To those who knew him, Amway distributor Al Keranen seemed to personify the dream of instant riches.
With a sprawling house in Woodland Hills, fancy cars, a private plane and a second home at a Utah ski resort, the former high school football coach-turned-salesman radiated prosperity as brightly as the sun that glinted off his gold Rolex watch and diamond pinky ring.
It was Keranen's obvious success in Amway--where some estimate he was earning $20,000 monthly--that induced hundreds of people, including many subordinate Amway distributors, to pour millions of dollars into his Woodland Hills real estate development company, the California Anchor Group.
Lured by promises of receiving interest rates on their investments of 25% or more, people grabbed what they thought was the golden ring that would lead to a similar lifestyle.
Single mothers with limited incomes refinanced their houses to raise a stake; professionals--bankers, doctors, dentists and engineers--took assets, including IRAs, out of safer investments; and senior citizens, fearing inflation, gave him their meager nest eggs.
All told, more than 200 people in California, Oregon and Washington poured more than $12 million into Cal Anchor. The company, started in 1983 in the midst of a hot real estate market, was supposed to build or refurbish, then sell, San Fernando Valley apartment buildings at tremendous profits.
But in May, 1987, investors' dreams of luxury turned to financial nightmares when Cal Anchor closed the doors of its plush Warner Center office for good, after a raid by agents of the U.S. attorney's office.
Keranen and two former vice presidents of the group, Robert Dumas and Ronald Stoliar, are to be arraigned today on federal fraud charges for allegedly operating what prosecutors said was one of the largest and longest-running Ponzi schemes ever in Southern California.
In the 1920s, a Boston newspaper exposed a former vegetable peddler, Charles Ponzi, who ran the first of what came to be known as Ponzi schemes, convincing newly arrived immigrants that he could produce a 40% return on their money by exploiting a quirk in international postal conventions. In fact, the money Ponzi returned to investors came from money provided by later victims.
Similarly, Cal Anchors' investors were paid their monthly interest with new investors' dollars, rather than with revenues from profitable real estate deals as they thought, said Assistant U.S. Atty. Anita H. Dymant.
Keranen, who now lives in Beaverton, Ore., where he has started a company called Double Win International that sells water filtration devices and motivational tapes, referred questions to his lawyer, Richard H. Kirschner.
Kirschner said his client founded Cal Anchor as a legitimate business, then entrusted its daily operation to its vice presidents.
"He did not have some clever Machiavellian plan," Kirschner said. "Although he realizes the buck stops with him, he was not the one who began or implemented what was wrong with the company. He did not run the company on a day-to-day basis. He was an absentee manager."
Kirschner, who said his client has no criminal record, portrays Keranen as a naive victim, whose talents as a salesman were abused by unscrupulous subordinates
"He did recruit the investors . . . but he would be the first to admit that he was not a real estate developer, and he left it in the hands of others who he thought could do that," the attorney said. "He was victimized."
Kirschner said his client is determined to pay back everyone who lost money in Cal Anchor. Nine civil lawsuits--with more than 100 plaintiffs--have also been filed against Keranen, who filed for bankruptcy in Utah in 1988.
Dymant agreed that Keranen's fantastic salesmanship, particularly his success in Amway, a direct consumer-marketing company, was a major factor in keeping the scheme afloat for nearly four years.
"Normally, a Ponzi scheme will collapse of its own weight sooner, but Keranen had a built-in audience of potential investors that was very substantial," Dymant said. "He had clout and a credibility that you wouldn't get from another investment scheme."
Because he rose quickly within Amway, by selling products and sponsoring many new distributors, others thought he had tremendous business acumen and were eager to hitch their stars to his.
"He showed the lifestyle that everybody dreamed about," said Corky Bassler, a West Hills printer and Amway distributor who invested $140,000 in Cal Anchor. "He was a very dynamic person."
Before joining Amway, Keranen, who is married and has two young boys, was a high school football coach in Oregon for several years, his attorney said. He began selling life insurance and after that borrowed money to begin a computer software sales business.
But Keranen suffered a major setback when his car was rear-ended by a bus on the freeway and his neck was broken.