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First Pension Investors Sue State for $17 Million : Courts: Agency failed to warn backers of wrongdoing in the Irvine company, lawsuit claims.

October 27, 1995|JAMES S. GRANELLI | TIMES STAFF WRITER

LOS ANGELES — Investors in the First Pension Corp. scandal filed a $17-million lawsuit Thursday accusing the state Department of Corporations of failing to investigate the company's wrongdoing and failing to warn investors.

The lawsuit, which alleges newly found instances of negligence, follows the state's recent rejection of a similar claim that the investors filed in June with the state as a prerequisite to filing a lawsuit.

The suit charges that the Corporations Department and its commissioner, Gary Mendoza, knew about illegal acts and refused to look into the Irvine pension administrator or warn investors about wrongdoing.

First Pension and related companies collapsed in April, 1994, under the weight of a scam that left 8,000 investors with losses totaling $136 million.

Its founder, William E. Cooper, has admitted that he had been swindling investors out of their retirement savings for a dozen years. In February, a federal judge sentenced him to 10 years in prison and ordered him to repay $73.1 million.

His two cohorts, Valerie Jensen and Robert Lindley, also were given prison terms for their roles in what amounted to a giant Ponzi scheme that misled clients into investing in nonexistent mortgages and took money from new investors to pay back earlier ones.

Investors and a court-appointed receiver have filed separate lawsuits against a host of defendants, including the law firm of Latham & Watkins and two of its former lawyers, Mendoza and U.S. Rep. Christopher Cox (R-Newport Beach). Cox, a former partner, and Mendoza, a former associate, worked on First Pension matters in the 1980s.

The latest lawsuit alleges that the Corporations Department ignored warnings about possible wrongdoing at First Pension starting in 1991 when an investor talked to agency officials several times and sent a letter asking for details on what he understood was an agency audit of the company.

The state never audited the company, and yet indicated by its response that it did, according to the lawsuit.

The agency also said that Cooper and other executives had no disciplinary actions pending against them, the suit says, failing to note that the state Department of Real Estate had revoked Cooper's real estate broker's license in 1983. The sister agency found that Cooper had diverted client trust funds, resulting in a $577,000 shortfall.

In 1992, Pamela Reiter, a former employee in Cooper's labyrinthine corporate structure, informed the state that one of his companies had forged Corporations department letterheads and business cards and hired an actress to impersonate an agency auditor in an event staged to look like an agency audit.

"I believe that the purpose of the staged phony Department of Corporations audit was to allay the fears of investors and cover up other wrongdoing by the company," her letter stated.

The agency has admitted that it received the letter and declined to investigate. Brian A. Thompson, chief deputy commissioner, has said that the agency had determined "early on" that the matter was "rather stale" because it referred to an incident that was 2 years old.

Thompson, the only agency employee authorized to talk on First Pension matters, was out of town Thursday and couldn't be reached for comment.

The suit also accuses Mendoza, without naming him as a defendant, of knowing about First Pension's problems and helping to cover them up as far back as the mid-1980s when he first began to work on the company's securities matters. Mendoza has denied any knowledge of First Pension wrongdoing and has denied any wrongdoing himself.

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