How To Rob Banks Without a Gun

By Gordon Bock

Even in these days of rampant white-collar crime, few businesses have been more riddled by fraud than banking. One of the latest lenders to surface as a possible wrongdoer is James Wasson, known to friends in Cushing, Okla. (pop. 7,720), as "the General." The title was more than a reflection of his close- cropped hair and commanding ways. Wasson, chairman of Cushing's First National Bank & Trust and a director of Citizens Bank in nearby Drumright (pop. 3,162), was a brigadier general in the Oklahoma National Guard.

The respect faded fast in 1986, when the two banks went belly-up. Soon thereafter Wasson left the Guard and resigned his banking posts. Last week a federal grand jury in Oklahoma City charged Wasson, 50, with 16 counts of fraud. The indictment handed up against him and a partner, Melvin Pulliam, 63, said the duo conspired to embezzle $1.3 million from the banks and the U.S. Government. Authorities contend that Wasson used the confidential records of soldiers who had served in his National Guard unit to create applications in their names for six bank loans guaranteed by the Small Business Administration. The proceeds were allegedly funneled to the two men through companies they owned.

Should they be convicted, Wasson and Pulliam will join a growing army of felons in the financial industry. The majority of the crimes, including fraudulent land deals, payouts to bogus borrowers and lavish living at depositors' expense, have been uncovered in Texas and California, where financial institutions grew especially fast in the early 1980s. But the problem is by no means restricted to those states. A report issued in January by the Comptroller of the Currency found that in 35% of the 189 U.S. bank failures from 1979 to 1987, fraud or insider abuse was "a significant factor." Among S and Ls, the malfeasance is even more pervasive. In testimony before Congress last year, representatives of the five U.S. bank-regulating agencies described an "epidemic" of fraud that had figured in as many as half the S and L failures since 1984.

Often the cash vanishes from vaults only to reappear in the wallets of executives, who use it for personal pleasure. After Bell Savings and Loan of San Mateo, Calif., failed in 1985 with losses totaling $495 million, authorities found that Partner David Butler had used corporate funds to buy expensive racing airplanes for his exclusive use. Butler pleaded guilty to two felony counts and is awaiting sentencing. In the ongoing investigation of the failure of Texas-based Vernon Savings and Loan, in which regulators charge that top officials have looted the S and L for their own gain, former Senior Vice President John Hill, 40, pleaded guilty in March to a single count of conspiracy. According to court papers, Hill had arranged "paid female companionship" at a 1985 company board meeting in Solana Beach, Calif., by flying in two prostitutes from Dallas and hiring as many as ten others locally. Vernon Savings picked up the tab.

Working on a grander scale, according to federal indictments, were the 111 defendants who have been charged with floating more than $500 million in bogus loans for a partly completed condominium development ten miles northeast of Dallas, alongside Interstate 30. One prominent S and L owner named in the case was Welba Lee Keetch, 52, a 300-lb. Texan known as Bubba. Authorities say Keetch and two colleagues kept $12.9 million from loans made by First Savings and Loan Association of Burkburnett, which Keetch controlled.

An offshoot of the I-30 condo scandal, as it is known locally, resulted in the March indictment of former Democratic Party Fund Raiser Thomas Gaubert, 48, who has been charged with arranging $8 million in questionable loans by an Iowa S and L for property in another Dallas development. As part of the deal, the indictment alleges, Gaubert, a friend of House Speaker Jim Wright, bought land for 50 cents per sq. ft., then sold it the same day for $5.25 per sq. ft., pocketing $5.6 million in profits. Gaubert, who denies any wrongdoing, says the Republican Administration is trying to use the Justice Department to embarrass Wright.

But prosecutors say they have uncovered a pattern of misdeeds spurred by greed. "People got into the J.R. Ewing syndrome," says Henry Oncken, the U.S. Attorney in Houston. "The more they made, the more they got caught up in making more." Some S and Ls that believe they were plundered by their officers are taking them to court. Dallas-based Sunbelt Savings Association is suing former Chairman Edwin McBirney III and other ex-managers for $630 million. The suit alleges in part that McBirney paid "excessive commissions and fees" to friends and relatives. In one instance, McBirney is accused of allowing a company owned by his wife to borrow more than $200,000. McBirney / calls the allegations "an effort by current management personnel to cover up their own mismanagement."

As the incidence of bank fraud rises, law-enforcement officials are struggling to respond. The Justice Department has set up a 50-member squad of attorneys, FBI agents and IRS investigators in Dallas to dig up evidence, while a 25-person FBI team is working out of the U.S. courthouse building in Houston. In Los Angeles, 50 FBI agents and ten prosecutors are looking into 273 cases, 140 of which involve losses greater than $250,000. "We have more cases than we know what to do with," says U.S. Attorney Robert Bonner in Los Angeles. "We are stretched thin." If what investigators have found so far is any indication, the courts could be clogged with bank-fraud trials for years to come.

With reporting by Jonathan Beaty/Los Angeles and Richard Woodbury/Houston