A Newport Beach woman and her husband have pleaded guilty to defrauding three financial institutions of $14.2 million through a phony equipment lease scheme that relied on help from about 180 people, including several police officers.
Through their Sonora Group Inc., Lucy F. Looney-Rau, 53, and Charles B. Rau III, 50, sold $12.5 million worth of equipment leases to Bank of Newport, which failed in August 1994 after discovering that there was no equipment underlying the leases. Almost $2 million more in leases were sold to other institutions.
"The failure of the bank cost about 100 people their jobs," said Assistant U.S. Atty. Richard E. Robinson.
The couple pleaded guilty late Tuesday in federal court in Los Angeles to one count of conspiracy and three counts of financial institution fraud.
Rau also pleaded guilty to evading $804,000 in income taxes, and Looney-Rau pleaded guilty to aiding and abetting him.
Neither the Raus nor their lawyers could be reached for comment. The Raus are each free on a $50,000 secured bond until sentencing, which is scheduled for May 19.
The guilty pleas come at a time when banks have been boosting their revenue with lucrative equipment leasing operations. Bankers across the nation are buying and leasing out everything from airplanes and railroad cars to fax machines and personal computers, according to Forbes magazine.
But the business also opens the doors to fraud. Chase Manhattan Bank, NationsBank and Signet Banking Corp., for instance, have been hit by large leasing scams in the past two years.
In 1994, Bank of Newport was a troubled institution that was on the mend, from cash infusions by some shareholders and from a pending agreement for sale to a group of East Coast investors. But, through a tip, the bank learned about the Raus' scam.
"What these people did single-handedly caused the failure of the finest small bank franchise in Orange County," said the bank's lawyer, Ronald Rus of Irvine. "This fraud ended the merger and made failure inevitable. The scheme was so intricate and sophisticated that even bank examiners specifically reviewing the leasing department failed to perceive the scheme."
The scheme also astounded bankers and law enforcement authorities because so many generally law-abiding people helped to keep the fraud going.
