Robert Loeffler, 79; Securities Law Expert Cleaned Up Firm’s Scandal
Robert M. Loeffler, an attorney and court-appointed trustee praised for restructuring the scandal-ridden Equity Funding Corp. of America life insurance and securities firm in the mid-1970s after it was caught writing fictitious insurance policies to inflate assets, has died. He was 79.
Loeffler died Tuesday at Cedars-Sinai Medical Center of cancer, said his longtime friend and colleague, attorney William D. Gould.
A respected expert on securities law, the soft-spoken and unflappable Loeffler was a court-appointed examiner in the San Diego-based Wickes Cos.’ bankruptcy case in 1982. Five years later he became the turn-around chairman who carefully extracted San Diego-based Northview Corp., owner of 43 motels, from the insider-trading scandal engulfing its former chairman, Ivan Boesky.
But Loeffler gained his greatest reputation for his work on the Equity Funding case. He was so admired for untangling the troubled company and 81 subsidiaries, most of them bogus, that he became the leading candidate for chairman of the Securities and Exchange Commission in 1977. Instead, he took himself out of the running to accept a job establishing and managing a Los Angeles office for the Washington, D.C.-based law firm of Jones, Day, Reavis & Pogue.
The lawyer had spent eight years as senior vice president and general counsel of the Minneapolis-based Investors Diversified Service Inc., a mutual funds management company, when U.S. District Court Judge Harry Pregerson picked him on April 10, 1973, to “reorganize and rehabilitate” Los Angeles-based Equity Funding under federal bankruptcy laws. The SEC had suggested that Pregerson tap Loeffler.
At the time, the Equity Funding scandal was considered the largest fraud case in corporate history.
Twenty-two former Equity Funding executives were indicted for fraud and most, including ousted Chairman Stanley Goldblum and President Fred Levin, went to jail. About 100 lawsuits, including 76 class actions, were filed by bilked Equity Funding investors against the company, its auditors and the manufacturer of the computer used in the deceptive accounting.
In 1972, Fortune magazine had touted Equity Funding as the fastest growing company of its type in the country, based on its stated net worth of $143.4 million.
But in March 1973, the SEC and the California Insurance Department learned that the firm had published false financial results for years. They filed complaints stating that the financial conglomerate had doctored its books, inflated its assets and sold phony life insurance policies to its insurance competitors. The top officers of the company were removed, and the firm filed for bankruptcy that April 5 to keep creditor banks from seizing its assets.
Loeffler’s investigation determined that the insurance fraud “was merely the last phase of what should be seen as a classic stock fraud,” with Equity Funding’s behavior designed to pump up its stock price by falsely inflating earnings “through every means available to the conspirators.”
Instead of a net worth of $143.4 million, he found a negative worth of $42 million.
“It was not a well-planned, well-executed operation,” Loeffler wrote in his 239-page report to Pregerson in the fall of 1974. “Instead, it was helter-skelter, hand-to-mouth--a monstrous thing in which new frauds had to be frantically concocted to cover up bigger, more obvious ones.”
That the fraud went undiscovered from roughly 1964 until 1973, he reported, was due to “lies, luck, the audacity of the conspirators and, just as important, to the glaring failure of the auditors to discharge their obligations properly.”
Loeffler was instructed to oversee operations of Equity Funding and its subsidiaries, determine the economic viability and possibility of reorganization, restructure operations, negotiate the sales of unnecessary subsidiaries such as a cattle breeding operation, formulate a reorganization plan, negotiate the resolution of hundreds of millions of dollars in claims, obtain court and creditors’ approval, and then oversee the actual reorganization.
“I don’t know how many lawyers there are in the U.S.,” he said about midway through the job, “but I’m sure half of them are involved in this case.”
Nevertheless, by Oct. 12, 1976, he had transferred the remaining assets to a new company, Orion Capital Corp., and worked himself out of a job. He accomplished in only three years a task that normally requires seven.
A native of Bristow, Okla., Loeffler served as a Navy officer during World War II and earned a bachelor’s degree in business administration from the University of Oklahoma. He also got a law degree from Harvard, where he was an editor of its Law Review.
He practiced law in New York with the firm of Donovan, Leisure, Newton & Irvine from 1948 until joining Investors Diversified Services in Minneapolis in 1965.
After his work with Equity Funding, Loeffler spent nearly a decade establishing and running the Los Angeles office of Jones, Day and in 1987 was board chairman, president and chief executive officer of Northview Corp., reorganizing it after the Boesky scandal. Since then, he had been of counsel to the Los Angeles law firm of Wyman, Bautzer, Kuchel & Silbert.
Divorced from his wife, Marjorie, Loeffler is survived by their two children, Robert M. Jr. and Karen, and two grandchildren.
The family has asked that any memorial donations be sent to the American Cancer Society.
