi. During the 1980s, HomeFed rapidly grew and diversified into unconventional S&L; activities after deregulation, earning big profits in the process.
But HomeFed foundered after it embarked on a risky campaign of lending to out-of-state builders of apartments and commercial buildings and by stepping up its California-based real estate development activities.
In 1989, HomeFed had $1 billion invested in its various real estate projects. But California’s economic problems and the devastating impact on real estate values dealt the thrift a fatal blow. Tougher regulatory standards contained in the 1989 Financial Recovery and Enforcement Act forced thrifts such as HomeFed to unload their real estate properties at huge losses.
