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Official at Center of Fraud Inquiry Is Asked to Help Run Company : Investigation: U.S. trustee's office wants Charles B. Rau to operate a motorcycle parts maker that filed for bankruptcy protection. No charges have been filed against him in bank probe.

October 21, 1994|JAMES S. GRANELLI | TIMES STAFF WRITER

COSTA MESA — A Newport Beach man under investigation for criminal bank fraud by one arm of the U.S. Justice Department has been asked by another part of the agency to help operate a company that filed for bankruptcy protection this week.

Charles B. Rau, who said he is waiting to see whether the U.S. attorney's office will seek criminal charges against him, said Thursday that he was hired this week by the U.S. trustee's office to operate a Costa Mesa motorcycle parts maker called Genuine Fisher.

Rau controlled 51% of Genuine Fisher until he and his wife, Lucy F. Looney Rau, who also is under federal investigation, filed a bankruptcy petition in June to liquidate their estate. Control then went to John M. Wolfe, the trustee appointed to sell the property in the Raus' estate. Wolfe put Genuine Fisher in bankruptcy Tuesday, he said, "to conserve any value" in the company for creditors.

"I'm an assistant to the trustee," Rau said about his return to the company. The trustee does "everything in the best interests of all parties involved," he said, and, "anyway, who's better qualified to know what's inside this place?"

For the Record
Los Angeles Times Saturday October 29, 1994 Orange County Edition Business Part D Page 3 Column 1 Financial Desk 2 inches; 42 words Type of Material: Correction
Bankruptcy case--The headline of an Oct. 21 story misstated who chose local businessman Charles B. Rau to assist in a bankruptcy case involving a Costa Mesa motorcycle parts maker. He was picked by the case trustee--who was appointed by the U.S. Trustee's office--not directly by the government.

That was the reasoning behind bringing Rau back, said Leonard M. Shulman, an Irvine lawyer retained by Wolfe to represent the Rau estate. But Shulman said that Rau hasn't been hired technically, isn't being paid and won't be making any major operating decisions.

"We're very sensitive to all the issues surrounding the Raus," Shulman said. "We're aware that there is an ongoing criminal investigation."

Rau, with help from his wife, is expected to give Wolfe a report on the ability of Genuine Fisher to continue in business. Rau's role should end when the report is turned in, which could be today, Shulman and Wolfe said.

Yet the door could still be open to Rau.

"If the trustee (Wolfe) decides the business can continue to operate," the lawyer said, "his (Rau's) best role would be to assist in a marketing effort. That's where his expertise comes in."

If Rau does stay on, "he won't have any ability to misuse assets (because) he'll be carefully monitored," said Marcy J.K. Tiffany, the U.S. trustee in Los Angeles who monitors all appointed trustees, including Wolfe.

It's always difficult in taking over a business--"especially from someone who may not be credible," she said--to bring back the former operator. "Nevertheless, they know the business and they know where all the skeletons are," she said.

On Tuesday, Rau, acting on behalf of Wolfe, threw out the management at Genuine Fisher and changed the locks. He and his wife now occupy the offices under what he says is a joint effort with the government to resurrect the company.

"If I were a creditor, I'd be really happy now," Rau said. "Some are ecstatic that we're back."

He vowed to "give it the old college try" to revive the company and repay creditors.

The legal problems for the Raus began last spring when the Bank of Newport investigated a number of loans that one of their companies, the Sonora Group Inc., had taken out. What the bank discovered led it to sue the Raus and to give the information it had gathered to federal prosecutors.

The Sonora Group, a heavy-equipment leasing company owned and operated jointly by the couple, had obtained loans to buy trucks, forklifts and other work vehicles that would then be leased out. But, the bank asserted, the Raus took the money and never actually bought the equipment.

Bank of Newport, already struggling with bad real estate loans, was sunk by the scheme. It said in early August that it had to write off $6 million on the equipment loans, putting its finances in a precarious position. Banking regulators seized and closed it a week later.

Assistant U.S. Atty. Richard Robinson said that the Raus are continuing to cooperate with his office in its criminal investigation of them, but he would not comment further.

"The feds sometimes appear to work slowly," Rau said, "but they're very effective and very thorough. I know we're talking criminal charges, and it's up to the U.S. attorneys to make the charges. We've cooperated all we can and will continue to do that."

While Rau waits for prosecutors to act, he said, he is trying to help Genuine Fisher find a plant that will manufacture his harmonic dampner, a device put in motorcycle crankshafts that is supposed to reduce vibration, providing a smoother ride. The company's production equipment, used as security for a loan that went into default, was seized by Eldorado Bank in Tustin and sold last week at auction.

Shulman said Genuine Fisher still has some raw material, inventory, accounts receivable and orders for more dampners. It also has the patent that Rau had received for the product.

Rau is eager to bring the company back to life, but his product may be difficult to sell.

"A harmonic dampner doesn't do a damn thing," said Rod Page, service manager for Harley-Davidson of Fullerton. "Vibration is going to kick in anyway, and it just changes the r.p.m. level that the vibration kicks in. Actually, it makes it uncomfortable to ride the bikes at cruising speed. I take more of them off than I put on. They're junk."

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