Southland ranks as financial fraud leader; local FBI reports twice as many cases as New York.

Southern California, long the bank robbery capital of the United States, has earned a new distinction as the nation's mecca for financial institution fraud cases under investigation by the FBI, records showed last week.

As of the end of August, FBI agents were probing 821 cases of fraud committed by and against Southland banks, savings and loans and credit unions -- more than double what the next highest region, New York City, had. Of those 821, nearly 70 percent involved losses and potential losses in excess of $100,000.

"You'd have thought since we started investigating these things in the mid-1980s, we would have hit a peak in the number of cases, but that hasn't happened," said FBI assistant special agent Tony Adamski, who oversees the bureau's Los Angeles financial institution fraud division. "What really leaps out is the total number of pending cases here."

Nationwide, the bureau was investigating fraud at 756 financial institutions that were insolvent and taken over by the federal government as of Aug. 31. The Southland accounted for only 32 of those failed institutions, 22 of them S&Ls, 8 banks and 2 credit unions. Experts believe the reason that number is low -- compared to the avalanche of individual pending cases -- is caused by California's liberal branching laws, which encourage fewer institutions with larger assets and more branches than other parts of the country.

Nonetheless, when federal probes into telemarketing, bankruptcy and government-contracting fraud are combined with the surging volume of investigations into local financial institutions, Southern California is quickly taking on the mantle as America's No. 1 white collar crime area, officials believe. So voluminous is the caseload that the FBI has committed nearly one-third of its 600 local agents to white-collar crime work, the largest concentration in the nation, Adamski said.

The FBI's Los Angeles Central District is a vast seven-county expanse stretching from San Luis Obispo County to the north, the San Diego County line to the south and Nevada to the east.

Former executives at Beverly Hills-based Columbia Savings & Loan and Lincoln Savings & Loan of Irvine - the two insolvent thrifts whose assets and liabilities were auctioned off to other institutions by the federal government last year -- are also believed to be under FBI investigation, though the bureau neither confirms nor denies any of its probes. Lincoln was owned by American Continental Corp., the parent company led by Charles Keating, and Columbia was run by Thomas Spiegel.

Earlier this year, Keating was convicted of state securities fraud and is awaiting trial by the U.S. Attorney, which prosecutes cases investigated by the FBI. Those probes can last between one and four years.

Independence Bank, the Encino-headquartered S&L taken over by the federal government and suspected of having links with the notorious Bank of Credit and Commerce International, may also be under FBI investigation.

Henry Pontell, a professor of criminology, law and society at the University of California at Irvine, said he believes three factors produced the hike in local financial institution cases under Uncle Sam's scrutiny: real estate economics, lifestyle factors and government deregulation.

"What you had out here during the 1980s was lots more new money than the East Coast and the social values of conspicuous consumption," said Pontell. "California is also a large state built on real estate. As long as the economy was strong and property values increased, any potential fraud was hidden" because the loans were paid off. "Now, with the economy sour we see this sudden rash of fraud."

Pontell added that deregulation of thrifts by the state and federal government in the early 1980s "created a vacuum where all kinds of people were sucked into the S&L industry, some with the intention of stripping the institution bare."

The FBI is investigating fraud at the majority of failed institutions taken over by the U.S. government, Adamski said. Last year, losses by institutions being investigated for fraud totaled $2.28 billion nationwide.

Figures for the Los Angeles Central District were not available, though statewide 55 S&Ls with $33.7 billion in assets were under the control of the Resolution Trust Corp., a federal government agency assigned to sell the assets of insolvent thrifts, according to Sal Serrantino, a Santa Monica financial institutions consultant.

Financial institution fraud encompasses a broad range of criminal activities. For executives and other employees who work at banks and S&Ls, particularly failed institutions, it usually includes embezzlement, illegal movement of funds between accounts, preparation of falsified documents and "less-than-arm's length" relationship between institution workers and borrowers, typically for sham real estate and joint business ventures.

While most of the FBI's fraud investigations traditionally have centered on alleged misdeeds by employees, a growing number are revolving around customers and borrowers who seek to exploit healthy institutions.

Adamski pointed to a businessman found guilty last January for using fake tax returns and other phony documents to get $7.5 million in loans from three area banks, including Liberty National Bank. The executive, Joseph Nash, was sentenced to 11 years in federal prison and fined $894,000.

Between Sept. 30, 1991, and the end of last August, 2,398 people across the United States were convicted of federal felonies and misdemeanors related to financial institution fraud. In the Los Angeles Central District during the same period, 95 people were convicted of federal felonies -- the highest felony tally in the country.

Because the FBI's 1992 fiscal year only ended last month, complete figures comparing the Southland to other U.S. cities were unavailable. However, in fiscal 1991 -- when the FBI had 8,678 financial institution fraud cases under investigation nationwide -- Southern California accounted for 654 cases, compared to 396 in New York, 383 in Dallas and 322 in Chicago.

One month before the bureau's fiscal 1992 year closed, the number of financial institution fraud cases the FBI was probing nationwide had already topped 9,746, records indicate.

Overall in the Southland, the FBI is investigating 70 percent more white-collar crime fraud cases today than it was nearly three years ago.

"It's fair to say, based on our caseload and the resources we've committed to it, that this area ranks as one of the top white-collar crime areas in the country and probably has already surpassed New York City as the No. 1 place," said FBI assistant special agent Tom Parker, who oversees Southland white-collar crime probes other than financial institution fraud. Between January 1990 and Oct. 1, 1992, the FBI registered an investigative load that included:

* a 50 percent increase in the number of boiler-room telemarketing fraud cases -- currently at 420 -- with most emanating from Orange County. Those cases usually deal with high-pressure sales pitches in which the customer does not receive the goods or services already paid for.

* a 50 percent hike in the number of bankruptcy fraud cases, the majority of them coming from Los Angeles County.

* a steady increase in fraud involving federal government contractors, particularly companies doing business with the U.S. Department of Defense. In fiscal 1991, companies in the FBI's Los Angeles Central District had a whopping $57.9 billion in U.S. government contracts, one-third of that in military-related work.

The most common type of defense fraud relates to falsifying of test certifications. Last week, for instance, Century City-based Teledyne Industries pleaded guilty to federal charges it falsified tests on electronic relay switches it produced. The company has agreed to pay a $17.5 million fine.