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Demise of Westlake Thrift Cited as Classic Bank Fraud : Savings and Loans: Investigation into rise and fall of lending institution uncovers large-scale fraud scheme involving millions of dollars in bogus loans.


As one source described it: "What Vladovich told customers was: 'I'm trying to go public on the New York Stock Exchange. To do that, I need 100 stores. I'm a wealthy man. I've got enough money to do it myself, but it's tied up. If you fill out the loan application, you won't have any problems. I'll make the payments for you and give you $1,000 worth of video equipment.' "

According to Scheper, Vladovich and his sales people processed more than 800 loans worth about $4 million. He allegedly used some of the money to pay himself a $1,800-a-month salary and to cover his business operating expenses.

"In the beginning, the loan applicants were real people," one source said. "Some of the first people Vladovich contacted were California Highway Patrol officers in the San Bernardino area. He made a pitch to about 35 of them and got them signed up for the free video stuff.

"The problem was that the highway patrol people were asking too many questions," the source added. "They also were too demanding in terms of the kinds of free TVs and VCRs that they wanted."

From the start, a variety of sources said, Vladovich put heavy pressure on his sales staff to write an increasing number of loan applications. The pressure allegedly increased when Vladovich needed additional funding for another business venture, a novelty company called Bric-a-Brac.

"The salesmen had signed up members of their families by this point, and Vladovich was making the payments for them," one source said. "They started going to shopping malls and getting names from shoppers. It reached the point where they would make up Social Security numbers and submit the loans for fictitious people."

Westlake Thrift, meanwhile, still was enjoying its boom period. Smith was in charge of the loan deals with Vladovich, and everything still looked good on paper.

"It's not exactly clear when Smith knew these were bad loan packages," a source said. "By 1986, however, he knew that Vladovich was making the payments. In early 1987, he demanded a meeting, and Vladovich said he wasn't buying the 48 movies that were supposed to be part of the deal.

"Smith told him that if he missed a payment, the loans would be cut off. Vladovich said that if he did, they would go down together, and Westlake would lose more than $1 million in outstanding loans," a source added.

Despite that confrontation, the indictment filed in U.S. District Court shows that the loan arrangement continued through the first half of 1987. Smith, however, began to distance himself from Vladovich, no longer personally signing the checks to Pioneer Acceptance.

By this time, state banking regulators had begun to look at other questionable loan practices by Westlake Thrift. And, in July, 1987, a Westlake Thrift official named Chet Adams gained access to the Vladovich files and blew the whistle internally to other bank officers.

Not only had the FBI investigation into criminal fraud begun, but the Federal Deposit Insurance Corp. was beginning an inquiry of its own that eventually led to the forced closure of the firm.

Smith's relationship with Vladovich effectively was ended. But the banker continued on a course that was destined to add to his problems. In late 1987, according to the indictment, he compounded his troubles by misappropriating $24,500 in bank funds, allegedly giving $5,000 to a female acquaintance in Orange County.

While Vladovich still faces trial, and Smith and the others indicted so far have not been sentenced, the guilty pleas by Smith and Vladovich's former sales force already have led some law enforcement agencies to view the investigation of Westlake Thrift as "a classic takedown" in a bank fraud case.

"Bank failure cases, particularly those resulting from fraud, are enormously difficult to investigate and prosecute," said Gary Auer, special agent in charge of the FBI's Ventura office.

"This case is a classic example of the kind of fraud that has taken place throughout the country," Auer said. "It shows that this is not just something that happens to people in other places, but can take place right here."

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