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Called to Account : Money Laundering at Bank Proved to Be Flaw in Stafford Scheme

April 11, 1985|VICTOR M. VALLE and ALAN MALTUN | Times Staff Writers

On a cold, rainy January night last year, James Marty Stafford sat in a Howard Johnson's Motor Lodge in Lake Charles, La., sipping a beer and chatting with a former Bank of Industry teller.

When the meeting ended, Stafford slipped an envelope to the former teller, Lucilla Rowlett.

"What's in it?" she asked.

"Don't ask so goddamned many questions," Stafford said. "Money."

Stafford, the 68-year-old founder of the City of Industry--a man whose personal empire includes a family grain mill, substantial real estate holdings and enormous clout at City Hall--had come to Louisiana to buy Rowlett's silence.

Conversation Recorded

What he actually bought was trouble. Rowlett was tape recording her conversation with Stafford for the FBI.

For some time, federal agents had been investigating a Stafford-orchestrated, $1.35-million bid-rigging and kickback scheme involving city construction contracts. The trail of evidence had led to the Bank of Industry, where Stafford had cashed $123,000 in kickback checks. Rowlett was the teller for most of the transactions.

The FBI traced Rowlett to her new home in Louisiana and persuaded her to cooperate in the investigation. Ultimately, transcripts of her conversations with Stafford were presented as evidence in federal court last November and were instrumental in Stafford's being sentenced to a 10-year prison term in one of the biggest corruption cases in the history of the state.

In all, six people were indicted in the scheme: Stafford, one-time Bank of Industry chairman Robert K. King, Burbank contractor Frank C. Wood, two other contractors, and the project manager of the publicly financed Industry Hills Exhibit-Conference Center. All have pleaded guilty and have been sentenced.

Powerful at Bank

The Rowlett transcripts, along with dozens of court documents and interviews conducted by The Times over a two-month period with bank officials and others, offer the first insight into the machinations of James Marty Stafford. They show how Stafford--without owning a share in the bank or serving on its board of directors--virtually handpicked its first board and used the bank to launder kickback money. When the bank's president called a halt to Stafford's check cashing and raised questions about Stafford's influence on the board, Stafford tried to have him fired.

In the end, the transcripts and interviews reveal an ironic twist to Stafford's rise and fall: The kickback scheme was revealed by the bank that Stafford depended upon to conceal his illegal activities.

Stafford refused to be interviewed. But former associates, including King, said in interviews that the bank was essentially Stafford's brainchild.

As were many of Stafford's pet projects, the Bank of Industry was hatched over lunch at the California Country Club, then the town's unofficial City Hall and a favorite watering hole for Stafford and his confidants.

Birth of a Bank

In the mid-1970s about a dozen of Stafford's closest associates were summoned to a series of meetings at the country club to discuss the formation of what later became the Bank of Industry, according to several sources, including King. Ten of the original 12 bank directors attended the meetings at Stafford's direct or indirect invitation, according to King and other sources.

"He sat there in the middle of the table firing questions like a godfather," said Stafford's son, Stephen, who said he accompanied his father to several of the sessions. Stephen Stafford worked for his father at the time, but they have since had a falling out.

Together, Stafford's friends and associates on the board of directors invested nearly all of the $5.5 million needed to open the bank, bank records show. Stafford bought about $275,000 worth of bank stock (about 3.2% of the bank's total shares) for his grandson. Those shares are held in trust by Stafford's former daughter-in-law, said a bank officer who requested anonymity.

Federal court records show that soon after the bank received its state charter in April, 1981, Stafford and Wood established a money-laundering operation at the bank.

Dummy Company

Wood deposited $200,000 in kickback money in an account of a dummy company called Klamath River Forest Products so checks could be cashed for Stafford by the Bank of Industry, according to the indictments.

From May to September, 1981, Stafford cashed about $123,000 in kickback checks at the bank, court records show, and gave part of the money to Wood and King.

Bank President Dale E. Walter said in an interview that he approved cashing the first checks made out to the corporate account without question because Stafford was an important customer and because the checks were less than $10,000 each. Anything over that amount must be reported to the Internal Revenue Service.

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