LOS ANGELES — A Newport Beach man and his two sons pleaded guilty in federal court here Monday to defrauding several banks and thrifts, bringing to an end a wide-ranging task force investigation of bogus real estate transactions involving two dozen individuals.
The convictions of John M. Coughlan Sr., and his sons, John Jr. of Long Beach and Errol of Malibu, came in two separate cases of fraud against several financial institutions, including Trinity Valley Savings & Loan, a Texas thrift that is on the federal government's priority list for fraud investigation.
The Coughlans each face a maximum penalty of 10 years in prison and a $500,000 fine. U.S. District Judge Stephen V. Wilson scheduled sentencing for March 25.
The investigation of the trio was part of a five-year effort by federal, state and local authorities. The probe was sparked by the $118-million fraud on Bank of America in the mid-1980s, said Chief Assistant U.S. Atty. Terree A. Bowers.
The investigation resulted in more than two dozen convictions on charges ranging from racketeering to wire fraud, prison terms of up to 20 years and restitution orders as high as $70 million, Bowers said.
"This has been the most successful joint investigation in the S&L area for our task force," he said.
The investigators included agents from the state attorney general's office, the Orange County district attorney's office and the city of Orange Police Department, he said. The probe has been dubbed Operation Orange Peel because most of the fraudulent schemes involved defendants and real estate in Orange County.
"The perpetrators focused on Southern California real estate as vehicles to induce lenders from across the nation to provide funds," Bowers said. "Sometimes, they used bond guarantees and sometimes simply the lure of California real estate was enough to get the loans."
The Coughlans were accused in a 17-count indictment of defrauding 11 institutions of nearly $8.6 million, which they obtained as loans from banks, S&Ls and an insurance company for construction projects.
Using one of their firms, California Pacific Construction Co., the Coughlans sought construction loans usually through intermediaries and obtained guarantee bonds from Eagle Bonds and Insurance Brokers Inc. Guarantee bonds ensure that construction will be completed and loans will be repaid.
But the Coughlans failed to tell lenders that they also owned Eagle Bonds, that the loan proceeds wouldn't be used on the projects, that they had no business relationship with the owners of the projects and that the loan proceeds would be put in their own bank account instead of an escrow account.
The loans were never repaid.
On Monday, John Coughlan Sr., 74, pleaded guilty to two counts of mail and wire fraud. His sons John, 54, and Errol, 49, had pleaded guilty to the same two counts Nov. 16. Monday, the sons also pleaded guilty to falsifying loan documents submitted to the failed Trinity Valley Savings in Cleveland, Tex.
The younger Coughlans were charged with helping Trinity owner Alan Ross Rothery divert thrift funds for his alleged embezzlement schemes involving loans to entities that he and his associates controlled. Rothery, also indicted in Texas, is awaiting trial.
The 31-count Texas indictment charges that the Coughlan brothers obtained a $3.4-million loan from Trinity for renovating an Inglewood hospital when the brothers knew that it would be demolished to make way for the Century Freeway. The Coughlans instead used $1.6 million from the loan to pay off a Rothery debt at Commerce Bank in Newport Beach.
Rothery was chairman of Orange Coast Thrift & Loan in Los Alamitos in 1985 when he used $1.6 million of the institution's money to buy control of Trinity. Banking regulators declared Orange Coast insolvent in 1986 and seized it. Thrift regulators also took the same action at Trinity in 1986.