INSIDE JOB
The Looting of Americans
Savings and Loans
By Stephen Pizzo,
Mary Fricker
and Paul Muolo
CHAPTER THREE
The Looting of Americans
Savings and Loans
By Stephen Pizzo,
Mary Fricker
and Paul Muolo
CHAPTER THREE
Centennial Gears Up for
Deregulation
Before deregulation most thrifts were small. One did not go into the savings and
loan business to get rich. In fact, starting a small community-based savings and
loan bordered on performing community service —local people pooling their resources to assure there would be a safe place for their savings and a source for home loans. These small-town thrifts were just barely eking out a living when
deregulation passed Congress and they became the prime targets for the wolves
that deregulation unleashed. They were easy targets for the fast-talking high
rollers who showed up to wow the mostly unsophisticated managers and boards
of directors with promising projects or to offer top dollar to local shareholders
for their stock. Hundreds of small thrifts across the nation fell into the wrong
hands in the weeks and months following deregulation, and one of those was
Centennial Savings and Loan, a state-chartered thrift in Northern California. From its plain vanilla beginnings. Centennial rocketed to unimaginable heights within just a few months after deregulation. But few people became concerned
about the metamorphosis until Centennial's officers threw a spectacular Christmas party at the end of 1983.
It was the most lavish Christmas party anyone could recall. "Elegant Renaissance
Faire" was the theme. Couples gasped as jesters proclaimed their entry
into the hall, now transformed into an Elizabethan forest of 300 living trees sparkling with 75,000 tiny white lights. Candlelight shimmered through piped in
fog that simulated the moors and woods of Nottingham. Oriental rugs covered
the floor.
Once seated among the trees, the 500 invited guests were entertained by a hundred roving Robin Hoods, fiddlers, jugglers, jesters, and pantomimes. Waiters
and waitresses, one for every two guests, wore Elizabethan costumes—swagger
plumed hats, ruffled laced bodices, yards of velvet. They rolled the ten-course,three-hour meal into the hall on flaming carts, meats crackling on open spits, each course heralded by twelve trumpeters.
Men and women visiting the rest room were attended by shoeshine boys for the men and maids-in-waiting with an array of makeup and perfumes for the women. Dancing continued until three o'clock in the morning, and to this day
many say it was the most romantic evening of their lives.
It was Christmas 1983 in Santa Rosa. California, and Centennial Savings
and Loan officers spent $148,000 to show their friends, stockholders, and area
politicians that the S&L had arrived. For the little thrift it was as much a coming out
party as a Christmas fete. But for those of us who had been paying close
attention, it was another reason for concern. This was a very different Centennial
from the small thrift that had opened in 1977 in Guerneville (population 1,700),
20 miles west of Santa Rosa.
Guerneville was on the banks of the Russian River 60 miles north of San
Francisco. It had been a popular summer resort among the redwoods in the 1940's and 1950's, but it had faded considerably as tourists passed it by for more
exotic destinations in the sixties and seventies. Property values slid as the only
takers for the old summer cabins were realtors and speculators betting Guerneville
would soon become a bedroom community of its fast-growing neighbor, Santa Rosa (population 70,000). A handful of local investors drawn from Guerneville's
hard-hit business community joined resources to raise the $2 million regulators
required of a new savings and loan, and they opened Centennial in the hope
that the realtors and speculators were right. Their plan was to make home loans
to those who would live in Guerneville and work in Santa Rosa.
But the vision was slow in materializing and the little thrift spent its first
three years going through a succession of lackluster presidents, none of whom
left a memorable mark on the town or the institution's bottom line. However,
as 1980 approached so did the dawning of the deregulation of the savings and
loan industry. Centennial's directors wanted someone at the helm who could
sail their little thrift out of becalmed seas and into the uncharted potential
promised by this newly deregulated industry.
One of Centennial's directors recalled his acquaintance with a man who
had plenty of experience in the thrift industry. Erwin "Erv" Hansen, age 48,
had been bouncing around the industry a long time. He had worked as a senior executive for Imperial Savings and Loan in Southern California, as a deputy
commissioner and the number two person in the California savings and loan commissioner's office, as CEO for Far West Financial in Newport Beach, California,
and as chief accountant for the Federal Home Loan Bank Board in Washington, D.C. He was well known in the industry and was regarded as a conservative banker.1 As frosting on the cake, Erv was married to a local gal,
Gayle, who told friends she looked forward to returning home someday.
Early in December 1980, Erv Hansen drove into town in an aging car packed
with family and belongings and on December 16 Centennial's board of directors
voted to make Erwin Hansen the thrift's fourth (and last) president.
Everyone just called him Erv. He shunned traditional banker's garb. Instead he would have looked right at home on the street in Dallas, with his Western
sports coat and slacks, open-collar shirt, shiny bucking-bronco belt buckle, and
pointed-toe cowboy boots. A tall man, he wore the outfit well.
Erv cut a very different figure than Centennial's former presidents and he
quickly won the friendship of Guerneville's redneck cowboy community with
his love of drink and good company. His office away from the office was the Appaloosa Room at Buck's bar and restaurant, where he routinely held court
after work and late into the evening. He'd buy drinks all around and regale those
present with well-told stories, mostly about himself and his past exploits in the
bigger world outside Guerneville. But Erv's favorite tales soon switched to a new
theme: what he was going to do, what deregulation meant to him and Centennial,
how the sky was the limit.
"The beauty is that there's going to be enough money in this for everyone,"
he liked to boast.
Erv swept the townsfolk off their feet. Even those put off by his sometimes
arrogant ways found it hard to criticize him. He seemed a cross between John
DeLorean and J. R. Ewing. But there were two dangerous unknowns: no one
understood just what deregulation of thrifts meant in practical terms, and no
one really knew Erv Hansen.
It took time for Hansen to spur the lazy little thrift to a gallop. With its net worth of just $1.87 million, there wasn't much he could do, and shallow- pocketed locals were clearly not going to be the source for the kind of money
he needed. But he had a plan. He knew where he could get plenty of capital,
practically overnight—hundreds of millions of dollars in brokered deposits, just
for the asking. But Centennial's directors, officers, and shareholders weren't
ready just yet for the kind of moves Erv had in mind. So he decided to bide his time for a while and build alliances at Centennial with those who shared his
vision.
Beverly Haines began as a teller at Centennial when it opened its doors in 1977. Haines, 44, had been married to a well-to-do San Francisco contractor, but an unpleasant divorce in the early 1970's left her at times living at' the pleasure
of friends and relatives. She eventually moved into the family's summer cabin
in Guerneville with her teenage son, who had recently been paralyzed in an auto accident. His injuries left him in a wheelchair and in need of 24-hour
care. Haines was totally dedicated to her .son, caring for him at night while
working at Centennial during the day.
She was bright and articulate, a short, well-dressed blonde with a cultured way of speaking and moving that attracted fawning admirers. She moved from
teller to receptionist and held that position when Erv Hansen arrived on the scene in 1980. Haines was clearly a woman used to better circumstances, and
Hansen felt he and Haines had something to offer each other. The two became
fast confidants, often meeting behind closed doors. Beverly was clearly on her way up. Hansen soon appointed her executive vice president of Centennial and
put her in charge of the thrift's money desk, the entry point for large deposits
from pension and trust funds and deposit brokers. It was a key position that later would become the fulcrum of the wheeling and dealing that Hansen had in mind.
At this time Siddharth "Sid " Shah was in Santa Rosa trying his hand as a developer and not having much luck. Shah, 47, an East Indian, had come to
the United States in 1963. He had majored in engineering at Stanford University near San Francisco and had gone to work for nearby Piombo Corporation, a heavy-construction company.2 Shah worked for Piombo for 13 years, during
which time he managed the company's projects in Saudi Arabia and, later, around Santa Rosa.
Shah oozed a confidence that some found repulsive and others found captivating.
He was quiet, shrewd, and inscrutable. Associates described him with
amazement as someone who "got things done," "knew how to work all the
angles, " "was always working on some kind of deal ... a genius with paper"
who could wring every penny out of a construction job.
During his stay with Piombo, Shah acquired 8 percent of the company stock.
In early 1982 Shah and Piombo had a parting of the ways and Shah announced
he was leaving Piombo to strike out on his own. Piombo had a long-standing
policy of purchasing any stock that a departing employee had accumulated during
his stay with the company, but in this case Shah and Piombo's owners were not even close to a mutually agreeable price. Shah wanted $1 million for his shares. Piombo said the stock was worth only $200,000. Shah said he felt his price was
fair because he believed the company could be sold for $13 million. Piombo's
shareholders, eager to give Shah the opportunity to prove it, gave him an option
to purchase Piombo for $13 million—but only if he could close the deal within
a year.
Meanwhile, Shah's Lakewood Enterprises—a development company in Santa Rosa—was going nowhere, and in the spring of 1982 Shah turned to Erv Hansen and Centennial. Both men had big plans. Both told associates they
wanted to make big things happen. And both saw a deregulated thrift industry
as the opportunity of a lifetime.
Shah introduced Hansen to Dutch investor Nicholaas Sandniann, 36, who
had sailed mysteriously into town with plans to develop the old 1,000-acre George
Ranch east of Santa Rosa. Handsome and charming, with a lovely young wife,
"Neik" quickly captured the imagination of the San Francisco area jet set. Herb
Caen, columnist for the San Francisco Chronicle, described Sandmann as the "high-flying newcomer from Holland." Other press reports said he was "a reclusive
Dutch businessman who lives in a multi million-dollar mansion in Amsterdam."
He fit perfectly into the genteel Sonoma County horse-and-winery set of which Santa Rosa was the center. There the gentry played polo and croquet and
sipped Chardonnay and Cabernet—made in their own cellars—on their magnolia-shaded
verandas overlooking vineyards soothed by Pacific Ocean mists. Sandmann knew how to play that game. Shah and Hansen were eager to learn.
In July of 1982, regulators said, loan money began to flow among the three men. Centennial loaned Sandniann $5.4 million on his George Ranch development and paid Shah's company, Lakewood Enterprises, a $150,000 finder's
fee for introducing Sandmann to Centennial. Later the George Ranch deal would collapse in a flurry of defaults and allegations of fraud, inside deals, and
kickbacks, but in 1982 it looked brilliant and significantly improved Centennial's
financial statement.
Such large loans improved a thrift's financial picture because thrifts were
allowed to book a lot of income immediately upon making a loan. For example,
they collected points—usually 1 percent to 6 percent of the loan. On a $1 million loan with 5 points, a thrift could immediately book $50,000 in income.
Fees, such as "loan origination fees, " were also added to the borrower's bill. These, too, went right on the thrift's books as income as soon as the loan was made. Simply put, loans generated instant income for thrifts, and the bigger the
loan, the bigger the income. Often thrift executives used inflated appraisals to
justify even larger loans, so they could book even larger profits, which in turn
justified large bonuses for the executives.
Unfortunately, all this profit was only on paper because thrifts routinely
added the points, fees, and even the interest to the amount of the loan. 3 For
example, if a borrower wanted a $1 million loan, the S&L might loan him $1.2
million and put the extra $200,000 in a reserve account to cover the first two
years' worth of interest. In effect, the S&L was paying itself until the reserve account ran out. The reserve accounts made a loan appear current for a long
time regardless of the true state of the project (or the whereabouts of the borrower).""
And if the loan came due and the project then turned out to be phony. the loan could be rolled over (renewed) on the theory, California Savings and
Loan Commissioner William Crawford later quipped, that a rolling loan carried no loss.
With such tricks up his sleeve, Hansen had no worries about the generosity of Centennial's loan on the George Ranch. He was on a roll. Sensing the momentum he was building, he struck quickly. One bold move would follow another, starting with the boldest of all: In August of 1982 Hansen convinced Centennial's board of directors, which now included one-time receptionist Beverly Haines, to purchase Shah's option on Piombo Corporation for $100,000 and to pay Shah $1 million for his Piombo stock—five times more than Piombo itself was willing to pay. Centennial would then exercise the option and purchase the giant construction company for $13 million cash, proving Shah to be a man of vision by validating his boast to skeptical Piombo shareholders that their company was worth $1? million. Shah would become head of Piombo and an executive at Centennial the day the deal closed.
Centennial would benefit, Hansen argued, because deregulation was making it possible for thrifts to invest in commercial real estate and become development companies, and Centennial needed to position itself to take advantage of the new opportunities for fun and profit. California's Nolan Bill, which allowed state S&Ls to invest 100 percent of their assets in speculative ventures, was set to go into effect January 1, 1983. Hansen was pushing Centennial up onto the cutting edge of California's thrift deregulation movement.
Centennial's board of directors approved the plan but kept it secret, and in September, four months before the deal was set to close. Shah, still technically only a customer and therefore exempt from banking regulations that forbade large loans to thrift officers, received a last-minute flurry of loans from Centennial. In a nine-day period, FSLIC documents indicate. Shah and Lakewood Enterprises received four loans, totaling $1,450,000, secured by various properties that the FSLIC would later claim were worth far less than the amounts of the loans. In 1981 Shah's company had reported to the IRS only $100,815 in assets and a loss of $16, 576. Needless to say, most bankers would not consider that sufficient security for a $1.45 million loan. (All four loans would ultimately end up in default.)
In late November, Hansen made the Piombo deal public. Centennial was purchasing Piombo Corporation, he announced, for $14,100,000 ($13 million in cash to Piombo, $1,100,000 to Shah). Steve Pizzo had just taken over as editor of the Russian River News and immediately began to hear complaints from friends who were Centennial shareholders. They were confused, angry over being frozen out of the decision, and concerned about the way the deal appeared to have been ramrodded through Centennial's board of directors. ' Pizzo, a former real estate broker and investor himself, also found the deal perplexing. It was a highly speculative move on Centennial's part and he couldn't figure out where Centennial was getting the $1? million in cash to purchase Pioinbo Corporation.
After a couple of clays of stalling, Hansen finally agreed to an interview for the local paper. It was Pizzo's first encounter with Hansen, who greeted him dressed in brown Western slacks, cowboy boots, and Western shirt with open collar. Hansen's six-foot-plus frame filled the small four-by-cight office. A gold Rolex watch glittered on his wrist, a gold chain and pendant hung around his neck, and a large gold-and-silver cowboy buckle cinched his belt.
Deregulation was going to be a real boon to Centennial Savings and Loan, Hansen told Pizzo. It was going to pull the little thrift out of the doldrums and into the financial fast lane. And part of the steam for this engine, he said expansively, would be generated by the construction company, with its ability to develop large real estate projects.
Hansen and Pizzo did not hit it off. There were big holes in Hansen's analysis and Pizzo wrote a commentary that raised questions about the wisdom of the deal itself and about the potential conflicts of interest inherent in a lender owning its own development company. What would prevent the lender from making risky loans to that subsidiary, especially during recessions, when development companies invariably fell on hard times? Pizzo's editorial hit the street a few days later and provoked a roar of outrage from Hansen. He threatened to sue the Russian River News if the piece resulted in any substantial withdrawals by depositors, simply the first salvo in what would turn out to be a three-year diatribe to silence opposition.
When Pizzo asked Erv where Centennial was getting the $13 million in cash to buy Piombo, Hansen waved his hand in the air and brushed the question off by stating that the money was "brokered deposits from the East Coast and from the Bureau of Indian Affairs." Hansen had strapped Centennial onto the roller coaster of brokered deposits, the "hundreds of millions of dollars just for the asking" that he had all along intended to tap as soon as he built alliances and had Centennial's board of directors under his control. He had acquired these deposits simply by placing ads in The Wall Street Journal guaranteeing to pay interest rates on insured certificates of deposit (C.D's) that were slightly higher than the going market rate (in 1982 the going market rate was averaging 10.4 percent and in 1983, 9.22 percent).
Once a thrift began to depend on brokered deposits, it was in for a wild ride. Like using cocaine, the lure of easy brokered deposits often began innocently but soon became a compulsion and finally a physical necessity. Brokered deposits were a way for a thrift to grow larger than the resources of its local depositors would normally allow. Centennial's total assets at the beginning of 1983 stood at $49 million. By the time regulators seized the thrift in August 1985, its assets had ballooned to a grotesque $404.6 million, thanks in large part to brokered deposits.
Among the dozens of enclosures in the package was a handwritten letter to the East Coast attorney from an inmate at Fort Leavenworth federal penitentiary. He said he was serving a five-year prison sentence for wire fraud that involved a credit union, brokered funds, and linked financing. He told the attorney that the Bureau of Indian Affairs was involved in many of the failures of financial institutions, and he said he knew the names of companies and people in those companies whose job it was to take gifts to BIA officials.
Ringing in Pizzo's ears as though it had been the day before and not five years earlier was Hansen's comment that he was getting money from the BIA. We called the attorney on the East Coast, but she had no idea what the BIA reference meant and, in fact, had paid no attention to it because it didn't make sense to her. So we contacted the prisoner at Fort Leavenworth who had written the letter and he gave us the leads we were after.
We discovered that the BIA controlled one of a number of large government trust funds that deposit brokers tapped into for deposits—brokers got deposit money from pension funds, credit unions, and oil sheikhs, and they also got deposit money from government trust funds. The BIA at that time managed $1.7 billion for American Indians. The Bureau was required by law to invest the money with government-insured institutions (by purchasing short-term C.D's), and as often as several times a week they notified brokers that they had money to invest. Brokers served as middlemen, searching the nation for institutions offering the highest interest rate on short-term C.D's on the day the BIA money became available for investment.
Brokers placing funds for the BIA were paid a commission from the institution that received the BIA deposits. There was fierce competition among brokers for the BIA money, and in depositions taken in the Fort Leavenworth prisoner's case in 1985, a deposit broker told the court it was his understanding that bribes to BIA officials in exchange for deposits were a routine business expense for deposit brokers.6
Since the S&Ls paying the highest interest rate on deposits were the S&Ls that were so desperate for money that they were willing to pay whatever it took to get it, this process put government in the position of rewarding, i.e., pouring money into, the nation's weakest financial institutions. For this reason regulators in Washington vehemently opposed the use of deposit brokers by managers of government trust funds. Their opposition centered on the BIA fund because it was the largest government trust fund, but when they tried to halt the investment practice they ran up against the political opposition of a tough lobby, the Indian lobby, which naturally enough wanted to get the highest possible return on its investments. FHLBB Chairman Ed Gray complained bitterly during this time that the BIA was channeling much of its deposit business to the country's weakest thrifts. He said that the BIA had funds in practically every thrift that had recently failed.
We now knew where Centennial got the fuel to power its enormous growth—from deposit broker Mario Renda and the money changers handling deposits for the BIA trust fund. There was enough money out there to feed hundreds of Centennials.
Centennial's purchase of Piombo, funded by brokered deposits, closed on January 6, 1983. In a staggering increase of assets. Centennial went almost immediately from a neighborhood savings and loan with a net worth of $1.87 million to a development conglomerate with thrift, construction, and development subsidiaries. The deal made Shah and Hansen wealthy and powerful, virtually overnight. Using the $1 million Centennial paid him for his Piombo stock, Shah bought up Centennial shares from disaffected Centennial shareholders until he became the thrift's largest single stockholder. He became executive vice president of Centennial, chief executive officer of Sonoma Financial Corporation (Centennial's new development subsidiary), and chief executive officer of Piombo, at a salary of $120,000 a year for five years, plus a yearly bonus (like Hansen's) of 10 percent of Centennial's profits. In a short six months Sid Shah had gone from construction engineer and failing developer to Northern California mover and shaker.
Hansen and Shah came to rely on brokered deposits to fund much of their activity at Centennial. But brokered deposits, with their combination of high interest rates and commissions to deposit brokers, were an expensive way to get money, so Hansen and Shah had to come up with a profitable use for it. And Erv, though he began short on funds, was never short on ideas. He planned to turn Centennial the sow's ear into Centennial the silk purse through real estate speculation. By early 1983 the critical pieces of the plan were in place, with one exception: Hansen wasn't satisfied with just his fat salary. He needed access to even more money.
A regulation prohibited thrifts from making more than $100,000 in unsecured commercial loans to their employees, officers, directors, or major share holders unless the Federal Home Loan Bank approved. Clearly that was an inconvenient rule for thrift officers with expensive tastes. How could Hansen and his cohorts participate personally in the real estate developments and reap the massive financial rewards they envisioned? A mechanism had to be triggered to circumvent this regulation. To that end Hansen formed close alliances with officers at other savings and loans. Immediately money began to flow like artesian spring water among the main players.
Hansen had an old friend who had become the head of his own thrifts — Columbus Savings and Loan in San Francisco and Marin Savings and Loan in nearby San Rafael, later combined to become Columbus-Marin Savings and Loan. Regulators would later charge that the two men conspired to make loans to one another in order to circumvent the loans-to-affiliated-persons regulations. Before it was over Hansen received three loans totaling $174,000 from Columbus-Marin, loans on which regulators said he was routinely delinquent. Court documents showed that Hansen's friend received $550,000 in loans from Centennial, and he then approved a $250,000 line of credit for Hansen at Columbus-Marin. The FSLIC later charged that Columbus-Marin also loaned $50,000 to Shah and made at least 14 loans to other Centennial executives, including a $505,000 loan for Dutch investor and Hansen/Shah business partner Nicholaas Sandmann.
Another reason to have like-minded thrifts "on the program" was to have a way to get rid of bad loans, and this was the role Hansen envisioned for Atlas Savings and Loan in San Francisco. Thrifts routinely sold parts or all of their loan portfolios to other thrifts. These transactions, called "participation's," were a perfectly legitimate way for the selling S&L to raise cash and the purchasing S&L to fatten its loan portfolio. But Hansen needed someone to sell his bad loans to—someone who might miss the fact that the loans had been made to shaky borrowers on property that was grossly over appraised. In short, Hansen needed a sucker, and that's precisely what he had in mind for Atlas Savings. Atlas soon found itself the proud owner of $6.5 million in loan participation's purchased from Centennial, and Centennial had some of Atlas's hard-earned cash. A year later these participation's would turn out to be a package of rotting, "nonperforming" loans, according to an FSLIC lawsuit. These, plus other loans Atlas bought from Centennial, ultimately led to Atlas's collapse in 1985.
We would discover as our investigation matured that participation's like the ones Hansen sold Atlas were the AIDS virus of the thrift industry) . Innocent thrifts exchanging loans with a thrift infected by fraud would find months later that they had picked up some terminally ill loans. Through the use of participation's in the 1980's, the thrift industry spread its problems much more widely than otherwise would have been possible.
In another case Erv fathered an ally when he had Centennial help it's young Sonoma County brothers, Leif and Jay Soderling, break into the thrift industry by loaning them $1 million of the $2 million they needed to start Golden Pacific Savings and Loan in Windsor, near Santa Rosa. Centennial promptly packed Golden Pacific's management team with people from its own ranks, ensuring that a close relationship would ensue. And it did.
"Erv just picked up the phone one day and called Jay Soderling, " Beverly Haines said. "He told Jay he needed $250,000 right away. Jay cut a cashier's check out of Golden Pacific and drove right over with it." Haines tapped Golden Pacific for $125,000 (which she said she gave to Erv), and regulators claimed Shah got at least $1 million.7 All these loans later went into default.
Meanwhile, back at the George Ranch, things were not going well on the Sandmann loan. Less than a year after getting the $5.4 million from Centennial, Sandmann was already in default, FSLIC attorneys later claimed. Legally, Centennial could have foreclosed on the project, taking it over for what Sandmann still owed. But Hansen and Shah interceded on behalf of their friend (and business partner). Rather than foreclose on the property. Centennial bought it from Sandmann's company, Damstraat (named for a street in Amsterdam), for $8.1 million, the FSLIC charged, allowing Sandmann to pocket a quick $3.7 million profit. Centennial then hired Sandmann as a project manager for six months and paid him yet another $300,000.
In 1983 Centennial moved its corporate offices from Guerneville to Santa Rosa, an appropriate move for a company quickly becoming a financial power in Northern California. The thrift bought and remodeled a large office building downtown on Fourth Street, and the total cost was pegged at somewhere near $7 million— 30 times the value of its former Guerneville home. Everything at the new office was first-class: oak, brass, etched glass, box-beamed ceilings, mirrored walls, plush carpets. There was a board room big enough to jog in with a conference table long enough to skate on. Western oil paintings graced the walls and cowboy sculptures stood on cabinets and desks. A five-foot-high solid crystal horse head dominated the conference room. Finally, Centennial Savings and Loan executives had the setting and accouterments that reflected their ambitions.
But as plush as Centennial's new home was, Hansen and Shah wanted more, and Shah had just the ticket. Back in 1980 he had purchased an old stone building on the outskirts of Santa Rosa, county records showed, for about $150,000. Built in 1909 as a hotel, the building had fallen on hard times and had last been home to a topless bar. Hansen immediately saw the big-ticket opportunity in that old stone building. He, Shah, and Sandmann transferred the property into a partnership they formed called Stonehouse Partners and later sold it to Centennial for $1 million, "as is. " Erv told Centennial's board of directors that the old building would make a wonderful headquarters for Centennial Corporation, the new holding company of Centennial Savings and Loan. Regulators said he did not tell the directors or the regulators (because it would have been a conflict of interest for him to benefit from the purchase) that he was one of the Stonehouse Partners.
Then the buying spree really began. Hansen, a renowned ladies' man, had made the acquaintance of a stunning young woman who fancied herself an interior decorator. He took an immediate liking to her, and the two began a relationship that ultimately would cost Centennial hundreds of thousands of dollars. When Hansen needed a decorator for the Stonehouse, according to Haines, he hired his young friend. Over the next few months the two of them flew often to Los Angeles and Las Vegas, on Centennial's twin-engine Cessna, on "buying trips." And buy they did. Hansen never required that she submit invoices for the furniture and art she bought, Haines told us, but simply had Centennial pay whatever she submitted in the way of bills. There were antique desks: Hansen's cost $48,000 and he paid extra to have American eagles carved on the front; Beverly Haines's, an old French Provincial, cost $12,000 and she complained that the drawer was too heavy to open. Then there was the $35,000 French Provincial gold-and-silver chess table with an inlaid marble top and matching gold-and-silver chessmen. Hansen wanted to use it as an end table, but a couch has two ends, after all, so a second table, a reproduction, was ordered for an additional $35,000.
In addition. Centennial spent over $1 million renovating the Stonehouse offices. A full gourmet kitchen was installed so the European chef, hired at $48,000 a year, could prepare meals for Centennial's business guests. Hansen spent $90,000 decorating his own office, which featured a full wet bar. The conference room was appointed with the finest in antique tables, chairs, settees, and Persian rugs. The building was simply magnificent. Santa Rosa had never seen anything like it. For those who had known Hansen just a few short months earlier, it was a disorienting sight.
Hansen moved the corporate office into the Stonehouse as soon as the work was completed. But four months later he moved everyone back to the Fourth Street building. The Stonehouse proved to be cold and uncomfortable.
"It remined me of a mortuary," Haines told us later. It was placed on the market, but there were no takers for the $2 million white elephant.8
Hansen and Shah then decided Centennial needed a place in San Francisco where they could entertain out-of-town dignitaries. So they purchased a penthouse ("a pied-a-terrific," gushed San Francisco columnist Herb Caen) on Lombard Street in San Francisco for $773,487. Again Hansen's interior decorator friend was employed to redecorate the place, for an additional $150,000.
Hansen wanted Centennial to have a way to chauffeur dignitaries from one place to the next, so Haines said that Sandmann, by then a Centennial vice president, arranged the purchase of a 1971 stretch Mercedes limousine for a mere $30,000. Unfortunately, the car was in Holland. By the time it was retrofitted in the U.S. to meet American smog and safety standards, Haines said, the car cost Centennial $77,000. Paying the bill, though, didn't mean Centennial owned the car, which FSLIC investigators later discovered was registered in Hansen's name.
Cars were an obsession with Hansen, and one afternoon he decided to go out during lunch and kick some tires. Before the afternoon was out he had purchased five cars for himself and his family: three station wagons, a four- wheel-drive pickup for his son-in-law, and a snappy Datsun 280Z for himself. The FBI reported the cars were paid for with an $89,792.42 Centennial Savings and Loan cashier's check. Hansen called Haines and told her to bring the check down right away. He told her he would reimburse the thrift later, but the FBI said he never did.
On special occasions, like weddings and civic events, Hansen made a point of being seen around town behind the wheel of his 1930's-vintage Rolls-Royce, for which he paid $137,000. And to ensure they did not feel left out, Hansen arranged for the heads of each of Centennial's several subsidiaries to receive brand-new Mercedes-Benzes, except Haines, who requested, and got, a BMW.
"I didn't want a big car," Haines told us.
It wasn't long before these spending sprees caught the attention of the public. Few knew quite what to make of them, but most people accepted the ostentatious life-styles of Centennial's top officers as one more piece of proof that the area was becoming a playground for the rich and famous. Almost everyone felt that Santa Rosa and the surrounding areas were destined for explosive growth. Looking at all the Centennial glitter, some saw it as the first positive proof that the boom times had arrived. And if that were so, then perhaps Shah and Hansen were the vanguards and visionaries who would blaze the shining path to success and riches for the rest. By throwing money around, Hansen and Haines rose to positions of considerable prestige in Northern California.
Erv Hansen was building Centennial into a center of financial power in Northern California. But not everyone shared his vision. A small but growing number of people began to openly express concern about Centennial's rapid growth and feverish activities. Something was fishy, people whispered. Savings and loans, "thrifts," were supposed to be thrifty, not splashy, deregulation or not. S&L executives were supposed to be staid, dour, predictable, thoroughly dependable fellows. What was Centennial up to?
The Russian River News continued to nip at Centennial's heels, and in May of 1983 Hansen gave $50,000 to a small competing tabloid in Guemeville called The Paper, which was having money troubles. The Paper's manager, Tom Richman, was soliciting financial support from the community to keep his publication in business. He dropped by Centennial, and Hansen was more than happy to help out. He paid the first installment—which sources said was $10,000—right on the spot.
"Hansen just reached down into his cowboy boot and pulled out a wad of cash and handed it to him," an FSLIC attorney told us. Hansen later said he hoped the extra money would tip the competitive balance between the two publications and put the Russian River News out of business. Fifty thousand dollars went a long way in a town of 1,700. Richman later described the $50,000 as a gift. Documents filed in a FSLIC suit showed Centennial even considered becoming The Papers partner.
But Hansen was interested in buying more than good press. Success and money always attract politicians, and Centennial attracted its share. Congressman Douglas Bosco, a Democrat, came from a small town near Guerneville where he had been a Haines family friend. A born politician, he was an attorney and former member of the California state legislature (where he was a member of the Assembly Finance, Insurance and Commerce Committee). Centennial was quick to lavish attention on Bosco. Bosco's mother was given a job working for Haines at Centennial, and Shah hired a friend of Bosco's to manage Shah's company, Lakewood Enterprises.
Hansen, Shah, Haines and various family members were listed as contributors to Bosco on his 1983 and 1984 disclosure statements. In addition, Bosco borrowed $124,000 from Centennial and $65,000 from Golden Pacific between 1982 and 1984. ' His payments were often late and a thrift executive told us S&L officers had to call Bosco in Washington to discuss bringing his payments current. Bosco said the tardiness was caused by frequent moves. In 1984 Bosco used Centennial's private plane to attend the funeral of a constituent and failed to report it on his federal financial disclosure form. He said the failure was an oversight. In 1986 he was questioned by the FBI about Centennial Savings but he was not accused of any wrongdoing. (An FBI agent told us that if the FBI investigated Bosco for his relationship with Centennial, they'd have to investigate all congressmen because they all did the same thing. ) Bosco said his relationship with Centennial was completely above board, that he never asked them for any personal favors, nor did they ever do him any. But with powerful friends Centennial Savings' influence in the community prospered nicely.
One of the more remarkable political relationships that developed at Centennial was between Sonoma County's chief law-enforcement officer. Sheriff Roger McDermott, and Hansen. The sheriff was a guest on several flights of Centennial's corporate plane and accompanied Hansen and others on trips to Canada and Las Vegas. McDermott also became a partner in a construction company that was working almost exclusively on Centennial projects, including a multi-million dollar condo development in Bullhead City, Arizona, on the Colorado River about 60 miles south of Las Vegas.
Centennial's sweet scent went out beyond Sonoma County, and like bees to honey, individuals with criminal backgrounds and organized crime connections found their way to the savings and loan. For them, we would learn, deregulation of the thrift industry was the best thing that had happened since Prohibition poured millions of dollars into their ever-waiting hands.
The first person to raise Pizzo's suspicions was Norman B. Jenson. A slight,
silver-haired man, he was a Las Vegas attorney, but he had various other interests. He told us later that he had had, for example, significant business dealings with
Sid Shah and Piombo Corporation before Shah teamed up with Centennial. Jenson had met Shah some years earlier when Piombo was bidding for work at Murrieta Hot Springs, a project near Palm Springs being developed by Morris
Shenker, owner of the Dunes Hotel and Casino in Las Vegas. (Shenker had
been Teamster President Jimmy Hoffa's attorney and was described by the President's
Commission on Organized Crime as an associate of Kansas City organized crime boss Nick Civella.) Jenson was a potential investor in Shenker's Murrieta
Hot Springs development, and he said he had met Shah when Piombo was
positioning itself to get a construction contract on the project. Jenson also had
real estate investments near Santa Rosa, and he and Piombo had joined in
several joint-venture partnerships.
Soon after Shah became a central figure at Centennial, Pizzo went to the county recorder's office to research Shah's land holdings and real estate transactions, and he discovered documentation of several local deals between Piombo and Jenson. Pizzo found Jenson to be a shadowy character who left a confusing paper trail. He drifted in and out of complex deals in ways that left Pizzo wondering what was in the deals for Jenson. in many of Jenson's joint-venture partnerships with Piombo, Jenson eventually, mysteriously, deeded without remuneration his portion of the joint ventures to Piombo. Property didn't seem to get bought and sold, it just appeared and then got transferred. Jenson was maddening to trace, always hidden behind several layers of paper corporations and powers of attorney. To Pizzo he seemed to be acting like a man with a lot to hide.
Pizzo checked further into Jenson's past and more questions surfaced. Jenson had been a principal in the Holiday Casino in Las Vegas, and he and a partner had held a $1.7 million mortgage on the Shenandoah Hotel and Casino. Evidently he carried some weight in Las Vegas casino circles. A computer search on Jenson's name coughed up a 1981 United Press International story about the indictment of two men from New Jersey charged with extortion. According to the article, Thomas Principe, 49, described by the FBI as "one of the most prolific hit men on the East Coast," and Dominick D'Agostino, 64, who had interests in the trucking business, were charged with extorting $300,000 from two Philadelphia developers. The money, according to federal investigators, had been extracted under threat of violence to their persons, property, and families to finance a Las Vegas casino project. The $300,000 was allegedly delivered to Thomas DiBiasi, an attorney, who then made out a check in that amount to Norman B. Jenson and his partner, owners of the proposed casino site. (Jenson later told us he became a government witness in the case.)
As the months went by Pizzo periodically checked filings at the county recorder's office, but nothing new appeared in Jenson's name, and there was no evidence to connect him directly to Centennial Savings. His relationship seemed to be with Shah and Piombo, not Centennial. Not until three years later would Pizzo get the tip that unraveled the Norm Jenson mystery:
One afternoon in August 1986 Pizzo was sitting in the Russian River News office reading a recently delivered copy of the National Thrift News. He spotted a story about the collapse of three thrifts, one in Washington state, one in Texas, and another in Louisiana, and he glanced through the article, wondering how such widely separated thrifts might have been related. A name buried on the third page, near the end of the story, jumped out of the gray text — Norman B. Jenson. The FSLIC was claiming in a lawsuit that the three thrifts had conspired to make Jenson a $4 million loan on a Las Vegas casino, the DeVille Casino, for which they said Jenson had paid a $50,000 kickback to the president of the Louisiana thrift, Guy Olano. The loan later went into default.
The fact that Jenson had been dealing with thrifts in Louisiana, Washington, and Texas had staggering implications for Pizzo. He had developed a nagging suspicion that what he was seeing at Centennial might be happening at other thrifts as well. His suspicion was based on nothing more than the belief that if a looting were in progress at Centennial, perhaps other thrifts were also being victimized. He had mentioned his suspicions to state regulators, but they treated him more like someone reporting a flying-saucer sighting than someone sounding an alarm. He continued to worry nonetheless. The deals were just too smooth and too slick, and too much money was disappearing, for this to be no more than a pack of amateurs fleecing a bank.
The National Thrift News story lent unexpected support to these concerns. If Jenson was out there working over other thrifts—in a deal that had involved thrifts in three states—then maybe he wasn't alone. Were there others? Who were they? Was this a nationwide conspiracy? How bad was it? Could the Mafia or other organized crime figures be involved? Were they networking? How? How many thrifts were threatened? Pizzo made some phone calls to defense attorneys and learned that Jenson's loan had been arranged for him by a loan brokerage firm in San Antonio, Falcon Financial, owned by loan broker John Lapaglia, who was in federal prison serving a 14-month sentence for failing to report $169,000 in income on his 1979 federal tax return. In John Lapaglia we had our first clue as to how events at several savings and loans might be connected.
Loan brokers put borrowers together with lenders for a commission—and sometimes a piece of the action. If the borrower were on the up and up, the broker's service was a service to all. But if the borrower were a crook, the loan broker knowingly or unknowingly could become a kind of traveling host to that dangerous virus, introducing it to thrifts from coast to coast. We learned that a handful of roving loan brokers traveled this country like nomads, putting deals together. They were the synapse across which both legitimate and illegitimate business jumped in the thrift industry. When deregulation of the thrift industry greatly expanded thrifts' ability to invest in multi-million dollar real estate projects, it created a gold mine for loan brokers (whose commission was based on a percent of the loan). Deposit brokers pumped money into thrifts and loan brokers pumped it out.
Jenson's involvement in the complex DeVille Casino deal put him in a new light, and Pizzo decided to investigate him more intensely. During a search for documents relating to Jenson, Pizzo turned up a deed for a Santa Rosa home that he learned had been the subject of an arson probe by county investigators after a predawn fire on December 2, 1982. He contacted a county fire chief who had become an important source for him on fire-related news stories, and the fire chief outlined the facts surrounding the arson. Then Pizzo gradually pieced together the rest of the story.
Residents in a prestigious hillside neighborhood above Santa Rosa had been jolted from their sleep by the dreaded sound of fire sirens one night in December 1982. From their bedroom windows they had peered through oak trees at the glow of a fire that lit up the night sky as it destroyed a three-bedroom redwood home on Lower Ridge Road. When firemen arrived they had to pry open a locked security gate to get inside, and by that time the expensive home on the five-acre estate was engulfed in flames. Firemen found no sign that anyone was at home. Later, when questioned, neighbors told strange stories of a young couple named Miller who kept mostly to themselves, of limousines with darkened windows that came and went at all hours of the night, of Doberman pinschers that roamed the grounds.
Arson investigators determined that someone had set the fire by dumping gasoline down the hall and stairs. They also discovered that before the fire someone had thoroughly ransacked the house. Walls had been torn open, floor- boards ripped up. Fire officials began a records search for the property's owner and they came up with Jenson and a company in Las Vegas, D.J. Investments. Calls to Las Vegas turned up no D.J. Investments, so they phoned Jenson. When first asked if he were the owner of a home on Lower Ridge Road, he told arson investigators he was, but after being told the circumstances that led to the call, he quickly backed away from his earlier statement, saying that he had been mistaken, that he didn't have anything to do with the house.
County arson investigators continued to sift through the charred ruins until, on the third day, federal agents suddenly appeared on the scene.
"There were eight of us investigating the fire," recalled fire investigator Kevin O'Shea. "These feds called us together and told us our investigation was over. They told us to forget everything we had seen there, that as far as we were concerned, it never happened. They even told us to destroy any notes we might have taken. 'This never happened,' they said." At that point federal agents took over the investigation. [Which raises the question,how is Jenson tied to the feds,an asset to which agency? DC]
Jenson continued to refuse comment and no fire insurance claim was filed. But an investigator told us they discovered a tantalizing clue in the rubble: a smoke-stained business card that simply read "Morrison Energy International, Dean Chandler, sales." On the back someone had penciled instructions on how to work the security gate. Investigators called the Santa Rosa phone number printed on the card and a secretary answered, "Lakewood Enterprises. " Lakewood was Sid Shah's real estate company. Questioned by arson investigators, Shah disclaimed any intimate knowledge of Dean Chandler or Morrison Energy International, saying only that he let Chandler use his phone number for messages. However, Pizzo discovered on a 1982 financial statement prepared by Shah that he owned 5,804 shares of Morrison Energy International stock, which he valued at $60 a share. Why was Shah trying to hide from investigators his involvement with Morrison Energy?
Questions surrounding the 1982 fire at the Lower Ridge Road home grew as time passed but no answers were forthcoming. The house sat charred and empty. No one made a move to clean it or fix it. Occasionally federal agents would arrive at the scene and sift through the ashes. The home's former occupants, the "Millers," had vanished. Neighbors in the tony neighborhood began to complain that the place was an eyesore. Their complaints finally forced Norman Jenson to come forward and assure them the property would be cleaned up. Who would be doing the work? "Piombo Construction Company," they said he told them.
Going back again and again to his federal sources knowledgeable about Jenson, Pizzo learned that the burned house, the "Millers," Norm Jenson, and Sid Shah had become the center of a massive Organized Crime/Drug Enforcement Task Force investigation that had set up shop in the Federal Building in Santa Rosa. For five years a 12-agency team would investigate a $300 million international drug ring. Then the U.S. attorney would hand down an indictment alleging that the ring laundered its money through Sid Shah's and Norman B. Jenson's complex real estate deals.
Jenson was the first red flag that went up for Pizzo. Then a second warning flag was raised when Pizzo learned that reputed Mafia associate Richard Binder had shown up at Centennial's loan window and had borrowed over $1 million. With Binder had been Dave Gorwitz, a fellow with a long criminal record and established Mafia ties. Gorwitz was also old friends with Paul Axelrod, according to mobster Jimmy "the Weasel" Fratianno, who described Axelrod as Morris Shenker's "banking expert."
Binder's friend Gorwitz had pulled swindles on the West Coast before. In 1975 Gorwitz had made San Francisco headlines when he was caught up in the high-profile prosecution of California State Senator Richard Dolwig. Dolwig had lent his name and influence to an advance-fee loan scam run by Gorwitz and David Kaplan, another minor hood.2 Kaplan turned state's evidence and in open court described Gorwitz as a muscleman for the mob. Other court testimony stated that Gorwitz was a financial adviser to Salvatore M. Caruana (described by federal officials as a highly placed organized crime figure with links to the Patriarca family).' Gorwitz, "Uncle Dave" to his friends, was convicted and served four years in prison, his second prison term. He had served time earlier on a counterfeiting conviction. After serving his sentence in the Dolwig case, Gorwitz headed for Massachusetts, where he became involved with Richard (Dick) Binder in a mysterious precious metals venture, the Bay State Gold Exchange, which later was the subject of a Boston Globe investigative piece.
The Globe reported that Binder had started Bay State Gold Exchange in Plymouth, Nlassachusetts, outside Boston, with an $800,000 grubstake allegedly
provided by mobster Salvatore Caruana. Along with the money, Caruana apparently sent trusted aide Dave Gorwitz to keep an eye on Garuana's new in- vestment and on Binder. Bay State Gold Exchange was supposed to be dealing
in reclaimed gold and silver, but authorities said they believed Garuana used it
as a vehicle to launder money from his drug operations.
Three times a week, the Globe reported. Binder withdrew cash from a nearby bank, mostly in $20 bills. He visited the branch over 100 times and withdrew $8.1 million from Bay State's checking account in just 11 months. He stuffed it into a brown suitcase and left. Garuana would show up regularly to make six figure withdrawals from Bay State's "petty cash" drawer, according to former Bay State employees. When precious metal prices crashed in 1981 so did Bay State, not long after a Bay State associate was found shot to death and stuffed in the trunk of a car. Federal investigators were interested in Binder's activities at Bay State by that time, but a fire at Binder's home destroyed all of Bay State's records.
"Bay State emerged from the foam of the sea and dipped back beneath the waves," one investigator told the Globe.
Binder and Gorwitz left Boston in a hurry after their little "enterprise" ended in the probing story in the Boston Globe. When Binder and Gorwitz emerged from the sea of foam to start a new life in Santa Rosa, they were immediately put under FBI surveillance. Nevertheless, Binder zeroed in right away on Centennial. Hansen became a customer at Binder's newly opened Santa Rosa jewelry store, and in November 1982 Binder borrowed $5,800 from him, which bankruptcy records say he never repaid. Between 1984 and 1986 Binder also borrowed, and then defaulted on, over $ 5 million from Centennial and two other Northern California lenders. (Between 1984 and 1986 bankruptcy court documents showed Binder borrowed $385,000 from Bank of America, $1,151,000 from Central Bank of Walnut Greek, and $1,450,000 from Centennial.)4
Centennial might have lost even more to Binder and Gorwitz if a certain $6 million land deal had gone through. The pair had their eyes on five acres of land on the outskirts of Santa Rosa. Binder brought Gorwitz in as a "consultant," for which Uncle Dave was to get 25 percent of the action, according to later court testimony. A lawyer began a draft agreement but Gorwitz insisted his name not appear on any of the documents, that instead his interest be hidden in an offshore corporation. Suddenly the owners of the land backed out of the sale. Shortly thereafter federal regulators swooped down on Centennial and closed the thrift (in August 1985), and Binder declared bankruptcy and returned to the East Coast, his four-year stay in Santa Rosa abruptly terminated.
The Gorwitz connection left little doubt in Pizzo's mind that organized crime figures, or people with ties to organized crime, were sucking money out of Centennial.
While Erv Hansen was welcoming borrowers with questionable credit records, he was proving there was no end to the ways he could pull money out of little Centennial. In early 1984, soon after the fabulous Christmas party that had all of Northern California talking, the board of directors of Centennial announced that Shah and Hansen would receive kingly bonuses of $818,000 each. The combined amount, $1,636 million, represented nearly two-thirds of the $2.6 million net profit Centennial claimed for 1983.
Federal regulators would later learn that in reality the $2.6 million "profit" was an engineered illusion. Hansen had created $4 million in "profits" by "selling" to Atlas Savings and Columbus-Marin Savings Centennial's interest in some partnerships it held with Atlas and Columbus-Marin. The sales were reversed almost immediately in 1984, with Centennial buying the same interests back from the two thrifts and paying them a profit for their trouble. In other words, whatever profit Centennial made on the sale in 1983 was wiped out in the buy-back a few months later. The deal fattened Centennial's bottom line at the end of 1983. This was the stuff bonuses were made of.
But there was nothing phony about the $1.6 million bonus Shah and Hansen got. With bonuses and salary together, the two had each earned well over $1 million after the first year together as a team at Centennial.'5 Understaffed regulators had let Centennial go its own way for nearly two years, but the huge bonuses finally caught their attention and they dubbed them "excessive," stating that Hansen's compensation was five times that of any other thrift president in the F.H.L.B's eleventh district.6
But even under the hot breath of angry regulators Hansen found a way to compound his larceny. In response to regulators' criticism of his bonus, Hansen called Centennial's board of directors together and told them that if his management contract—which allowed him a salary of $100,000 a year plus a chunk of the profits (real or imagined)—was going to cause Centennial problems with the regulators, he was willing to renegotiate his contract. But first the board would have to buy out his old contract, and he wanted $350,000 for that. Hansen also demanded his salary be increased to $250,000 a year if he had to give up profit sharing. Like everything else Hansen proposed, his offer was accepted by his board of directors. (A former chairman of Centennial's board explained the board's acquiescence by telling us that whenever the board opposed Hansen, he became furious and threatened to replace them with people who would do what he wanted, when he wanted.)
Hansen's new contract, and the $350,000 he extracted from Centennial to set aside his old one, just added insult to injury and regulators hit the roof. Of course in 1984 "hitting the roof meant regulators wrote Centennial a letter and demanded that the board do everything possible to get Hansen and Shah to return some of their "excessive compensation " The board agreed but regulators later charged that the board made little or no effort to get the money back, and regulators soon had other matters to occupy their attentions.
Hansen reveled in his new role as empire builder, even if those empires were built in the clouds. He formed a Centennial "hunting club " and purchased $500 shotguns for himself and his covey of rural groupies. He hosted a gala fishing expedition to Canada, bringing along his drinking buddies and Sheriff McDermott. After admiring a Western belt buckle he had seen on another high flier, Hansen had one made for himself Built into the gold-and-silver buckle was a small pistol that snapped out and could actually fire a .22-caliber bullet.
No deal was too big or too small. During a slow afternoon one day, Beverly Haines, Hansen, and a business associate purchased a small, run-down rural house for $40,000. Documents on file at the county recorder's office told us the rest of the story. The same day the group bought the property they deeded it back and forth among themselves several times, each time raising the recorded value. (This maneuver is called a "land flip," and it is illegal if it is being used to defraud a lender. ) The final deed recorded was a trust deed securing an $80,000 loan from Atlas Savings and Loan on the property. This little impromptu partnership had spent a couple of hours signing documents and turned a $40,000 purchase into a $40,000 profit. Kind of a "nooner," financially speaking. Naturally the loan went into default.
On another occasion Hansen, Shah, and Dutch investor Neik Sandmann paid $50,000 for a two-thirds share of an old stone warehouse near the railroad tracks where bums jumped freights. County records showed they "flipped" the property among themselves and their partnership several times, raising the value each time, and capped off the transactions with a $487,000 loan, again from Atlas Savings. Eventually they defaulted on the loan and regulators said Atlas had to sell the property at a considerable loss.
Shah took an interest in mushrooms and he purchased a small mushroom farm near Santa Rosa, making Hansen and Haines partners in the operation. Hansen then had Centennial put $1.5 million into a large, bankrupt mushroom company in Washington state. Regulators claimed Shah's plan was to merge all the mushrooms operations into one and corner 80 percent of the West Coast market, but in 1984 he left Centennial holding the bag for $4 million in nonperforming loans to the project and Shah ultimately placed his mushroom empire. Mushroom King, into bankruptcy. And just where were thrift examiners while all this frolicking in the vault was going on? Centennial should have been under scrutiny by both state and federal examiners because it was a state-chartered thrift and a member of the FSLIC. But the state examination staff had been decimated by the defection of thrifts to federal charters, and the numbers of examiners on the federal level had also been cut. In 1980, prior to deregulation, there had been over 700 federal examiners to cover the country's 4,002 thrifts. But deregulation was interpreted by Washington to mean there would be less need for regulation, and examiners had been cut to 679, even though the number of institutions in trouble had begun a sharp rise.
"Haven't you heard of deregulation?" a frustrated regulator told Pizzo one day when he called to ask them why they weren't all over Centennial. "We don't supervise these institutions like we used to."
Since frequent on-site examinations were impossible, regulators often relied on supervision by mail. Examiners would study records supplied by Centennial and fire back complaints. "We got dozens of these warning letters," Beverly Haines later told us. "They'd send us a warning letter on a deal or transaction they felt was unsound or a violation, and tell us not to do that anymore. Then they'd say that since it was already done, that at the very least we should go back and get the board of directors' formal approval for it." For well over three years that was the extent of the "punishment" handed out to Hansen et al. The demoralized employees who remained at the California Savings and Loan Department and Federal Home Loan Bank, after staffs were cut, were paralyzed. Higher up, in the policy-making levels of the regulatory apparatus, the reluctance of the system to admit it had a self-induced cancer was enormous.
Hansen had his own way of appeasing regulators. He'd hire them. Pat Connolly, former state deputy savings and loan commissioner, became a Centennial director, executive vice president, and managing officer in 1984. His job, in Hansen's mind, was to keep the staff at the state commissioner's office off Centennial's back, Haines told us. And he was paid handsomely for his services.
"One minute Connolly was working for the state of California earning $40,000 a year," explained Haines. "Hansen hires the guy and suddenly he's pulling down $80,000 a year. In December of 1984, just two months after being hired, he gets another $40,000 bonus. All he had to do was calm the regulators down." (Connolly did not reply to our requests for an interview.)
Banks and savings and loans were required to have periodic audits of their activities. The audits had to be done by recognized, qualified accounting firms. Centennial used, first, Alexander Grant 7 and, later. Peat, Marwick, Mitchell & Co. But even though the F.H.L.B.B required an independent audit of thrifts, the tab for the auditor's services was paid by the thrift being examined. Furthermore, the law did not require the auditor to report irregularities to the F.H.L.B.B or law enforcement but only to thrift management. It was then up to the thrift officers to take corrective action or, presumably, to turn themselves in if they had broken the law. This policy resembled requiring a fire marshal to report to Nero that Rome was ablaze. (During our investigation we heard of several occasions when thrift officers would offer auditors kickbacks, gifts, or a high-paying job with the S&L in exchange for a clean audit. If the auditors refused to cooperate, the thrift would change firms.)
"At Centennial an auditor for the independent auditing firm actually sat in on board meetings and helped them structure the Piombo deal [purchase)," said Haines. Later the auditor became a Centennial officer. Investigators told us Centennial eventually hired seven of its former auditors in a revolving-door pattern investigators said they found troubling.8
With the money flowing at full force. Centennial generated an almost irresistible momentum about it. All who came within its orbit felt that force and many bent to it. Was Centennial the promise of deregulation realized? Or was it a hijacked thrift careening out of control? No one seemed to want to try to sort out the answer to that question during 1983 and 1984. Centennial appeared successful and powerful, a trend setter, and most people were content to climb on board and enjoy the exhilarating ride.
But hiring former examiners and auditors wasn't going to keep Hansen's house of cards together forever, and by mid- 1984 he came under increasing pressure from regulators who began to make the kinds of noises that Hansen, a former regulator himself, knew preceded real action. Someone had to take the fall. Behind the scenes it was somehow agreed to lay the blame for Centennial's excesses on Shah. Hansen informed the feds that Shah was the problem and that Shah would resign. Stories were even floated in the local press that Hansen and Shah had had a falling-out. Shah told reporters he had private interests to pursue (mushrooms among them). He said he was not the corporate type and no longer fit in at Centennial. The truth, it was later revealed, was that regulators had required Centennial's management to sign a supervisory agreement in which they agreed to cease any dealings with Shah.1
Shah's contract was terminated, but, like Hansen before him. Shah exacted a price for voiding his contract and, regulators said, took one more dip in Centennial's pool of liquid assets. Shah received $450,000 for his stock and $500,000 to buy out his employment contract with Centennial. FSLIC attorneys later charged Hansen arranged the stock purchase by inducing Centennial's directors, whom the FSLIC would refer to later as "a rubber-stamp board," to buy Shah's shares. Under the scheme the directors would pay $60 a share for Shah's shares, $25 in cash and $35 in promissory notes.
Hansen made Centennial lines of credit available to the directors in excess of the cash amount they needed to purchase Shah's shares. Regulators said the excess funds were intended as an incentive to the directors to participate in the scheme. The result was that Shah received $450,000 directly out of Centennial's coffers for his shares. Later the promissory notes signed by the directors/straw purchasers were "forgiven" by Shah, regulators charged, thereby relieving them of that obligation. The FSLIC claimed Shah's departure cost Centennial another $750,000.2
Despite Shah's sacrifice on the regulatory altar, Hansen's life continued to get more complicated, even dangerous. In May 1985 Hansen, Haines, and Shah learned through Hansen's friend Sheriff Roger McDermott that two disgruntled former associates may have hired a hit man to deal with the trio. Haines said that on a spring evening in May, after dinner and drinks, McDermott took Hansen back to the courthouse and swore him in as a special Sonoma County deputy. He gave him a badge and Hansen began carrying two pistols for protection. Deputy Erv was born. Hansen had a photo taken of his swearing-in, which he proudly hung on the wall behind his desk. As for the hit man, no one ever came forward. (After Centennial's collapse and the ensuing FBI investigation, it was discovered that sheriff's office files referencing Erv's special deputy status and gun permit were missing. Sources within the department said that only a three-by-five, cross-reference card remained to show that a master file had ever existed. McDermott was not reelected as Sonoma County sheriff, quietly left office, and maintained his silence on these events.)
For a while Hansen was successful in promoting the myth that all of Centennial's problems had been caused by the uncontrollable Sid Shah. Now, with him gone, Hansen said he was "trying to hold this thing together." But by late spring of 1985 Hansen was telling friends that he expected regulators to remove him from office—though not before he made one more valiant effort to hold off Centennial's day of reckoning. Regulators had told Hansen that, to avoid being declared insolvent. Centennial needed an infusion of $7 million. Undeterred, Hansen had another rabbit up his sleeve.
Centennial's wild ride had begun with its purchase of Piombo and, ironically, would end with its "sale." Hansen announced that he had found a buyer for Piombo, a buyer who would pay a whopping $25 million for the construction company, $12 million more than Centennial had paid for it two and a half years earlier, even though Piombo had been gutted of most of its valuable real estate holdings during its short stay at Centennial. This "profit" would produce the cash that regulators were demanding Centennial raise in order to stay in business. Here for the first time we ran into a tactic that nearly every thrift bandit we met would employ as a last desperate effort to ward off an FSLIC takeover—the White Knight.
Piombo's purported buyer was Sierra Diversified Investments (SDI), headquartered in Shingle Springs, California.* But when we tried to find SDI we discovered it had no phone listing or utility company accounts there. Equally mysterious were SDI's two principals, Dave Bella and Edward Blair. Sources inside Centennial complained to us that they knew little of the pair except that "we hear they are in the tire recapping business, or something like that."[You should search this,'White Knights' do not exist in places like that,but a spook would DC]
Not only did the mysterious company and its owners raise regulators' eyebrows, but the transaction's terms turned out to be a regulator's nightmare: SDI would pay only $100,000 in cash. The rest of the $5.75 million down payment was to be in the form of promissory notes and deeds. SDI agreed to make other cash installments of $2.6 million in four months and $1.5 million in eight months. Nineteen million of the $25 million was to be carried by Centennial as a 30-year loan.
Regulators sent no weak-kneed warning letters this time. Finally, enough was enough. They gave Hansen a clear, unmistakable order: Do not consummate the Piombo sale. But Hansen rushed the sale to completion anyway, quickly transferring Piombo to SDI. At the closing SDI put up $100,000 and in return got the keys to Piombo. They also got Piombo's bank accounts, which contained over $800,000, and Hansen extended $1 million in operating loans from Centennial to Piombo's new owners. (Several weeks after Centennial was seized, FSLIC negotiators wrestled control of Piombo back from SDI, but not without additional cost. Since possession is still nine-tenths of the law, and since Hansen had given SDI possession of Piombo, the FSLIC had to pay SDI to let go. According to a source close to the negotiations, the tab was $300,000.)
The Piombo sale was the final outrage. At 5 p.m. on August 20, 1985, a small army of FSLIC examiners, auditors, and private security guards stormed Centennial's branches. A representative of the Federal Home Loan Bank Board' walked up to Hansen, handed him a letter from Washington, and said, "Mr. Hansen, we are declaring Centennial insolvent. You are hereby removed as chairman of the board and president. Please give us your keys and do not touch anything on or in your desk."
If there was ever a moment to call in one's I.O.U's, that was it, and that night Centennial's favorite congressman, Doug Bosco, announced from his home in Washington, D.C., that he was outraged by the Bank Board's action. He said that he was concerned for Centennial's shareholders and that he knew Hansen and considered him to be a kind, generous, and humanitarian man. He said he was going to personally investigate the Bank Board's seizure of Centennial.
Bosco was just one of the first in a long line of congressmen and senators who would interfere with the regulatory process in the name of constituent service. Bosco was later forced to make an embarrassing public retraction when a group of conservative bankers threatened to withdraw their financial support for Bosco if he did not distance himself from the likes of Erv Hansen. A spokesman explained their reasoning: "My feeling is that a legislator should have all the facts before criticizing federal regulators. Centennial was a high-flying organization that was headed for trouble for a long time."
The headline in The Paper that week (the tabloid Hansen had given 550,000 to, as a "gift") read, "Centennial is dead. Long live Centennial." The paper ran an editorial that was a eulogy to Centennial written by the publisher.
The day after the takeover Pizzo ran into Hansen in a bar that Beverly Haines owned in Guerneville, and they spent a couple of hours talking things over. Hansen showed none of the animosity he had earlier displayed toward Pizzo. Now he wanted sympathy. Over a beer he sang the blues.
"They came in and fired me," Hansen said. "One little punk looked me in the eye and said, 'Hansen, we're going to put a number on your back.' No, they won't, because I didn't do anything wrong."
When the boom fell Centennial had swollen to $404 million in assets, a 1,000 percent increase in just 32 months. Eighty percent of Centennial's $435 million in deposits were high-cost brokered funds in certificates of deposit.'' The days following the takeover found regulators gasping in horror and disbelief, we were told, as they picked through Centennial's rubble. Thirty-six percent—$140 million—of all of Centennial's outstanding loans were tied up in high-risk development ventures owned by Centennial's own subsidiary companies or cronies.
The feds immediately fired Haines and 14 of the thrift's officers. Centennial was dissolved as a privately held, state-chartered stock thrift and was converted to a federal mutual, an institution that is theoretically owned by its depositors and borrowers. At that instant $7 million in stock, owned by 300 stockholders, some of them Centennial's founders, became worthless. The day after the take- over Pizzo walked into Centennial's small Guerneville branch and found an elderly Centennial employee in tears.
"I should have known," he said. "I invested every penny I'd saved for retirement—$50,000—in Centennial stock, and now it's all gone. I'm too old to start over. I should have known. It's my own fault. I should have known when Hansen walked by me every day, never even shook my hand or said hello. " Centennial became known among federal regulators in San Francisco as the Eleventh District's "dirtiest thrift" —a reference to what they said they saw as a sordid and wide-ranging labyrinth of fraud and self-dealing. With every day that passed the magnitude of the mess mounted. Centennial was $36 million in the red, then $60 million, $90 million, $1 12 million, and on it went. The further examiners looked, the more rot they found. There were loan files, for multi-million dollar loans, that contained no appraisals or other required documentation. The FSLIC "SWAT" team found the $48,000-a-year European chef on the payroll, the company plane that was costing $35,000 a month in tie-down fees and maintenance, and the San Francisco penthouse. They seized over 25 company cars that ranged from Mercedes sedans to a stretch limo. And the $2 million Stonehouse, filled with European antiques, still sat vacant on the outskirts of town.
Hansen retired to his $500,000 home in Santa Rosa while officials began sorting through the wreckage to determine if any federal laws had been broken. In a last-ditch effort to salvage his dream, Hansen filed suit against the F.H.L.B.B, charging that their seizure was precipitous and premature. The case was soon dismissed and Hansen went back home to spend the next two years brooding in his Santa Rosa mansion.
On the heels of the takeover an FBI investigative team, specialists in white collar crime, arrived in Santa Rosa to investigate violations of banking regulations. Special Agent Pat Murphy, an accounting specialist, and his partner, Special Agent Ernie Cooper, an attorney, got the thankless task of unraveling thousands of pages of old loan documents, title reports, deeds, and loan applications. There were a lot of unanswered questions, and, at that time, no one was talking.
For ten months the investigation limped along with little progress. The deals were mindbogglingly complex, and the chance of nailing someone for clear criminal activity began to seem remote. Then chance dropped a veritable Rosetta Stone right in the FBI's lap, and at 8 a.m. on September 3, 1986, Pat Murphy, accompanied by a woman FBI agent, knocked on the door of Beverly Haines's magnificent home in Guerneville. A sleepy Haines, still in her bathrobe, answered.
"Beverly Haines," said Murphy, "I have a federal warrant for your arrest for embezzling $1.6 million from Centennial Savings and Loan."
Haines and an accomplice, who worked as the manager of the headquarters branch of Centennial in Santa Rosa (he had not been among those fired after the federal takeover), were taken into federal custody the same day. What was remarkable about the charges was that the money they embezzled was taken both before and after the federal seizure of Centennial, while the place was thick with federal auditors and FBI agents. Haines had become accustomed to having unrestricted access to Centennial's petty cash drawer, and after she was tossed out by regulators it hadn't taken her long to figure out a way to keep the money flowing.
Haines, who had been the young branch manager's boss at Centennial, had convinced him to aid her in a complex check-kiting scheme.' Over $5.8 million was missing, though investigators said they could specifically tie only $1.6 million to Haines. She had facilitated the complicated fraud by opening over thirty checking accounts at Centennial and Bank of America." Haines wrote checks for large sums of money—$145,000, $90,000, $125,000—on her Centennial accounts and deposited them at Bank of America. She then had Bank of ,America issue her cashier's checks for like amounts, which she converted to cash. When Haines's checks came back to Centennial for collection, her accomplice admitted, he sent the money to Bank of America but hid the checks in his desk or briefcase so there would be no record that Haines's accounts at Centennial were grossly overdrawn.
Federal investigators could not say what Haines did with all the money, and though Haines provided detailed testimony on alleged wrongdoing by others,7 she remained vague about where her money was.
"They just don't understand, " she told us. "It was all just kited checks, there really wasn't all the money they say there was." But she put those checks to very real uses. A workout specialist hired by the FSLIC to collect on bad Centennial loans said Haines even tried to pay off a $50,000 Centennial loan with a kited check..
"She readily agreed to repay the loan when we confronted her with the demand," he said. "She was really gracious about it and wrote us a check in full. What we didn't know then was that she was kiting checks out of Centennial and so what she did was repay us with our own money. "
Another place a goodly chunk of Haines's money went was into her home in Guerneville. From practically the day things began to roll at Centennial in early 1983 until well after the federal takeover in 1985, workmen and craftsmen worked day in and day out on the Haines home. They transformed a once modest summer cabin into a luxurious two-story, 3,000-square-foot home suitable for the pages of Architectural Digest. It had over a dozen handmade stained-glass windows, three fountains, an elevator, a tile workout room complete with sauna, electrically operated skylights throughout, a sunken hot tub in the master suite, Italian-marble showers with gold-plated fixtures, suede carpets, and hand-carved doors. There was even a vault to store furs.
Haines began cooperating with the investigation almost immediately in a desperate effort to stay out of prison. Perhaps to inspire just such behavior, the assistant U.S. attorney in charge of the case, Peter Robinson, had Haines, following her arrest, held over the weekend in the Oakland County jail. Jail was definitely not Beverly's cup of tea, and when she was let out on bail, the feds' only problem was keeping up with the furious pace with which she began turning evidence against her former compatriots. She even agreed to give speeches to banking executives about bank fraud.
Haines's arrest and decision to turn state's evidence was a severe blow to Hansen. Acquaintances .said his normally cocky, self-assured demeanor gave way to an increasingly sullen mood. A heavy drinker, he now indulged even more.8 Finally, one night in early 1987, he showed up at Community Hospital's emergency room with what was reported to be a self-induced drug overdose. With Haines talking to the feds, and his attorney advising him not to be seen talking with Sid Shah, Hansen felt isolated and sent tentative feelers out to the federal authorities to see if he, too, could cut a deal. The question was met with stony, ice-cold silence, investigators told us. The U.S. attorney wanted to sweat him out while the FBI debriefed Haines. Four months after the first suicide attempt, Hansen was rushed to the emergency room a second time. Friends had found him unconscious in his car, in the garage, with the engine running.
After being stabilized Hansen was transferred to Oak Crest mental hospital on a mandatory 72-hour hold. This time federal investigators decided they had better talk to their prime suspect since he seemed to be going to extraordinary lengths to get their attention. Assistant U.S. Attorney Peter Robinson, an FBI agent, and a psychologist met with Hansen at Oak Crest. It was then that Hansen was given a description of the kinds of charges that would be brought against him. Some 26 in all were contemplated, including charges that he had embezzled at least $872,000 from Centennial between 1982 and 1985. The investigation had revealed that Hansen had routinely used his institution's funds to fuel his own extravagant life-style, taking $20,000 here, $25,000 there, $55,000 for antiques, $137,500 for jewelry, $80,000 for his taxes, $85,000 for cars, $25,000 for art, $45,000 for a vacation . . . and on and on (according to documents we obtained through the Freedom of Information Act). He had arrogantly used Centennial's treasury as his own personal petty cash drawer.
Hansen was released from Oak Crest and went home to resume waiting for the FBI to contact him. In the months that followed federal agents continued to debrief Haines and went right back to giving Hansen the official cold shoulder. They also handed down 17 indictments of mostly minor figures in the Centennial daisy chain.
What was left of Centennial was now in the hands of a crack management team from Great Western Savings and Loan, appointed by the FSLIC. In one final irony, on January 26, 1987, 18 months after regulators took over Centennial, the F.H.L.B of San Francisco issued a confidential memorandum addressed "To the Board of Directors, Centennial Savings and Loan." The memorandum warned sternly, ". . . you may have found evidence of fraud and criminal collusion by and between former officers, directors, and outsiders, including professionals such as appraisers, and lawyers. You as directors have an obligation to review such acts for possible referral to a local prosecutor, or the United States Department of Justice." By that time, of course, the Justice Department probe was well under way and the crooks were long gone. So, for any practical purposes, was Centennial.
Golden Pacific Savings and Loan was seized a month after Centennial, in September 1985.9 Leif Soderling, the older of the two Soderling brothers, had resigned as president in February, saying, "I don't want to be in the savings and loan business. It's got a lot of regulations and I don't want to learn them." His resignation didn't help him avoid trouble, however. In March 1987 he and his brother, Jay, were charged with loan fraud in connection with a complex series of land transactions that had netted them $10 million from their own thrift. The brothers pleaded guilty and were sentenced to one year in prison and ordered to pay restitution. (Critics of the lack of consistency in sentencing pointed to a front-page newspaper story about the Soderlings' sentence. On that same front page was news of another sentence, that of a man who had held a friend's parrot for ransom and received seven years in prison for the extortion attempt. The juxtaposition of the two stories led one disillusioned FBI agent to quip bitterly, "Use a parrot, go to jail.") [Once a criminal always a criminal,from 2015 DC]..http://www.pressdemocrat.com/news/4937164-181/pd-default-story-headline-xy
Contributing to the Soderlings' light sentence was an eloquent presentation by the prosecutor. Assistant U.S. Attorney Robinson, who described the brothers as two young men who "did not intend to establish the savings and loan for the purpose of ripping it off' but simply took the wrong fork in the road. During the hearing an attorney for the FSLIC repeatedly implored the judge to take a stronger stance with the two brothers, saying that evidence indicated that the pair had secreted some assets away and transferred others to third parties in order to hide them from investigators. The judge asked the U.S. attorney if this were so. Robinson replied that his agents had not conducted any search for secreted assets. (In March 1989, just months after the two brothers got out of prison, another U.S. attorney would accuse them of secretly receiving payment on a $800,000 note and spending most of the money on thoroughbred horses, a home computer, and car phones, in violation of probation, which required that any money they acquired be used for restitution. The brothers denied the accusation and the matter was pending as of this writing. The court had restricted the brothers to a living allowance of $2,500 a month for themselves and their families.)
In February 1988 the FSLIC filed a $10 million civil suit against the brothers. The FSLIC claimed they had manipulated substantial assets in order to defraud the FSLIC. Evidently the FSLIC didn't buy the Soderlings' tale of woe that Jay had a minus net worth of $1.5 million and Leif a negative net worth of $1 million. The FSLIC also filed a $100 million civil suit against Centennial's former directors and a number of former executives. And to round out the group the FSLIC filed a similar $50 million suit against several former Columbus/Marin Savings and Loan executives. 10
From information provided by Haines, investigators were finally able to develop a solid case against Hansen. Investigators said they hoped that, once faced with the sobering reality of a multicount grand jury indictment and years in prison, Hansen would give them the evidence against Shah. Nice idea, and it might have worked. Except that time ran out for the FBI when, on July 30, 1987—two years after the feds took over Centennial and just one day before Hansen was to enter into negotiations with the Justice Department—Hansen, 55, was found stone dead in bed. Nearly everyone suspected suicide or foul play, so the coroner gave the case special attention. The official report: Hansen had died of a cerebral aneurysm. A blood vessel on the right side of his brain had burst while he slept.
A pall fell over the sordid Centennial story after Hansen's death. Shah was the only major player left unscathed. He had boasted in the newspapers, through his high-powered lawyer, that he was guilty of nothing more than taking advantage of good business opportunities. Sure, he'd made a lot of money. What was wrong with that?
But quietly, behind the scenes, the multi-agency investigation into the December 1982 fire on Lower Ridge Road had continued. Then suddenly, on October 5, 1987, special agents Pat Murphy and Ernie Cooper met Sid Shah as he was leaving his Sonoma, California, home—the opulent Spreckles mansion, of sugar fame—and hauled him off to appear before a federal magistrate in San Francisco. The grand jury had indicted Shah, accusing him of being part of an elaborate $300 million international drug-smuggling and money laundering operation that imported marijuana, hashish, and cocaine from Mexico, Morocco, Colombia, and Thailand and that had done the bulk of its business between 1979 and 1985. Shah denied the charges. The ring was headed, the indictment said, by Ronald Stevenson, alias Ronald Miller, who had lived in the expensive Lower Ridge Road house with his wife and child at the time it was torched. Investigators speculated he had since been murdered in Mexico.
"Sid Shah Indicted" roared the headlines. Santa Rosa buzzed with the news. The indictment, drafted by the federal Organized Crime Drug Enforcement Task Force, charged that Shah, Las Vegas attorney Norman Jenson and others had laundered the drug proceeds through a complex web of real estate projects, including some connected to Centennial Savings and Loan and Piombo Corporation. At Shah's bail hearing a prosecutor cited Shah's recent trips to Amsterdam to meet with Sandmann as reason to fear that Shah might flee if released from jail before the trial. Nevertheless the judge ordered Shah released on $500,000 bail." (The case was pending as of this writing.)
Unbeknownst to Shah, during the lengthy inquiry federal investigators had secretly recorded a meeting and phone calls between Shah, Norm Jenson, and Ronald Stevenson's brother, Michael. Shah, Jenson, and Stevenson discussed ways to best deal with the grand jury, which had subpoenaed records of their complex real estate transactions. The transcript of the meeting showed Shah reassuring the others:
"You don't have to worry 'bout me saying anything. Where the money was coming from, don't worry about that part of it if anything could hurt you guys."
Members of the drug ring began to talk, and transcripts of the interrogations show they told investigators that Norman Jenson, the man who had done millions of dollars' worth of business with Piombo, was at the very center of the high rolling, international drug operation. One informant, William Olof Henrickson, told the FBI that Jenson had "mob " affiliations. A confidential DEA source said Jenson owned his own freighter, which prowled the waters from South America to Oregon. The informant told investigators that Jenson complained that the freighter was stuck in South America because it was being watched by the feds and that Jenson was willing to pay $1 million to anyone who would pilot it back to the United States. Transcripts showed investigators were also told that Jenson held drug kingpin Ron Stevenson's properties in his name and in the names of various shell corporations, and that Jenson used his own Coos Bay, Oregon, marina as an importation point for millions of dollars' worth of pot and cocaine. An FBI agent said he was told Jenson had placed the drug ring's vast fortune in safe havens in Switzerland, the Bahamas, Panama, and Thailand, once with the help of a Swiss consul general and once with the help of a Thai embassy employee in Los Angeles.
One technique used by Jenson to launder all this high-temperature money, a source in prison told us, was to purchase expensive property with a cash down payment and take out as large a loan as possible on the property. Jenson could then make the monthly payments on the loan with drug proceeds. The interest he paid on the loan he simply considered to be the cost of cleaning the money—the laundry bill. Jenson associates, including Henrickson and Michael Stevenson, told investigators that 50 percent of the Lakewood Hills development had been financed by Stevenson's drug proceeds.
How much did the ring launder through Lakewood Hills? an investigator asked Henrickson.
"Have a billion at Lakewood Hills, I think. " he replied. "That's what he [Ronald Stevenson] told me one time. Five hundred thousand dollars."
A county politician had eased the paperwork for the Lakewood Hills development through the county bureaucracy, he added:
"They had the politician in their pocket, one of 'em, you know. And they could get permits through him and shit like that. "
Later Centennial bought Lakewood Hills, thereby cashing out the asset for Jenson and the others.
A raid on Jenson's offices in Las Vegas netted investigators a treasure trove of documentation on Jenson's far-flung enterprises. An inventory of items taken in that search included paperwork on various real estate transactions allegedly used to launder drug money (including files on Lakewood Hills and Jenson's deals with Piombo Corporation) and numerous plastic bags and bottles containing "green leafy substances, and white powders and white powder residues" (according to the FBI receipt for property received).
With such damning evidence in federal hands, Jenson agreed to cooperate with the government in its investigation of the drug ring, Sid Shah, and individuals at savings and loans in Texas, Washington, and Louisiana. In return Jenson sought and received partial immunity from prosecution. Then, just before the drug trial was scheduled to begin, informant Michael Stevenson disappeared. The drug case was pending as this book went to press.
At this point the wind went out of the Centennial criminal investigation. The feds' technique of sweating out Hansen had blown up in their faces, and now that he was dead. Assistant U.S. Attorney Peter Robinson announced he was going into private practice to become a defense attorney, and the FBI had to scale back its investigation.'- After 12 years as a federal prosecutor, Robinson would now defend clients accused of some of the same kinds of crimes he had formerly prosecuted. In an article he wrote for a legal publication he said his new clientele gave him something he had not found as a prosecutor: . .
the feeling I have experienced as a defense lawyer getting a dismissal for a client is euphoric—and addicting . . . the gratitude for helping one real person is much greater than I received as a prosecutor helping the public . . . my days as a champion of the underdog have just begun. It is a daunting challenge. But I already feel at home.
In a final twist of irony, Robinson revealed that his new offices would be located in Centennial's former executive quarters, the Stonehouse.
With his departure the Centennial investigation lost its drive and dribbled to a close. Beverly Haines went off to Giger Correctional Facility in Spokane, Washington, to serve a five-year sentence for embezzling $1.6 million from Centennial, but in two months she was out, released by Judge Robert Peckham to a halfway house in San Francisco to perform community service and serve three years' probation. She was allowed to go home on weekends.
Centennial, born in 1977, finally passed completely from sight in April 1987 when its garments were divided between the FSLIC and Citizens Federal Savings and Loan of Miami, which paid only $8 million for what was left of Centennial's "goodwill" and for the right to operate an interstate network of thrifts that would have branches in Florida and California (interstate banking was forbidden except when it suited regulators' needs).13 In less than five years, from December 1980 to August 1985, when federal regulators took over the thrift, over $165 million vanished, and no one ever served more than a year in prison for the theft. 14 In 1985 there were 5,995 bank robberies in the U.S. that involved a total loss of $46 million." But at Centennial alone the heist netted $165 million.
By the time Citizens Federal bought the remnants of Centennial in .April 1987 we were well into our investigation of failed thrifts coast to coast. We had decided in December 1986 that the evidence Pizzo had collected at Centennial was too compelling to ignore. We knew we were onto an important story. The strategy we adopted was to approach our investigation in the same way an epidemiologist would track a spreading virus. We took a random selection of failed thrifts across the country and examined each to see if we found common elements in their deaths. We had a theory to prove or disprove: that "bust-outs" and other forms of orchestrated fraud were underlying the sudden crisis in the thrift industry. Pizzo and Fricker would work out of an office in Guerneville; Muolo, out of the National Thrift News office in New York. We spent over two years on the investigation, years in which we collected bits of information every day that expanded our understanding of the puzzle we were piecing together. In the process we uncovered a cast of bank-fraud artists that were working every single savings and loan we examined. The interwoven relationships astonished even us, and by the time we completed our investigation, in June 1989, our original hypothesis had been eclipsed by the reality we discovered: deregulation had unleashed a holocaust of fraud upon the thrifts it had been designed to save.
next
Lazarus
notes
https://ia802609.us.archive.org/5/items/insidejoblooting00pizzrich/insidejoblooting00pizzrich.pdf
With such tricks up his sleeve, Hansen had no worries about the generosity of Centennial's loan on the George Ranch. He was on a roll. Sensing the momentum he was building, he struck quickly. One bold move would follow another, starting with the boldest of all: In August of 1982 Hansen convinced Centennial's board of directors, which now included one-time receptionist Beverly Haines, to purchase Shah's option on Piombo Corporation for $100,000 and to pay Shah $1 million for his Piombo stock—five times more than Piombo itself was willing to pay. Centennial would then exercise the option and purchase the giant construction company for $13 million cash, proving Shah to be a man of vision by validating his boast to skeptical Piombo shareholders that their company was worth $1? million. Shah would become head of Piombo and an executive at Centennial the day the deal closed.
Centennial would benefit, Hansen argued, because deregulation was making it possible for thrifts to invest in commercial real estate and become development companies, and Centennial needed to position itself to take advantage of the new opportunities for fun and profit. California's Nolan Bill, which allowed state S&Ls to invest 100 percent of their assets in speculative ventures, was set to go into effect January 1, 1983. Hansen was pushing Centennial up onto the cutting edge of California's thrift deregulation movement.
Centennial's board of directors approved the plan but kept it secret, and in September, four months before the deal was set to close. Shah, still technically only a customer and therefore exempt from banking regulations that forbade large loans to thrift officers, received a last-minute flurry of loans from Centennial. In a nine-day period, FSLIC documents indicate. Shah and Lakewood Enterprises received four loans, totaling $1,450,000, secured by various properties that the FSLIC would later claim were worth far less than the amounts of the loans. In 1981 Shah's company had reported to the IRS only $100,815 in assets and a loss of $16, 576. Needless to say, most bankers would not consider that sufficient security for a $1.45 million loan. (All four loans would ultimately end up in default.)
In late November, Hansen made the Piombo deal public. Centennial was purchasing Piombo Corporation, he announced, for $14,100,000 ($13 million in cash to Piombo, $1,100,000 to Shah). Steve Pizzo had just taken over as editor of the Russian River News and immediately began to hear complaints from friends who were Centennial shareholders. They were confused, angry over being frozen out of the decision, and concerned about the way the deal appeared to have been ramrodded through Centennial's board of directors. ' Pizzo, a former real estate broker and investor himself, also found the deal perplexing. It was a highly speculative move on Centennial's part and he couldn't figure out where Centennial was getting the $1? million in cash to purchase Pioinbo Corporation.
After a couple of clays of stalling, Hansen finally agreed to an interview for the local paper. It was Pizzo's first encounter with Hansen, who greeted him dressed in brown Western slacks, cowboy boots, and Western shirt with open collar. Hansen's six-foot-plus frame filled the small four-by-cight office. A gold Rolex watch glittered on his wrist, a gold chain and pendant hung around his neck, and a large gold-and-silver cowboy buckle cinched his belt.
Deregulation was going to be a real boon to Centennial Savings and Loan, Hansen told Pizzo. It was going to pull the little thrift out of the doldrums and into the financial fast lane. And part of the steam for this engine, he said expansively, would be generated by the construction company, with its ability to develop large real estate projects.
Hansen and Pizzo did not hit it off. There were big holes in Hansen's analysis and Pizzo wrote a commentary that raised questions about the wisdom of the deal itself and about the potential conflicts of interest inherent in a lender owning its own development company. What would prevent the lender from making risky loans to that subsidiary, especially during recessions, when development companies invariably fell on hard times? Pizzo's editorial hit the street a few days later and provoked a roar of outrage from Hansen. He threatened to sue the Russian River News if the piece resulted in any substantial withdrawals by depositors, simply the first salvo in what would turn out to be a three-year diatribe to silence opposition.
When Pizzo asked Erv where Centennial was getting the $13 million in cash to buy Piombo, Hansen waved his hand in the air and brushed the question off by stating that the money was "brokered deposits from the East Coast and from the Bureau of Indian Affairs." Hansen had strapped Centennial onto the roller coaster of brokered deposits, the "hundreds of millions of dollars just for the asking" that he had all along intended to tap as soon as he built alliances and had Centennial's board of directors under his control. He had acquired these deposits simply by placing ads in The Wall Street Journal guaranteeing to pay interest rates on insured certificates of deposit (C.D's) that were slightly higher than the going market rate (in 1982 the going market rate was averaging 10.4 percent and in 1983, 9.22 percent).
Once a thrift began to depend on brokered deposits, it was in for a wild ride. Like using cocaine, the lure of easy brokered deposits often began innocently but soon became a compulsion and finally a physical necessity. Brokered deposits were a way for a thrift to grow larger than the resources of its local depositors would normally allow. Centennial's total assets at the beginning of 1983 stood at $49 million. By the time regulators seized the thrift in August 1985, its assets had ballooned to a grotesque $404.6 million, thanks in large part to brokered deposits.
☼☼☼
When Hansen told Pizzo he was using "brokered deposits from the East Coast" to purchase Piombo Corporation, Pizzo understood. But Hansen's "Bureau
of Indian Affairs" comment, which Hansen wouldn't clarify, left Pizzo
baffled for five years. Finally, one day in 1988, after we were well along in our
investigation of savings and loans elsewhere, we received a thick, unmarked
package from an attorney on the East Coast. The contents of the package had
nothing to do with Centennial (they related, instead, to Mario Renda, an East Coast deposit broker who was placing deposits at Centennial. See First United
Fund chapters), but they provided the clue that enabled us to piece together the Bureau of Indian Affairs (BIA) puzzle. Among the dozens of enclosures in the package was a handwritten letter to the East Coast attorney from an inmate at Fort Leavenworth federal penitentiary. He said he was serving a five-year prison sentence for wire fraud that involved a credit union, brokered funds, and linked financing. He told the attorney that the Bureau of Indian Affairs was involved in many of the failures of financial institutions, and he said he knew the names of companies and people in those companies whose job it was to take gifts to BIA officials.
Ringing in Pizzo's ears as though it had been the day before and not five years earlier was Hansen's comment that he was getting money from the BIA. We called the attorney on the East Coast, but she had no idea what the BIA reference meant and, in fact, had paid no attention to it because it didn't make sense to her. So we contacted the prisoner at Fort Leavenworth who had written the letter and he gave us the leads we were after.
We discovered that the BIA controlled one of a number of large government trust funds that deposit brokers tapped into for deposits—brokers got deposit money from pension funds, credit unions, and oil sheikhs, and they also got deposit money from government trust funds. The BIA at that time managed $1.7 billion for American Indians. The Bureau was required by law to invest the money with government-insured institutions (by purchasing short-term C.D's), and as often as several times a week they notified brokers that they had money to invest. Brokers served as middlemen, searching the nation for institutions offering the highest interest rate on short-term C.D's on the day the BIA money became available for investment.
Brokers placing funds for the BIA were paid a commission from the institution that received the BIA deposits. There was fierce competition among brokers for the BIA money, and in depositions taken in the Fort Leavenworth prisoner's case in 1985, a deposit broker told the court it was his understanding that bribes to BIA officials in exchange for deposits were a routine business expense for deposit brokers.6
Since the S&Ls paying the highest interest rate on deposits were the S&Ls that were so desperate for money that they were willing to pay whatever it took to get it, this process put government in the position of rewarding, i.e., pouring money into, the nation's weakest financial institutions. For this reason regulators in Washington vehemently opposed the use of deposit brokers by managers of government trust funds. Their opposition centered on the BIA fund because it was the largest government trust fund, but when they tried to halt the investment practice they ran up against the political opposition of a tough lobby, the Indian lobby, which naturally enough wanted to get the highest possible return on its investments. FHLBB Chairman Ed Gray complained bitterly during this time that the BIA was channeling much of its deposit business to the country's weakest thrifts. He said that the BIA had funds in practically every thrift that had recently failed.
We now knew where Centennial got the fuel to power its enormous growth—from deposit broker Mario Renda and the money changers handling deposits for the BIA trust fund. There was enough money out there to feed hundreds of Centennials.
Centennial's purchase of Piombo, funded by brokered deposits, closed on January 6, 1983. In a staggering increase of assets. Centennial went almost immediately from a neighborhood savings and loan with a net worth of $1.87 million to a development conglomerate with thrift, construction, and development subsidiaries. The deal made Shah and Hansen wealthy and powerful, virtually overnight. Using the $1 million Centennial paid him for his Piombo stock, Shah bought up Centennial shares from disaffected Centennial shareholders until he became the thrift's largest single stockholder. He became executive vice president of Centennial, chief executive officer of Sonoma Financial Corporation (Centennial's new development subsidiary), and chief executive officer of Piombo, at a salary of $120,000 a year for five years, plus a yearly bonus (like Hansen's) of 10 percent of Centennial's profits. In a short six months Sid Shah had gone from construction engineer and failing developer to Northern California mover and shaker.
Hansen and Shah came to rely on brokered deposits to fund much of their activity at Centennial. But brokered deposits, with their combination of high interest rates and commissions to deposit brokers, were an expensive way to get money, so Hansen and Shah had to come up with a profitable use for it. And Erv, though he began short on funds, was never short on ideas. He planned to turn Centennial the sow's ear into Centennial the silk purse through real estate speculation. By early 1983 the critical pieces of the plan were in place, with one exception: Hansen wasn't satisfied with just his fat salary. He needed access to even more money.
A regulation prohibited thrifts from making more than $100,000 in unsecured commercial loans to their employees, officers, directors, or major share holders unless the Federal Home Loan Bank approved. Clearly that was an inconvenient rule for thrift officers with expensive tastes. How could Hansen and his cohorts participate personally in the real estate developments and reap the massive financial rewards they envisioned? A mechanism had to be triggered to circumvent this regulation. To that end Hansen formed close alliances with officers at other savings and loans. Immediately money began to flow like artesian spring water among the main players.
Hansen had an old friend who had become the head of his own thrifts — Columbus Savings and Loan in San Francisco and Marin Savings and Loan in nearby San Rafael, later combined to become Columbus-Marin Savings and Loan. Regulators would later charge that the two men conspired to make loans to one another in order to circumvent the loans-to-affiliated-persons regulations. Before it was over Hansen received three loans totaling $174,000 from Columbus-Marin, loans on which regulators said he was routinely delinquent. Court documents showed that Hansen's friend received $550,000 in loans from Centennial, and he then approved a $250,000 line of credit for Hansen at Columbus-Marin. The FSLIC later charged that Columbus-Marin also loaned $50,000 to Shah and made at least 14 loans to other Centennial executives, including a $505,000 loan for Dutch investor and Hansen/Shah business partner Nicholaas Sandmann.
Another reason to have like-minded thrifts "on the program" was to have a way to get rid of bad loans, and this was the role Hansen envisioned for Atlas Savings and Loan in San Francisco. Thrifts routinely sold parts or all of their loan portfolios to other thrifts. These transactions, called "participation's," were a perfectly legitimate way for the selling S&L to raise cash and the purchasing S&L to fatten its loan portfolio. But Hansen needed someone to sell his bad loans to—someone who might miss the fact that the loans had been made to shaky borrowers on property that was grossly over appraised. In short, Hansen needed a sucker, and that's precisely what he had in mind for Atlas Savings. Atlas soon found itself the proud owner of $6.5 million in loan participation's purchased from Centennial, and Centennial had some of Atlas's hard-earned cash. A year later these participation's would turn out to be a package of rotting, "nonperforming" loans, according to an FSLIC lawsuit. These, plus other loans Atlas bought from Centennial, ultimately led to Atlas's collapse in 1985.
We would discover as our investigation matured that participation's like the ones Hansen sold Atlas were the AIDS virus of the thrift industry) . Innocent thrifts exchanging loans with a thrift infected by fraud would find months later that they had picked up some terminally ill loans. Through the use of participation's in the 1980's, the thrift industry spread its problems much more widely than otherwise would have been possible.
In another case Erv fathered an ally when he had Centennial help it's young Sonoma County brothers, Leif and Jay Soderling, break into the thrift industry by loaning them $1 million of the $2 million they needed to start Golden Pacific Savings and Loan in Windsor, near Santa Rosa. Centennial promptly packed Golden Pacific's management team with people from its own ranks, ensuring that a close relationship would ensue. And it did.
"Erv just picked up the phone one day and called Jay Soderling, " Beverly Haines said. "He told Jay he needed $250,000 right away. Jay cut a cashier's check out of Golden Pacific and drove right over with it." Haines tapped Golden Pacific for $125,000 (which she said she gave to Erv), and regulators claimed Shah got at least $1 million.7 All these loans later went into default.
Meanwhile, back at the George Ranch, things were not going well on the Sandmann loan. Less than a year after getting the $5.4 million from Centennial, Sandmann was already in default, FSLIC attorneys later claimed. Legally, Centennial could have foreclosed on the project, taking it over for what Sandmann still owed. But Hansen and Shah interceded on behalf of their friend (and business partner). Rather than foreclose on the property. Centennial bought it from Sandmann's company, Damstraat (named for a street in Amsterdam), for $8.1 million, the FSLIC charged, allowing Sandmann to pocket a quick $3.7 million profit. Centennial then hired Sandmann as a project manager for six months and paid him yet another $300,000.
In 1983 Centennial moved its corporate offices from Guerneville to Santa Rosa, an appropriate move for a company quickly becoming a financial power in Northern California. The thrift bought and remodeled a large office building downtown on Fourth Street, and the total cost was pegged at somewhere near $7 million— 30 times the value of its former Guerneville home. Everything at the new office was first-class: oak, brass, etched glass, box-beamed ceilings, mirrored walls, plush carpets. There was a board room big enough to jog in with a conference table long enough to skate on. Western oil paintings graced the walls and cowboy sculptures stood on cabinets and desks. A five-foot-high solid crystal horse head dominated the conference room. Finally, Centennial Savings and Loan executives had the setting and accouterments that reflected their ambitions.
But as plush as Centennial's new home was, Hansen and Shah wanted more, and Shah had just the ticket. Back in 1980 he had purchased an old stone building on the outskirts of Santa Rosa, county records showed, for about $150,000. Built in 1909 as a hotel, the building had fallen on hard times and had last been home to a topless bar. Hansen immediately saw the big-ticket opportunity in that old stone building. He, Shah, and Sandmann transferred the property into a partnership they formed called Stonehouse Partners and later sold it to Centennial for $1 million, "as is. " Erv told Centennial's board of directors that the old building would make a wonderful headquarters for Centennial Corporation, the new holding company of Centennial Savings and Loan. Regulators said he did not tell the directors or the regulators (because it would have been a conflict of interest for him to benefit from the purchase) that he was one of the Stonehouse Partners.
Then the buying spree really began. Hansen, a renowned ladies' man, had made the acquaintance of a stunning young woman who fancied herself an interior decorator. He took an immediate liking to her, and the two began a relationship that ultimately would cost Centennial hundreds of thousands of dollars. When Hansen needed a decorator for the Stonehouse, according to Haines, he hired his young friend. Over the next few months the two of them flew often to Los Angeles and Las Vegas, on Centennial's twin-engine Cessna, on "buying trips." And buy they did. Hansen never required that she submit invoices for the furniture and art she bought, Haines told us, but simply had Centennial pay whatever she submitted in the way of bills. There were antique desks: Hansen's cost $48,000 and he paid extra to have American eagles carved on the front; Beverly Haines's, an old French Provincial, cost $12,000 and she complained that the drawer was too heavy to open. Then there was the $35,000 French Provincial gold-and-silver chess table with an inlaid marble top and matching gold-and-silver chessmen. Hansen wanted to use it as an end table, but a couch has two ends, after all, so a second table, a reproduction, was ordered for an additional $35,000.
In addition. Centennial spent over $1 million renovating the Stonehouse offices. A full gourmet kitchen was installed so the European chef, hired at $48,000 a year, could prepare meals for Centennial's business guests. Hansen spent $90,000 decorating his own office, which featured a full wet bar. The conference room was appointed with the finest in antique tables, chairs, settees, and Persian rugs. The building was simply magnificent. Santa Rosa had never seen anything like it. For those who had known Hansen just a few short months earlier, it was a disorienting sight.
Hansen moved the corporate office into the Stonehouse as soon as the work was completed. But four months later he moved everyone back to the Fourth Street building. The Stonehouse proved to be cold and uncomfortable.
"It remined me of a mortuary," Haines told us later. It was placed on the market, but there were no takers for the $2 million white elephant.8
Hansen and Shah then decided Centennial needed a place in San Francisco where they could entertain out-of-town dignitaries. So they purchased a penthouse ("a pied-a-terrific," gushed San Francisco columnist Herb Caen) on Lombard Street in San Francisco for $773,487. Again Hansen's interior decorator friend was employed to redecorate the place, for an additional $150,000.
Hansen wanted Centennial to have a way to chauffeur dignitaries from one place to the next, so Haines said that Sandmann, by then a Centennial vice president, arranged the purchase of a 1971 stretch Mercedes limousine for a mere $30,000. Unfortunately, the car was in Holland. By the time it was retrofitted in the U.S. to meet American smog and safety standards, Haines said, the car cost Centennial $77,000. Paying the bill, though, didn't mean Centennial owned the car, which FSLIC investigators later discovered was registered in Hansen's name.
Cars were an obsession with Hansen, and one afternoon he decided to go out during lunch and kick some tires. Before the afternoon was out he had purchased five cars for himself and his family: three station wagons, a four- wheel-drive pickup for his son-in-law, and a snappy Datsun 280Z for himself. The FBI reported the cars were paid for with an $89,792.42 Centennial Savings and Loan cashier's check. Hansen called Haines and told her to bring the check down right away. He told her he would reimburse the thrift later, but the FBI said he never did.
On special occasions, like weddings and civic events, Hansen made a point of being seen around town behind the wheel of his 1930's-vintage Rolls-Royce, for which he paid $137,000. And to ensure they did not feel left out, Hansen arranged for the heads of each of Centennial's several subsidiaries to receive brand-new Mercedes-Benzes, except Haines, who requested, and got, a BMW.
"I didn't want a big car," Haines told us.
It wasn't long before these spending sprees caught the attention of the public. Few knew quite what to make of them, but most people accepted the ostentatious life-styles of Centennial's top officers as one more piece of proof that the area was becoming a playground for the rich and famous. Almost everyone felt that Santa Rosa and the surrounding areas were destined for explosive growth. Looking at all the Centennial glitter, some saw it as the first positive proof that the boom times had arrived. And if that were so, then perhaps Shah and Hansen were the vanguards and visionaries who would blaze the shining path to success and riches for the rest. By throwing money around, Hansen and Haines rose to positions of considerable prestige in Northern California.
CHAPTER FOUR
$10,000 In a Boot
Erv Hansen was building Centennial into a center of financial power in Northern California. But not everyone shared his vision. A small but growing number of people began to openly express concern about Centennial's rapid growth and feverish activities. Something was fishy, people whispered. Savings and loans, "thrifts," were supposed to be thrifty, not splashy, deregulation or not. S&L executives were supposed to be staid, dour, predictable, thoroughly dependable fellows. What was Centennial up to?
The Russian River News continued to nip at Centennial's heels, and in May of 1983 Hansen gave $50,000 to a small competing tabloid in Guemeville called The Paper, which was having money troubles. The Paper's manager, Tom Richman, was soliciting financial support from the community to keep his publication in business. He dropped by Centennial, and Hansen was more than happy to help out. He paid the first installment—which sources said was $10,000—right on the spot.
"Hansen just reached down into his cowboy boot and pulled out a wad of cash and handed it to him," an FSLIC attorney told us. Hansen later said he hoped the extra money would tip the competitive balance between the two publications and put the Russian River News out of business. Fifty thousand dollars went a long way in a town of 1,700. Richman later described the $50,000 as a gift. Documents filed in a FSLIC suit showed Centennial even considered becoming The Papers partner.
But Hansen was interested in buying more than good press. Success and money always attract politicians, and Centennial attracted its share. Congressman Douglas Bosco, a Democrat, came from a small town near Guerneville where he had been a Haines family friend. A born politician, he was an attorney and former member of the California state legislature (where he was a member of the Assembly Finance, Insurance and Commerce Committee). Centennial was quick to lavish attention on Bosco. Bosco's mother was given a job working for Haines at Centennial, and Shah hired a friend of Bosco's to manage Shah's company, Lakewood Enterprises.
Hansen, Shah, Haines and various family members were listed as contributors to Bosco on his 1983 and 1984 disclosure statements. In addition, Bosco borrowed $124,000 from Centennial and $65,000 from Golden Pacific between 1982 and 1984. ' His payments were often late and a thrift executive told us S&L officers had to call Bosco in Washington to discuss bringing his payments current. Bosco said the tardiness was caused by frequent moves. In 1984 Bosco used Centennial's private plane to attend the funeral of a constituent and failed to report it on his federal financial disclosure form. He said the failure was an oversight. In 1986 he was questioned by the FBI about Centennial Savings but he was not accused of any wrongdoing. (An FBI agent told us that if the FBI investigated Bosco for his relationship with Centennial, they'd have to investigate all congressmen because they all did the same thing. ) Bosco said his relationship with Centennial was completely above board, that he never asked them for any personal favors, nor did they ever do him any. But with powerful friends Centennial Savings' influence in the community prospered nicely.
One of the more remarkable political relationships that developed at Centennial was between Sonoma County's chief law-enforcement officer. Sheriff Roger McDermott, and Hansen. The sheriff was a guest on several flights of Centennial's corporate plane and accompanied Hansen and others on trips to Canada and Las Vegas. McDermott also became a partner in a construction company that was working almost exclusively on Centennial projects, including a multi-million dollar condo development in Bullhead City, Arizona, on the Colorado River about 60 miles south of Las Vegas.
Centennial's sweet scent went out beyond Sonoma County, and like bees to honey, individuals with criminal backgrounds and organized crime connections found their way to the savings and loan. For them, we would learn, deregulation of the thrift industry was the best thing that had happened since Prohibition poured millions of dollars into their ever-waiting hands.
Soon after Shah became a central figure at Centennial, Pizzo went to the county recorder's office to research Shah's land holdings and real estate transactions, and he discovered documentation of several local deals between Piombo and Jenson. Pizzo found Jenson to be a shadowy character who left a confusing paper trail. He drifted in and out of complex deals in ways that left Pizzo wondering what was in the deals for Jenson. in many of Jenson's joint-venture partnerships with Piombo, Jenson eventually, mysteriously, deeded without remuneration his portion of the joint ventures to Piombo. Property didn't seem to get bought and sold, it just appeared and then got transferred. Jenson was maddening to trace, always hidden behind several layers of paper corporations and powers of attorney. To Pizzo he seemed to be acting like a man with a lot to hide.
Pizzo checked further into Jenson's past and more questions surfaced. Jenson had been a principal in the Holiday Casino in Las Vegas, and he and a partner had held a $1.7 million mortgage on the Shenandoah Hotel and Casino. Evidently he carried some weight in Las Vegas casino circles. A computer search on Jenson's name coughed up a 1981 United Press International story about the indictment of two men from New Jersey charged with extortion. According to the article, Thomas Principe, 49, described by the FBI as "one of the most prolific hit men on the East Coast," and Dominick D'Agostino, 64, who had interests in the trucking business, were charged with extorting $300,000 from two Philadelphia developers. The money, according to federal investigators, had been extracted under threat of violence to their persons, property, and families to finance a Las Vegas casino project. The $300,000 was allegedly delivered to Thomas DiBiasi, an attorney, who then made out a check in that amount to Norman B. Jenson and his partner, owners of the proposed casino site. (Jenson later told us he became a government witness in the case.)
As the months went by Pizzo periodically checked filings at the county recorder's office, but nothing new appeared in Jenson's name, and there was no evidence to connect him directly to Centennial Savings. His relationship seemed to be with Shah and Piombo, not Centennial. Not until three years later would Pizzo get the tip that unraveled the Norm Jenson mystery:
One afternoon in August 1986 Pizzo was sitting in the Russian River News office reading a recently delivered copy of the National Thrift News. He spotted a story about the collapse of three thrifts, one in Washington state, one in Texas, and another in Louisiana, and he glanced through the article, wondering how such widely separated thrifts might have been related. A name buried on the third page, near the end of the story, jumped out of the gray text — Norman B. Jenson. The FSLIC was claiming in a lawsuit that the three thrifts had conspired to make Jenson a $4 million loan on a Las Vegas casino, the DeVille Casino, for which they said Jenson had paid a $50,000 kickback to the president of the Louisiana thrift, Guy Olano. The loan later went into default.
The fact that Jenson had been dealing with thrifts in Louisiana, Washington, and Texas had staggering implications for Pizzo. He had developed a nagging suspicion that what he was seeing at Centennial might be happening at other thrifts as well. His suspicion was based on nothing more than the belief that if a looting were in progress at Centennial, perhaps other thrifts were also being victimized. He had mentioned his suspicions to state regulators, but they treated him more like someone reporting a flying-saucer sighting than someone sounding an alarm. He continued to worry nonetheless. The deals were just too smooth and too slick, and too much money was disappearing, for this to be no more than a pack of amateurs fleecing a bank.
The National Thrift News story lent unexpected support to these concerns. If Jenson was out there working over other thrifts—in a deal that had involved thrifts in three states—then maybe he wasn't alone. Were there others? Who were they? Was this a nationwide conspiracy? How bad was it? Could the Mafia or other organized crime figures be involved? Were they networking? How? How many thrifts were threatened? Pizzo made some phone calls to defense attorneys and learned that Jenson's loan had been arranged for him by a loan brokerage firm in San Antonio, Falcon Financial, owned by loan broker John Lapaglia, who was in federal prison serving a 14-month sentence for failing to report $169,000 in income on his 1979 federal tax return. In John Lapaglia we had our first clue as to how events at several savings and loans might be connected.
Loan brokers put borrowers together with lenders for a commission—and sometimes a piece of the action. If the borrower were on the up and up, the broker's service was a service to all. But if the borrower were a crook, the loan broker knowingly or unknowingly could become a kind of traveling host to that dangerous virus, introducing it to thrifts from coast to coast. We learned that a handful of roving loan brokers traveled this country like nomads, putting deals together. They were the synapse across which both legitimate and illegitimate business jumped in the thrift industry. When deregulation of the thrift industry greatly expanded thrifts' ability to invest in multi-million dollar real estate projects, it created a gold mine for loan brokers (whose commission was based on a percent of the loan). Deposit brokers pumped money into thrifts and loan brokers pumped it out.
Jenson's involvement in the complex DeVille Casino deal put him in a new light, and Pizzo decided to investigate him more intensely. During a search for documents relating to Jenson, Pizzo turned up a deed for a Santa Rosa home that he learned had been the subject of an arson probe by county investigators after a predawn fire on December 2, 1982. He contacted a county fire chief who had become an important source for him on fire-related news stories, and the fire chief outlined the facts surrounding the arson. Then Pizzo gradually pieced together the rest of the story.
Residents in a prestigious hillside neighborhood above Santa Rosa had been jolted from their sleep by the dreaded sound of fire sirens one night in December 1982. From their bedroom windows they had peered through oak trees at the glow of a fire that lit up the night sky as it destroyed a three-bedroom redwood home on Lower Ridge Road. When firemen arrived they had to pry open a locked security gate to get inside, and by that time the expensive home on the five-acre estate was engulfed in flames. Firemen found no sign that anyone was at home. Later, when questioned, neighbors told strange stories of a young couple named Miller who kept mostly to themselves, of limousines with darkened windows that came and went at all hours of the night, of Doberman pinschers that roamed the grounds.
Arson investigators determined that someone had set the fire by dumping gasoline down the hall and stairs. They also discovered that before the fire someone had thoroughly ransacked the house. Walls had been torn open, floor- boards ripped up. Fire officials began a records search for the property's owner and they came up with Jenson and a company in Las Vegas, D.J. Investments. Calls to Las Vegas turned up no D.J. Investments, so they phoned Jenson. When first asked if he were the owner of a home on Lower Ridge Road, he told arson investigators he was, but after being told the circumstances that led to the call, he quickly backed away from his earlier statement, saying that he had been mistaken, that he didn't have anything to do with the house.
County arson investigators continued to sift through the charred ruins until, on the third day, federal agents suddenly appeared on the scene.
"There were eight of us investigating the fire," recalled fire investigator Kevin O'Shea. "These feds called us together and told us our investigation was over. They told us to forget everything we had seen there, that as far as we were concerned, it never happened. They even told us to destroy any notes we might have taken. 'This never happened,' they said." At that point federal agents took over the investigation. [Which raises the question,how is Jenson tied to the feds,an asset to which agency? DC]
Jenson continued to refuse comment and no fire insurance claim was filed. But an investigator told us they discovered a tantalizing clue in the rubble: a smoke-stained business card that simply read "Morrison Energy International, Dean Chandler, sales." On the back someone had penciled instructions on how to work the security gate. Investigators called the Santa Rosa phone number printed on the card and a secretary answered, "Lakewood Enterprises. " Lakewood was Sid Shah's real estate company. Questioned by arson investigators, Shah disclaimed any intimate knowledge of Dean Chandler or Morrison Energy International, saying only that he let Chandler use his phone number for messages. However, Pizzo discovered on a 1982 financial statement prepared by Shah that he owned 5,804 shares of Morrison Energy International stock, which he valued at $60 a share. Why was Shah trying to hide from investigators his involvement with Morrison Energy?
Questions surrounding the 1982 fire at the Lower Ridge Road home grew as time passed but no answers were forthcoming. The house sat charred and empty. No one made a move to clean it or fix it. Occasionally federal agents would arrive at the scene and sift through the ashes. The home's former occupants, the "Millers," had vanished. Neighbors in the tony neighborhood began to complain that the place was an eyesore. Their complaints finally forced Norman Jenson to come forward and assure them the property would be cleaned up. Who would be doing the work? "Piombo Construction Company," they said he told them.
Going back again and again to his federal sources knowledgeable about Jenson, Pizzo learned that the burned house, the "Millers," Norm Jenson, and Sid Shah had become the center of a massive Organized Crime/Drug Enforcement Task Force investigation that had set up shop in the Federal Building in Santa Rosa. For five years a 12-agency team would investigate a $300 million international drug ring. Then the U.S. attorney would hand down an indictment alleging that the ring laundered its money through Sid Shah's and Norman B. Jenson's complex real estate deals.
Jenson was the first red flag that went up for Pizzo. Then a second warning flag was raised when Pizzo learned that reputed Mafia associate Richard Binder had shown up at Centennial's loan window and had borrowed over $1 million. With Binder had been Dave Gorwitz, a fellow with a long criminal record and established Mafia ties. Gorwitz was also old friends with Paul Axelrod, according to mobster Jimmy "the Weasel" Fratianno, who described Axelrod as Morris Shenker's "banking expert."
Binder's friend Gorwitz had pulled swindles on the West Coast before. In 1975 Gorwitz had made San Francisco headlines when he was caught up in the high-profile prosecution of California State Senator Richard Dolwig. Dolwig had lent his name and influence to an advance-fee loan scam run by Gorwitz and David Kaplan, another minor hood.2 Kaplan turned state's evidence and in open court described Gorwitz as a muscleman for the mob. Other court testimony stated that Gorwitz was a financial adviser to Salvatore M. Caruana (described by federal officials as a highly placed organized crime figure with links to the Patriarca family).' Gorwitz, "Uncle Dave" to his friends, was convicted and served four years in prison, his second prison term. He had served time earlier on a counterfeiting conviction. After serving his sentence in the Dolwig case, Gorwitz headed for Massachusetts, where he became involved with Richard (Dick) Binder in a mysterious precious metals venture, the Bay State Gold Exchange, which later was the subject of a Boston Globe investigative piece.
Three times a week, the Globe reported. Binder withdrew cash from a nearby bank, mostly in $20 bills. He visited the branch over 100 times and withdrew $8.1 million from Bay State's checking account in just 11 months. He stuffed it into a brown suitcase and left. Garuana would show up regularly to make six figure withdrawals from Bay State's "petty cash" drawer, according to former Bay State employees. When precious metal prices crashed in 1981 so did Bay State, not long after a Bay State associate was found shot to death and stuffed in the trunk of a car. Federal investigators were interested in Binder's activities at Bay State by that time, but a fire at Binder's home destroyed all of Bay State's records.
"Bay State emerged from the foam of the sea and dipped back beneath the waves," one investigator told the Globe.
Binder and Gorwitz left Boston in a hurry after their little "enterprise" ended in the probing story in the Boston Globe. When Binder and Gorwitz emerged from the sea of foam to start a new life in Santa Rosa, they were immediately put under FBI surveillance. Nevertheless, Binder zeroed in right away on Centennial. Hansen became a customer at Binder's newly opened Santa Rosa jewelry store, and in November 1982 Binder borrowed $5,800 from him, which bankruptcy records say he never repaid. Between 1984 and 1986 Binder also borrowed, and then defaulted on, over $ 5 million from Centennial and two other Northern California lenders. (Between 1984 and 1986 bankruptcy court documents showed Binder borrowed $385,000 from Bank of America, $1,151,000 from Central Bank of Walnut Greek, and $1,450,000 from Centennial.)4
Centennial might have lost even more to Binder and Gorwitz if a certain $6 million land deal had gone through. The pair had their eyes on five acres of land on the outskirts of Santa Rosa. Binder brought Gorwitz in as a "consultant," for which Uncle Dave was to get 25 percent of the action, according to later court testimony. A lawyer began a draft agreement but Gorwitz insisted his name not appear on any of the documents, that instead his interest be hidden in an offshore corporation. Suddenly the owners of the land backed out of the sale. Shortly thereafter federal regulators swooped down on Centennial and closed the thrift (in August 1985), and Binder declared bankruptcy and returned to the East Coast, his four-year stay in Santa Rosa abruptly terminated.
The Gorwitz connection left little doubt in Pizzo's mind that organized crime figures, or people with ties to organized crime, were sucking money out of Centennial.
While Erv Hansen was welcoming borrowers with questionable credit records, he was proving there was no end to the ways he could pull money out of little Centennial. In early 1984, soon after the fabulous Christmas party that had all of Northern California talking, the board of directors of Centennial announced that Shah and Hansen would receive kingly bonuses of $818,000 each. The combined amount, $1,636 million, represented nearly two-thirds of the $2.6 million net profit Centennial claimed for 1983.
Federal regulators would later learn that in reality the $2.6 million "profit" was an engineered illusion. Hansen had created $4 million in "profits" by "selling" to Atlas Savings and Columbus-Marin Savings Centennial's interest in some partnerships it held with Atlas and Columbus-Marin. The sales were reversed almost immediately in 1984, with Centennial buying the same interests back from the two thrifts and paying them a profit for their trouble. In other words, whatever profit Centennial made on the sale in 1983 was wiped out in the buy-back a few months later. The deal fattened Centennial's bottom line at the end of 1983. This was the stuff bonuses were made of.
But there was nothing phony about the $1.6 million bonus Shah and Hansen got. With bonuses and salary together, the two had each earned well over $1 million after the first year together as a team at Centennial.'5 Understaffed regulators had let Centennial go its own way for nearly two years, but the huge bonuses finally caught their attention and they dubbed them "excessive," stating that Hansen's compensation was five times that of any other thrift president in the F.H.L.B's eleventh district.6
But even under the hot breath of angry regulators Hansen found a way to compound his larceny. In response to regulators' criticism of his bonus, Hansen called Centennial's board of directors together and told them that if his management contract—which allowed him a salary of $100,000 a year plus a chunk of the profits (real or imagined)—was going to cause Centennial problems with the regulators, he was willing to renegotiate his contract. But first the board would have to buy out his old contract, and he wanted $350,000 for that. Hansen also demanded his salary be increased to $250,000 a year if he had to give up profit sharing. Like everything else Hansen proposed, his offer was accepted by his board of directors. (A former chairman of Centennial's board explained the board's acquiescence by telling us that whenever the board opposed Hansen, he became furious and threatened to replace them with people who would do what he wanted, when he wanted.)
Hansen's new contract, and the $350,000 he extracted from Centennial to set aside his old one, just added insult to injury and regulators hit the roof. Of course in 1984 "hitting the roof meant regulators wrote Centennial a letter and demanded that the board do everything possible to get Hansen and Shah to return some of their "excessive compensation " The board agreed but regulators later charged that the board made little or no effort to get the money back, and regulators soon had other matters to occupy their attentions.
Hansen reveled in his new role as empire builder, even if those empires were built in the clouds. He formed a Centennial "hunting club " and purchased $500 shotguns for himself and his covey of rural groupies. He hosted a gala fishing expedition to Canada, bringing along his drinking buddies and Sheriff McDermott. After admiring a Western belt buckle he had seen on another high flier, Hansen had one made for himself Built into the gold-and-silver buckle was a small pistol that snapped out and could actually fire a .22-caliber bullet.
No deal was too big or too small. During a slow afternoon one day, Beverly Haines, Hansen, and a business associate purchased a small, run-down rural house for $40,000. Documents on file at the county recorder's office told us the rest of the story. The same day the group bought the property they deeded it back and forth among themselves several times, each time raising the recorded value. (This maneuver is called a "land flip," and it is illegal if it is being used to defraud a lender. ) The final deed recorded was a trust deed securing an $80,000 loan from Atlas Savings and Loan on the property. This little impromptu partnership had spent a couple of hours signing documents and turned a $40,000 purchase into a $40,000 profit. Kind of a "nooner," financially speaking. Naturally the loan went into default.
On another occasion Hansen, Shah, and Dutch investor Neik Sandmann paid $50,000 for a two-thirds share of an old stone warehouse near the railroad tracks where bums jumped freights. County records showed they "flipped" the property among themselves and their partnership several times, raising the value each time, and capped off the transactions with a $487,000 loan, again from Atlas Savings. Eventually they defaulted on the loan and regulators said Atlas had to sell the property at a considerable loss.
Shah took an interest in mushrooms and he purchased a small mushroom farm near Santa Rosa, making Hansen and Haines partners in the operation. Hansen then had Centennial put $1.5 million into a large, bankrupt mushroom company in Washington state. Regulators claimed Shah's plan was to merge all the mushrooms operations into one and corner 80 percent of the West Coast market, but in 1984 he left Centennial holding the bag for $4 million in nonperforming loans to the project and Shah ultimately placed his mushroom empire. Mushroom King, into bankruptcy. And just where were thrift examiners while all this frolicking in the vault was going on? Centennial should have been under scrutiny by both state and federal examiners because it was a state-chartered thrift and a member of the FSLIC. But the state examination staff had been decimated by the defection of thrifts to federal charters, and the numbers of examiners on the federal level had also been cut. In 1980, prior to deregulation, there had been over 700 federal examiners to cover the country's 4,002 thrifts. But deregulation was interpreted by Washington to mean there would be less need for regulation, and examiners had been cut to 679, even though the number of institutions in trouble had begun a sharp rise.
"Haven't you heard of deregulation?" a frustrated regulator told Pizzo one day when he called to ask them why they weren't all over Centennial. "We don't supervise these institutions like we used to."
Since frequent on-site examinations were impossible, regulators often relied on supervision by mail. Examiners would study records supplied by Centennial and fire back complaints. "We got dozens of these warning letters," Beverly Haines later told us. "They'd send us a warning letter on a deal or transaction they felt was unsound or a violation, and tell us not to do that anymore. Then they'd say that since it was already done, that at the very least we should go back and get the board of directors' formal approval for it." For well over three years that was the extent of the "punishment" handed out to Hansen et al. The demoralized employees who remained at the California Savings and Loan Department and Federal Home Loan Bank, after staffs were cut, were paralyzed. Higher up, in the policy-making levels of the regulatory apparatus, the reluctance of the system to admit it had a self-induced cancer was enormous.
Hansen had his own way of appeasing regulators. He'd hire them. Pat Connolly, former state deputy savings and loan commissioner, became a Centennial director, executive vice president, and managing officer in 1984. His job, in Hansen's mind, was to keep the staff at the state commissioner's office off Centennial's back, Haines told us. And he was paid handsomely for his services.
"One minute Connolly was working for the state of California earning $40,000 a year," explained Haines. "Hansen hires the guy and suddenly he's pulling down $80,000 a year. In December of 1984, just two months after being hired, he gets another $40,000 bonus. All he had to do was calm the regulators down." (Connolly did not reply to our requests for an interview.)
Banks and savings and loans were required to have periodic audits of their activities. The audits had to be done by recognized, qualified accounting firms. Centennial used, first, Alexander Grant 7 and, later. Peat, Marwick, Mitchell & Co. But even though the F.H.L.B.B required an independent audit of thrifts, the tab for the auditor's services was paid by the thrift being examined. Furthermore, the law did not require the auditor to report irregularities to the F.H.L.B.B or law enforcement but only to thrift management. It was then up to the thrift officers to take corrective action or, presumably, to turn themselves in if they had broken the law. This policy resembled requiring a fire marshal to report to Nero that Rome was ablaze. (During our investigation we heard of several occasions when thrift officers would offer auditors kickbacks, gifts, or a high-paying job with the S&L in exchange for a clean audit. If the auditors refused to cooperate, the thrift would change firms.)
"At Centennial an auditor for the independent auditing firm actually sat in on board meetings and helped them structure the Piombo deal [purchase)," said Haines. Later the auditor became a Centennial officer. Investigators told us Centennial eventually hired seven of its former auditors in a revolving-door pattern investigators said they found troubling.8
With the money flowing at full force. Centennial generated an almost irresistible momentum about it. All who came within its orbit felt that force and many bent to it. Was Centennial the promise of deregulation realized? Or was it a hijacked thrift careening out of control? No one seemed to want to try to sort out the answer to that question during 1983 and 1984. Centennial appeared successful and powerful, a trend setter, and most people were content to climb on board and enjoy the exhilarating ride.
CHAPTER FIVE
The Downhill Slide
Everything went Erv Hansen's way at Centennial for nearly two years. When
anyone on Centennial's staff or board of directors dared challenge him, he flew
into a fury of self-righteous indignation. He bragged, cajoled, and bullied his way through the months. With Beverly Haines running the money desk, brokered
deposits and jumbo C.D's poured into Centennial's coffers—and out the other
end. Regulators alleged that Hansen, Shah, Sandmann, and others pumped that money off into projects of their own. For a time the examiners and auditors,
who were supposed to ensure that precisely this kind of looting never occurred,
seemed not to care. And their former colleagues, who were by that time working
for Centennial, assured them all was well. But hiring former examiners and auditors wasn't going to keep Hansen's house of cards together forever, and by mid- 1984 he came under increasing pressure from regulators who began to make the kinds of noises that Hansen, a former regulator himself, knew preceded real action. Someone had to take the fall. Behind the scenes it was somehow agreed to lay the blame for Centennial's excesses on Shah. Hansen informed the feds that Shah was the problem and that Shah would resign. Stories were even floated in the local press that Hansen and Shah had had a falling-out. Shah told reporters he had private interests to pursue (mushrooms among them). He said he was not the corporate type and no longer fit in at Centennial. The truth, it was later revealed, was that regulators had required Centennial's management to sign a supervisory agreement in which they agreed to cease any dealings with Shah.1
Shah's contract was terminated, but, like Hansen before him. Shah exacted a price for voiding his contract and, regulators said, took one more dip in Centennial's pool of liquid assets. Shah received $450,000 for his stock and $500,000 to buy out his employment contract with Centennial. FSLIC attorneys later charged Hansen arranged the stock purchase by inducing Centennial's directors, whom the FSLIC would refer to later as "a rubber-stamp board," to buy Shah's shares. Under the scheme the directors would pay $60 a share for Shah's shares, $25 in cash and $35 in promissory notes.
Hansen made Centennial lines of credit available to the directors in excess of the cash amount they needed to purchase Shah's shares. Regulators said the excess funds were intended as an incentive to the directors to participate in the scheme. The result was that Shah received $450,000 directly out of Centennial's coffers for his shares. Later the promissory notes signed by the directors/straw purchasers were "forgiven" by Shah, regulators charged, thereby relieving them of that obligation. The FSLIC claimed Shah's departure cost Centennial another $750,000.2
Despite Shah's sacrifice on the regulatory altar, Hansen's life continued to get more complicated, even dangerous. In May 1985 Hansen, Haines, and Shah learned through Hansen's friend Sheriff Roger McDermott that two disgruntled former associates may have hired a hit man to deal with the trio. Haines said that on a spring evening in May, after dinner and drinks, McDermott took Hansen back to the courthouse and swore him in as a special Sonoma County deputy. He gave him a badge and Hansen began carrying two pistols for protection. Deputy Erv was born. Hansen had a photo taken of his swearing-in, which he proudly hung on the wall behind his desk. As for the hit man, no one ever came forward. (After Centennial's collapse and the ensuing FBI investigation, it was discovered that sheriff's office files referencing Erv's special deputy status and gun permit were missing. Sources within the department said that only a three-by-five, cross-reference card remained to show that a master file had ever existed. McDermott was not reelected as Sonoma County sheriff, quietly left office, and maintained his silence on these events.)
For a while Hansen was successful in promoting the myth that all of Centennial's problems had been caused by the uncontrollable Sid Shah. Now, with him gone, Hansen said he was "trying to hold this thing together." But by late spring of 1985 Hansen was telling friends that he expected regulators to remove him from office—though not before he made one more valiant effort to hold off Centennial's day of reckoning. Regulators had told Hansen that, to avoid being declared insolvent. Centennial needed an infusion of $7 million. Undeterred, Hansen had another rabbit up his sleeve.
Centennial's wild ride had begun with its purchase of Piombo and, ironically, would end with its "sale." Hansen announced that he had found a buyer for Piombo, a buyer who would pay a whopping $25 million for the construction company, $12 million more than Centennial had paid for it two and a half years earlier, even though Piombo had been gutted of most of its valuable real estate holdings during its short stay at Centennial. This "profit" would produce the cash that regulators were demanding Centennial raise in order to stay in business. Here for the first time we ran into a tactic that nearly every thrift bandit we met would employ as a last desperate effort to ward off an FSLIC takeover—the White Knight.
Piombo's purported buyer was Sierra Diversified Investments (SDI), headquartered in Shingle Springs, California.* But when we tried to find SDI we discovered it had no phone listing or utility company accounts there. Equally mysterious were SDI's two principals, Dave Bella and Edward Blair. Sources inside Centennial complained to us that they knew little of the pair except that "we hear they are in the tire recapping business, or something like that."[You should search this,'White Knights' do not exist in places like that,but a spook would DC]
Not only did the mysterious company and its owners raise regulators' eyebrows, but the transaction's terms turned out to be a regulator's nightmare: SDI would pay only $100,000 in cash. The rest of the $5.75 million down payment was to be in the form of promissory notes and deeds. SDI agreed to make other cash installments of $2.6 million in four months and $1.5 million in eight months. Nineteen million of the $25 million was to be carried by Centennial as a 30-year loan.
Regulators sent no weak-kneed warning letters this time. Finally, enough was enough. They gave Hansen a clear, unmistakable order: Do not consummate the Piombo sale. But Hansen rushed the sale to completion anyway, quickly transferring Piombo to SDI. At the closing SDI put up $100,000 and in return got the keys to Piombo. They also got Piombo's bank accounts, which contained over $800,000, and Hansen extended $1 million in operating loans from Centennial to Piombo's new owners. (Several weeks after Centennial was seized, FSLIC negotiators wrestled control of Piombo back from SDI, but not without additional cost. Since possession is still nine-tenths of the law, and since Hansen had given SDI possession of Piombo, the FSLIC had to pay SDI to let go. According to a source close to the negotiations, the tab was $300,000.)
The Piombo sale was the final outrage. At 5 p.m. on August 20, 1985, a small army of FSLIC examiners, auditors, and private security guards stormed Centennial's branches. A representative of the Federal Home Loan Bank Board' walked up to Hansen, handed him a letter from Washington, and said, "Mr. Hansen, we are declaring Centennial insolvent. You are hereby removed as chairman of the board and president. Please give us your keys and do not touch anything on or in your desk."
If there was ever a moment to call in one's I.O.U's, that was it, and that night Centennial's favorite congressman, Doug Bosco, announced from his home in Washington, D.C., that he was outraged by the Bank Board's action. He said that he was concerned for Centennial's shareholders and that he knew Hansen and considered him to be a kind, generous, and humanitarian man. He said he was going to personally investigate the Bank Board's seizure of Centennial.
Bosco was just one of the first in a long line of congressmen and senators who would interfere with the regulatory process in the name of constituent service. Bosco was later forced to make an embarrassing public retraction when a group of conservative bankers threatened to withdraw their financial support for Bosco if he did not distance himself from the likes of Erv Hansen. A spokesman explained their reasoning: "My feeling is that a legislator should have all the facts before criticizing federal regulators. Centennial was a high-flying organization that was headed for trouble for a long time."
The headline in The Paper that week (the tabloid Hansen had given 550,000 to, as a "gift") read, "Centennial is dead. Long live Centennial." The paper ran an editorial that was a eulogy to Centennial written by the publisher.
The day after the takeover Pizzo ran into Hansen in a bar that Beverly Haines owned in Guerneville, and they spent a couple of hours talking things over. Hansen showed none of the animosity he had earlier displayed toward Pizzo. Now he wanted sympathy. Over a beer he sang the blues.
"They came in and fired me," Hansen said. "One little punk looked me in the eye and said, 'Hansen, we're going to put a number on your back.' No, they won't, because I didn't do anything wrong."
When the boom fell Centennial had swollen to $404 million in assets, a 1,000 percent increase in just 32 months. Eighty percent of Centennial's $435 million in deposits were high-cost brokered funds in certificates of deposit.'' The days following the takeover found regulators gasping in horror and disbelief, we were told, as they picked through Centennial's rubble. Thirty-six percent—$140 million—of all of Centennial's outstanding loans were tied up in high-risk development ventures owned by Centennial's own subsidiary companies or cronies.
The feds immediately fired Haines and 14 of the thrift's officers. Centennial was dissolved as a privately held, state-chartered stock thrift and was converted to a federal mutual, an institution that is theoretically owned by its depositors and borrowers. At that instant $7 million in stock, owned by 300 stockholders, some of them Centennial's founders, became worthless. The day after the take- over Pizzo walked into Centennial's small Guerneville branch and found an elderly Centennial employee in tears.
"I should have known," he said. "I invested every penny I'd saved for retirement—$50,000—in Centennial stock, and now it's all gone. I'm too old to start over. I should have known. It's my own fault. I should have known when Hansen walked by me every day, never even shook my hand or said hello. " Centennial became known among federal regulators in San Francisco as the Eleventh District's "dirtiest thrift" —a reference to what they said they saw as a sordid and wide-ranging labyrinth of fraud and self-dealing. With every day that passed the magnitude of the mess mounted. Centennial was $36 million in the red, then $60 million, $90 million, $1 12 million, and on it went. The further examiners looked, the more rot they found. There were loan files, for multi-million dollar loans, that contained no appraisals or other required documentation. The FSLIC "SWAT" team found the $48,000-a-year European chef on the payroll, the company plane that was costing $35,000 a month in tie-down fees and maintenance, and the San Francisco penthouse. They seized over 25 company cars that ranged from Mercedes sedans to a stretch limo. And the $2 million Stonehouse, filled with European antiques, still sat vacant on the outskirts of town.
Hansen retired to his $500,000 home in Santa Rosa while officials began sorting through the wreckage to determine if any federal laws had been broken. In a last-ditch effort to salvage his dream, Hansen filed suit against the F.H.L.B.B, charging that their seizure was precipitous and premature. The case was soon dismissed and Hansen went back home to spend the next two years brooding in his Santa Rosa mansion.
On the heels of the takeover an FBI investigative team, specialists in white collar crime, arrived in Santa Rosa to investigate violations of banking regulations. Special Agent Pat Murphy, an accounting specialist, and his partner, Special Agent Ernie Cooper, an attorney, got the thankless task of unraveling thousands of pages of old loan documents, title reports, deeds, and loan applications. There were a lot of unanswered questions, and, at that time, no one was talking.
For ten months the investigation limped along with little progress. The deals were mindbogglingly complex, and the chance of nailing someone for clear criminal activity began to seem remote. Then chance dropped a veritable Rosetta Stone right in the FBI's lap, and at 8 a.m. on September 3, 1986, Pat Murphy, accompanied by a woman FBI agent, knocked on the door of Beverly Haines's magnificent home in Guerneville. A sleepy Haines, still in her bathrobe, answered.
"Beverly Haines," said Murphy, "I have a federal warrant for your arrest for embezzling $1.6 million from Centennial Savings and Loan."
Haines and an accomplice, who worked as the manager of the headquarters branch of Centennial in Santa Rosa (he had not been among those fired after the federal takeover), were taken into federal custody the same day. What was remarkable about the charges was that the money they embezzled was taken both before and after the federal seizure of Centennial, while the place was thick with federal auditors and FBI agents. Haines had become accustomed to having unrestricted access to Centennial's petty cash drawer, and after she was tossed out by regulators it hadn't taken her long to figure out a way to keep the money flowing.
Haines, who had been the young branch manager's boss at Centennial, had convinced him to aid her in a complex check-kiting scheme.' Over $5.8 million was missing, though investigators said they could specifically tie only $1.6 million to Haines. She had facilitated the complicated fraud by opening over thirty checking accounts at Centennial and Bank of America." Haines wrote checks for large sums of money—$145,000, $90,000, $125,000—on her Centennial accounts and deposited them at Bank of America. She then had Bank of ,America issue her cashier's checks for like amounts, which she converted to cash. When Haines's checks came back to Centennial for collection, her accomplice admitted, he sent the money to Bank of America but hid the checks in his desk or briefcase so there would be no record that Haines's accounts at Centennial were grossly overdrawn.
Federal investigators could not say what Haines did with all the money, and though Haines provided detailed testimony on alleged wrongdoing by others,7 she remained vague about where her money was.
"They just don't understand, " she told us. "It was all just kited checks, there really wasn't all the money they say there was." But she put those checks to very real uses. A workout specialist hired by the FSLIC to collect on bad Centennial loans said Haines even tried to pay off a $50,000 Centennial loan with a kited check..
"She readily agreed to repay the loan when we confronted her with the demand," he said. "She was really gracious about it and wrote us a check in full. What we didn't know then was that she was kiting checks out of Centennial and so what she did was repay us with our own money. "
Another place a goodly chunk of Haines's money went was into her home in Guerneville. From practically the day things began to roll at Centennial in early 1983 until well after the federal takeover in 1985, workmen and craftsmen worked day in and day out on the Haines home. They transformed a once modest summer cabin into a luxurious two-story, 3,000-square-foot home suitable for the pages of Architectural Digest. It had over a dozen handmade stained-glass windows, three fountains, an elevator, a tile workout room complete with sauna, electrically operated skylights throughout, a sunken hot tub in the master suite, Italian-marble showers with gold-plated fixtures, suede carpets, and hand-carved doors. There was even a vault to store furs.
Haines began cooperating with the investigation almost immediately in a desperate effort to stay out of prison. Perhaps to inspire just such behavior, the assistant U.S. attorney in charge of the case, Peter Robinson, had Haines, following her arrest, held over the weekend in the Oakland County jail. Jail was definitely not Beverly's cup of tea, and when she was let out on bail, the feds' only problem was keeping up with the furious pace with which she began turning evidence against her former compatriots. She even agreed to give speeches to banking executives about bank fraud.
Haines's arrest and decision to turn state's evidence was a severe blow to Hansen. Acquaintances .said his normally cocky, self-assured demeanor gave way to an increasingly sullen mood. A heavy drinker, he now indulged even more.8 Finally, one night in early 1987, he showed up at Community Hospital's emergency room with what was reported to be a self-induced drug overdose. With Haines talking to the feds, and his attorney advising him not to be seen talking with Sid Shah, Hansen felt isolated and sent tentative feelers out to the federal authorities to see if he, too, could cut a deal. The question was met with stony, ice-cold silence, investigators told us. The U.S. attorney wanted to sweat him out while the FBI debriefed Haines. Four months after the first suicide attempt, Hansen was rushed to the emergency room a second time. Friends had found him unconscious in his car, in the garage, with the engine running.
After being stabilized Hansen was transferred to Oak Crest mental hospital on a mandatory 72-hour hold. This time federal investigators decided they had better talk to their prime suspect since he seemed to be going to extraordinary lengths to get their attention. Assistant U.S. Attorney Peter Robinson, an FBI agent, and a psychologist met with Hansen at Oak Crest. It was then that Hansen was given a description of the kinds of charges that would be brought against him. Some 26 in all were contemplated, including charges that he had embezzled at least $872,000 from Centennial between 1982 and 1985. The investigation had revealed that Hansen had routinely used his institution's funds to fuel his own extravagant life-style, taking $20,000 here, $25,000 there, $55,000 for antiques, $137,500 for jewelry, $80,000 for his taxes, $85,000 for cars, $25,000 for art, $45,000 for a vacation . . . and on and on (according to documents we obtained through the Freedom of Information Act). He had arrogantly used Centennial's treasury as his own personal petty cash drawer.
Hansen was released from Oak Crest and went home to resume waiting for the FBI to contact him. In the months that followed federal agents continued to debrief Haines and went right back to giving Hansen the official cold shoulder. They also handed down 17 indictments of mostly minor figures in the Centennial daisy chain.
What was left of Centennial was now in the hands of a crack management team from Great Western Savings and Loan, appointed by the FSLIC. In one final irony, on January 26, 1987, 18 months after regulators took over Centennial, the F.H.L.B of San Francisco issued a confidential memorandum addressed "To the Board of Directors, Centennial Savings and Loan." The memorandum warned sternly, ". . . you may have found evidence of fraud and criminal collusion by and between former officers, directors, and outsiders, including professionals such as appraisers, and lawyers. You as directors have an obligation to review such acts for possible referral to a local prosecutor, or the United States Department of Justice." By that time, of course, the Justice Department probe was well under way and the crooks were long gone. So, for any practical purposes, was Centennial.
✲✲✲
Golden Pacific Savings and Loan was seized a month after Centennial, in September 1985.9 Leif Soderling, the older of the two Soderling brothers, had resigned as president in February, saying, "I don't want to be in the savings and loan business. It's got a lot of regulations and I don't want to learn them." His resignation didn't help him avoid trouble, however. In March 1987 he and his brother, Jay, were charged with loan fraud in connection with a complex series of land transactions that had netted them $10 million from their own thrift. The brothers pleaded guilty and were sentenced to one year in prison and ordered to pay restitution. (Critics of the lack of consistency in sentencing pointed to a front-page newspaper story about the Soderlings' sentence. On that same front page was news of another sentence, that of a man who had held a friend's parrot for ransom and received seven years in prison for the extortion attempt. The juxtaposition of the two stories led one disillusioned FBI agent to quip bitterly, "Use a parrot, go to jail.") [Once a criminal always a criminal,from 2015 DC]..http://www.pressdemocrat.com/news/4937164-181/pd-default-story-headline-xy
Contributing to the Soderlings' light sentence was an eloquent presentation by the prosecutor. Assistant U.S. Attorney Robinson, who described the brothers as two young men who "did not intend to establish the savings and loan for the purpose of ripping it off' but simply took the wrong fork in the road. During the hearing an attorney for the FSLIC repeatedly implored the judge to take a stronger stance with the two brothers, saying that evidence indicated that the pair had secreted some assets away and transferred others to third parties in order to hide them from investigators. The judge asked the U.S. attorney if this were so. Robinson replied that his agents had not conducted any search for secreted assets. (In March 1989, just months after the two brothers got out of prison, another U.S. attorney would accuse them of secretly receiving payment on a $800,000 note and spending most of the money on thoroughbred horses, a home computer, and car phones, in violation of probation, which required that any money they acquired be used for restitution. The brothers denied the accusation and the matter was pending as of this writing. The court had restricted the brothers to a living allowance of $2,500 a month for themselves and their families.)
In February 1988 the FSLIC filed a $10 million civil suit against the brothers. The FSLIC claimed they had manipulated substantial assets in order to defraud the FSLIC. Evidently the FSLIC didn't buy the Soderlings' tale of woe that Jay had a minus net worth of $1.5 million and Leif a negative net worth of $1 million. The FSLIC also filed a $100 million civil suit against Centennial's former directors and a number of former executives. And to round out the group the FSLIC filed a similar $50 million suit against several former Columbus/Marin Savings and Loan executives. 10
From information provided by Haines, investigators were finally able to develop a solid case against Hansen. Investigators said they hoped that, once faced with the sobering reality of a multicount grand jury indictment and years in prison, Hansen would give them the evidence against Shah. Nice idea, and it might have worked. Except that time ran out for the FBI when, on July 30, 1987—two years after the feds took over Centennial and just one day before Hansen was to enter into negotiations with the Justice Department—Hansen, 55, was found stone dead in bed. Nearly everyone suspected suicide or foul play, so the coroner gave the case special attention. The official report: Hansen had died of a cerebral aneurysm. A blood vessel on the right side of his brain had burst while he slept.
A pall fell over the sordid Centennial story after Hansen's death. Shah was the only major player left unscathed. He had boasted in the newspapers, through his high-powered lawyer, that he was guilty of nothing more than taking advantage of good business opportunities. Sure, he'd made a lot of money. What was wrong with that?
But quietly, behind the scenes, the multi-agency investigation into the December 1982 fire on Lower Ridge Road had continued. Then suddenly, on October 5, 1987, special agents Pat Murphy and Ernie Cooper met Sid Shah as he was leaving his Sonoma, California, home—the opulent Spreckles mansion, of sugar fame—and hauled him off to appear before a federal magistrate in San Francisco. The grand jury had indicted Shah, accusing him of being part of an elaborate $300 million international drug-smuggling and money laundering operation that imported marijuana, hashish, and cocaine from Mexico, Morocco, Colombia, and Thailand and that had done the bulk of its business between 1979 and 1985. Shah denied the charges. The ring was headed, the indictment said, by Ronald Stevenson, alias Ronald Miller, who had lived in the expensive Lower Ridge Road house with his wife and child at the time it was torched. Investigators speculated he had since been murdered in Mexico.
"Sid Shah Indicted" roared the headlines. Santa Rosa buzzed with the news. The indictment, drafted by the federal Organized Crime Drug Enforcement Task Force, charged that Shah, Las Vegas attorney Norman Jenson and others had laundered the drug proceeds through a complex web of real estate projects, including some connected to Centennial Savings and Loan and Piombo Corporation. At Shah's bail hearing a prosecutor cited Shah's recent trips to Amsterdam to meet with Sandmann as reason to fear that Shah might flee if released from jail before the trial. Nevertheless the judge ordered Shah released on $500,000 bail." (The case was pending as of this writing.)
Unbeknownst to Shah, during the lengthy inquiry federal investigators had secretly recorded a meeting and phone calls between Shah, Norm Jenson, and Ronald Stevenson's brother, Michael. Shah, Jenson, and Stevenson discussed ways to best deal with the grand jury, which had subpoenaed records of their complex real estate transactions. The transcript of the meeting showed Shah reassuring the others:
"You don't have to worry 'bout me saying anything. Where the money was coming from, don't worry about that part of it if anything could hurt you guys."
Members of the drug ring began to talk, and transcripts of the interrogations show they told investigators that Norman Jenson, the man who had done millions of dollars' worth of business with Piombo, was at the very center of the high rolling, international drug operation. One informant, William Olof Henrickson, told the FBI that Jenson had "mob " affiliations. A confidential DEA source said Jenson owned his own freighter, which prowled the waters from South America to Oregon. The informant told investigators that Jenson complained that the freighter was stuck in South America because it was being watched by the feds and that Jenson was willing to pay $1 million to anyone who would pilot it back to the United States. Transcripts showed investigators were also told that Jenson held drug kingpin Ron Stevenson's properties in his name and in the names of various shell corporations, and that Jenson used his own Coos Bay, Oregon, marina as an importation point for millions of dollars' worth of pot and cocaine. An FBI agent said he was told Jenson had placed the drug ring's vast fortune in safe havens in Switzerland, the Bahamas, Panama, and Thailand, once with the help of a Swiss consul general and once with the help of a Thai embassy employee in Los Angeles.
One technique used by Jenson to launder all this high-temperature money, a source in prison told us, was to purchase expensive property with a cash down payment and take out as large a loan as possible on the property. Jenson could then make the monthly payments on the loan with drug proceeds. The interest he paid on the loan he simply considered to be the cost of cleaning the money—the laundry bill. Jenson associates, including Henrickson and Michael Stevenson, told investigators that 50 percent of the Lakewood Hills development had been financed by Stevenson's drug proceeds.
How much did the ring launder through Lakewood Hills? an investigator asked Henrickson.
"Have a billion at Lakewood Hills, I think. " he replied. "That's what he [Ronald Stevenson] told me one time. Five hundred thousand dollars."
A county politician had eased the paperwork for the Lakewood Hills development through the county bureaucracy, he added:
"They had the politician in their pocket, one of 'em, you know. And they could get permits through him and shit like that. "
Later Centennial bought Lakewood Hills, thereby cashing out the asset for Jenson and the others.
A raid on Jenson's offices in Las Vegas netted investigators a treasure trove of documentation on Jenson's far-flung enterprises. An inventory of items taken in that search included paperwork on various real estate transactions allegedly used to launder drug money (including files on Lakewood Hills and Jenson's deals with Piombo Corporation) and numerous plastic bags and bottles containing "green leafy substances, and white powders and white powder residues" (according to the FBI receipt for property received).
With such damning evidence in federal hands, Jenson agreed to cooperate with the government in its investigation of the drug ring, Sid Shah, and individuals at savings and loans in Texas, Washington, and Louisiana. In return Jenson sought and received partial immunity from prosecution. Then, just before the drug trial was scheduled to begin, informant Michael Stevenson disappeared. The drug case was pending as this book went to press.
At this point the wind went out of the Centennial criminal investigation. The feds' technique of sweating out Hansen had blown up in their faces, and now that he was dead. Assistant U.S. Attorney Peter Robinson announced he was going into private practice to become a defense attorney, and the FBI had to scale back its investigation.'- After 12 years as a federal prosecutor, Robinson would now defend clients accused of some of the same kinds of crimes he had formerly prosecuted. In an article he wrote for a legal publication he said his new clientele gave him something he had not found as a prosecutor: . .
the feeling I have experienced as a defense lawyer getting a dismissal for a client is euphoric—and addicting . . . the gratitude for helping one real person is much greater than I received as a prosecutor helping the public . . . my days as a champion of the underdog have just begun. It is a daunting challenge. But I already feel at home.
In a final twist of irony, Robinson revealed that his new offices would be located in Centennial's former executive quarters, the Stonehouse.
With his departure the Centennial investigation lost its drive and dribbled to a close. Beverly Haines went off to Giger Correctional Facility in Spokane, Washington, to serve a five-year sentence for embezzling $1.6 million from Centennial, but in two months she was out, released by Judge Robert Peckham to a halfway house in San Francisco to perform community service and serve three years' probation. She was allowed to go home on weekends.
Centennial, born in 1977, finally passed completely from sight in April 1987 when its garments were divided between the FSLIC and Citizens Federal Savings and Loan of Miami, which paid only $8 million for what was left of Centennial's "goodwill" and for the right to operate an interstate network of thrifts that would have branches in Florida and California (interstate banking was forbidden except when it suited regulators' needs).13 In less than five years, from December 1980 to August 1985, when federal regulators took over the thrift, over $165 million vanished, and no one ever served more than a year in prison for the theft. 14 In 1985 there were 5,995 bank robberies in the U.S. that involved a total loss of $46 million." But at Centennial alone the heist netted $165 million.
By the time Citizens Federal bought the remnants of Centennial in .April 1987 we were well into our investigation of failed thrifts coast to coast. We had decided in December 1986 that the evidence Pizzo had collected at Centennial was too compelling to ignore. We knew we were onto an important story. The strategy we adopted was to approach our investigation in the same way an epidemiologist would track a spreading virus. We took a random selection of failed thrifts across the country and examined each to see if we found common elements in their deaths. We had a theory to prove or disprove: that "bust-outs" and other forms of orchestrated fraud were underlying the sudden crisis in the thrift industry. Pizzo and Fricker would work out of an office in Guerneville; Muolo, out of the National Thrift News office in New York. We spent over two years on the investigation, years in which we collected bits of information every day that expanded our understanding of the puzzle we were piecing together. In the process we uncovered a cast of bank-fraud artists that were working every single savings and loan we examined. The interwoven relationships astonished even us, and by the time we completed our investigation, in June 1989, our original hypothesis had been eclipsed by the reality we discovered: deregulation had unleashed a holocaust of fraud upon the thrifts it had been designed to save.
next
Lazarus
notes
https://ia802609.us.archive.org/5/items/insidejoblooting00pizzrich/insidejoblooting00pizzrich.pdf
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