FBI seizes financial records from First Network Savings founder; Carl M. Rheuban thrift's loss tabbed at $100 million.

FBI seizes financial records from First Network Savings founder

Carl M. Rheuban thrift's loss tabbed at $100 million

The FBI has seized financial records from Carl M. Rheuban, 41, the politically influential founder and former chairman of failed First Network Savings in Century City, according to the U.S. Attorney's Office and personal bankruptcy papers Rheuban filed in late April. The thrift's failure is expected to cost taxpayers $100 million, and federal prosecution may result.

"I can confirm what you already know (from Rheuban's bankruptcy filing)," said George Newhouse, Assistant U.S. Attorney in Los Angeles, last week. "A search warrant was issued to the FBI in mid-January, and records were seized from the offices and residence of Carl Rheuban." The application for the search warrant has been sealed by a federal magistrate. No charges have been filed.

Rheuban is well-known in Los Angeles as a major political contributor and Jewish organization benefactor, a principal in the bankrupt, 7,000-acre Hathaway Ranch real estate partnership in Valencia and as a former professor at Southwestern University School of Law.

Rheuban, a Los Angeles native, also drew notice in financial circles in 1987 for issuing $80 million of variable rate notes through his Credit America corporation. First Interstate Bank Ltd. acted as underwriter.

In his bankruptcy filing, Rheuban listed $12.9 million worth of personal, unsecured debts, $7.65 million of personal, secured debts, $66.97 million of unsecured, corporate claims without priority, and $59.4 million of contingent corporate claims.

Rheuban, who could not be reached for comment, was praised last week by other philanthropists and former associates.

"Rheuban was a major benefactor. He was very charitable and community-minded," said Michael Koss, chairman and chief executive of Koss Financial, a Westside real estate firm. "I have a high personal regard for him."

David Gersh, partner at the Century City-based law firm Strook, Strook & Lavan, said "Carl (Rheuban) is first-class, one of the smartest men I have ever known. He has very high ethical standards." Gersh said he and Rheuban had worked together professionally 10 years ago, and also had worked on a project for the state bar association. Gersh added that he "could not believe" Rheuban could have done anything wrong.

Among other activities, Rheuban served as vice chairman of the Los Angeles Jewish United Fund, board member of the Jewish Federation Council of Los Angeles, and general chairman of the Israel Bonds campaign in Los Angeles.

But now Rheuban has declared Chapter II bankruptcy, and his seven-year-old First Network Savings thrift, operating in federal receivership, is suing him for the return of $2.7 million.

According to knowledgeable sources, the FBI sent a team of agents in mid-January to Rheuban's home and business addresses at 201 and 211 Alma Real Drive in Pacific Palisades, respectively, for an early morning search, after Rheuban had taken First Network documents there. The FBI also seized documents pertaining to Credit America, a real estate lending and development company, and Pilgrim Mortgage Corp., two companies Rheuban owned and controlled.

Rheuban, a licensed lawyer and amateur magician, is also the target of civil lawsuits filed by local banks, including Merchant Bank, Imperial Bank and Unity Savings and Loan, which allege Rheuban has not made good on several million in loans. Those suits await disposition now in federal bankruptcy court.

Rheuban's First Network thrift was taken over by the federal Resolution Trust Corp. in April, a federal conservatorship expected to cost Uncle Sam $100 million due to federal deposit insurance.

Despite the hefty loss and Rheuban's high profile in some circles, First Network was not well-known to Southland depositors -- instead, the thrift solicited its deposits nationwide, seeking $100,000 certificates of deposit through a "money desk" it operated at its Century City headquarters.

Virtually all of First Network's deposits were then lent out in joint ventures or unsecured large loans, not traditional home loans, although the thrift evidently lent $750,000 to Rheuban on his 8,000-square-foot home in the Palisades.

Rheuban's First Network Savings has also surfaced in recent weeks in connection to a $300,000 loan it made to Lt. Gov. Leo T. McCarthy, in that state official's unsuccessful bid for a U.S. Senate seat in 1988. McCarthy is in technical default on $125,000 of the loan but has personally vowed to make good on it.

First Network also lent $350,000 to Sen. Alan Cranston for his 1986 senatorial campaign, a loan that has been repaid. Rheuban also gave $50,000 to a voter registration program ran by Sen. Cranston's son, Kim.

Cranston's role in delaying federal action in the $350 billion S&L debacle, and the money Cranston received from thrift operators, has been the topic of press scrutiny.

First Network, reportedly, also lent money to entities controlled by Los Angeles businessman Michael Goland, who was convicted two weeks ago in federal court of illegal contributions intended to help Cranston in his 1986 campaign. Goland is remembered in political circles for a successful, $1.1 million effort in 1984 to unseat then-Sen. Charles Percy of Illinois.

Rheuban's bankruptcy filing also revealed that he is the 100 percent shareholder of Pilgrim Mortgage Corp., a company in Chapter 11, and the general partner of Hathaway Ranch Partnership, also in Chapter 11.

The filing also revealed that Rheuban has paid to his bankruptcy counsel, the Century City law firm Levene & Eisenberg, a retainer in the form of a house at 312 Texas St, in San Francisco, Levene & Eisenberg sold the house for $400,000. Joseph Eisenberg, name-plate partner, is handling the case.

Rheuban's bankruptcy filing revealed several major, unsecured creditors:

* Imperial Bank, Los Angeles, $3 million.

* Mercantile National Bank, Century City, $2 million.

* Unity Savings and Loan Association, Beverly Hills, $2.75 million.

* J.H. Siroonian, Inc., Fresno, $2 million.

* Cary Medill, Beverly Hills, $1.5 million.

* R.C. Roberts, San Rafael, $1 million.

* Richard Horowitz, Beverly Hills, $350,000.

* Ronald Warner, Los Angeles, $250,000.

* Hugh Boss, Los Angeles, $250,000.

Rheuban's bankruptcy filing also revealed that Westside-based Northview Corp., owner of the Vagabond hotel chain now in Chapter 11 bankruptcy, is seeking $14 million from Rheuban; that First Network Savings is seeking at least $6.5 million; and Cal Network Properties, a First Network subsidiary, is seeking $3 million. Those claims are disputed.

Rheuban recent absence from the Los Angeles scene has already been noted in philanthropical circles. "He was the kind of guy who could write $100,000 checks," said a staffer at the Jewish Federation Council of Greater Los Angeles. "There are not too many of those guys around."