3 are indicted for operating $250 million L.A. loan scam.

Business owners, builders robbed of 'upfront fees'

Mob elements in Los Angeles operated a $250 million loan fraud scam and used a World War II Air Force brigadier general and war hero as a front to help sting Southlanders, according to a federal grand jury indictment handed down Dec. 19.

Dozens of Southern Californian business owners and developers were burned for a total $1.5 million in "advance fees" by the alleged scam operation, which was headed by 78-year-old Milton Z. Mende of Los Angeles, according to the indictment.

Typically, victims were told big loan bucks were ready for the asking, if only upfront fees were paid. The upfront fees were paid, but the loans never materialized.

Some who asked for a return of their fees were threatened, according to charges leveled by Assistant U.S. Attorney Mark Holscher, who is prosecuting the case.

Among those victimized or contacted in the loan fraud scheme were Cellular Wholesalers of Marina del Rey, the Ginnie Springs resort in Orlando, Fla., the Academy Village real estate project in Los Angeles, and Diho Trading Inc., an import-export house in Monterey Park.

Allegedly in cahoots with Mende was the 77-year-old Carroll W. McColpin, who served in World War II, and Rocco "Passy" Passanante, 65, of North Hollywood, who is considered an associate of Los Angeles organized crime families by law enforcement agencies. It was Passanante, raised in New York, who threatened some loan victims, according to federal papers.

Mende, McColpin and Passanante operated in a rich environment. Many Southland developers are in dire straits, needful of cash to meet debts or to build. That being the case, they are easy pickings for con artists, say prosecutors and investigators.

"These loan frauds are becoming more and more prevalent. Banks are giving out fewer loans. Today, real estate people are scrambling for money. They'll go to extremes to get a loan," said Alan Winston of Claremont-based Winston-West Associates, a private investigatory service.

According to the state Attorney General's office, Mende and Passanante have criminal records, often in connection with financial scams.

A 1978 state report on Mende and Passanante could hardly be more blunt.

"Mende is a con-man and swindler who has frequently obtained credit from banks and investors by using fictitious collateral. He has also perpetrated advance-fee swindles and check-kiting, sometimes with the aid of other swindlers . . . ." says the study, titled "Organized Crime Control Commission -- First Report."

Mende was convicted in 1948, 1954, 1961, 1967 and 1969 on forgery and fraud charges. According to public records, he was also convicted in 1982 on a loan scam.

Passanante, according to the same report, "associates with several organized crime figures. His organized crime associates are Michael Rizzitello, Louis Stern, Ralph Baghazo and Milton Mende."

Passanante also has a criminal record, according to the report, including a 1951 conviction for felonious assault.

The 1951 conviction is pertinent, in light of the fact that the U.S. Attorney has charged that "Passanante would also intimidate and threaten victims who asked for the return of the advance fees that they had paid."

Of concern to many Southland businesses is the ease in which Mende and Passanante caused one of their sham corporations, the British Indemnity Group, to be listed in Standard & Poor's and Dun & Bradstreet -- business credit-rating services -- as holding $200 million in assets. In fact, the bogus insurer had virtually no assets, charged the U.S. Attorney.

"The potential for harm alarms me, that a company could get itself listed in Standard & Poor's," said Steve Fried, chairman of the Western United National Bank in West Los Angeles. "The average businessman does not know how to check references and credits. If Standard & Poor's says a company has $200 million in assets, many are going to believe it."

In addition to the British Indemnity Group, which has headquarters at 12100 Wilshire Blvd. in West Los Angeles, Mende and Passanante ran enterprises named the British Bancorporation Ltd., the Commonwealth Insurance Group Ltd., the Banco Commercial Arabe S.A., and British Capital Holdings Ltd., all of which were fake fronts, charged the U.S. Attorney.

Mende also practiced forgery, according to the indictment, and produced phony U.S. government bonds.

On Nov. 8, Mende and former Air Force General McColpin met with a vice president at the Dean Witter brokerage in Beverly Hills to discuss depositing $89 million worth of U.S. government securities. The securities, Ginnie Mae bonds, were fake, said the U.S. Attorney.

In an odd paragraph in the U.S. Attorney indictment, defendant Mende is described on Oct. 18 as "possessing at his home in Los Angeles, California, $600 million in Japanese yen notes which did not belong to him."

There is no further explanation of the yen in the charges, and the U.S. Attorney's office last week declined to comment further on the matter.

According to Robert Dinsfriend, organized crime specialist with the State Attorney General's office, the mob, also called La Costa Nosta, is active in Los Angeles, with about 80 members here.

The mob here has suffered setbacks, including a spate of successful prosecutions by the U.S. Attorney's office in the late 1980s. "The LCN (La Costa Nostra) is in some disarray," said Dinsfriend last week.

According to Air Force records, McColpin -- now a frontman for Mende -- was a bona fide war hero in World War II, a heavily decorated fighter pilot and squadron leader who helped liberate Europe.

A graduate of Manual Arts High School in Los Angeles, McColpin shot down 11 enemy aircraft and damaged 14, as well as destroying eight enemy aircraft on the ground. He also sank three enemy boats and destroyed numerous trains, vehicles and tanks in three combat tours, before rising through the ranks to the level of Brigadier General.

According to the indictment, "Defendants Mende . . . and McColpin publicized that defendant McColpin was a retired general and war hero to enhance the credibility of defendant's corporations and to induce victim business to pay advance fees."

Mende, McColpin and Passanante and their lawyers, could not be reached for comment last week.