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Former Banker Charles Knapp Indicted Over 1988 Loan

March 8, 1993

LOS ANGELES (AP) _ A banker whose American Savings & Loan was the largest thrift ever to fail will plead innocent Monday to charges he defrauded another collapsed S&L on a $15 million loan, his lawyer said.

Charles W. Knapp was indicted on eight federal counts.

The indictment, unsealed late Thursday, mentioned where authorities believe some of the money went: a $41,120 partial payment for a diamond, emerald and ruby ring, and $37,000 for a Russian sable coat.

Knapp, free on $380,000 bond, faces up to 51 years in prison and $2 million in fines if convicted of lying to obtain the loan from Western Savings & Loan of Phoenix, which failed in 1989.

He will appear Monday before U.S. Magistrate Judge Volney Brown. His lawyer, Michael D. Nasatir, said Knapp will plead innocent and expects to be vindicated at trial.

Regulators ousted Knapp from American’s parent company, Financial Corp. of America, in 1984 and blamed him for its later failure and $1.7 billion bailout.

Its $30 billion portfolio included a foreclosed brothel, a cat box filler mine and a batch of loans and securities that at one point fell $3 billion below their original cost.

When regulators ordered Financial Corp. to restate its earnings after Knapp’s ouster, depositors caused a $7 billion run on American Savings’ deposits. The thrift was seized in 1988 and sold to Texas investor Robert M. Bass.

Knapp went on to set up Los Angeles-based Trafalgar Holdings Ltd., which was to be a financial services empire.

In 1989, though, The Wall Street Journal depicted Trafalgar as ″largely smoke and mirrors.″ It reported that Knapp listed dubious assets on a balance sheet to get the unsecured $15 million loan cited in the indictment. The loan was never repaid.

Knapp’s indictment is one in a long series of high-profile bank fraud cases in Los Angeles. Former Lincoln Savings boss Charles Keating Jr. is awaiting sentencing on charges stemming from Lincoln’s $2.6 billion collapse. Former Columbia Savings chief Thomas Spiegel faces trial later this year.

Although American was the largest thrift ever to fail, Lincoln’s collapse was the most costly to taxpayers.

The indictment unsealed Thursday includes charges of conspiracy, false statements, interstate transportation of stolen funds and money laundering against Knapp; his financial adviser, Anthony C. Sarno; and his outside accountant, Joseph V. Nash.

They are accused of devising schemes to inflate the balance sheet of Knapp’s Trafalgar Capital Corp. so it appeared to have a net worth of $45 million.

Nash, a Beverly Hills businessman, lawyer and sometimes accounting professor at the Pepperdine University and University of California, Los Angeles, business schools, is serving an 11-year sentence for defrauding four bank institutions of nearly $900,000.

Sarno is free on $50,000 bail.

Knapp and his wife, actress Lois Hamilton, filed for bankruptcy protection last year, citing millions of dollars in debts and civil judgments.

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