Probes Target Bail Bond Firms

A new breed of high-volume bail bond company is jeopardizing public safety for profits in California, enabling hundreds of criminal defendants to flee while costing county treasuries millions of dollars in unpaid bail, according to law enforcement officials and court records.

The California Department of Insurance, Los Angeles County Dist. Atty. Steve Cooley and prosecutors elsewhere in the state are investigating alleged corruption in the industry that could bring charges of perjury, conspiracy, obstruction of justice and unlawful business practices.

An examination of court records indicates that some firms have been issuing bail bonds to serious offenders without requiring sufficient collateral -- property pledged by a defendant to guarantee that a bond will be repaid. That greatly increases the risk that dangerous felons will flee, according to prosecutors.

Investigators said they believed that some of the firms had made bail easier to get in order to collect a steady stream of commissions from defendants -- typically 10% of the bail set by a judge. Some firms under investigation issued bail bonds regardless of the seriousness of the crimes or the suspects’ backgrounds, prosecutors said.

State officials have no comprehensive records of bail forfeitures. In Los Angeles County, the records are kept by hand on index cards stored in the equivalent of shoeboxes.

But a review by The Times of records at the downtown Los Angeles criminal courts building showed that the county had been unable to collect at least $9.1 million in bail forfeitures during the two years ending in August 2003. Of that amount, $5.9 million was attributed to bail bonds posted by agents working with a single firm, Capital Bonding Corp., a Pennsylvania-based company that has touted itself as the “Wal-Mart of bail bonds.”

Bailed-out suspects who are now fugitives include defendants charged with attempted murder, assault, burglary, drug trafficking and other serious offenses.

Carlos Alberto Hernandez, 26, fled from authorities in December 2002, nine days before he was to receive a life sentence for attempted murder. Capital had posted his $1.56-million bail without collateral. The county is still attempting to collect the forfeiture.

Javier Mendoza, 27, jumped bail even before he was arraigned in November 2001 on drug dealing charges that could have brought him 20 years in prison. He posted $500,000 bail with a bond from Capital.

Maria De La Luz Menjivar, 43, failed to appear in Orange County Superior Court in March after posting $100,000 bail with a Capital bond. She pleaded not guilty to running a sex-slave ring and then fled.

Public records do not indicate whether either Mendoza or Menjivar gave collateral for their bail. John Rorabaugh, attorney for Capital, said that “as a rule, there were bonds written based on credit ratings, not collateral.”

Capital’s president, Vincent Smith, recently stepped down at the insistence of the firm’s bail bond insurer. Harco National Insurance Co. of Illinois took over Capital’s operations last month after realizing that it could be liable for millions of dollars in delinquent bail in California and other states, Harco’s attorneys said.

Karen Gorham, a Riverside County prosecutor, said high-volume bail agents had turned bail on its head.

“The system is set up for the corporate agents to pocket the highest [commissions] possible, while not looking at or caring about the likelihood of the defendant returning to court,” she said, calling their money-making tactics “an outrage.”

In Orange County, investigators from the FBI, the state Department of Insurance and the district attorney’s office are investigating allegations of illegal activity by bail bond companies. Glenda Stroobant, owner of Glenda’s Bail Bonds in Fullerton and former vice president of the Orange County Bail Agents Assn., said she was questioned by FBI agents two months ago and by an investigator for the Insurance Department about a month ago.

Stroobant said the investigations were focused on allegations that inmates at the Orange County Jail were recruited to steer business, sometimes by force, to some attorneys and bail bonds companies. Stroobant and other bondsmen have complained that jail inmates were paid kickbacks to refer other prisoners to specific defense lawyers and bail offices.

“A Department of Insurance investigator was in my office for four hours about three weeks ago, looking over reports of illegal activity forwarded to me by other bail bonds companies,” Stroobant said. “The legitimate bail bonds companies are documenting information about illegal activity, like soliciting inside the jail, and forwarding it to us. We turn it over to the FBI and the state.”

FBI spokeswoman Laura Eimiller said the federal probe was continuing. County officials declined to comment.

Bail, a right guaranteed by the U.S. Constitution, is designed to ensure that a person accused of a crime appears in court. In setting bail, judges are required to take into account the seriousness of the charge and the risk that a person might flee.

A bail bond is a written guarantee given to a jailer by a bail firm stating that an insurer will make good on the entire amount of bail should the suspect fail to appear in court.

Bail bondsmen in California traditionally have required defendants to pay some cash upfront and pledge collateral, such as a home, to secure the full bail. But collateral is not required under state law. The firms under investigation often skip it and sometimes discount the cash commission the defendant must pay, Cooley said.

That has allowed some firms to increase their share of the bail bond market while reducing defendants’ incentive to return to court, he said.

“It goes to the integrity of the justice system,” Cooley said. “It’s beyond the millions of dollars. It’s public safety.”

Some firms exploit bail laws through relationships with insurance companies, prosecutors say. Insurers are required to pay when a defendant flees. But some insurers have failed to do so, either because of insolvency or because they have found ways to delay payment, according to prosecutors and a district attorney’s office internal report.

David S. Wesley, Los Angeles County’s supervising criminal courts judge, said he believed that recent court hearings on the bail forfeiture problem had only scratched the surface. “We don’t know how serious it is,” he said.

Cooley estimates that uncollected bail forfeitures have cost Los Angeles County $30 million over the last three years. Statewide, unpaid forfeitures may total $100 million to $150 million over the same period, said Steve Krimel, a bail expert and attorney who represents a small bail firm that is losing out to high-volume competitors.

But the owner of one of the firms that prosecutors say are under investigation contends that criticism of businesses like his is “sour grapes” on the part of smaller bail agencies.

“They’ve lost market share,” said Jeff Stanley of San Jose-based Bad Boys Bail Bonds, the state’s second-largest bail bond company. “So they’re doing anything and everything they can to attack” large operators.

“We pay our forfeitures,” he said, adding that his company decides on a case-by-case basis whether to secure collateral.

“There’s no fixed amount” the company insists on having collateral for, he said. “If someone has a good, stable history, they might be able to get a $50,000 or $100,000 bond without collateral.”

Cooley filed perjury and forgery charges July 9 against one of Bad Boys’ employees, Cindy Abreu, accusing the paralegal of filing false affidavits in court to delay payment of forfeitures. Abreu pleaded not guilty July 16 and declined to comment. She faces up to 11 years in prison if convicted.

In filing the charges, Cooley’s office said they were “in connection with an ongoing, widespread investigation of the bail bond industry.”

Stanley said prosecutors told him that no Bad Boys executives were under investigation.

When a defendant jumps bail, the bondsman has a grace period -- 185 days in California -- to find and return the person. Under current law, an additional 180 days are often granted if a bondsman shows in court that he needs more time. The same laws provide that bail debt be canceled in some cases if counties are unable to collect within two years after the forfeiture becomes delinquent -- providing an incentive for companies to delay.

State Sen. Joe Dunn (D-Santa Ana) is carrying a bill, backed by Cooley and the California District Attorneys Assn., designed to stop firms from running up massive amounts of unpaid forfeitures. The bill, SB 1744, would bar an insurer from appealing a forfeiture unless it deposited the full bail amount in an escrow account.

As the bill moves through the Legislature, several of the state’s largest bail bond firms have been under investigation.

In June, Robert Spencer Douglass -- chief executive of the parent company of Aladdin Bail Bonds, the state’s largest bail bond firm -- pleaded guilty to illegally paying inmates to send business his way from behind bars. As part of a plea deal, he agreed to forfeit his bail bond license and sell his company. He was sentenced to three months of house arrest.

In April, the state Insurance Department ordered Capital to stop issuing bail bonds after learning that the company had been working in California without a bail bond license since 2001.

Capital, which says on its website that it is “the nation’s largest retailer of bail bonds,” is also under investigation by Cooley’s office.

When the California investigations began in 2003, Capital’s practices were already under scrutiny in New Jersey, Pennsylvania, Florida and Connecticut, according to records from those states.

Through attorney Brian Sun, former Capital President Smith said the firm never wrote or issued bail bonds in California, but was just the “program administrator” for bail bonds written by independent agents. Because of that, the firm did not need a bail bond license, he said.

There might have been problems with some bonds, but “we dispute the suggestion that there was any improper conduct or transactions going on,” Sun said. Smith is no longer working in the bail bond industry in California except to help Harco resolve unpaid forfeitures, Sun said.

Investigators say agents who were in Capital’s network were able to increase the volume of bail bonds they could write because the firm removed the risk that they would personally lose money from forfeitures. Under the system Capital used, the company’s insurers, not the individual bondsmen, would pay if a defendant failed to appear, according to investigators, who say that practice led to laxity.

Rorabaugh acknowledged in an interview that the firm used a “bad business model” by not holding agents liable for losses.

The problem for the justice system was worsened by the weakness of Capital’s insurers. Over the last two years, court orders have prohibited four of them from issuing bail bonds in Los Angeles County because of insolvency or unpaid forfeitures.

Highlands Insurance Co. and Legion Insurance Co., which insured Capital in 2001 and 2002, became insolvent after accumulating unpaid forfeitures totaling at least $3.1 million in Los Angeles County, according to court records. Deputy County Counsel Tony Nicklin said that money is now uncollectable.

In mid-2003 state regulators barred Aegis Security Insurance Co., which insured Capital next, from writing bail bonds in California because of mounting unpaid forfeitures, said the state Insurance Department.

Aegis has paid Los Angeles County more than $1.5 million to discharge forfeiture debt. Nicklin said the company still owes $4.1 million, but Aegis is challenging $1.8 million of that.

Harco was Capital’s latest insurer. Last month, Superior Court Judge Larry Paul Fidler barred the company from posting bonds in Los Angeles County because of $2.3 million in unpaid bail forfeitures.

“It appears that [it is] an industrywide practice to write bonds that are basically unsecured for up to $250,000, which is outrageous,” he said.

Nicklin said at a court hearing that Harco had “violated all principles of corporate responsibility.”

Harco attorney Drew E. Pomerance said at another court hearing that the company blamed Capital and its former president, Smith, for issuing bonds without collateral and for not carefully selecting the defendants they bailed out.

“We had a business relationship with people that turned out to be unsavory,” Pomerance said.

Jerry Watson, a bail industry lawyer hired as a consultant by Harco and Aegis, said both firms intended to make good on their debts to Los Angeles County. He said the insurers didn’t know the extent of the abuses until they obtained Capital’s business records.

The insurers “aren’t going into liquidation,” he said. “They are going to see the problem through.... Their judgments will not go unpaid, and their fugitives will not remain at large.”

Teri King, a Los Angeles bail bond agent whose family has been in the business since 1949, said unethical practices by some have taken business away from honest agents.

“It’s unfortunate,” she said, “that these handful would stain the integrity of the entire industry.”

Times staff writers Virginia Ellis, Christine Hanley, Lance Pugmire and H.G. Reza and data analyst Sandra Poindexter contributed to this report.