INSIDE JOB
The Looting of Americans
Savings and Loans
By Stephen Pizzo,
Mary Fricker
and Paul Muolo
CHAPTER SIX
The Looting of Americans
Savings and Loans
By Stephen Pizzo,
Mary Fricker
and Paul Muolo
CHAPTER SIX
Lazarus
When the California legislature deregulated state-chartered thrifts in order to stem the flow of state thrifts to federal charters after Garn-St Germain passed,
it virtually threw the rule book out the door and made California thrifts irresistible.
In one important provision the legislature decreed that a savings and
loan could invest or loan 100 percent of its assets in real estate,1 and it set no
standards for the type of property or the qualifications of the borrower. Suddenly
the state was so flooded with applications for thrift charters that almost anyone
who could prove he had the $2 million required as start-up capital got the nod. By 1984 it was easier to get approval to own a California savings and loan than
it was to get a casino license in neighboring Nevada. As a result some people
who might not have qualified to run a casino in Nevada got thrifts in California
instead and ran them like they were casinos.
Toward the end of our Centennial investigation a source close to the Soderling
brothers slipped us a copy of a letter the pair had prepared as part of their
plea bargain negotiations with the FBI. The letter outlined what the former thrift owners agreed to tell the feds in return for a soft sentence. Near the end of the
letter was a cryptic reference to "Robert Ferrante and Consolidated Savings and
Loan. ..." We asked one of our FBI sources who Robert Ferrante was; we'd
never run across the name and the Soderlings' letter did not explain further. 2
"Ferrante . . . huh, there's one you should look at," our source told us. "He's a good example of the kind of business person California's new thrift laws
let into this business. You won't believe it. Go on down to L.A. and look in
the court records . . . that's all I can tell you." When we did research Ferrante we discovered all that the FBI agent had promised and more. There was no
shortage of colorful information on Mr. Ferrante, in both public records and
the local press. He had first made headlines in 1982.
It was late on a Monday night, April 12, 1982, when Robert Ferrante and his trusted aide Raymond Arthun decided to call it a day. They locked up their
office in the Brookside Village condominium conversion project in Redondo
Beach, California, on the outskirts of Los Angeles, and walked to their cars in
the dimly lit office parking lot. Arthun stopped at his car and Ferrante continued
down three spaces to his.
Suddenly Arthun heard a noise. Looking up he saw a man with a sock over
his head leap from behind a bush in front of Ferrante's car. The man ran up
to within a few feet of Ferrante and opened fire on him with a .22-caliber semiautomatic pistol equipped with a silencer. Ferrante screamed for help but
the would-be assassin continued his work with polished precision, even coming
closer to fire a few last shots into Ferrante as he crumbled to the pavement.
Then the gunman walked briskly out into the parking lot, where he was picked
up by a waiting tan Toyota hatchback.
But Robert Ferrante was not to be killed off that easily. Miraculously, of
the nine rounds fired, only four hit their mark and only two caused any serious damage. One passed through Ferrante's left thigh and a second lodged in his
chest. The police report showed he told police he knew who had shot him, but
he refused to give them the identity of the attacker. Later, in a sworn declaration
filed in connection with a partnership gone sour. Ferrante claimed he had been
targeted by two former business partners with ties to the Israeli Mafia.3
Less than two years after he lay bleeding from a hit man's bullets, and while
he was publicly involved in a tangled web of civil lawsuits as well as a criminal
case involving bribery of a public official, Ferrante was granted a charter from
the State of California, and approved by the Federal Savings and Loan Insurance Corporation (FSLIC), to open his very own savings and loan.
What a perfect example of how the once-conservative thrift industry had
changed, we thought. Old-line thrift owners would have been horrified to have someone like Ferrante as a colleague, almost as horrified as Ferrante probably
would have been to be stuck in such a boring occupation. But now would-be
tycoons like Ferrante were welcome in the savings and loan industry . . . and
S&Ls were no longer boring. Far from it.
Robert Ferrante, an attorney, liked to describe himself as a product of blue collar
working-class parents, a hard worker who grew up near Los Angeles and
put himself through college and law school. His brother, Rocco, described him
as "one hell of an entrepreneur." Detractors called him a "little arrogant Napoleon."
He was short—about five feet seven—trim and handsome, and he
exuded the polished corporate image.
In 1972 Ferrante, then 24, married the daughter of wealthy San Fernando
real estate developer Chester Anderson. Anderson owned and operated Day
Realty and Day Escrow Company, with 20 offices and 1,500 employees in the Los Angeles area. Ferrante immediately became a partner with his father-in-law and the two began investing in condominium conversion projects together. But the bloom later faded from the family rose and by 1979 Chester Anderson was
suing son-in-law Ferrante and two Israeli businessmen who were partners of
Ferrante in other projects. Anderson alleged in his suit that they had used his company as though it was their own. The judge agreed, ruling:
"It is clear that the defendants used large sums of Condor Development [the
Anderson-Ferrante company] money, directly and indirectly. . . . They also used the credit of Condor Development by pledging proceeds from the sale" of
its projects to guarantee a $1.3 million loan for projects of their own.
The judge also disclosed that Ferrante and his partners had even tried to handicap Anderson's attempt to recover the missing funds from them. "The
defendants upon being served with the complaint herein decided to take $540,000
of corporate funds which they believed was owing [sic| to Chester Anderson, in order to prevent him from using that money to finance his lawsuit against them."
The suit was an ugly family affair and got plenty of press in Southern California,
but apparently state regulators missed the stories.
Ferrante's feud with his father-in-law didn't get in the way of his relationship
with his two Israeli partners. The three men continued to do condo conversions
together until they had a falling-out in 1981 and Ferrante went to court to have
their partnership dissolved—on his terms. (The suit was later settled out of court.)
Angry accusations flew back and forth. In April 1982 the masked assassin ambushed
Ferrante, and a month later he went to court to demand a protective court order to keep his two former partners away from him.
Ferrante testified that he believed he was the target of an Israeli hit man to whom his two former partners had paid $25,000 to kill him. lie told the court
that he was repeatedly warned by the pair that they were going to kill him.
"I can recall over 30 threats in the 22-day period prior to the actual assassination attempt on my life," Ferrante told the court. Employees at Ferrante's
office corroborated his contention that someone was out to get him. Robin
Bohannon told the court that in November a man had stormed into the office looking for Ferrante.
"Where's Robert Ferrante? I'm going to break his head, and Ray Arthun's
too." Bohannon said the man kept yelling that he had a gun and was going to use it on Ferrante and Arthun. (In 1987 Ferrante's then ex-wife would tell Los
Angeles Times reporters, "It was and still is my husband's policy to take extreme
risks with money, even to the point of nearly being murdered because of its use.")
Despite Ferrante's accusations against his former business partners, and ensuing
police and private investigations, no one was charged with the attempt on
Ferrante's life. And despite the wide publicity accorded the events surrounding
the shooting, Ferrante's reputation was evidently not sufficiently damaged to make regulators later question his suitability as an S&L owner. But there was still more, we found. Ferrante made headlines again in May 1983 when the United States attorney indicted former Redondo Beach, California,
City Councilman Walter Mitchell, )r. , for allegedly taking bribes from
Ferrante to gain city approval in 1979 for Ferrante's Brookside Village condo
conversion project—where Ferrante was shot in 1982. Voters recalled Mitchell
in 1980 after a public row and a series of newspaper articles on the controversial condominium conversion issue.
Mitchell, a slight man in his thirties, pleaded innocent. But during his three- day trial in 1983 witnesses told the jury that Mitchell himself had said he was
being paid by Ferrante to get approval for the Brookside Village project. Under
the alleged Brookside Village scheme, Mitchell, a painting contractor by trade,
received lucrative painting contracts on Ferrante-owned construction projects in return for his help with the city council, the prosecutor charged.4 The jury
convicted Mitchell of mail and tax fraud and sentenced him to a year and a half
in prison. (In 1988 Mitchell's mail-fraud convictions were overturned on appeal
when the court ruled that officials could be convicted of mail fraud only if the
fraud cost the government money or property. The tax-fraud conviction was
upheld.)
To the end Mitchell denied he had accepted bribes from Ferrante, and the
district attorney dropped that aspect of the investigation. Later, FSLIC investigators
learned. Consolidated made $52,000 in loans to Mitchell's wife while her
husband quietly served his sentence. And when Mitchell got out of jail, he went
to work for Ferrante in Hawaii, according to exhibits filed in a FSLIC lawsuit m 1988.
☙☙☙☙☙☙☙
Ferrante's problems did not occur in private. We found volumes written on
his exploits, both in public records and in the press, but apparently none of this
verbiage had filtered up to the green eye shades of state and federal regulators
when, in 1983, Ferrante applied for a state charter for his own savings and loan. Regulators may not have heard of him, but he had certainly heard about deregulation
and he now wanted his own S&L. The processing of Ferrante's
application for Consolidated Savings Bank proceeded without a hitch, thanks to
California's new ultra liberal savings and loan regulations passed just that year.5
So at the very time that Ferrante's relationship with Redondo Beach City
Councilman Walter Mitchell was being investigated and openly discussed in the
press during the Mitchell trial in May 1983 —prompting a public rehashing of
the 1982 murder attempt on his life and the 1979 lawsuit filed against him by
his father-in-law—Ferrante's application to run his own thrift sailed through the
application process. Even Ferrante's application for FSLIC insurance coverage,
a separate step requiring federal approval, progressed uneventfully. Federal Home
Loan Bank Board spokeswoman Martha Cravlee later explained that FBI checks
of prospective thrift or bank owners might turn up prior criminal convictions but would reveal nothing on current investigations, and Ferrante had never been
convicted of anything.
Ferrante's application was a perfect example of one government hand not knowing what the other hand was doing. "The U.S. attorney had subpoenaed
every document in my office with Ferrante's name on it," recalled one senior loan officer in Southern California. "That was at the same time the state and
the Federal Home Loan Bank were considering his application for a savings and
loan and FSLIC insurance. Somebody wasn't talking to somebody else."
Ferrante later said of the approval process, "I assumed they checked me out thoroughly." Not so.
The California Savings and Loan Commissioner's office approved Ferrante's application in May of 1983. At the dawning of 1984 Consolidated also received
the blessing of the Federal Home Loan Bank Board when, after the F.H.L.B.B's
"investigation," it approved Ferrante's new thrift for FSLIC insurance. The next
day, February 28, 1984, Consolidated opened its doors for business. Ferrante now owned his own money machine. He would serve as chairman of the board
until December 7, 1984, when he gave that position to banker Ottavio A. Angotti. Ferrante would remain the sole stockholder throughout the thrift's short life.
Consolidated Savings Bank's offices first were located in a shopping center
in Brea, about 30 miles east of Los Angeles. "It was basically a post office drop,
a storefront, not like a real bank at all," recalled a reporter who covered the opening. Eighteen months later Ferrante would move his bank to Irvine, in Orange County, 30 miles south of Los Angeles, into a fancy three-story building
in Douglas Plaza, adjacent to Orange County's John Wayne Airport.
Firmly in the saddle, what Ferrante needed now was to fuel Consolidated
with deposits as fast as he could. Like Erv Hansen at Centennial, Ferrante turned
to deposit broker Mario Renda and First United Fund, even though Consolidated's
application for a savings and loan charter had said Consolidated would
be a hometown thrift filled with passbook savings accounts. But passbook savings were small and took time to build up, whereas brokered deposits came with a phone call and gave thrifts all the money they wanted when they wanted it. An
F.H.L.B.B examination revealed that 16 months after Consolidated Savings opened
for business, 70 percent of its savings deposits would consist of brokered and
jumbo ($100,000) certificates of deposit, much of it from Mario Renda's First United Fund.
With the brokered deposits rolling in. Consolidated had all the money it needed. Regulators later complained that Ferrante bellied right up to his own
loan trough to get some of those deposits for his own projects, the largest of which was a 157-acre landfill at the southern edge of Los Angeles called the Carson landfill. Years earlier the property had been a dump for the city, and
the state considered it a toxic waste site. Nevertheless over the next few months,
according to an FSLIC lawsuit, Ferrante would arrange to have Consolidated loan just over 15 million on the property through a confusing maze of companies
he had formed and controlled. Many of the Carson loans were obscurely noted on Consolidated's books as simply "sundry debit items," 6 federal examiners
reported.
Ferrante's right-hand man at Consolidated was its president, Ottavio Angotti,
who had been born and raised in Italy and who had come to the U.S. in 1957. He still spoke with an Italian accent and when angry sometimes slipped into
Italian. It was Angotti who was left to do battle with suspicious examiners wanting
to know where those several million dollars in "sundry' debit items" were going
and what interest Ferrante had in the Carson project. When we interviewed Angotti by phone two years later, he told us he hadn't been hiding anything
from anybody.
"The examiners, both state and federal, were auditing the bank at the very time we were doing this," Angotti said, his Italian accent growing thicker with
each angry word. "They saw all those debit items. How can they say we were
trying to hide anything?"
The $15 million Carson loans only slightly exceeded regulators' $100,000
limit on unsecured commercial loans to affiliated persons and also immediately
put Consolidated Savings in violation of the loans-to-one borrower regulation,
regulators claimed. (The Carson loans, according to FSLIC reports, were three times Consolidated Savings' reported net worth and consumed a quarter of its
deposits.) Despite the $15 million that was headed into the Carson project, Ferrante never developed the property,7 maybe because of its continuing problem
as a toxic waste dump.
Perhaps anticipating the wrath of regulators, Ferrante decided to "participate out" (sell) some of the Carson loans to other institutions.8 Ferrante arranged
these participation deals with United Federal Savings and Loan of Durant,
Oklahoma, and Savings Investment Service Corporation (also known as S.I.S.Corp)
of Oklahoma City, a loan brokerage firm.9 The key figure in Consolidated
Savings' deals with United Federal Savings and S.I.S.Corp was Charles Bazarian
of Oklahoma City. Bazarian was described by one former savings and loan
executive who knew him well as "an original piece of work.
"
☙☙☙☙☙☙☙
In Charlie Bazarian we came face-to-face with one of the most active con
artists working the thrift circuit coast to coast. As our investigation progressed we were stunned by the number of times we would be sifting through the ashes of a failed thrift and come across a Bazarian deal. Bazarian was not an Oklahoma native. He was a Connecticut Yankee, the son of an Armenian immigrant produce salesman. Charlie was a living caricature of a tycoon, an obese, gregarious fellow, five feet nine inches tall, 245 pounds,who eventually had to have quadruple heart bypass surgery. He chewed expensive
handmade cigars and had never bothered to clean up his malapropisms and bad
grammar. He and his wife, Janice Lee Bazarian, were well-known figures in Oklahoma City society. Friends said Charlie had a need to associate with the
great and near great. On one occasion the couple arranged for their friend Las Vegas entertainer Wayne Newton to perform free at a benefit for their favorite
charity, a rehabilitation center for the mentally handicapped. On another occasion former heavyweight boxing champ Muhammad Ali, who was visiting for
a few days at the Bazarians' home, stopped by the center and signed autographs
for the patients.
Charlie and Janice were great party givers. Every year Bazarian, whom friends had nicknamed Fuzzy, threw an elaborate birthday party for his son, nicknamed
Buzzy. Buzzy, born in 1982, was only a baby, but the guest list was a Who's
Who of Oklahoma City. One year Fuzzy, in Buzzy's honor, had an entire circus
set up on the vast lawn of his 19,000-square-foot, $2.4 million mansion. At one
end of this lavish spread the Bazarians reportedly had an indoor swimming pool
with a retractable dome ceiling and a waterfall. The Bazarians listed as assets artworks worth $100,000 (including one jade boat appraised at $65,000), $775 worth
of exotic fish, and a $60,000 Rolls-Royce Camrogue. Bazarian had a Rolex watch
(gold with diamonds) worth $15,000 and an economy duplicate worth $1,000.
Janice had a gold-nugget-and-diamond pendant that cost $1,500 and Charlie
countered with his $1,500 sapphire-and-diamond cuff links. But the real Charlie, we speculated, was the $1,700 gold-and-diamond oil-well belt buckle.
For someone living such an exalted life-style, Bazarian had a most unlikely
history. He quit school after the eighth grade. In the 1960's, already the father of three children, he moved his family to Oklahoma and worked as a restaurant cook. Later he got into the insurance business and by 1977, when he was 37,
he had his own insurance company.
"He couldn't do enough for his family," a brother-in-law told a reporter.
"He would give you the shirt off his back."
Well, maybe. But his generosity didn't extend to his clients. In the 1970's
he and associates set up an insurance company that agreed to pay up to $1 million in lifetime medical benefits to clients who paid the $30 membership fee and the monthly insurance premiums, but no one ever bothered to set aside any money to pay the medical claims. In 1978 he pleaded no contest to felony
charges of mail fraud. Prosecutors charged that he and his cohorts bilked 700
farmers and ranchers out of more than $347,000 in fees and premiums. Bazarian was sentenced to four years in prison, which was reduced to four years' probation
in exchange for his testimony against his partner, who was convicted and sent
to prison.
Bazarian immediately filed for bankruptcy, claiming to owe $276,000, in eluding $24,000 in unpaid Las Vegas hotel-casino bills. In June 1979 the bankruptcy
trustee determined that Bazarian had no assets at all and he was forgiven
his debts. Five years later he was chairman, CEO. and sole shareholder in CB
Financial, a company purportedly worth $141 million.
"Charlie is a very entrepreneurial person," said Sig Kohnen, who started CB Financial with Bazarian in 1983. "He has picked himself up by the bootstraps."
Unfortunately they were attached to someone else's boots.
CB Financial was Bazarian's baby. He told us the company borrowed money
from thrifts and re-loaned it to investors in real estate partnerships, some of which were tax shelters. Bazarian formed some of these partnerships himself,
and in those cases he was loaning to his own limited partners. He made part of
his profit by charging his borrowers more for the money (in interest and fees) than the thrifts charged him for the money. But Bazarian got double duty out
of his investors. He took the notes they signed when he made them loans and
either .sold the notes at a discount or pledged them as security for more loans from thrifts and banks.
Charlie had a veritable perpetual-motion money machine going. The more
loans he made to his investors, the more investors' notes he held that he could
sell or pledge for more loans, an arrangement that appeared to us to closely
resemble a Ponzi scheme. At its height CB Financial had a total debt approaching
$200 million. Bazarian used some of the money to buy stock in savings and
loans as one way to win the hearts and minds of lenders, according to his associate Sig Kohnen. In 1985 Bazarian owned $15 million of stock in at least nine
institutions. Among the lenders he did business with were United Federal Savings
and Loan and SlSCorp (the two companies Ferrante would soon sell loans to).
When, in August 1985, Ferrante wanted to dispose of some of the $15
million in Carson loans, Beverly Hills loan broker Al Yarbrow introduced Ferrante
to Bazarian. Again we saw what a critical role loan brokers like John
Lapaglia (who arranged loans for Norm Jenson) and Al Yarbrow played in the
thrift crisis. They found willing lenders for needy borrowers, and for the introduction the broker received a commission based on a percent (usually 2 to 5
percent)10 of the loan. The shakier the borrower or deal, the higher the commission.
Some loan brokers, looking for crazy lenders, traveled the country with
their briefcases stuffed with crazy deals.
Al Yarbrow was a particularly well-connected loan broker. having been in the
business since the 1960's. He was a bright, articulate, distinguished-looking man in
his fifties, over six feet tall. A conservative dresser, he projected the classic corporate U.S.A. image. Those who did business with him said he worked hard, was always
well prepared, and gave the impression of being a real professional.
Be that as it may, in the late 1960's Yarbrow was charged with diverting over $300,000 from his Bradley Mortgage Company's impound accounts. The money
had been paid to Bradley Mortgage by homeowners who had arranged their FHA mortgages through Bradley, and it was supposed to be used to pay insurance
and property taxes, Instead, Varbrow had used the money to finance his other
business ventures. Nearly 400 homeowners got a rude surprise when the tax man informed them that their property taxes were delinquent. We learned that Yarbrow repaid the money as part of an arrangement with the Los Angeles
County prosecutor.
When Yarbrow introduced Ferrante to Bazarian in 1985, Charlie sent Ferrante
over to United Federal Savings and S.I.S.Corp. United Federal Savings
agreed to buy $3 million worth of Consolidated Savings' Carson loans and
S.I.S.Corp agreed to purchase $5 million more. The ice thus broken, Ferrante and Bazarian found a number of ways to do business together. Along the way,
regulators said, $3. 5 million disappeared. As FSLIC attorneys later described
the deal in court. Consolidated had agreed to buy a package of loans from
S.I.S.Corp and had sent $3. 5 million to Bazarian to forward to S.I.S.Corp. S.I.S.Corp
said they never got the money. Consolidated didn't seem to care, regulators said,
and did virtually nothing to recover the money.
Even while he was wheeling and dealing with Ferrante, Bazarian was building
onto his house of cards. His CB Financial empire, fed on loans and enmeshed
in complicated financial transactions, began to collapse when in 1986 federal
tax changes sharply reduced the allure of the kind of tax shelters Bazarian was
offering his investors. Bazarian was sued at least 16 times in Oklahoma courts
in 1986 by people who claimed he owed them more than $77 million. " Bazarian
claimed his problems were caused by federal thrift and bank regulators who
sabotaged his growing empire. But in a moment of candor he also admitted to
us, "I just borrowed tremendous amounts of money. ... I just had an appetite
that was absolutely incredible for, you know, money."
When regulators stopped thrifts from making loans to Bazarian's operation
and began suing him for recovery of old loans, his wife literally broke into song. Janice Lee Bazarian fancied herself a singer, and in 1986 she recorded, with
her group, "Janice and the Deadbeats," a song they called "FDIC" about the
horrors of dealing with hard-hearted bank regulators. Sung to the tune of "YMCA," made popular by the Village People, the chorus went:
F-D-I-C,
It's time to pay to the F-D-I-C.
They can have everything that you signed and agreed
You can hang out in bankruptcy.
F-D-I-C.
It's time to pay to the F-D-I-C.
You can get yourself clean,
you can make an appeal
Your bank is gone and
these guys won't deal.
(copyright 1987, used with permission of Janice Lee Bazarian)
By May 1987 more of Bazarian's schemes were catching up with him. Vernon
Savings and Sunbelt Savings, two Dallas institutions, and Borg-Warner Acceptance
Corporation, an industrial lender in Chicago, tried to force Bazarian into bankruptcy, asserting claims of over $16 million. When Bazarian and CB Financial finally agreed to the involuntary bankruptcy in October, a long list of
thrifts and banks lined up to sue for recovery.12 Among them was Consolidated
Savings Bank (then in the hands of regulators), which said Bazarian had defrauded
the thrift of $12.3 million.13 CB Financial was about $90 million in debt. Bazarian estimated his personal debts totaled about $108 million, which included Las Vegas gambling debts of $469,000.
But Bazarian didn't let these problems affect his life-style. In the same year he and Janice Lee bought a new home in Oklahoma City. Bazarian didn't say what he paid for the house but two years earlier, in a hotter real estate market,
it had been on the market for $2 million. From his new home Bazarian complained
expansively to reporters that people were bringing him great deals but,
because of all the charges swirling around him, he couldn't find a bank willing
to lend him money. Friends said Bazarian was just misunderstood, that he was well-meaning but too trusting of others and too eager to make deals. Even an
assistant U.S. attorney admitted that Bazarian had charm: "He's a very endearing,
charming fellow. He has a way of becoming very likable." 14
Try to tell that to the process server hired by the FSLIC to serve a subpoena on Bazarian in relation to his deals with Consolidated. According to testimony
during court proceedings the process server made numerous trips out to the Bazarian mansion with no results. Then when someone finally did come to the
door, they were two thugs brandishing guns. The process server ran to his car and sped off, only to look in his rear view mirror and sec that the two men were
following in their car. A half-hour, Hollywood-style car chase through the streets of Oklahoma City ensued. The process server was finally able to lose his pursuers, and he returned home to tell the FSLIC to find someone else to serve Bazarian. A FSLIC attorney told the story to a Los Angeles judge who quipped, "That's
the way they do things in Oklahoma."
Consolidated Savings' Chairman Angotti claimed he had been misled about
Bazarian and wished he'd never heard of him. "We had no information about
his former criminal activities," Angotti claimed. "If we had, we wouldn't have
done business with him." Angotti said he believed there was a darker side to the Bazarian affair. "I was fooled and defrauded by more than Bazarian. I was
defrauded by the Federal Home Loan Bank itself. When I contacted them to
get a reading on SISCorp and Mr. Bazarian, those sons-a-bitches just told me
that he [Bazarian] was okay. They let me walk right into that thing because you
see I was a pain in the ass as far as they were concerned. The Federal Home
Loan Bank boards of Topeka and San Francisco, they framed me. They ruined
the good name of Ottavio A. Angotti.""
(In 1988 a bankruptcy court trustee alleged that Bazarian had been secretly
transferring assets to trusts for his children and concealing them from the trustee.
Later Bazarian reached a settlement with the trustee in which he agreed to
relinquish his Oklahoma City mansion and many other assets to satisfy creditors. The trustee did agree, however, to let the Bazarians keep the copyright to Janice's
song, "FDIC")
By mid-1985, a little over a year after opening for business, Ferrante had made a big dent in Consolidated's bottom line. Finally federal regulators were eyeing him nervously. They conducted an examination of the S&L's books, which they claimed showed major inconsistencies between Consolidated's records and the facts:
1. Consolidated said 84.8 percent of its loans were mortgage loans secured by real property; the truth, according to examiners, was that 52.7 percent of its loans were unsecured commercial loans, a majority of which were in excess of loans-to-one-borrower limitations.
2. Consolidated said it had no brokered deposits; the truth was that at the time 70 percent of its deposits were brokered and more were pouring in every day.
3. Most of Consolidated's loans were to 15 borrowers, most of whom regulators reported had suspiciously close ties to Ferrante.
4. The net worth Consolidated reported included substantial non cash assets of questionable value.
5. Loans lacked adequate documentation and Consolidated had no written formal loan policy and procedures.
Given the extent of Consolidated's alleged infractions, we wondered why regulators let the thrift continue to operate for a year after the examination. The answer, we learned, was that regulators had lengthy procedures to follow, and they had to proceed in an orderly manner. ""16 The modus operandi in the banking world was not to panic. Panic was the 'T" word of banking. Instead, there were careful, measured steps to be followed, calmly, quietly, and secretly, of course, so the public wouldn't panic.
Besides, Ferrante and Angotti weren't making it particularly easy, or comfortable, for regulators to examine Consolidated's books. Immediately following the critical June 1985 examiner's report, the regulatory apparatus tried to lurch into action, issuing a series of directives, restrictions, and cease-and-desist orders designed to jawbone Consolidated Savings into compliance. As a result Chairman Angotti, who was increasingly called upon to placate Consolidated's F.H.L.B supervisory agent, particularly on the Carson deal, began harassing bank examiners. Eventually things got downright personal and came to a head when Angotti allegedly threatened federal examiners "with grave bodily harm including death."17
Depending on whose version you believe, the threat was either sinister or semi-sinister. According to one FHLB examiner, Angotti threatened to kill him. Regulators contended similar threats were made to another auditor as well. A public relations firm hired by Ferrante following the 1986 federal takeover of Consolidated Savings Bank told us it was all a big misunderstanding.
"Mr. Angotti is Italian," PR woman Sherry Twamley explained in a soft voice. "After weeks of struggling with federal regulators, Mr. Angotti just got angry one day and, instead of swearing at them in English, did so in Italian. If you translated what he said literally, it meant 'I'm going to cut your balls off.' But really," she added, "he's just a 'Mr. Harmless Professor.' "
Angotti agreed with Sherry Twamley's version of his threats, but he added that after his suffering at the hands of regulators he might have strengthened his threat. Angotti complained that they seemed obsessed with the "Mafia" and one federal examiner made constant allusions to Angotti's heritage and the mob. "He used to ask me all the time if I was taking my instructions from the Mafia, " Angotti said incredulously, adding in his Italian accent that if he had known then what regulators had in store for Consolidated, he would have "eaten their blood."18
Angotti also speculated, "I think the state and feds had approved Robert for Consolidated but missed all the stuff about the bribery case and shooting and stuff. When they discovered it Consolidated had already been approved and I think they were just trying to force him out because their investigation of him didn't turn any of this stuff up."
Ferrante, in a counterclaim filed against the FSLIC, claimed that "Angotti, representing the new California-based S&Ls, arguing forcefully for the rights of an S&L to engage in all types of profitable commercial activities, including commercial lending," was anathema to F.H.L.B.B Chairman Ed Gray, who represented the interests of "the club," or the long-established large thrift institutions. Ferrante claimed that Ed Gray, in Washington, and regulators at the San Francisco FHLB conspired to "destroy Consolidated and Ferrante and Angotti, thereby removing them as political forces within the industry." He said the FSLIC colluded with newspapers and the media in a maniacal mission to destroy him.'19
Whatever their reasons. Federal Home Loan Bank examiners from San Francisco continued to hound Angotti. They were cutting their way through the maze of partnerships, limited partnerships, trust assignments, and promissory notes Consolidated had erected around the Carson project. Ferrante later alleged in court documents that from November 1985 the thrift was hardly doing any banking at all. Instead, management and staff spent most of their time trying to satisfy regulators through two bank examinations, one agreement promising to correct any problems, eight meetings, and at least 41 long letters of instruction accompanied by hundreds of pages of documentation.
In what Ferrante characterized as a thoroughly unreasonable action, regulator Polly Cortez advised the F.H.L.B.B in February 1986 not to approve Ferrante's application to own another savings and loan. Then in March federal examiners began what would turn out to be the final inspection of Consolidated Savings' books. They later reported that Angotti, pushed for answers to embarrassing questions, again resorted to threats. He called examiner Darrell De Castro into an office to complain about the examination. The more Angotti talked, the more frightening his rhetoric became.
"If they want to fight, I can fight," Angotti vowed, according to De Castro. "And I don't lose. No one is going to close this bank. If they do, I will have to be dead. I mean that literally. And if they shoot me, I will have to shoot someone. And I hope it's not you." Unamused by Angotti's "Godfather" imitation, the F.H.L.B asked for, and received from the court, a temporary restraining order barring Angotti or any other Consolidated official from interfering with examiners. Regulators returned with armed guards from the U.S. marshal's office, just for good measure. Left to do their job without distractions, regulators soon found the institution was insolvent.
On May 22, 1986, at 4 p.m., agents of the FSLIC pushed through the doors of Consolidated's new offices in Irvine and took control of the thrift. They were accompanied by FBI agents, some carrying automatic rifles, and local police. By now they were very familiar with the story of the Ferrante shooting incident, his claims of Israeli Mafia involvement, and. Angotti's blunt threats to their examiners. F.H.L.B attorney Bart Dzivi later testified they had also been warned by local law enforcement that there was an ongoing investigation into Ferrante's alleged links to organized crime.'" Under those circumstances the green-eye- shaded regulators weren't about to walk in armed only with calculators.
Angotti was offended by his treatment that day. He said the FBI agents who accompanied the federal regulators held machine guns on him and the bank's tellers and also manhandled him personally.
"They came into my office and threw me up against the wall and frisked me," said Angotti. But Angotti had not been exactly caught off guard by the raid. Five hours earlier a reporter acting on a tip had called him.
"I hear they're going to shut you guys down today. Any comment?" the reporter had asked.
There was stunned silence on the line, and then Angotti blurted, "Oh, shit! Thanks!" and hung up. (In 1986 and 1987 the reporter received a Christmas card from Angotti. In 1987 the card carried the simple message "Again, thank you. belated thanks. —Ottavio A. Angotti.")21
When the FSLIC team arrived at Consolidated's offices that afternoon, attorneys for regulators claim they found three large trash bags filled with shredded bank documents. Fifteen minutes after the takeover they found a bank official still frantically shredding. Regulators claimed later that other important documents were smuggled out the back door to Consolidated's corporate office even as the thrift was being seized.
While regulators secured Consolidated Savings' Irvine office. FBI agents and Bank Board officers simultaneously stormed the Newport Beach office that Ferrante shared with his attorney, Eric Bronk. A Mexican standoff ensued, with Bronk maintaining that neither Consolidated Savings nor Ferrante had any records at his office. While Bronk stalled, several people left the building carrying briefcases. Eventually Bronk went into a back office and after a long wait, regulators said, he returned with a single Consolidated-related file. After further altercation he repeated the process and produced another file. This stalling action continued for a couple of hours, during which time Bronk produced about half a dozen Consolidated files.
Finally examiners decided to call it a day and continue the next. It was late in the afternoon and everyone was tense and tired. Both sides were clearly standing their ground. But before they left the examiners had the locks changed on the doors, and they posted a Pinkerton guard outside for the evening. Then, just as everyone was filing out to their cars to leave, Ferrante suddenly appeared, walking out of a back office and, without saying a word, driving off. He had been there, apparently, the entire time, FSLIC's attorneys claimed.
Things didn't get any better the next day. Bronk/Ferrante associates scurried around clicking flash pictures of arriving FSLIC clerks and examiners. They also took photos of their license plates and leaned into the air to click pictures through the windows. Nervous FSLIC employees went to court and obtained another restraining order, in which they said they feared the photos were going to be used to track them down at their homes.
Bronk loudly, and occasionally physically, protested the search of his offices, and finally a restraining order had to obtained by the FSLIC against any further interference from Ferrante or Bronk. Bronk filed an $8 million lawsuit claiming "unlawful search and seizure." It was easy to understand why Bronk was upset. In the nine months prior to the takeover, court records show. Consolidated had paid him $1.2 million for legal and consulting fees and personnel, travel, entertainment, and office expenses.
When Superior Court Judge Richard Gadbois, Jr. , listened in court to FSLIC complaints of photographing, threats, and interference, he warned the attorneys representing Ferrante, Angotti, and Bronk, "If I get downwind of any serious suggestion of anything like this, I'll be all over that thing like a cheap suit, and I really mean heavy." And in the event any FSLIC employees were actually harmed in any way, the judge warned, "You think you've seen FBI agents. . . . Judge Webster 22 and I had a little talk and I'm dead serious about that."
With the place to themselves, regulators quickly discovered just how bad things were at Consolidated. The total cost to the FSLIC would exceed $100 million, and regulators amassed enough evidence to file a civil suit against Ferrante, Angotti, Bazarian, and others for $52 million, the amount of money they estimated was missing. " Ferrante claimed he didn't have any of the contested millions and never had. The FSLIC spent hundreds of thousands of dollars on attorneys, seeking recovery from Ferrante and 19 other defendants. Some out of-court settlements were reached, but such settlements fell within the Bank Board's veil of secrecy and were not made public. Sources told us pennies on the dollar were the norm. Meanwhile, Ferrante sued the FSLIC and the Bank Board, charging that they, not he, had ruined Consolidated.
"These guys remind me of the kid who killed his parents and then complained that the system should be kinder to orphans," said one federal prosecutor about Ferrante and other thrift officials who complained loudly when their thrifts were seized.
The FSLIC notified Ferrante that the U.S. attorney's office and the FBI had opened an investigation in the wake of Consolidated's failure, but as of the day this book went to press, no criminal charges had been filed and the money was still listed among the "disappeared." As for the regulators' efforts to rescue Consolidated, well, it's one thing to hold out hope you can catch a horse once it's out of the stable, but it's quite another to know what to do when the horse has already been rendered into glue. Consolidated Savings Bank had been bled white and could not be saved, and on August 29, 1986, regulators closed Consolidated Savings, claiming in their civil suit that Ferrante had used the thrift as "a slush fund for himself, members of his family, and various business associates." The stock, all held by Ferrante, was rendered worthless and Consolidated's wretched ruins were merged with a healthy thrift.
In a desperate attempt to stop state-chartered thrifts from switching to federal charters after passage of Garn-St Germain, California had thrown its arms open to all comers. "If you think that federal hussy is easy, come on up and see me sometime, " the sign might as well have read on the door to the California savings and loan commission. Character, experience, and intentions of an applicant played little role in the commission's decision to grant an S&L charter. California officials were concerned primarily with starting the flow of contributions back to the politicians and assessments back into the state's regulatory apparatus. Larry Taggart, the state's new savings and loan commissioner, epitomized the laissez-faire mood of the time. He believed firmly in deregulation and apparently never met a thrift applicant he didn't like.
Asked in 1989, during his testimony before the House Banking Committee, how it could be that he approved 235 thrift applications in just 400 days in office, Taggart responded that he had no way of knowing how a person would do as a banker until they had tried. "How many of the thrifts you approved later failed?" Taggart was asked. "Take your pick. Congressman," Taggart responded.
As a result California, particularly Southern California, would lead the nation in aggregate losses at FSLlC-insured thrifts. To Consolidated Savings add Beverly Hills Savings, San Marino Savings, South Bay Savings, North American Savings, Ramona Savings, Westwood Savings, Butferfield Savings, Centennial Savings ... 42 institutions failed in California between 1980 and 1987. (The closest competition for "most failed thrifts" came from Illinois with 33, Texas with 32, Louisiana with 29, Florida with 21, Ohio with 19, and New York with 18. ) And more was yet to come. When thrifts began to collapse in large numbers in the mid-1980's, federal and state officials tried to blame the failures on a depressed oil economy. But in California oil played a very minor role in the state's robust business climate, yet thrifts nevertheless failed.-'' The oil excuse, we suspected, was a slippery way of avoiding the real issue—fraud.
By January 1984 Ed Gray, after eight months as chairman of the F.H.L.B.B in Washington, had become deeply worried about brokered deposits. He felt something needed to be done to limit them, and the solution he favored was to severely limit FSLIC insurance coverage of brokered deposits and thereby dis- courage their placement at thrifts. Gray called his friend Bill Isaac, then chairman of the F.D.I.C, and asked him if he shared his concerns. Isaac told him the Penn Square Bank fiasco was all the proof anyone should need.1 Together the two men mapped out a course of action that they knew would not be popular with either the industry or the Reagan administration. They planned to implement joint regulations that would strictly limit insurance coverage on deposits acquired through deposit brokerage firms.
As Gray saw it he was just doing his job—protecting the industry from a clear and present danger. After all, he reasoned, this wasn't the first time the F.H.L.B.B had limited brokered deposits. From 1963 to 1980 the Bank Board had forbidden a thrift to get more than 5 percent of its deposits from deposit brokers. The limit was enacted when thrifts on the West Coast used brokered deposits in the early 1960's to fuel rapid growth and to fund risky investments—the very characteristics that were worrying Gray now. The F.H.L.B.B had repealed the 5 percent limit in 1980 when thrifts were having a hard time attracting deposits.2
Gray and Isaac cemented their alliance against brokered deposits, however, and on January 15, 1984, the two men publicly proposed regulations that limited to $100,000 the amount of insured deposits any one money broker could place at a thrift or bank and still get federal deposit insurance coverage. Two months were set aside for public comment on the proposed rule and they soon had over 165 replies (about a fourth of the replies were form letters issued by major investment houses in opposition to the regulation). Responses were running two to one against the proposal, but many small S&L's favored the rule. They feared brokered deposits were threatening the safety and soundness of the banking system. Many said they had no difficulty raising enough deposits without resorting to deposit brokers. Steven A. Grell, president of First Bank in Pipestone, Minnesota, said, "I have had many deposit brokers contact me concerning either buying or selling certificates. I find their business totally unjustified and hazardous to a federal insurance system." But most S&L officials objected to the regulation as penalizing all institutions for the abuses of the few.
Gray said he also faced stiff opposition from Treasury Secretary Donald Regan. Regan was the administration's most adamant champion of deregulation, and Gray's stand on deposits quickly earned Gray the tag of the great "re- regulator" among thrift industry lobbyists. Gray was not turning out to be Regan's idea of a team player. Regan was chairman of the Depository Institutions Deregulation Committee (established by the 1980 Depository Institutions Deregulation and Monetary Control Act to phase out all interest rate controls). Before coming to serve in the Reagan administration, Regan had headed the New York brokerage firm of Merrill Lynch, which later would become one of the nation's largest deposit brokers. Many came to refer to Regan as the father of brokered funds.' Now Regan's healthy stallion was about to be gelded by Gray's proposed regulation. Gray said later, "It seemed like almost every week the D.I.D.C [Depository Institutions Deregulation Committee] is having a meeting and taking more of the wraps off. The money brokers began multiplying like crazy, and the growth was going like crazy, but there was no capital to sustain it."
According to Ed Gray, when Regan got wind of Gray's plan to rein in deposit brokers, he told Treasury Deputy Secretary R. T. McNamar that, Republican or not, old friend of the president's or not, "Gray has got to go." But Regan couldn't personally attack Gray. Regan's connections with Merrill Lynch were all too well known, as was the fact that brokered deposits were one of his favorite subjects. Instead, Regan put McNamar to work on the Gray problem.
McNamar was the complete antithesis of Gray. He was a slick, buttoned- down dresser who wore pin-striped suits and looked more like an investment banker than a government official. Gray, the son of a tractor salesman from Texas, occasionally wore loud sports jackets and looked uncomfortable even in loose-fitting suits.
McNamar picked up the phone and called Gray. They spent seven hours on the phone that day—during which Gray said McNamar tried every argument he could think up to convince Gray he should forget his brokered-deposit regulation. For seven hours McNamar talked, and talked, and talked. And for seven hours Ed Gray, like an old farm mule, didn't budge. Gray believed McNamar was lobbying more for Don Regan than reflecting the administration's position. Regan did not respond to our requests for an interview, but Gray said he heard later that Don Regan was furious with him. The difference between the two men was a fundamental one: Gray wanted the S&L industry to specialize more closely in what they knew best, home lending; Regan wanted to make thrifts just like banks. As a deregulator, Regan talked a lot about level playing fields, where all businesses were created equal and only the strongest survived. But evidently he didn't talk to Gray at all. Gray said Regan never once returned his calls during Gray's four years in Washington.
A few nights later, on January 30, 1984, less than eight months after taking office, Ed Gray stayed late into the night typing away at a speech he would give the next day to lawyers attending a conference of the National Council of Savings Institutions (N.C.S.I). The lawyers represented both banks and savings and loans. Gray, who had started out as a reporter for a small radio station in Fresno, California, always wrote his own speeches. He chain-smoked as he tapped away on his typewriter. He was no doubt smoking a cigarette when he wrote that brokered money was "like a spreading cancer on the federal deposit insurance system."
The next day, with dark circles under his eyes from the night's work. Gray delivered his speech to the lawyers. Standing behind a podium at the Capital Hilton, he first took a deep breath. Then he prefaced his speech by saying, "I want to make it clear that as a champion of the free enterprise system myself, I am not against anybody making a fair profit." But by this time word had leaked that Gray had been unmoved by all attempts to change his mind on brokered deposits, and the audience knew the next word out of his mouth would be but. Before he even got to that point a couple of the lawyers sitting in the back of the room got up and left. Gray was "off the reservation, " a term Don Regan used to describe anyone in the administration who did not toe the party line.
Gray was able to deliver his speech uninterrupted by any annoying applause. After all, most N.C.S.I lawyers made a living representing thrift executives who took a free market approach to the S&L business. They didn't like being told by Gray that the brokered deposits fueling their enterprises—some of them from men like Mario Renda, who had brokered millions of deposits into Centennial and Consolidated—were bad medicine. (At the time over $34 billion in brokered deposits were at work at FSLIC-insured institutions. ) And they didn't like Gray's opinion that the money was being used for risky investment schemes. Or that such easy money might encourage fraud.
Industry leaders were dumbfounded at Gray's remarks. They had thought he was their guy. "These people wanted me in the job because they thought I was going to be their patsy," Gray would tell us later. He was supposed to be on their side. Now he was embarrassing them. There could be only one explanation and the word spread quickly — Ed Gray was a buffoon. Even some old- timers on the Bank Board staff thought he was "off the reservation." They began to refer to him around the office as "Mr. Ed, " a reference to television's talking horse. And what was he talking about? The terrible condition of the FSLIC. His own staff went out on damage control, telling Washington reporters, "Ed doesn't understand that brokered deposits are not the problem." Some staffers said even worse—that he didn't understand finance and was unqualified for the job. One told us. "It's an outrage he was ever appointed." But to Ed Gray this was not a complicated matter. And he did, too, understand brokered deposits —all too well.
But getting a handle on them would not be easy. There would have to be a fight, and the next salvo came directly from Merrill Lynch, which a week later released a report to the press that was critical of Gray's regulation. Edson Mitchell III, a young, fast-talking Merrill Lynch V.P, told reporters he was going to follow Ed Gray around until the ban was overturned.
If all this uproar caused Gray to doubt for one moment the wisdom of his brokered-deposit regulation, those doubts didn't last. Within days of the Merrill Lynch news conference. Gray sat in the darkened board room at Bank Board headquarters, with Bank Board members Mary Grigsby and Don Honde, and watched the videotape of the vacant, crumbling 1-30 condos built with loans from Empire Savings and Loan near Dallas. Grigsby, in her early fifties, was a Texan who'd worked in the S&L business most of her adult life. She couldn't believe her eyes. A hundred million dollars of Empire's money, just rotting away in the Texas sun. Empire had been a tiny $20 million thrift that grew almost overnight to $330 million, using brokered deposits. The Board voted immediately to fire Empire's chairman, Spencer Blain, and close Empire, the first closing that regulators admitted was caused by fraud in the thrift industry's 50-year history.4
When the videotape was over Gray watched it again. Over and over he
watched it. Empire Savings was the embodiment of everything he had feared might be wrong with the way thrifts used brokered deposits for risky, sometimes
fraud-ridden, ventures. Gray showed the tape to his entire staff, including those doubting Thomases who had back-stabbed him to the press just days earlier. He
told us he even called his friend Paul Volcker, head of the Federal Reserve
Board, and Representative Fernand St Germain, House Banking Committee chairman, to his office for a screening. He must have shown the tape thirty
times.
Now Gray was ready to take his message directly to the industry itself He chose the upcoming U.S. League's annual convention to make a speech on the evils of brokered deposits. Less than two years earlier delegates at this convention had gushed for Gray to be their next FHLBB chairman. He knew only too well his reception this time would be far less pleasant, but so be it. Brokered deposits were destroying the industry, and the LI.S. League and its members had to wake up before the damage was irreparable.
The night before Gray was to speak. Gray said U.S. League President William O'Connell begged him to water down his brokered-deposit regulation. O'Connell, in his early sixties, a slight man with a tuft of silver hair around his ears, was a seasoned lobbyist who employed a mildly persuasive manner. His consistent refrain to Gray was that the S&L industry needed to buy time and it was Gray's job to help. The League thought that maybe the ban was "a little too tough," O'Connell told Gray. Although the League's members weren't crazy about their growing dependence on short-term brokered funds and would officially support Gray's brokered-deposit regulation, O'Connell told Gray they did like the idea of being able to use long-term brokered funds (deposits of a year or more). Could Gray maybe amend the regulation to allow for long-term brokered deposits? But the next day Gray made his speech: brokered deposits were trouble, all of them, long and short. They were an accident waiting to happen. He announced that the ban was on and would continue unchanged. He hadn't budged.
His intransigence infuriated many in the industry, especially deposit brokers and the thrift executives who were using the brokered deposits. They were tired of Ed Gray. He was becoming a broken record on the subject of brokered deposits. To make matters worse, he had begun to rattle on in public, airing even more of the industry's dirty laundry, telling people that the FSLIC might run out of money if thrifts kept failing and that thrifts would have to pay higher FSLIC insurance premiums. O'Connell and other industry leaders also became uneasy. Gray was talking too much. Much too much. He was making people nervous.
Members of the Reagan administration started to wonder just how this loose cannon had gotten on deck. And the answer, some felt, was revealed a few weeks later during hearings to confirm Ed Meese as the nation's new attorney general. Testimony quickly focused on Meese's friends and favors, particularly sweetheart loans Meese had received from Ed Gray's old thrift. Great American First Savings Bank of San Diego. In the late 1970's Great American had loaned $120,000 on Meese's home in California. Then when Meese moved to Washington to be the White House counselor upon Ronald Reagan's assumption of the presidency in 1981, Meese bought a home in Virginia with the help of a $132,000 Great American loan on his California home. Combined payments on both homes (totaling $51,000 a year) were more than Meese could handle on his $69,800- a-year salary, and for 15 months he made no payments to Great American on the California home. Nevertheless, Great American did not foreclose. In fact, the thrift loaned Meese another $21,000 as a fourth trust deed on the house, for a total of $273,000 in loans on the California house. A Great American spokesman said the home had been appraised for $335,000. However, that appraisal was never borne out by the marketplace. The house finally sold in 1982 for $307,500.
Nearly everyone involved in the Meese home loans got a job with the administration. Gordon Luce, Great American Savings president, was appointed a delegate to the United Nations. In May 1983 Ed Gray landed the job of Federal Home Loan Bank Board chairman. Thomas Barrack, a wealthy Southern California developer, helped to locate a buyer for Meese's California house and was later appointed to a high post at the Interior Department. John McKean, who arranged two Meese loans totaling $60,000, was appointed to the U.S. Postal Service Board of Governors. Meese said none of these appointments had anything to do with the favors Great American Savings had done for him on his house.[Yeah right DC]
However close Gray might have been to the top men in the Reagan White House, his role in the flap over brokered deposits had turned one of the most powerful men in the administration, Donald Regan, into an enemy. The Washington meat grinder went to work on Gray. Stories about Gray's lack of intelligence circulated from office to office like bad jokes.
The fact that Gray was an absent minded professor only added fuel to the rumor mill. White House Spokesman Larry Speakes had two favorite Ed Gray stories. In one he told about Gray's bad habit of losing cars. Gray would sign a car out of the motor pool, drive it to the airport, and then forget about it. When he returned from his trip he'd call a cab. Suddenly the motor pool noticed they had a half dozen cars missing, and a check of the airport parking lot turned them up right where Ed had left them.
In another case, so the story went. Gray was visiting the California legislature with a lot on his mind, as usual, and as he left he failed to notice a handwritten note on the elevator door: "Do Not Go to the Basement." Oblivious, Gray got on the elevator and pushed the button for the basement . . . which was flooded. Those waiting for the elevator above could hear Gray yelling for help as the elevator doors opened and the water rushed in on him.
And the tales went on and on. Gray heard about the stories, the Mr. Ed jokes, Don Regan's complaints to the president that Gray was not qualified for the job, and worse. But Gray was sure he was right. Everywhere he looked, it seemed, he saw brokered deposits fueling furious growth at once-modest little thrifts. The more deposits poured into an institution, the nuttier became the deals that the thrift's executives sanctioned. Champions of brokered deposits contended that Gray was simply watching the free market at work, efficiently transferring money to areas where it was needed. Brokered deposits weren't fueling fraud, they argued, they were fueling enterprise, innovation, growth. Now was not the time, they said, to get cold feet on the road to a deregulated America.
Gray was not convinced. "I believe in Reaganomics," he said, "but this isn't what I had in mind."
One day in 1977 Mario Renda, then 36, walked through the gates in a concrete wall on a narrow street in barren downtown Riyadh, Saudi Arabia. He crossed a small desert yard to a low stucco bungalow where a Sudanese servant silently motioned him to enter. He stepped into a living room that resembled a Holiday Inn converted into an oriental suk (bazaar). Dozens of men in Western business suits or flowing caftans and kaffiyehs milled around the smoky room or sat at the several tables littered with ashtrays and ashes. Obediently, Renda found a seat and settled in for a long wait.
A native New Yorker, Renda had arrived in Riyadh with a plan in his pocket
to build precast concrete homes in Jidda, Saudi Arabia. He was a partner in I.P.A.D (International Planners and Developers) Construction Consortium and
wanted to build an empire on OPEC's purse strings. At that time Khashoggi was at the apex of his power.3 The world's businessmen were rushing to his home in Riyadh, a jumble of added-on bungalows where Khashoggi held court 24 hours a day when he was in town 4 and made multi million-dollar commitments
the way a teller makes change. A nod from Khashoggi could set a man up for
life.
Renda sat among that international gathering, described later that year in Fortune magazine, and waited his turn to make his pitch. Patiently he worked his way through the labyrinth and into Khashoggi's realm. When it came Renda's turn for an audience, he and Kiiashoggi reportedly closed a $5 million joint venture to build the concrete homes in Jidda. Renda went home a happy man, fancying himself an international financier.
The deal later fell apart, as did so many of Renda's highfalutin plans, but the collapse did not derail Renda's determined march toward a Khashoggi lifestyle. He didn't want to run a construction company. He wanted to be a middleman, a broker like Khashoggi who claimed to have made $575 million in the past six years by simply doing deals. Renda coveted expensive possessions, ostentatious displays of wealth, and life on easy street.
"He wanted somewhere where he could park his Rolls-Royce, tell a few jokes, make a few phone calls, and go home and say he had a hard day at the office, " Renda's I.P.A.D partner Sy Miller said later. "He just came here to make phone calls. " In the winter Renda reportedly kept a chauffeur-driven limousine running all day in front of the office to keep the car warm. He told Miller he wished he could put a big sign on one of his Rolls-Royces announcing the car cost $120,000 and then drive around New York City. "He said he wanted the world to know what it takes to own one of these and that he had it," said Miller.
In 1980 Renda would become the ultimate "middleman" when he created First United Fund and became a deposit broker. Being a deposit broker would be his ticket to that good life. It would also earn him the reputation as the Typhoid Mary of the savings and loan business.
He was a sweetheart of a guy. " Miller said. Renda would have the office staff "rolling on the floor laughing" at his stories. He seemed to be Mr. Wholesome, was straight, never told dirty jokes. He was a director on the executive committee of the Boy Scouts of America. But he wasn't much of a businessman.
In 1977 he closed the deal for I.P.A.D with Khashoggi at Riyadh. Miller wasn't impressed. "Khashoggi was a big bullshit broker. He was a $3 bill." Later. Miller commented, "They ate a lot of rice and lamb, but Khashoggi, like Renda. sold blue skies." The deal never materialized, nor did any of the other big-shot deals Renda supposedly negotiated on his overseas trips for I.P.A.D. Renda loved to hobnob with the rich and famous and that's apparently what he did on I.P.A.D's expense account. Miller later said. "I would be a wealthy man today if we had nailed down some of the things we had going at the time. " Instead, in July 1977, soon after Renda's trip to Riyadh, Renda left I.P.A.D.
But I.P.A.D had not been a total loss for Renda. He had made valuable contacts in the Arab world while traveling in Khashoggi's circles. Khashoggi also represented for Renda the kind of life he wanted for himself. He wanted to be a big shot, at the center of all the action, making deals with the wave of the hand, making or breaking the lives of others. Khashoggi, Fortune magazine reported in 1977, viewed himself as a J. P. Morgan or John D. Rockefeller. That probably sounded all right to Renda too.
After leaving I.P.A.D, Renda spent a short time as a treasurer of an Arab bank (Arab International Bank), an offshore banking operation used to handle millions in Arab petro-dollars. At Arab International Bank he first learned the possibilities inherent in certificates of deposit (C.D's)—information that would soon come in very handy.
Renda didn't stay long at Arab International Bank. In 1978, eager to strike out on his own, he formed Arabras, Inc., a one-man firm in New York City. The name of the new firm suggested Renda planned to continue to capitalize on his association with cash-rich Arab friends. The company's SEC filing said it would be doing business in the twin worlds of international finance and trade. But in 1980, when the U.S. Congress deregulated interest rates on savings deposits. Renda saw possibilities that transcended even the wealth of the Arabian oil sheiks. The new legislation was a boon to investors, who could then get a high return that was risk free (because the deposits were insured by the FSLIC). No doubt remembering what he had learned at .Arab International Bank, where the bank's deposit brokers moved petro-dollar C.D's around the world in search of the best daily interest rates, Renda grasped the full implications of interest rate deregulation. He quickly changed Arabras. Inc.. to First United Fund and became a deposit broker. Before his arrest in 1987 he would broker $6 billion (buy $6 billion in C.D's) for 6,500 investors into 3,500 financial institutions.
Renda started First United Fund in January 1980 with only $146,000 and two employees. (Forty-eight months later it would boast assets of $227 million, a brokerage business of $5 billion, an annual income of $5 million, and 100 employees.) To get First United Fund off the ground, he needed a steady flow of deposit money, lots of it. Renda's break came one day when he went to a local computer store to look for a computer for his new office. He later testified that while he waited for the salesman, another customer, Martin Schwimmer, struck up a conversation. Renda soon learned that Schwimmer managed pension funds for two New York unions. Local 810 of the International Brotherhood of Teamsters, Chauffeurs, Warehouse men and Helpers of America and Local 38 of the Sheet metal Workers International Association. The two men retired to a nearby McDonald's for coffee, and that was the start of a beautiful friendship. Before Ronald McDonald could pour them a second cup, the deal was struck. Renda hired his very new friend, Schwimmer, to be financial adviser to his First United Fund, promising him $50,000 a year according to Schwimmer. (Later Schwimmer would report he made $400,000 in his first year with First United Fund and at least $1 million a year for the next three years.) Thereafter the advice Schwimmer gave to the union pension-fund bosses was to let First United Fund invest their money in certificates of deposit. In the following months Renda's network of banks and thrifts grew as he aggressively placed deposits for his new "clients."[Really starting to wonder about the lack of pictures of these 'players' in the public domain,I am already on at least a half dozen attempts,no pics,which is making me wonder if these folks are not really all intelligence,we will see if it gets better DC]
Teamsters Local 810 had 7,000 members, who were employed as wire workers and factory workers in Manhattan. Federal authorities later charged that its bosses agreed to throw their brokerage business Renda's way in return for kickbacks. The Sheet metal Workers Local 38 had 650 members, employed as sheet-metal workers in New York and Connecticut. Their bosses didn't even know Schwimmer was putting the local's money at First United Fund. All they knew was that they had a financial adviser and he was investing their money somewhere. Between December 1981 and December 1984 the two locals invested about $100 million through First United Fund.
Renda had found a nice niche in the newly deregulated world of federally insured certificates of deposit. Using other people's money, he could get a percent of the action just by opening what amounted to savings accounts for them and collecting his commission from savings and loan officers, who were grateful for the deposits. Why would anyone work for a living when he could be a broker? But Renda and Schwimmer had an idea for a way to make an even larger profit from this arrangement. They told the 16 savings and loans and two banks that received this pension money to deposit their fees ($16 million over three years) in bank accounts that Renda and Schwimmer then kept secret from the IRS. (Though they didn't have to share with the IRS, Renda later admitted that he and Schwimmer did kick back a portion of their take to Teamster officials.)
With millions of dollars at his disposal, Renda began to act like a sheik. Built like a fireplug, he had a platform installed in his office to elevate his desk so guests had to look up at him: "Power Desking." His office was described by one source as "a monument to bad taste, " garish and ostentatious, with red velour wallpaper. He moved his family into a 30-room Garden City mansion surrounded by a couple of acres and a wall to guarantee privacy, and about this time he embraced yet another scheme for milking his brokerage business. His new idea involved a cast of "subcontractors" in Kansas City and Hawaii, and to understand the heist we first had to get to know them.
The two men were very different: Lemaster was tall, thin, and distinguished and reminded associates of an ambassador; Russo was ten years younger, short, fat, and talkative, and he wore an ostentatious display of jewelry. Russo was plugged into centers of power in Kansas City from his years as a prominent criminal attorney there, and Lemaster may have wanted to use those contacts to invigorate Indian Springs bank. The kind of contacts Russo had, however, were not necessarily the best medicine for a small financial institution. According to an official of the Kansas City Crime Commission, Russo had defended organized crime figures in Kansas City, in particular the Nick Civella crime family. Russo himself had served 16 months in Fort Leavenworth federal penitentiary in 1976-77 for bribery and interstate promotion of prostitution and had voluntarily relinquished his license to practice law rather than chance disbarment. Nevertheless, Lemaster hired him in 1981 to be vice president of Indian Springs bank.
Bank records showed that Lemaster's plan to make Russo a bank officer was met with dismay by bank regulators in Kansas City, who knew about Russo's reputation and his 16 months in prison. The Kansas City regulators passed the application along to Washington with a strong recommendation to deny approval. The warning was ignored by Washington and on August 19, 1981, the FDIC's board of review authorized Russo to be an Indian Springs officer but restricted his activities to "new business development." Russo's job at Indian Springs was to locate new depositors from among his wide-ranging business and personal contacts, and he had plenty to offer in that capacity. A former Indian Springs board member later told a reporter that Russo was well suited to his new job:
"He could walk up to someone and say that they were to move their account to Indian Springs State Bank, and people would do it with no questions asked."
At about the same time that he hired Russo, Lemaster also appointed Iranian-American businessman Farhad Azima, 39, to be a bank director. The three men had reportedly met when Lemaster was an "advisory director" and Russo was a "financial consultant" for a mysterious airline. Global International Airways, owned by Azima and headquartered in Kansas City. In 1978 Azima had founded Global International Airways to ship cattle to Iran, he told a Kansas City Star reporter, but when the Shah of Iran was ousted in 1979, Azima had to adjust his business plan. With money borrowed from an Arabian international bank. Global International quickly became one of the nation's largest charter airlines, with 900 employees worldwide and 20 planes, including seventeen 707's, two 727's, and one 747, the Star reported. But to this day it is not exactly clear what Global International really did, and Azima refused our requests for an interview.
Global International Airways first came to the public's attention in 1979 when it had an airplane stranded for three days on an airfield in Tunis, Algeria. The pilot had been paid $93,000 in advance to make the flight, but when his payment arrived in $100 bills in a suitcase, he became suspicious. And when cargo was loaded on his plane at the Tunisian airport, he demanded to see the relief supplies he was supposed to be flying from Lebanon to Nicaraguan refugees in Costa Rica.
Let me see the "lettuce," he insisted.
The "lettuce" turned out to be twin-barreled 57-millimeter guns with several dozen cases of ammunition labeled in Chinese. Later the Tunisian government said the Palestine Liberation Organization had been trying to send arms to the Sandinistas. A Global crewman later told the Star of a standing joke among the crew:
"They [airport personnel] would ask us what our cargo was and we'd tell them cabbages and cabbage launchers."
Apparently to discourage nosy airport personnel, former pilots said subsequent shipments stopped masquerading as cabbages. The munitions boxes "had Red Cross stickers all over the sides," one of Global's former pilots said.
Global International developed a reputation among insiders as one of the CIA's secret charter airlines. Former Air America pilots 5 showed up on its pilot roster. It flew arms shipments to Ecuador, Peru, Nairobi, Thailand, Haiti, and Pakistan. Azima later said the flights had been cleared by the U.S. State Department. Asked about the CIA, Azima told the Star, "No comment. "6 [Sounds like part of BCCI's setup that Marshall was talking about in this part of Bamboozled DC]
https://exploringrealhistory.blogspot.com/2018/03/part-5the-big-bamboozle-911-war-on.html
When Lemaster appointed Russo and Azima to positions at Indian Springs bank in 1981, Global International Airways was at the height of its activities out of the Kansas City airport. Whether Azima got Indian Springs State Bank directly involved in covert activity, we could never determine. However, the following year Russo received a $25,000 check from Global Airlines, and later when he was questioned about the check in court (Russo was on trial for tax fraud. He was acquitted), he gave the following explanation:
Global International was hired by the United States government to fly the president of Liberia, which was a new government, and its cabinet around the world on a goodwill tour. Liberia is a little country' in Africa that I studied about, as a result, and learned a little bit about. After the War against [sic] the States, Lincoln, our president, sent some slaves to Liberia to live. And they lived on the, I believe, the west coast of Africa. Yes, the west coast of Africa. And formed this little country called Liberia.
The United States has supported that country over the years. And about in 1981 they had a coup. Sergeant (Samuel] Doe, who was a sergeant in the Liberian Army, overthrew the government. The government was backed by the, our CIA and our government. And when the revolution or coup occurred, the United States then wanted to become friendly with the new government, wanted to continue to have ties between the United States and Liberia [not Libya, Liberia] and wanted us to continue our relationship with them. So they hired Farhad's airline. Global, to take Sergeant Doe, his entire cabinet, around the world on a goodwill tour.
Farhad asked me if I would go as the "host" to the president and the cabinet, to escort them from country to country. It was at that time that, of course, I was an officer of the bank and I had to check with Mr. Lemaster, who was the president, and he covered for me and I took that trip around the world and we went all around the world with the president and his cabinet, and the president and I became friends and I would introduce them and kind of act like an ambassador. . . . The arrangement with Mr. Lemaster at the time was that any fee I would recover I would split with him because he covered for me at the bank.
Azima also testified during Russo's tax fraud trial, and the scheduling of his appearance had to be moved up one day because, he told the court, he had a luncheon meeting in Washington, D.C., the next day. A frustrated member of the prosecution team later told us that she believed Russo was acquitted of the tax fraud charges partly because of the aura of respectability the references to the CIA gave him.
Indian Springs State Bank treated Azima well. Examining bank records, we discovered his personal account at the bank was frequently overdrawn even as bank examiners demanded—on at least three occasions—that his loans be paid down. Each time examiners returned they found the loans still on the books and still in arrears. In 1983 Azima owed Indian Springs State Bank $800,000. At least $600,000 of the money went to Global International and a related company, even though Indian Springs State Bank's loans-to-one-borrower limit then was $348,881. Collateral for one of Azima's loans was his DeLorean. 7
Azima also had other connections at Indian Springs State Bank. President Lemaster claimed in bank examination reports that Azima had sponsored the Dunes Hotel and Casino in Las Vegas for an unsecured loan of about $200,000
in 1982. The loan was guaranteed by Dunes owner Morris Shenker. Shenker
was a millionaire St. Louis defense attorney who in the early 1980's was chairman
and controlling stockholder of the Dunes Hotel and Casino in Las Vegas. 8 Shenker had been Teamster boss Jimmy Hoffa's attorney and confidant for over
ten years, until Hoffa disappeared in 1975. Through him Shenker had access
to the Teamster Union's $1.5 billion Central States, Southeast, and Southwest
Areas pension fund.'9 Bank records revealed that a Shenker business associate from Las Vegas, Jay Fihn, also had a loan at Indian Springs. Russo testified he
and Fihn teamed up to broker fuel to Azima's Global Airways, which, according
to Russo, had a contract with some Las Vegas hotel-casinos to fly junkets (ferrying
tourists to Las Vegas). Kansas bank regulators complained about the Dunes
Casino loan, saying Shenker was not a creditworthy borrower and the casino was too far away from Kansas City. Regardless of demands by regulators that the loan be removed from the bank's books, it never was.10
Federal organized crime investigators said Shenker was an associate of the Nick Civella mob family in Kansas City.11 Regulators found the Civella family at Indian Springs bank too. They were part of that "new business" they said Tony Russo brought to the bank. Members of the Civella family got $400,000 in loans from Indian Springs, bank records show, including one for an Italian restaurant. Their accounts were "habitually overdrawn," a bank examiner complained in one examination report. At the end of 1982 regulators alleged that bank officers kept a loan to a Civella current by rolling it over (renewing it) and increasing the amount of the loan at each renewal to cover the interest costs the loan had accrued since the last renewal.
At the same time that Indian Springs was making sweetheart loans to the Civella family, some of the Civellas were embroiled in a messy criminal prosecution in Kansas City. Federal organized crime prosecutors in 1981 had indicted brothers Nick and Carl Civella and others for skimming $280,000 off the gaming tables of the Tropicana Casino in Las Vegas. Nick Civella died of cancer before the trial ended in July 1983, but his brother Carl was convicted. Carl Caruso, convicted along with the Civellas, was also on the loan list at Indian Springs. Caruso operated junkets for the Las Vegas Dunes out of several Midwestern towns, including Kansas City. In court it was revealed that he was the bagman for the skimming operation, transporting the skim from the casino to Chicago and Kansas City for distribution to the mob families there.
Franklin Winkler was an international wheeler-dealer. He and his dad. V. Leslie Winkler, were cosmopolitan con men. They were Hungarian Gypsies, smooth operators, and both spoke a number of languages. Franklin, who was in his forties, had been born in Istanbul and had lived all over the world, wherever his father Leslie's schemes took them. Franklin had most recently lived in Cuba, Italy, Australia, Kansas City, and Southern California and had lately settled temporarily in Hawaii. Leslie lived in Palm Springs. Franklin and his father were fat and affable. Franklin weighed over 300 pounds, but he was a charmer whom women found enchanting. Described by federal prosecutors as "a criminal financial genius," Franklin had reportedly already been convicted of felony frauds in both Italy and France but had never spent a day in jail. An attorney who had cross-examined him said he had a remarkable facility for slipping into a variety of nearly perfect foreign accents.
"He'd be talking to me about something during court recesses and all of a sudden he'd be speaking with a perfect French accent, or Italian, or Middle European accent. He'd just throw it in for effect. The guy was really smooth."
Franklin Winkler had been losing money on real estate investments in Hawaii, and regulators said he agreed to cooperate with Renda in a scheme that would benefit them both. Renda would broker deposits into savings and loans or banks if the institutions agreed to make loans to Hawaiian real estate partnerships fronting for Winkler and Renda. "Linked financing, " where deposits were promised to a bank or thrift in return for loans, was not always illegal but regulators didn't like the practice because they feared the promise of huge deposits would induce financial institutions to make risky loans that they would not otherwise have made. But the linked financing Renda had in mind was illegal because it was an end run around Indian Springs State Bank's loans-to-one- borrower limits, which at the time were between $250,000 to $350,000.12
The timing of this new friendship between Renda and Winkler was perfect because within weeks Anthony Russo went to Hawaii on vacation. Before he left he contacted an old friend who told Russo to look up a Franklin Winkler in Hawaii, which Russo did. The two men liked each other, and Winkler made Russo a business proposal. Authorities said Winkler suggested that under "the right circumstances" he and his friend Mario Renda could get Indian Springs bank all the deposits and all the loan business it could handle. Russo liked the sound of the offer.
A few months later, early in 1982, Russo traveled to Las Vegas, where he met again with Franklin Winkler. Accompanying Winkler this time was Sam Daily, a retired Air Force colonel, then a Honolulu realtor. Daily was a Louisiana redneck, a short, fat man who looked like a TV huckster. He had black, greasy, plastered-down hair, a sailor's tongue, and a terrible temper.
Indian Springs State Bank Vice President Anthony Russo, con man and swindler Franklin Winkler, and Hawaii realtor Sam Daily met in a suite provided as a favor to Russo by Dunes owner Morris Shenker. Regulators charged that under the plan the men formulated at the Dunes, Renda would broker deposits into Indian Springs State Bank—"courtesy deposits" they were euphemistically termed. In return the bank would make loans to straw borrowers" who would be fronting for Renda, Winkler, and Daily.
The details of the plan would work like this: Renda would put the word out through First United Fund that he could place deposit money with banks and thrifts at rates a full percentage point or more above the going rate at the time. 14 Renda knew full well that the prospect of such a high interest rate would attract managers of credit unions and pension funds who were constantly on the prowl for the best rate for the money they managed. (Renda and his brokers mockingly referred to these credit managers as "rate junkies.")
All a bank or thrift had to do to get these deposits was agree to make a few loans to Renda's Hawaii "investors." Once the institution agreed to make the loans, Renda would send the deposits to the thrift or bank and, almost the same day, Winkler and Daily would send in their straw borrowers 15 to get the agreed upon loans.16 These individual borrowers (lined up by Winkler and Daily) would get a fee of between 2.5 percent and 6 percent of the loans obtained in their names.17 When the loans were funded the borrowers would turn the money over to Winkler and Daily, who would tell the straw borrowers they could just forget about having to pay back the loan. Winkler and Daily would take care of that, they said. By sending in many straw borrowers, Winkler, Daily, and Renda disguised the fact that all the loan money was going to them. And when the loans went into default, the straw borrowers' names would be on the foreclosure papers and lawsuits, not their names.
The key to the whole arrangement was Renda's deposits. They were the bait that enticed bank officials to play along with the scheme. Without them little of the looting over the next five years would have been possible.
By July 19. 1982, First United Fund had placed the first batch of brokered funds at Indian Springs State Bank, and the first crew of straw borrowers were in the starting gate. Winkler outlined the operation in one last letter to Renda that concluded:
"I suggest that we proceed with this first pilot transaction and then we should get together in order to formalize a proper modus procedendi for all future transactions of this type." In other words, if the scam worked at Indian Springs State Bank, they would expand their operation to other financial institutions.
Indian Springs State Bank made the loans to the straw borrowers as planned. The scheme worked perfectly. And on August 29 Franklin Winkler called a meeting with his dad, Leslie, and Renda at Southern California's luxurious La Costa resort to review the progress of their plan.18 After the La Costa sit-down, Franklin's father, Leslie Winkler, sent Renda and Franklin a memo grandly entitled "Memorandum Premenoira." In the memo Leslie stated: . . .
Both Franklin and Mario have agreed to carry out a number of trial transactions under the contemplated terms and procedures. One transaction has already been concluded via K.C. Bank'" and the intention is to repeat a few similar deposits which will demonstrate the feasibility of the operation of the program. (Leslie's interest in the project was not platonic. Because he had introduced Franklin and Renda, he was entitled to a "finder's" fee on each deal that went down.)
In the month following the meeting at La Costa, the three men formed at least eight companies and partnerships to conceal the paper trail left behind by their activities. Renda, Franklin Winkler, and Daily began visiting banks and savings and loans in areas they had targeted for high-growth potential —Kansas City, Southern California, Honolulu, Texas, Denver, Phoenix, Seattle, New York, and New Jersey—and pitched their linked financing schemes. The code name used for these transactions at First United was, appropriately, special deals.
Then Renda added a new wrinkle. He ran ads to let people know that for a fee he could supply deposits for anyone who needed a loan and wanted to get his own linked-financing deal going. Renda placed ads in major newspapers, including The Wall Street Journal, the Los Angeles Times, and the New York Times, which read:
By mid-1985, a little over a year after opening for business, Ferrante had made a big dent in Consolidated's bottom line. Finally federal regulators were eyeing him nervously. They conducted an examination of the S&L's books, which they claimed showed major inconsistencies between Consolidated's records and the facts:
1. Consolidated said 84.8 percent of its loans were mortgage loans secured by real property; the truth, according to examiners, was that 52.7 percent of its loans were unsecured commercial loans, a majority of which were in excess of loans-to-one-borrower limitations.
2. Consolidated said it had no brokered deposits; the truth was that at the time 70 percent of its deposits were brokered and more were pouring in every day.
3. Most of Consolidated's loans were to 15 borrowers, most of whom regulators reported had suspiciously close ties to Ferrante.
4. The net worth Consolidated reported included substantial non cash assets of questionable value.
5. Loans lacked adequate documentation and Consolidated had no written formal loan policy and procedures.
Given the extent of Consolidated's alleged infractions, we wondered why regulators let the thrift continue to operate for a year after the examination. The answer, we learned, was that regulators had lengthy procedures to follow, and they had to proceed in an orderly manner. ""16 The modus operandi in the banking world was not to panic. Panic was the 'T" word of banking. Instead, there were careful, measured steps to be followed, calmly, quietly, and secretly, of course, so the public wouldn't panic.
Besides, Ferrante and Angotti weren't making it particularly easy, or comfortable, for regulators to examine Consolidated's books. Immediately following the critical June 1985 examiner's report, the regulatory apparatus tried to lurch into action, issuing a series of directives, restrictions, and cease-and-desist orders designed to jawbone Consolidated Savings into compliance. As a result Chairman Angotti, who was increasingly called upon to placate Consolidated's F.H.L.B supervisory agent, particularly on the Carson deal, began harassing bank examiners. Eventually things got downright personal and came to a head when Angotti allegedly threatened federal examiners "with grave bodily harm including death."17
Depending on whose version you believe, the threat was either sinister or semi-sinister. According to one FHLB examiner, Angotti threatened to kill him. Regulators contended similar threats were made to another auditor as well. A public relations firm hired by Ferrante following the 1986 federal takeover of Consolidated Savings Bank told us it was all a big misunderstanding.
"Mr. Angotti is Italian," PR woman Sherry Twamley explained in a soft voice. "After weeks of struggling with federal regulators, Mr. Angotti just got angry one day and, instead of swearing at them in English, did so in Italian. If you translated what he said literally, it meant 'I'm going to cut your balls off.' But really," she added, "he's just a 'Mr. Harmless Professor.' "
Angotti agreed with Sherry Twamley's version of his threats, but he added that after his suffering at the hands of regulators he might have strengthened his threat. Angotti complained that they seemed obsessed with the "Mafia" and one federal examiner made constant allusions to Angotti's heritage and the mob. "He used to ask me all the time if I was taking my instructions from the Mafia, " Angotti said incredulously, adding in his Italian accent that if he had known then what regulators had in store for Consolidated, he would have "eaten their blood."18
Angotti also speculated, "I think the state and feds had approved Robert for Consolidated but missed all the stuff about the bribery case and shooting and stuff. When they discovered it Consolidated had already been approved and I think they were just trying to force him out because their investigation of him didn't turn any of this stuff up."
Ferrante, in a counterclaim filed against the FSLIC, claimed that "Angotti, representing the new California-based S&Ls, arguing forcefully for the rights of an S&L to engage in all types of profitable commercial activities, including commercial lending," was anathema to F.H.L.B.B Chairman Ed Gray, who represented the interests of "the club," or the long-established large thrift institutions. Ferrante claimed that Ed Gray, in Washington, and regulators at the San Francisco FHLB conspired to "destroy Consolidated and Ferrante and Angotti, thereby removing them as political forces within the industry." He said the FSLIC colluded with newspapers and the media in a maniacal mission to destroy him.'19
Whatever their reasons. Federal Home Loan Bank examiners from San Francisco continued to hound Angotti. They were cutting their way through the maze of partnerships, limited partnerships, trust assignments, and promissory notes Consolidated had erected around the Carson project. Ferrante later alleged in court documents that from November 1985 the thrift was hardly doing any banking at all. Instead, management and staff spent most of their time trying to satisfy regulators through two bank examinations, one agreement promising to correct any problems, eight meetings, and at least 41 long letters of instruction accompanied by hundreds of pages of documentation.
In what Ferrante characterized as a thoroughly unreasonable action, regulator Polly Cortez advised the F.H.L.B.B in February 1986 not to approve Ferrante's application to own another savings and loan. Then in March federal examiners began what would turn out to be the final inspection of Consolidated Savings' books. They later reported that Angotti, pushed for answers to embarrassing questions, again resorted to threats. He called examiner Darrell De Castro into an office to complain about the examination. The more Angotti talked, the more frightening his rhetoric became.
"If they want to fight, I can fight," Angotti vowed, according to De Castro. "And I don't lose. No one is going to close this bank. If they do, I will have to be dead. I mean that literally. And if they shoot me, I will have to shoot someone. And I hope it's not you." Unamused by Angotti's "Godfather" imitation, the F.H.L.B asked for, and received from the court, a temporary restraining order barring Angotti or any other Consolidated official from interfering with examiners. Regulators returned with armed guards from the U.S. marshal's office, just for good measure. Left to do their job without distractions, regulators soon found the institution was insolvent.
On May 22, 1986, at 4 p.m., agents of the FSLIC pushed through the doors of Consolidated's new offices in Irvine and took control of the thrift. They were accompanied by FBI agents, some carrying automatic rifles, and local police. By now they were very familiar with the story of the Ferrante shooting incident, his claims of Israeli Mafia involvement, and. Angotti's blunt threats to their examiners. F.H.L.B attorney Bart Dzivi later testified they had also been warned by local law enforcement that there was an ongoing investigation into Ferrante's alleged links to organized crime.'" Under those circumstances the green-eye- shaded regulators weren't about to walk in armed only with calculators.
Angotti was offended by his treatment that day. He said the FBI agents who accompanied the federal regulators held machine guns on him and the bank's tellers and also manhandled him personally.
"They came into my office and threw me up against the wall and frisked me," said Angotti. But Angotti had not been exactly caught off guard by the raid. Five hours earlier a reporter acting on a tip had called him.
"I hear they're going to shut you guys down today. Any comment?" the reporter had asked.
There was stunned silence on the line, and then Angotti blurted, "Oh, shit! Thanks!" and hung up. (In 1986 and 1987 the reporter received a Christmas card from Angotti. In 1987 the card carried the simple message "Again, thank you. belated thanks. —Ottavio A. Angotti.")21
When the FSLIC team arrived at Consolidated's offices that afternoon, attorneys for regulators claim they found three large trash bags filled with shredded bank documents. Fifteen minutes after the takeover they found a bank official still frantically shredding. Regulators claimed later that other important documents were smuggled out the back door to Consolidated's corporate office even as the thrift was being seized.
While regulators secured Consolidated Savings' Irvine office. FBI agents and Bank Board officers simultaneously stormed the Newport Beach office that Ferrante shared with his attorney, Eric Bronk. A Mexican standoff ensued, with Bronk maintaining that neither Consolidated Savings nor Ferrante had any records at his office. While Bronk stalled, several people left the building carrying briefcases. Eventually Bronk went into a back office and after a long wait, regulators said, he returned with a single Consolidated-related file. After further altercation he repeated the process and produced another file. This stalling action continued for a couple of hours, during which time Bronk produced about half a dozen Consolidated files.
Finally examiners decided to call it a day and continue the next. It was late in the afternoon and everyone was tense and tired. Both sides were clearly standing their ground. But before they left the examiners had the locks changed on the doors, and they posted a Pinkerton guard outside for the evening. Then, just as everyone was filing out to their cars to leave, Ferrante suddenly appeared, walking out of a back office and, without saying a word, driving off. He had been there, apparently, the entire time, FSLIC's attorneys claimed.
Things didn't get any better the next day. Bronk/Ferrante associates scurried around clicking flash pictures of arriving FSLIC clerks and examiners. They also took photos of their license plates and leaned into the air to click pictures through the windows. Nervous FSLIC employees went to court and obtained another restraining order, in which they said they feared the photos were going to be used to track them down at their homes.
Bronk loudly, and occasionally physically, protested the search of his offices, and finally a restraining order had to obtained by the FSLIC against any further interference from Ferrante or Bronk. Bronk filed an $8 million lawsuit claiming "unlawful search and seizure." It was easy to understand why Bronk was upset. In the nine months prior to the takeover, court records show. Consolidated had paid him $1.2 million for legal and consulting fees and personnel, travel, entertainment, and office expenses.
When Superior Court Judge Richard Gadbois, Jr. , listened in court to FSLIC complaints of photographing, threats, and interference, he warned the attorneys representing Ferrante, Angotti, and Bronk, "If I get downwind of any serious suggestion of anything like this, I'll be all over that thing like a cheap suit, and I really mean heavy." And in the event any FSLIC employees were actually harmed in any way, the judge warned, "You think you've seen FBI agents. . . . Judge Webster 22 and I had a little talk and I'm dead serious about that."
With the place to themselves, regulators quickly discovered just how bad things were at Consolidated. The total cost to the FSLIC would exceed $100 million, and regulators amassed enough evidence to file a civil suit against Ferrante, Angotti, Bazarian, and others for $52 million, the amount of money they estimated was missing. " Ferrante claimed he didn't have any of the contested millions and never had. The FSLIC spent hundreds of thousands of dollars on attorneys, seeking recovery from Ferrante and 19 other defendants. Some out of-court settlements were reached, but such settlements fell within the Bank Board's veil of secrecy and were not made public. Sources told us pennies on the dollar were the norm. Meanwhile, Ferrante sued the FSLIC and the Bank Board, charging that they, not he, had ruined Consolidated.
"These guys remind me of the kid who killed his parents and then complained that the system should be kinder to orphans," said one federal prosecutor about Ferrante and other thrift officials who complained loudly when their thrifts were seized.
The FSLIC notified Ferrante that the U.S. attorney's office and the FBI had opened an investigation in the wake of Consolidated's failure, but as of the day this book went to press, no criminal charges had been filed and the money was still listed among the "disappeared." As for the regulators' efforts to rescue Consolidated, well, it's one thing to hold out hope you can catch a horse once it's out of the stable, but it's quite another to know what to do when the horse has already been rendered into glue. Consolidated Savings Bank had been bled white and could not be saved, and on August 29, 1986, regulators closed Consolidated Savings, claiming in their civil suit that Ferrante had used the thrift as "a slush fund for himself, members of his family, and various business associates." The stock, all held by Ferrante, was rendered worthless and Consolidated's wretched ruins were merged with a healthy thrift.
In a desperate attempt to stop state-chartered thrifts from switching to federal charters after passage of Garn-St Germain, California had thrown its arms open to all comers. "If you think that federal hussy is easy, come on up and see me sometime, " the sign might as well have read on the door to the California savings and loan commission. Character, experience, and intentions of an applicant played little role in the commission's decision to grant an S&L charter. California officials were concerned primarily with starting the flow of contributions back to the politicians and assessments back into the state's regulatory apparatus. Larry Taggart, the state's new savings and loan commissioner, epitomized the laissez-faire mood of the time. He believed firmly in deregulation and apparently never met a thrift applicant he didn't like.
Asked in 1989, during his testimony before the House Banking Committee, how it could be that he approved 235 thrift applications in just 400 days in office, Taggart responded that he had no way of knowing how a person would do as a banker until they had tried. "How many of the thrifts you approved later failed?" Taggart was asked. "Take your pick. Congressman," Taggart responded.
As a result California, particularly Southern California, would lead the nation in aggregate losses at FSLlC-insured thrifts. To Consolidated Savings add Beverly Hills Savings, San Marino Savings, South Bay Savings, North American Savings, Ramona Savings, Westwood Savings, Butferfield Savings, Centennial Savings ... 42 institutions failed in California between 1980 and 1987. (The closest competition for "most failed thrifts" came from Illinois with 33, Texas with 32, Louisiana with 29, Florida with 21, Ohio with 19, and New York with 18. ) And more was yet to come. When thrifts began to collapse in large numbers in the mid-1980's, federal and state officials tried to blame the failures on a depressed oil economy. But in California oil played a very minor role in the state's robust business climate, yet thrifts nevertheless failed.-'' The oil excuse, we suspected, was a slippery way of avoiding the real issue—fraud.
CHAPTER SEVEN
Back in Washington
The important role played by deposit brokers in the epidemiology of the disease spreading through the thrift industry was becoming clear to us. Someone had
to make huge deposits into thrifts so high rollers would have money to wheel
and deal with. Local depositors were not a good source of money. Their accounts were often small and their balances fluctuated and were undependable. Deposit
brokers, on the other hand, were totally dependable. If a thrift executive needed
$2 million or $20 million deposited at his institution Monday morning, deposit
brokers got it there. All the thrift had to do was guarantee to pay the highest
interest rate offered that day. If someone were going to take the risks associated with defrauding a thrift, they would want to make sure the thrift had enough
money to make it worth their while. Deposit brokers could make that guarantee. By January 1984 Ed Gray, after eight months as chairman of the F.H.L.B.B in Washington, had become deeply worried about brokered deposits. He felt something needed to be done to limit them, and the solution he favored was to severely limit FSLIC insurance coverage of brokered deposits and thereby dis- courage their placement at thrifts. Gray called his friend Bill Isaac, then chairman of the F.D.I.C, and asked him if he shared his concerns. Isaac told him the Penn Square Bank fiasco was all the proof anyone should need.1 Together the two men mapped out a course of action that they knew would not be popular with either the industry or the Reagan administration. They planned to implement joint regulations that would strictly limit insurance coverage on deposits acquired through deposit brokerage firms.
As Gray saw it he was just doing his job—protecting the industry from a clear and present danger. After all, he reasoned, this wasn't the first time the F.H.L.B.B had limited brokered deposits. From 1963 to 1980 the Bank Board had forbidden a thrift to get more than 5 percent of its deposits from deposit brokers. The limit was enacted when thrifts on the West Coast used brokered deposits in the early 1960's to fuel rapid growth and to fund risky investments—the very characteristics that were worrying Gray now. The F.H.L.B.B had repealed the 5 percent limit in 1980 when thrifts were having a hard time attracting deposits.2
Gray and Isaac cemented their alliance against brokered deposits, however, and on January 15, 1984, the two men publicly proposed regulations that limited to $100,000 the amount of insured deposits any one money broker could place at a thrift or bank and still get federal deposit insurance coverage. Two months were set aside for public comment on the proposed rule and they soon had over 165 replies (about a fourth of the replies were form letters issued by major investment houses in opposition to the regulation). Responses were running two to one against the proposal, but many small S&L's favored the rule. They feared brokered deposits were threatening the safety and soundness of the banking system. Many said they had no difficulty raising enough deposits without resorting to deposit brokers. Steven A. Grell, president of First Bank in Pipestone, Minnesota, said, "I have had many deposit brokers contact me concerning either buying or selling certificates. I find their business totally unjustified and hazardous to a federal insurance system." But most S&L officials objected to the regulation as penalizing all institutions for the abuses of the few.
Gray said he also faced stiff opposition from Treasury Secretary Donald Regan. Regan was the administration's most adamant champion of deregulation, and Gray's stand on deposits quickly earned Gray the tag of the great "re- regulator" among thrift industry lobbyists. Gray was not turning out to be Regan's idea of a team player. Regan was chairman of the Depository Institutions Deregulation Committee (established by the 1980 Depository Institutions Deregulation and Monetary Control Act to phase out all interest rate controls). Before coming to serve in the Reagan administration, Regan had headed the New York brokerage firm of Merrill Lynch, which later would become one of the nation's largest deposit brokers. Many came to refer to Regan as the father of brokered funds.' Now Regan's healthy stallion was about to be gelded by Gray's proposed regulation. Gray said later, "It seemed like almost every week the D.I.D.C [Depository Institutions Deregulation Committee] is having a meeting and taking more of the wraps off. The money brokers began multiplying like crazy, and the growth was going like crazy, but there was no capital to sustain it."
According to Ed Gray, when Regan got wind of Gray's plan to rein in deposit brokers, he told Treasury Deputy Secretary R. T. McNamar that, Republican or not, old friend of the president's or not, "Gray has got to go." But Regan couldn't personally attack Gray. Regan's connections with Merrill Lynch were all too well known, as was the fact that brokered deposits were one of his favorite subjects. Instead, Regan put McNamar to work on the Gray problem.
McNamar was the complete antithesis of Gray. He was a slick, buttoned- down dresser who wore pin-striped suits and looked more like an investment banker than a government official. Gray, the son of a tractor salesman from Texas, occasionally wore loud sports jackets and looked uncomfortable even in loose-fitting suits.
McNamar picked up the phone and called Gray. They spent seven hours on the phone that day—during which Gray said McNamar tried every argument he could think up to convince Gray he should forget his brokered-deposit regulation. For seven hours McNamar talked, and talked, and talked. And for seven hours Ed Gray, like an old farm mule, didn't budge. Gray believed McNamar was lobbying more for Don Regan than reflecting the administration's position. Regan did not respond to our requests for an interview, but Gray said he heard later that Don Regan was furious with him. The difference between the two men was a fundamental one: Gray wanted the S&L industry to specialize more closely in what they knew best, home lending; Regan wanted to make thrifts just like banks. As a deregulator, Regan talked a lot about level playing fields, where all businesses were created equal and only the strongest survived. But evidently he didn't talk to Gray at all. Gray said Regan never once returned his calls during Gray's four years in Washington.
A few nights later, on January 30, 1984, less than eight months after taking office, Ed Gray stayed late into the night typing away at a speech he would give the next day to lawyers attending a conference of the National Council of Savings Institutions (N.C.S.I). The lawyers represented both banks and savings and loans. Gray, who had started out as a reporter for a small radio station in Fresno, California, always wrote his own speeches. He chain-smoked as he tapped away on his typewriter. He was no doubt smoking a cigarette when he wrote that brokered money was "like a spreading cancer on the federal deposit insurance system."
The next day, with dark circles under his eyes from the night's work. Gray delivered his speech to the lawyers. Standing behind a podium at the Capital Hilton, he first took a deep breath. Then he prefaced his speech by saying, "I want to make it clear that as a champion of the free enterprise system myself, I am not against anybody making a fair profit." But by this time word had leaked that Gray had been unmoved by all attempts to change his mind on brokered deposits, and the audience knew the next word out of his mouth would be but. Before he even got to that point a couple of the lawyers sitting in the back of the room got up and left. Gray was "off the reservation, " a term Don Regan used to describe anyone in the administration who did not toe the party line.
Gray was able to deliver his speech uninterrupted by any annoying applause. After all, most N.C.S.I lawyers made a living representing thrift executives who took a free market approach to the S&L business. They didn't like being told by Gray that the brokered deposits fueling their enterprises—some of them from men like Mario Renda, who had brokered millions of deposits into Centennial and Consolidated—were bad medicine. (At the time over $34 billion in brokered deposits were at work at FSLIC-insured institutions. ) And they didn't like Gray's opinion that the money was being used for risky investment schemes. Or that such easy money might encourage fraud.
Industry leaders were dumbfounded at Gray's remarks. They had thought he was their guy. "These people wanted me in the job because they thought I was going to be their patsy," Gray would tell us later. He was supposed to be on their side. Now he was embarrassing them. There could be only one explanation and the word spread quickly — Ed Gray was a buffoon. Even some old- timers on the Bank Board staff thought he was "off the reservation." They began to refer to him around the office as "Mr. Ed, " a reference to television's talking horse. And what was he talking about? The terrible condition of the FSLIC. His own staff went out on damage control, telling Washington reporters, "Ed doesn't understand that brokered deposits are not the problem." Some staffers said even worse—that he didn't understand finance and was unqualified for the job. One told us. "It's an outrage he was ever appointed." But to Ed Gray this was not a complicated matter. And he did, too, understand brokered deposits —all too well.
But getting a handle on them would not be easy. There would have to be a fight, and the next salvo came directly from Merrill Lynch, which a week later released a report to the press that was critical of Gray's regulation. Edson Mitchell III, a young, fast-talking Merrill Lynch V.P, told reporters he was going to follow Ed Gray around until the ban was overturned.
If all this uproar caused Gray to doubt for one moment the wisdom of his brokered-deposit regulation, those doubts didn't last. Within days of the Merrill Lynch news conference. Gray sat in the darkened board room at Bank Board headquarters, with Bank Board members Mary Grigsby and Don Honde, and watched the videotape of the vacant, crumbling 1-30 condos built with loans from Empire Savings and Loan near Dallas. Grigsby, in her early fifties, was a Texan who'd worked in the S&L business most of her adult life. She couldn't believe her eyes. A hundred million dollars of Empire's money, just rotting away in the Texas sun. Empire had been a tiny $20 million thrift that grew almost overnight to $330 million, using brokered deposits. The Board voted immediately to fire Empire's chairman, Spencer Blain, and close Empire, the first closing that regulators admitted was caused by fraud in the thrift industry's 50-year history.4
Now Gray was ready to take his message directly to the industry itself He chose the upcoming U.S. League's annual convention to make a speech on the evils of brokered deposits. Less than two years earlier delegates at this convention had gushed for Gray to be their next FHLBB chairman. He knew only too well his reception this time would be far less pleasant, but so be it. Brokered deposits were destroying the industry, and the LI.S. League and its members had to wake up before the damage was irreparable.
The night before Gray was to speak. Gray said U.S. League President William O'Connell begged him to water down his brokered-deposit regulation. O'Connell, in his early sixties, a slight man with a tuft of silver hair around his ears, was a seasoned lobbyist who employed a mildly persuasive manner. His consistent refrain to Gray was that the S&L industry needed to buy time and it was Gray's job to help. The League thought that maybe the ban was "a little too tough," O'Connell told Gray. Although the League's members weren't crazy about their growing dependence on short-term brokered funds and would officially support Gray's brokered-deposit regulation, O'Connell told Gray they did like the idea of being able to use long-term brokered funds (deposits of a year or more). Could Gray maybe amend the regulation to allow for long-term brokered deposits? But the next day Gray made his speech: brokered deposits were trouble, all of them, long and short. They were an accident waiting to happen. He announced that the ban was on and would continue unchanged. He hadn't budged.
His intransigence infuriated many in the industry, especially deposit brokers and the thrift executives who were using the brokered deposits. They were tired of Ed Gray. He was becoming a broken record on the subject of brokered deposits. To make matters worse, he had begun to rattle on in public, airing even more of the industry's dirty laundry, telling people that the FSLIC might run out of money if thrifts kept failing and that thrifts would have to pay higher FSLIC insurance premiums. O'Connell and other industry leaders also became uneasy. Gray was talking too much. Much too much. He was making people nervous.
Members of the Reagan administration started to wonder just how this loose cannon had gotten on deck. And the answer, some felt, was revealed a few weeks later during hearings to confirm Ed Meese as the nation's new attorney general. Testimony quickly focused on Meese's friends and favors, particularly sweetheart loans Meese had received from Ed Gray's old thrift. Great American First Savings Bank of San Diego. In the late 1970's Great American had loaned $120,000 on Meese's home in California. Then when Meese moved to Washington to be the White House counselor upon Ronald Reagan's assumption of the presidency in 1981, Meese bought a home in Virginia with the help of a $132,000 Great American loan on his California home. Combined payments on both homes (totaling $51,000 a year) were more than Meese could handle on his $69,800- a-year salary, and for 15 months he made no payments to Great American on the California home. Nevertheless, Great American did not foreclose. In fact, the thrift loaned Meese another $21,000 as a fourth trust deed on the house, for a total of $273,000 in loans on the California house. A Great American spokesman said the home had been appraised for $335,000. However, that appraisal was never borne out by the marketplace. The house finally sold in 1982 for $307,500.
Nearly everyone involved in the Meese home loans got a job with the administration. Gordon Luce, Great American Savings president, was appointed a delegate to the United Nations. In May 1983 Ed Gray landed the job of Federal Home Loan Bank Board chairman. Thomas Barrack, a wealthy Southern California developer, helped to locate a buyer for Meese's California house and was later appointed to a high post at the Interior Department. John McKean, who arranged two Meese loans totaling $60,000, was appointed to the U.S. Postal Service Board of Governors. Meese said none of these appointments had anything to do with the favors Great American Savings had done for him on his house.[Yeah right DC]
☙☙☙☙☙☙☙
However close Gray might have been to the top men in the Reagan White House, his role in the flap over brokered deposits had turned one of the most powerful men in the administration, Donald Regan, into an enemy. The Washington meat grinder went to work on Gray. Stories about Gray's lack of intelligence circulated from office to office like bad jokes.
The fact that Gray was an absent minded professor only added fuel to the rumor mill. White House Spokesman Larry Speakes had two favorite Ed Gray stories. In one he told about Gray's bad habit of losing cars. Gray would sign a car out of the motor pool, drive it to the airport, and then forget about it. When he returned from his trip he'd call a cab. Suddenly the motor pool noticed they had a half dozen cars missing, and a check of the airport parking lot turned them up right where Ed had left them.
In another case, so the story went. Gray was visiting the California legislature with a lot on his mind, as usual, and as he left he failed to notice a handwritten note on the elevator door: "Do Not Go to the Basement." Oblivious, Gray got on the elevator and pushed the button for the basement . . . which was flooded. Those waiting for the elevator above could hear Gray yelling for help as the elevator doors opened and the water rushed in on him.
And the tales went on and on. Gray heard about the stories, the Mr. Ed jokes, Don Regan's complaints to the president that Gray was not qualified for the job, and worse. But Gray was sure he was right. Everywhere he looked, it seemed, he saw brokered deposits fueling furious growth at once-modest little thrifts. The more deposits poured into an institution, the nuttier became the deals that the thrift's executives sanctioned. Champions of brokered deposits contended that Gray was simply watching the free market at work, efficiently transferring money to areas where it was needed. Brokered deposits weren't fueling fraud, they argued, they were fueling enterprise, innovation, growth. Now was not the time, they said, to get cold feet on the road to a deregulated America.
Gray was not convinced. "I believe in Reaganomics," he said, "but this isn't what I had in mind."
CHAPTER EIGHT
Tap-dancing to Riches
Deregulation of the interest rate that thrifts could pay to attract deposits in 1980,
combined with the increase in insurance coverage to $100,000 per account and
the removal by the Bank Board of any limits on brokered deposits, certainly
revitalized the deposit brokerage business. Between June 1981 and June 1982
brokered deposits at savings and loans increased five fold,' and in the next four months they went from $15.6 billion to $26 billion. Among the businessmen
profoundly affected by the new deregulation was Mario Renda, who in 1980
became a deposit broker. Until that time he had been a man searching for a way to get rich. Through the years he was always where the money was, as, for example, in the mid-1970's during OPEC's- heyday, when Renda had made
several trips to Saudi Arabia to insert himself into the orbit of the world's most
notorious deal-maker, Adnan Khashoggi. One day in 1977 Mario Renda, then 36, walked through the gates in a concrete wall on a narrow street in barren downtown Riyadh, Saudi Arabia. He crossed a small desert yard to a low stucco bungalow where a Sudanese servant silently motioned him to enter. He stepped into a living room that resembled a Holiday Inn converted into an oriental suk (bazaar). Dozens of men in Western business suits or flowing caftans and kaffiyehs milled around the smoky room or sat at the several tables littered with ashtrays and ashes. Obediently, Renda found a seat and settled in for a long wait.
Renda sat among that international gathering, described later that year in Fortune magazine, and waited his turn to make his pitch. Patiently he worked his way through the labyrinth and into Khashoggi's realm. When it came Renda's turn for an audience, he and Kiiashoggi reportedly closed a $5 million joint venture to build the concrete homes in Jidda. Renda went home a happy man, fancying himself an international financier.
The deal later fell apart, as did so many of Renda's highfalutin plans, but the collapse did not derail Renda's determined march toward a Khashoggi lifestyle. He didn't want to run a construction company. He wanted to be a middleman, a broker like Khashoggi who claimed to have made $575 million in the past six years by simply doing deals. Renda coveted expensive possessions, ostentatious displays of wealth, and life on easy street.
"He wanted somewhere where he could park his Rolls-Royce, tell a few jokes, make a few phone calls, and go home and say he had a hard day at the office, " Renda's I.P.A.D partner Sy Miller said later. "He just came here to make phone calls. " In the winter Renda reportedly kept a chauffeur-driven limousine running all day in front of the office to keep the car warm. He told Miller he wished he could put a big sign on one of his Rolls-Royces announcing the car cost $120,000 and then drive around New York City. "He said he wanted the world to know what it takes to own one of these and that he had it," said Miller.
In 1980 Renda would become the ultimate "middleman" when he created First United Fund and became a deposit broker. Being a deposit broker would be his ticket to that good life. It would also earn him the reputation as the Typhoid Mary of the savings and loan business.
☙☙☙☙☙☙☙
Raised in the Queens section of New York, Renda had always had an
entrepreneurial bent. He dropped out of Queens College, where he was majoring
in music, to open his own tap-dance school on Long Island. By 1963 he owned
and operated a music summer camp in the Berkshire Mountains in the northwest
corner of Massachusetts. It seemed an idyllic life, but it was the slow lane as
far as Renda was concerned. Bright, complex, charming, and lazy, Renda wanted more out of life. Suddenly, in 1975, he announced he was closing his camp
and moving on to bigger and much better things. He told the owner of the camp
next door that he had discovered a way to make real money. Within six months
Renda went from tap-dance teacher to international financier. In 1976 he became
partners with Sy Miller at International Planners and Developers (I.P.A.D), a Panamanian-chartered company that Renda said provided "international financing on major private and governmental construction projects throughout
the world." He was a sweetheart of a guy. " Miller said. Renda would have the office staff "rolling on the floor laughing" at his stories. He seemed to be Mr. Wholesome, was straight, never told dirty jokes. He was a director on the executive committee of the Boy Scouts of America. But he wasn't much of a businessman.
In 1977 he closed the deal for I.P.A.D with Khashoggi at Riyadh. Miller wasn't impressed. "Khashoggi was a big bullshit broker. He was a $3 bill." Later. Miller commented, "They ate a lot of rice and lamb, but Khashoggi, like Renda. sold blue skies." The deal never materialized, nor did any of the other big-shot deals Renda supposedly negotiated on his overseas trips for I.P.A.D. Renda loved to hobnob with the rich and famous and that's apparently what he did on I.P.A.D's expense account. Miller later said. "I would be a wealthy man today if we had nailed down some of the things we had going at the time. " Instead, in July 1977, soon after Renda's trip to Riyadh, Renda left I.P.A.D.
But I.P.A.D had not been a total loss for Renda. He had made valuable contacts in the Arab world while traveling in Khashoggi's circles. Khashoggi also represented for Renda the kind of life he wanted for himself. He wanted to be a big shot, at the center of all the action, making deals with the wave of the hand, making or breaking the lives of others. Khashoggi, Fortune magazine reported in 1977, viewed himself as a J. P. Morgan or John D. Rockefeller. That probably sounded all right to Renda too.
After leaving I.P.A.D, Renda spent a short time as a treasurer of an Arab bank (Arab International Bank), an offshore banking operation used to handle millions in Arab petro-dollars. At Arab International Bank he first learned the possibilities inherent in certificates of deposit (C.D's)—information that would soon come in very handy.
Renda didn't stay long at Arab International Bank. In 1978, eager to strike out on his own, he formed Arabras, Inc., a one-man firm in New York City. The name of the new firm suggested Renda planned to continue to capitalize on his association with cash-rich Arab friends. The company's SEC filing said it would be doing business in the twin worlds of international finance and trade. But in 1980, when the U.S. Congress deregulated interest rates on savings deposits. Renda saw possibilities that transcended even the wealth of the Arabian oil sheiks. The new legislation was a boon to investors, who could then get a high return that was risk free (because the deposits were insured by the FSLIC). No doubt remembering what he had learned at .Arab International Bank, where the bank's deposit brokers moved petro-dollar C.D's around the world in search of the best daily interest rates, Renda grasped the full implications of interest rate deregulation. He quickly changed Arabras. Inc.. to First United Fund and became a deposit broker. Before his arrest in 1987 he would broker $6 billion (buy $6 billion in C.D's) for 6,500 investors into 3,500 financial institutions.
Renda started First United Fund in January 1980 with only $146,000 and two employees. (Forty-eight months later it would boast assets of $227 million, a brokerage business of $5 billion, an annual income of $5 million, and 100 employees.) To get First United Fund off the ground, he needed a steady flow of deposit money, lots of it. Renda's break came one day when he went to a local computer store to look for a computer for his new office. He later testified that while he waited for the salesman, another customer, Martin Schwimmer, struck up a conversation. Renda soon learned that Schwimmer managed pension funds for two New York unions. Local 810 of the International Brotherhood of Teamsters, Chauffeurs, Warehouse men and Helpers of America and Local 38 of the Sheet metal Workers International Association. The two men retired to a nearby McDonald's for coffee, and that was the start of a beautiful friendship. Before Ronald McDonald could pour them a second cup, the deal was struck. Renda hired his very new friend, Schwimmer, to be financial adviser to his First United Fund, promising him $50,000 a year according to Schwimmer. (Later Schwimmer would report he made $400,000 in his first year with First United Fund and at least $1 million a year for the next three years.) Thereafter the advice Schwimmer gave to the union pension-fund bosses was to let First United Fund invest their money in certificates of deposit. In the following months Renda's network of banks and thrifts grew as he aggressively placed deposits for his new "clients."[Really starting to wonder about the lack of pictures of these 'players' in the public domain,I am already on at least a half dozen attempts,no pics,which is making me wonder if these folks are not really all intelligence,we will see if it gets better DC]
Teamsters Local 810 had 7,000 members, who were employed as wire workers and factory workers in Manhattan. Federal authorities later charged that its bosses agreed to throw their brokerage business Renda's way in return for kickbacks. The Sheet metal Workers Local 38 had 650 members, employed as sheet-metal workers in New York and Connecticut. Their bosses didn't even know Schwimmer was putting the local's money at First United Fund. All they knew was that they had a financial adviser and he was investing their money somewhere. Between December 1981 and December 1984 the two locals invested about $100 million through First United Fund.
Renda had found a nice niche in the newly deregulated world of federally insured certificates of deposit. Using other people's money, he could get a percent of the action just by opening what amounted to savings accounts for them and collecting his commission from savings and loan officers, who were grateful for the deposits. Why would anyone work for a living when he could be a broker? But Renda and Schwimmer had an idea for a way to make an even larger profit from this arrangement. They told the 16 savings and loans and two banks that received this pension money to deposit their fees ($16 million over three years) in bank accounts that Renda and Schwimmer then kept secret from the IRS. (Though they didn't have to share with the IRS, Renda later admitted that he and Schwimmer did kick back a portion of their take to Teamster officials.)
With millions of dollars at his disposal, Renda began to act like a sheik. Built like a fireplug, he had a platform installed in his office to elevate his desk so guests had to look up at him: "Power Desking." His office was described by one source as "a monument to bad taste, " garish and ostentatious, with red velour wallpaper. He moved his family into a 30-room Garden City mansion surrounded by a couple of acres and a wall to guarantee privacy, and about this time he embraced yet another scheme for milking his brokerage business. His new idea involved a cast of "subcontractors" in Kansas City and Hawaii, and to understand the heist we first had to get to know them.
☙☙☙☙☙☙☙
In Kansas City, back in 1980, little Indian Springs State Bank had been
struggling to break out of its small shopping-center location, squeezed between
Wig City and Athlete's Foot shoe store. The board of directors of Indian Springs was unhappy with the bank's lackluster performance, so they hired William
Everett Lemaster, 56, away from a rural bank in Lexington, Missouri, because
he had "impeccable credentials," a former chairman of Indian Springs bank told an American Banker reporter. One of Lemaster's first moves was to hire former
local attorney Anthony Russo (whose credentials were anything but impeccable),
who reportedly told Lemaster he could drum up all kinds of new business for the bank. The two men were very different: Lemaster was tall, thin, and distinguished and reminded associates of an ambassador; Russo was ten years younger, short, fat, and talkative, and he wore an ostentatious display of jewelry. Russo was plugged into centers of power in Kansas City from his years as a prominent criminal attorney there, and Lemaster may have wanted to use those contacts to invigorate Indian Springs bank. The kind of contacts Russo had, however, were not necessarily the best medicine for a small financial institution. According to an official of the Kansas City Crime Commission, Russo had defended organized crime figures in Kansas City, in particular the Nick Civella crime family. Russo himself had served 16 months in Fort Leavenworth federal penitentiary in 1976-77 for bribery and interstate promotion of prostitution and had voluntarily relinquished his license to practice law rather than chance disbarment. Nevertheless, Lemaster hired him in 1981 to be vice president of Indian Springs bank.
Bank records showed that Lemaster's plan to make Russo a bank officer was met with dismay by bank regulators in Kansas City, who knew about Russo's reputation and his 16 months in prison. The Kansas City regulators passed the application along to Washington with a strong recommendation to deny approval. The warning was ignored by Washington and on August 19, 1981, the FDIC's board of review authorized Russo to be an Indian Springs officer but restricted his activities to "new business development." Russo's job at Indian Springs was to locate new depositors from among his wide-ranging business and personal contacts, and he had plenty to offer in that capacity. A former Indian Springs board member later told a reporter that Russo was well suited to his new job:
"He could walk up to someone and say that they were to move their account to Indian Springs State Bank, and people would do it with no questions asked."
At about the same time that he hired Russo, Lemaster also appointed Iranian-American businessman Farhad Azima, 39, to be a bank director. The three men had reportedly met when Lemaster was an "advisory director" and Russo was a "financial consultant" for a mysterious airline. Global International Airways, owned by Azima and headquartered in Kansas City. In 1978 Azima had founded Global International Airways to ship cattle to Iran, he told a Kansas City Star reporter, but when the Shah of Iran was ousted in 1979, Azima had to adjust his business plan. With money borrowed from an Arabian international bank. Global International quickly became one of the nation's largest charter airlines, with 900 employees worldwide and 20 planes, including seventeen 707's, two 727's, and one 747, the Star reported. But to this day it is not exactly clear what Global International really did, and Azima refused our requests for an interview.
Global International Airways first came to the public's attention in 1979 when it had an airplane stranded for three days on an airfield in Tunis, Algeria. The pilot had been paid $93,000 in advance to make the flight, but when his payment arrived in $100 bills in a suitcase, he became suspicious. And when cargo was loaded on his plane at the Tunisian airport, he demanded to see the relief supplies he was supposed to be flying from Lebanon to Nicaraguan refugees in Costa Rica.
Let me see the "lettuce," he insisted.
The "lettuce" turned out to be twin-barreled 57-millimeter guns with several dozen cases of ammunition labeled in Chinese. Later the Tunisian government said the Palestine Liberation Organization had been trying to send arms to the Sandinistas. A Global crewman later told the Star of a standing joke among the crew:
"They [airport personnel] would ask us what our cargo was and we'd tell them cabbages and cabbage launchers."
Apparently to discourage nosy airport personnel, former pilots said subsequent shipments stopped masquerading as cabbages. The munitions boxes "had Red Cross stickers all over the sides," one of Global's former pilots said.
Global International developed a reputation among insiders as one of the CIA's secret charter airlines. Former Air America pilots 5 showed up on its pilot roster. It flew arms shipments to Ecuador, Peru, Nairobi, Thailand, Haiti, and Pakistan. Azima later said the flights had been cleared by the U.S. State Department. Asked about the CIA, Azima told the Star, "No comment. "6 [Sounds like part of BCCI's setup that Marshall was talking about in this part of Bamboozled DC]
https://exploringrealhistory.blogspot.com/2018/03/part-5the-big-bamboozle-911-war-on.html
When Lemaster appointed Russo and Azima to positions at Indian Springs bank in 1981, Global International Airways was at the height of its activities out of the Kansas City airport. Whether Azima got Indian Springs State Bank directly involved in covert activity, we could never determine. However, the following year Russo received a $25,000 check from Global Airlines, and later when he was questioned about the check in court (Russo was on trial for tax fraud. He was acquitted), he gave the following explanation:
Global International was hired by the United States government to fly the president of Liberia, which was a new government, and its cabinet around the world on a goodwill tour. Liberia is a little country' in Africa that I studied about, as a result, and learned a little bit about. After the War against [sic] the States, Lincoln, our president, sent some slaves to Liberia to live. And they lived on the, I believe, the west coast of Africa. Yes, the west coast of Africa. And formed this little country called Liberia.
The United States has supported that country over the years. And about in 1981 they had a coup. Sergeant (Samuel] Doe, who was a sergeant in the Liberian Army, overthrew the government. The government was backed by the, our CIA and our government. And when the revolution or coup occurred, the United States then wanted to become friendly with the new government, wanted to continue to have ties between the United States and Liberia [not Libya, Liberia] and wanted us to continue our relationship with them. So they hired Farhad's airline. Global, to take Sergeant Doe, his entire cabinet, around the world on a goodwill tour.
Farhad asked me if I would go as the "host" to the president and the cabinet, to escort them from country to country. It was at that time that, of course, I was an officer of the bank and I had to check with Mr. Lemaster, who was the president, and he covered for me and I took that trip around the world and we went all around the world with the president and his cabinet, and the president and I became friends and I would introduce them and kind of act like an ambassador. . . . The arrangement with Mr. Lemaster at the time was that any fee I would recover I would split with him because he covered for me at the bank.
Azima also testified during Russo's tax fraud trial, and the scheduling of his appearance had to be moved up one day because, he told the court, he had a luncheon meeting in Washington, D.C., the next day. A frustrated member of the prosecution team later told us that she believed Russo was acquitted of the tax fraud charges partly because of the aura of respectability the references to the CIA gave him.
Indian Springs State Bank treated Azima well. Examining bank records, we discovered his personal account at the bank was frequently overdrawn even as bank examiners demanded—on at least three occasions—that his loans be paid down. Each time examiners returned they found the loans still on the books and still in arrears. In 1983 Azima owed Indian Springs State Bank $800,000. At least $600,000 of the money went to Global International and a related company, even though Indian Springs State Bank's loans-to-one-borrower limit then was $348,881. Collateral for one of Azima's loans was his DeLorean. 7
Federal organized crime investigators said Shenker was an associate of the Nick Civella mob family in Kansas City.11 Regulators found the Civella family at Indian Springs bank too. They were part of that "new business" they said Tony Russo brought to the bank. Members of the Civella family got $400,000 in loans from Indian Springs, bank records show, including one for an Italian restaurant. Their accounts were "habitually overdrawn," a bank examiner complained in one examination report. At the end of 1982 regulators alleged that bank officers kept a loan to a Civella current by rolling it over (renewing it) and increasing the amount of the loan at each renewal to cover the interest costs the loan had accrued since the last renewal.
At the same time that Indian Springs was making sweetheart loans to the Civella family, some of the Civellas were embroiled in a messy criminal prosecution in Kansas City. Federal organized crime prosecutors in 1981 had indicted brothers Nick and Carl Civella and others for skimming $280,000 off the gaming tables of the Tropicana Casino in Las Vegas. Nick Civella died of cancer before the trial ended in July 1983, but his brother Carl was convicted. Carl Caruso, convicted along with the Civellas, was also on the loan list at Indian Springs. Caruso operated junkets for the Las Vegas Dunes out of several Midwestern towns, including Kansas City. In court it was revealed that he was the bagman for the skimming operation, transporting the skim from the casino to Chicago and Kansas City for distribution to the mob families there.
☙☙☙☙☙☙☙
In this setting Mario Renda was about to embark upon a new scam. He had
recently met Franklin Winkler, the son of an old friend, and they had agreed
to go into business together. Franklin Winkler was an international wheeler-dealer. He and his dad. V. Leslie Winkler, were cosmopolitan con men. They were Hungarian Gypsies, smooth operators, and both spoke a number of languages. Franklin, who was in his forties, had been born in Istanbul and had lived all over the world, wherever his father Leslie's schemes took them. Franklin had most recently lived in Cuba, Italy, Australia, Kansas City, and Southern California and had lately settled temporarily in Hawaii. Leslie lived in Palm Springs. Franklin and his father were fat and affable. Franklin weighed over 300 pounds, but he was a charmer whom women found enchanting. Described by federal prosecutors as "a criminal financial genius," Franklin had reportedly already been convicted of felony frauds in both Italy and France but had never spent a day in jail. An attorney who had cross-examined him said he had a remarkable facility for slipping into a variety of nearly perfect foreign accents.
"He'd be talking to me about something during court recesses and all of a sudden he'd be speaking with a perfect French accent, or Italian, or Middle European accent. He'd just throw it in for effect. The guy was really smooth."
Franklin Winkler had been losing money on real estate investments in Hawaii, and regulators said he agreed to cooperate with Renda in a scheme that would benefit them both. Renda would broker deposits into savings and loans or banks if the institutions agreed to make loans to Hawaiian real estate partnerships fronting for Winkler and Renda. "Linked financing, " where deposits were promised to a bank or thrift in return for loans, was not always illegal but regulators didn't like the practice because they feared the promise of huge deposits would induce financial institutions to make risky loans that they would not otherwise have made. But the linked financing Renda had in mind was illegal because it was an end run around Indian Springs State Bank's loans-to-one- borrower limits, which at the time were between $250,000 to $350,000.12
The timing of this new friendship between Renda and Winkler was perfect because within weeks Anthony Russo went to Hawaii on vacation. Before he left he contacted an old friend who told Russo to look up a Franklin Winkler in Hawaii, which Russo did. The two men liked each other, and Winkler made Russo a business proposal. Authorities said Winkler suggested that under "the right circumstances" he and his friend Mario Renda could get Indian Springs bank all the deposits and all the loan business it could handle. Russo liked the sound of the offer.
A few months later, early in 1982, Russo traveled to Las Vegas, where he met again with Franklin Winkler. Accompanying Winkler this time was Sam Daily, a retired Air Force colonel, then a Honolulu realtor. Daily was a Louisiana redneck, a short, fat man who looked like a TV huckster. He had black, greasy, plastered-down hair, a sailor's tongue, and a terrible temper.
Indian Springs State Bank Vice President Anthony Russo, con man and swindler Franklin Winkler, and Hawaii realtor Sam Daily met in a suite provided as a favor to Russo by Dunes owner Morris Shenker. Regulators charged that under the plan the men formulated at the Dunes, Renda would broker deposits into Indian Springs State Bank—"courtesy deposits" they were euphemistically termed. In return the bank would make loans to straw borrowers" who would be fronting for Renda, Winkler, and Daily.
The details of the plan would work like this: Renda would put the word out through First United Fund that he could place deposit money with banks and thrifts at rates a full percentage point or more above the going rate at the time. 14 Renda knew full well that the prospect of such a high interest rate would attract managers of credit unions and pension funds who were constantly on the prowl for the best rate for the money they managed. (Renda and his brokers mockingly referred to these credit managers as "rate junkies.")
All a bank or thrift had to do to get these deposits was agree to make a few loans to Renda's Hawaii "investors." Once the institution agreed to make the loans, Renda would send the deposits to the thrift or bank and, almost the same day, Winkler and Daily would send in their straw borrowers 15 to get the agreed upon loans.16 These individual borrowers (lined up by Winkler and Daily) would get a fee of between 2.5 percent and 6 percent of the loans obtained in their names.17 When the loans were funded the borrowers would turn the money over to Winkler and Daily, who would tell the straw borrowers they could just forget about having to pay back the loan. Winkler and Daily would take care of that, they said. By sending in many straw borrowers, Winkler, Daily, and Renda disguised the fact that all the loan money was going to them. And when the loans went into default, the straw borrowers' names would be on the foreclosure papers and lawsuits, not their names.
The key to the whole arrangement was Renda's deposits. They were the bait that enticed bank officials to play along with the scheme. Without them little of the looting over the next five years would have been possible.
☙☙☙☙☙☙☙
Russo later testified that he introduced Franklin Winkler to Indian Springs
State Bank President Bill Lemaster. Winkler told Lemaster that First United
Fund would broker into Indian Springs all the deposits he wanted in return for nothing more than some loans. To Lemaster this must have looked like a good
way to pick up both deposits and loan business in one neat package, without
having to pay the deposit broker a commission, and he agreed to the arrangement.
In June 1982 Winkler, Daily, and Renda began shopping for straw borrowers.By July 19. 1982, First United Fund had placed the first batch of brokered funds at Indian Springs State Bank, and the first crew of straw borrowers were in the starting gate. Winkler outlined the operation in one last letter to Renda that concluded:
"I suggest that we proceed with this first pilot transaction and then we should get together in order to formalize a proper modus procedendi for all future transactions of this type." In other words, if the scam worked at Indian Springs State Bank, they would expand their operation to other financial institutions.
Indian Springs State Bank made the loans to the straw borrowers as planned. The scheme worked perfectly. And on August 29 Franklin Winkler called a meeting with his dad, Leslie, and Renda at Southern California's luxurious La Costa resort to review the progress of their plan.18 After the La Costa sit-down, Franklin's father, Leslie Winkler, sent Renda and Franklin a memo grandly entitled "Memorandum Premenoira." In the memo Leslie stated: . . .
Both Franklin and Mario have agreed to carry out a number of trial transactions under the contemplated terms and procedures. One transaction has already been concluded via K.C. Bank'" and the intention is to repeat a few similar deposits which will demonstrate the feasibility of the operation of the program. (Leslie's interest in the project was not platonic. Because he had introduced Franklin and Renda, he was entitled to a "finder's" fee on each deal that went down.)
In the month following the meeting at La Costa, the three men formed at least eight companies and partnerships to conceal the paper trail left behind by their activities. Renda, Franklin Winkler, and Daily began visiting banks and savings and loans in areas they had targeted for high-growth potential —Kansas City, Southern California, Honolulu, Texas, Denver, Phoenix, Seattle, New York, and New Jersey—and pitched their linked financing schemes. The code name used for these transactions at First United was, appropriately, special deals.
Then Renda added a new wrinkle. He ran ads to let people know that for a fee he could supply deposits for anyone who needed a loan and wanted to get his own linked-financing deal going. Renda placed ads in major newspapers, including The Wall Street Journal, the Los Angeles Times, and the New York Times, which read:
MONEY FOR RENT
Borrowing obstacles neutralized
by having us deposit funds with
your local bank: New turn style
approach to financing. Write to:
FUND, Suite 311,1001 Franklin
Ave.,
Garden City, NY 11530
After these ads came out Renda was besieged by brokers or borrowers around
the country who agreed to compensate Renda (in a variety of ways) if he would
steer deposits to a thrift or bank that had already agreed to make them a loan upon receipt of the deposits. So, in addition to the "special deals" Renda had
going with Franklin Winkler and others, he began supplying funds for other
people's special deals as well. Later he would testify in court that he placed
deposits for "hundreds" of special deals arranged by others.
These were perfect scams. Renda used other people's (federally insured)
money to influence bank and thrift officials to make loans to the phony
borrowers—the officials could even use the actual cash from Renda's deposits
to make the loans. Ail Renda had to do was break the money into $100,000
chunks so it would be insured by the FSLIC. Even if Renda's scam eventually
caused the bank to collapse (because the loans were not repaid), Renda had no
worries—his deposits were insured and his straw borrowers already had the loans. Renda saw the possibility of arranging linked-financing scams at thrifts all across the nation. He could borrow hundreds of millions of dollars before anyone
caught on, and then he could move the scheme on to the next institution. He
knew over 3,000 thrifts and thousands more small banks that might take the
bait. Even in Ed Gray's darkest nightmares over the potential evils of brokered
deposits, he had never imagined abuses worse than the ones Mario Renda had
in mind.
next
Buying Deposits
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