Suit Accuses Cox of Role in First Pension Fraud : Litigation: O.C. congressman calls charges by court-appointed receiver 'baseless,' politically motivated.

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The court-appointed receiver for now-defunct First Pension Corp. has sued Orange County Congressman Christopher Cox (R-Newport Beach) and California Department of Corporations Commissioner Gary Mendoza, charging that they helped cover up the company's fraudulent activities when they were attorneys representing the firm in the 1980s.

In twin suits filed late Wednesday in Los Angeles County Superior Court, receiver Donald W. Henry accuses Cox, Mendoza, two large law firms and four other lawyers of helping William E. Cooper, founder of Irvine-based First Pension, and his top two cohorts plan the investments that eventually bilked investors out of $136 million between 1984 and 1990.

Cooper, Robert Lindley and Valerie Jensen pleaded guilty to felony charges and were sentenced earlier this year to prison terms.

The lawsuit accuses Cox of deliberately misrepresenting facts about the company and its investments and "attempting to use his influence with more senior officials at the [Department of Corporations] to circumvent the objections" being raised in 1985 within the department.

The suit also alleges that Mendoza represented one of First Pension's officers in a Securities and Exchange Commission investigation and, along with Cox and others, "knew, consciously avoided knowing or [was] reckless in not knowing of the underlying scheme and other material facts which should have been disclosed to investors."

Cox on Thursday denied the charges, calling them a "baseless rehash," and said they were politically motivated.

"The purpose of including me as a defendant," he said in a telephone interview from Washington, "is to exploit my name and reputation to attract press attention in hopes of embarrassing the other parties and thus extorting settlements from them."

Cox said he believes he was named in the suit because of his political visibility as a member of the House Republican leadership.

Mendoza did not respond Thursday to repeated requests for comment.

Mendoza and Cox were lawyers at the firm of Latham & Watkins, which was also named in the suit. Spokesmen for the Los Angeles firm and for New York-based Rogers & Wells, named in the second suit, also called the charges groundless.

The suits seek the total amount investors were defrauded of, plus $500,000 in fees that Cooper paid to the law firms.

"We have spent a great deal of time reviewing documents . . . and we have come to similar conclusions as investors have," said Gary B. Roach, attorney for the receiver.

The Cox suit quotes liberally from a letter Cox wrote to the Department of Corporations on Feb. 22, 1985, in support of a proposed First Pension Corp. investment offering.

In the letter, Cox characterized the proposed investment as "overcollateralized" and "low-risk" and said that at the time of their investment, investors' funds "will be promptly invested in a trust deed loan. . . ."

Henry argues in his suit that Cox's letter was deliberately misleading because First Pension investors did not invest in individual trust deeds and the loans in which their funds were invested "were not secured and were undercollateralized. This was a highly risky investment."

In that letter, Cox also argued against a proposal for an independent appraisal of First Pension assets, claiming that the cost would "unreasonably harm the investors' rate of return."

The suit says "this statement was manipulative" and "attempted to mischaracterize" the need for an audit that would have "had a high probability of uncovering the scheme" to defraud investors.

Cox, however, said that the letter, written in 1985, referred to an offering that was not scheduled to be made until 1987 and that he was speaking about proposed future transactions.

Henry's suits cover work that Latham & Watkins and its attorneys did for First Pension from 1984 to 1987 and work that Rogers & Wells and three attorneys who used to work in its Los Angeles office performed from 1988 to 1990.

The lawsuits accuse the firms and the lawyers of malpractice, fraud, deceit, misrepresentation, negligence, breaches of fiduciary duties, and aiding and abetting the First Pension officers.

The suit contends that the lawyers failed to seek basic information that they should have required in making filings with the Department of Corporations for sales of securities.

"It appears they received sufficient information in preparing these securities that they knew or should have known that fraud was being carried out," Roach said. "They should have sought an explanation on valuation of trust deeds, and then they would have found that there were no trust deeds."

He contended that the law firms should have been cautious in dealing with Cooper because they knew that the state Department of Real Estate had already suspended his real estate broker's license.

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What the Suit Says Christopher Cox

First Pension Corp. receiver Donald W. Henry's lawsuit against Rep. Christopher Cox makes the following accusations:

Cox "learned of material facts, including the diversion and commingling of funds . . . which [he] either did not disclose or misrepresented to the [Department of Corporations], [Securities and Exchange Commission] and investors in connection with the offering."

Cox tried "to use his influence with more senior officials at the DOC to circumvent the objections raised" by Department of Corporations manager Wallace Wong.

"By letter dated Feb. 22, 1985, . . . Christopher Cox made several misrepresentations and misleading statements to DOC personnel in attempting to persuade the DOC to forgo the requirement that the existing trust deeds [held by First Pension] be independently valued."

Cox's letter "attempted to mischaracterize the usefulness of an expenditure of funds for an appraisal that had a high probability of uncovering the scheme" to defraud investors.

Cox, in his defense, says:

The receiver's suit is "a rehash of the original charges that were once thrown out [of an investors suit]. It involves the same parties, the same facts and the same baseless allegations."

His last legal work on a First Pension-related matter "was in December, 1985, nearly two years before the final prospectus was written" and it was "not the subject of the 1994 criminal fraud charges against [First Pension President William E.] Cooper."

Cooper has been quoted as saying "that he deliberately concealed the fraud in his other businesses from Latham & Watkins."

Source: Court filings

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