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U.S. Charges Six Netted $20 Million by Bilking Banks

May 12, 1988|LAURIE BECKLUND | Times Staff Writer

A federal grand jury has indicted six people in a bank fraud scheme that allegedly netted $20 million--10 times that taken annually in all Los Angeles bank robberies--in one of the largest such cases ever prosecuted in the United States, prosecutors announced Wednesday.

The indictment charges the six--principally Kimball D. Richards, 32, of Santa Fe Springs--with a total of 39 counts of mail and wire fraud stemming from the operation of a recording studio owned by Richards.

The alleged scam made money, the indictment charges, by claiming the studio owned millions of dollars worth of recording and concert equipment it never bought, taking out loans to buy more, and selling phony leases on non-existent equipment to 15 financial institutions.

Harland Braun, an attorney representing Richards, said his client will plead not guilty to the charges when he is arraigned in about a week.

In making the announcement, U.S. Atty. Robert C. Bonner said the case exemplifies a trend that indicates that the greater Los Angeles area may be turning into the banking fraud center of the United States.

"Fraud on our banks and savings and loans is rampant in Southern California," Bonner declared at a press conference. "We have more bank fraud cases in this (seven-county) district than any other in the United States."

William J. Stollhans, assistant special agent in charge of the Los Angeles FBI office, said his office is currently investigating 170 major bank fraud cases, including a dozen in which more than $10 million was stolen. Combined, those cases now represent $1 billion in losses, he said, adding that the Justice Department has authorized an increase in manpower here to deal with the problem.

Since the beginning of 1988, Bonner said, there have been indictments on 10 bank fraud cases, representing losses of $92 million. By contrast, he said, all bank robberies carried out in Los Angeles in an average year net about $2 million.

Officials said they are not certain why so many bank fraud cases have occurred here. Bonner said he believes one reason for the problem is because the Los Angeles area is a major financial center.

The current case centers around the Consolidated Allied Companies, a Santa Fe Springs-based recording studio owned by Richards. The alleged scam operated from August, 1985, until January, 1987, when, officials said, it was uncovered by Union Bank.

According to the indictment, the operation "represented itself to be a fast-growing and highly profitable entertainment industry company which, among other things, recorded music and produced concerts."

Even a Jacuzzi

The Times reported last year that Consolidated opened a state-of-the-art recording studio, complete with a $137,000 Jacuzzi room and a shark aquarium, and that it assembled a private security force whose vehicles sported "E" license plates, normally reserved for official government vehicles. Federal officials declined comment Wednesday on how the plates were acquired.

According to officials, Consolidated said it had contracts with recording artists ranging from Lionel Ritchie to Lawrence Welk. But, in fact, the firm did almost no legitimate business at all.

The indictment alleged that a company named Riviera Capital Corp. purported to buy equipment from two fictitious companies called T. C. Audio and Network Audio, and then lease that equipment to Consolidated. Those leases, which The Times reported last year appeared to be worth $700,000 a month, were later sold or reassigned to financial institutions.

Fictitious tax returns, contracts, statements to the secretary of state, and even fictitious companies--including a phony motion picture workers credit union--were used to further the image of a successful company, officials charged.

When Consolidated was sent into bankruptcy, the trustee found only $300,000 worth of equipment, officials said.

Establishing Credit

Leon Weidman, an assistant U.S. attorney who will prosecute the case, said Richards also invoked the name of his father, former state Sen. Richard Richards (D-Los Angeles), to help establish his credit. He said the elder Richards was not involved in the scheme.

Bonner attributed the alleged $20-million scam not to a breakdown of banking systems, but to the wealth of false documents and the use of Riviera's legitimate credit standing to further the operation.

Also indicted were Robert P. Bernfeld, 36, of Huntington Beach, president of Riviera Capital Corp.; John Newton Griffith, 38, of Santa Ana, executive vice president of Riviera; Georgianna Carson, 40, of Huntington Beach, a Riviera corporate officer; Joseph Philip Tanous, 40, of Glendale, a Riviera associate; and Thomas E. Curnow, 43, of La Canada, a principal of T. C. Audio.

Many of the 15 institutions who bought interests in fraudulent leases were blue chip companies. Union Bank acquired a $7.4-million interest in the useless leases, the most money of all 13 financial institutions, according to the indictment.

Bonner said little of the money has been recovered. Some of it, officials said, was spent on limousines, cars, European travel and other luxury items.

"My client is basically a rock promoter," Braun said. "He was out of the country maybe 50% of the time traveling. . . . He probably should have paid more attention to the financial condition of his company. But he thought his business was being financed creatively, but legitimately."

James Henderson, former lead prosecutor of the federal Organized Crime Strike Force here, represents Bernfeld and the Riviera company.

"It is Mr. Bernfeld's conviction that Riviera has been a victim of Consolidated just like the financial institutions," he said.

Henderson said Bernfeld, Carson and Griffith plan to plead not guilty.

Tanous could not be reached for comment.

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