Fraud Charges Filed in O.C. Pension Scam : Crime: Three to plead guilty in alleged $121.5-million mortgage pool scheme operated by Irvine-based firm.

Federal prosecutors filed mail fraud charges Monday against the three operators of First Pension Corp., the failed Irvine pension management company accused of running a $121.5-million Ponzi scheme. The three, who have already agreed to plead guilty, face maximum prison terms of 10 years and fines of up to $500,000 each. They will be arraigned Monday in U.S. District Court in Los Angeles on two counts of mail fraud each.

The charges were filed against against businessman William E. Cooper, 50, of Villa Park and his two long-term associates: Robert E. Lindley, 51, of Laguna Niguel and Valerie Jensen, 47, of San Juan Capistrano.

“This is one of the longest-running and most elaborate schemes I have ever seen,” Assistant U.S. Atty. John Libby said. “To a certain extent they had to fool their own employees as well as investors.”

Also Monday, the U.S. Securities and Exchange Commission asked the court to appoint Donald W. Henry, a Woodland Hills attorney, as receiver for the mortgage pools operated by First Pension and other related companies. The receiver would refund any recovered money to investors.

Attorneys for the three said their clients are cooperating with authorities and will plead guilty at next week’s arraignment. Cooper is represented by Los Angeles lawyer Robert C. Bonner, former chief of the federal Drug Enforcement Agency and onetime federal judge.

Officials allege that, beginning in 1982, the three operated an elaborate pyramid scheme that misled clients into investing in mortgages that did not exist. An unknown number of First Pension’s 8,000 clients lost $66.7 million they had invested and another $54.8 million in interest lost.

The two counts of mail fraud relate to quarterly account statements mailed to First Pension clients on Dec. 31, 1993, and March 31, 1994, U.S. attorneys said.

As an example of the level of deceit, prosecutors allege that in 1990 Cooper hired an actress to portray an auditor for the state Department of Corporations after an employee confronted Cooper with charges that no trust deeds existed in the mortgage pools.

The actress was given a phony Corporations Department business card and then sat in the offices of Vestcorp Securities, the brokerage arm of First Pension, where she pretended to review files for three weeks, U.S. attorneys said. A letter was then drafted on bogus Corporations Department stationery stating that the files were in order.

Angry investors said Monday that 10 years in prison is not enough for the three First Pension principals, with several expressing doubt that the three would get the maximum term anyway.

Gordon Reiter, 55, of Torrance, who lost $180,000 with First Pension, called the mail fraud charges “wimpy in view of the spectacular crime.”

Irvin Starr of Hercules in Northern California said he put $80,000 in retirement funds in the allegedly phony mortgage pools. He, too, was critical of the U.S. attorney Monday.

“To knowingly defraud people . . . is bad enough, but to defraud elderly people, who can least afford to lose money, is a despicable crime,” Starr said. “They’ll end up serving five years for a $120-million crime. It makes it seem like crime pays.”

Investors said that they are pleased, however, that a receiver may soon be looking for assets in the mortgage pools and several affiliated companies, among them Outpatient Surgery Center of California, Euclid-Ball Ltd., Vestcorp, Amerispec Inc. and First Diversified Financial Services Inc., the parent company of First Pension.

Despite the charges, the First Pension case is not closed, signaling that U.S. attorneys are still investigating other people associated with the company.

First Pension, with an estimated 8,000 clients and accounts valued at $350 million, declared bankruptcy April 22, one day after Colorado state banking authorities seized Summit Trust Services, a Denver-based firm established by Cooper to manage clients’ money.

The documents filed by the U.S. attorney’s office Monday charge that the three principals engaged in an elaborate scheme designed to hide mounting losses at First Pension by diverting clients’ money to pay their own salaries, make payroll for employees, meet operating expenses and cover losses. Diverted money was also used to invest in new businesses, the U.S. attorneys said.

The estimated $121.5-million loss breaks down in four ways, the federal agency found.

First, starting in 1982, Cooper, Lindley and Jensen agreed to pool trust deeds into Bank Mortgage Fund One, known as BMF1, in order to hide from clients the fact that some of the trust deeds were nonperforming or had defaulted, U.S. attorneys said. This resulted in a $26.6-million shortfall.

Second, an estimated $68.9 million in clients’ principal and interest was lost in the “mini-funds”--limited partnerships that invested in trust deeds secured by California real estate--because after 1986, the principals stopped buying trust deeds, U.S. attorneys said. Instead, the money was used to pay operating expenses and earlier investors, they said. Third, an estimated $23 million was diverted from First Pension’s custodial cash accounts, with at least $7 million going to start a sham Nevada corporation called Ernest Edwards & Associates.

Finally, $3 million in investments and interest was diverted from Summit Trust by Cooper and Lindley by using stolen and forged checks, U.S. attorneys said. Early in April, they alleged, Cooper opened a bank account under his control in the name of Summit Trust at Guardian Bank in Irvine, where he deposited clients’ checks totaling about $920,000. He then took $700,000 out for personal use, U.S. attorneys said.

Between March 25 and April 12, Cooper allegedly took clients’ checks from the mail room and deposited about 176 checks totaling $510,000 at Home Bank in Irvine, attorneys said.