O.C. Is State’s Largest Graveyard for Thrifts; Fraud Killed Some

Orange County has become California’s largest graveyard of failed thrifts, and fraud is one of the main reasons for some of the deaths.

At least 11 of the 19 thrifts that have failed in Orange County since 1985 are subject to criminal investigations by the FBI into bank possible fraud and embezzlement. Regulators suspect criminal activity in three others.

Executives at two of those thrifts have already been convicted.

The problem in Orange County mirrors the situation nationally. Federal regulators Wednesday estimated that fraud caused the failure of 40% of the 450 S&Ls; seized by the federal government.

In Orange County, officials of defunct Ramona Savings & Loan in Orange and North America Savings & Loan in Santa Ana already have been found guilty of fraud. One, Janet F. McKinzie, a consultant at North America Savings, was found guilty of racketeering and is scheduled to be sentenced Friday.

No other thrift executives have been indicted, but both the FBI and William D. Davis, commissioner of the state Department of Savings and Loan, have said that many cases are in the investigative pipeline. The FBI is investigating 35 failed banks and thrifts in its seven-county district stretching from Orange to San Luis Obispo counties.

While Davis suspects that fraud contributed to the losses at a quarter of more than 60 S&Ls; that have failed statewide, he said he believes that fraud actually caused failures in only a few cases, including North America Savings.

Investigations into four of the county’s failed thrifts are among the nation’s top-priority cases, FBI officials said.

One--Lincoln Savings & Loan in Irvine--is perhaps the biggest criminal investigation in terms of its impact on the public, Lawrence G. Lawler, special agent in charge of the FBI’s district office in Los Angeles, said last month. Lincoln’s failure last year is predicted by regulators to be one of the nation’s biggest collapses, costing taxpayers more than $2 billion.

Lawler identified three other S&Ls; as top-priority cases. They are insolvent Mercury Savings & Loan in Huntington Beach, which was seized Feb. 23; American Diversified Savings Bank in Costa Mesa and Consolidated Savings Bank in Irvine, both of which were seized in 1986 and have since been closed.

The closing of American Diversified in June, 1988, forced regulators to return $1.14 billion in insured deposits to account holders. The refund remains a record payout.

At a number of S&Ls;, such as Lincoln, American Diversified and Consolidated, regulators claim that the institutions hid insolvencies from government scrutiny by exchanging worthless or overpriced assets and by other means that produced paper profits.

The remaining FBI investigations in Orange County, according to previous FBI or regulatory statements, are:

Charter Savings Bank in Newport Beach, which failed June 15; South Bay Savings & Loan in Newport Beach, Perpetual Savings Bank in Santa Ana and Equitable Savings & Loan in Irvine, all of which failed in 1987 and are defunct, and Beverly Hills Savings & Loan in Mission Viejo, which was seized in 1985 and sold to Michigan National Corp. at the end of 1988.

The agency would not confirm the status of those investigations Wednesday.

The FBI has acknowledged that a 12th investigation into possible bank fraud and embezzlement at Butterfield Savings & Loan has been closed with no action taken.