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THE FRANKLIN COVER-UP -- CHILD ABUSE, SATANISM, AND MURDER IN NEBRASKA |
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CHAPTER 6: THE DESTRUCTION OF COMMONWEALTH SAVINGS, MODEL FOR NEBRASKA Inaction by the authorities, a blind eye to children's pleas, failure to prosecute, a rush to cover up -- all this was happening in the heartland state of Nebraska. To understand how this could be, requires a good look at state politics during the mid-1980s, especially the Robert Kerrey administration of 1983-1987. Early in the decade, the signs went up, billboard-size with flashing neon lights, that Nebraska was now, more than ever, a "wide open state," to use the terminology of the organized crime-controlled political machines in various parts of the United States during the 1920s and 1930s. Mafia control in those days was so tight in some cities, that opposition newspaper editors were gunned down in broad daylight. A June 1991 article in the Minneapolis Star Tribune recalled, about the history of Minnesota, "Alvin Karpis, onetime Public Enemy No. 1, once said, 'Every criminal of any importance in the 1930s made his home at one time or another in St. Paul. ... If you were looking for a guy you hadn't seen in a few months, you usually thought of two places -- prison or St. Paul. If he wasn't locked up in one, he was probably hanging out in the other.'" In order for the city to have this status, veteran St. Paul Pioneer Press reporter Nate Bomberg has said, "Everybody was in on the take. You can't have an underworld without an overworld. ... You can't have the rackets unless you have the mayor, the chief of the police, and the county attorney in your corner." 1983 was a banner year for Nebraska's building its credentials as a modern such safe haven for crimes and perversions, That was when the state seized Commonwealth Savings, forcing its owners, the Copple family, to ante up any and all company and personal assets to help redeem depositor losses. It was the first year of Bob Kerrey's term as governor of Nebraska. The case haunts Kerrey to this day. In 1990, as the price tag for cleaning up failed savings and loan institutions nationwide soared into the hundreds of billions of dollars, one of the loudest critics of the Bush administration's handling of the matter was freshman Senator Bob Kerrey, Democrat of Nebraska. An Omaha World-Herald headline captured the clashes: "Kerrey, Fitzwater Trade Allegations Over Handling of S&L Crisis." White House spokesman Marlin Fitzwater cautioned Kerrey that as many Democrats as Republicans were involved in the S&L fiasco, and then admonished him in personal terms. According to the July 16-22, 1990 Omaha Metro Update, Fitzwater "added that if Senator Kerrey is bent upon making S&L a campaign issue, it's one that could work against Kerrey. The White House apparently has some files on Commonwealth Savings and State Security Savings, but no details were given." The mentioned institutions were two of Nebraska's largest industrial banks. They collapsed in 1983 and 1984, shortly after Kerrey's election as governor. Kerrey knows about his vulnerability. Soon after the exchange with Fitzwater, the senator got himself interviewed by a friendly World-Herald reporter, to come clean about the events of 1983-84. Under the headline "Kerrey: My Errors in Insolvencies Will Not Diminish S&L Scrutiny," he admitted what he had fiercely denied at the time -- that his key adviser on the Commonwealth and State Security crises was his close friend, business associate, and chief financial adviser, Bill Wright. "Regarded by some as one of the cleverest and most ambitious financial operators in the state," according to a brochure from the Lincoln-based Concerned Citizens for Responsible Government, Wright was also a major shareholder and the president of State Security Savings. This relationship, Kerrey now said, may have led to "appearances of impropriety," but this all happened because "I was new to politics." For informed Nebraskans, Kerrey's confession was a bombshell, as the Metro Update observed: "But what Kerrey -- faced with the absolute imperative to get his own past behind him if he is to have any credible role in the Democratic pursuit of President Bush's handling of the national savings and loan scandals -- told [World-Herald reporter] Kotok is breathtaking in implication. It is especially so for those whose depth of knowledge takes in the entire fabric of the Kerrey Administration: Commonwealth Savings Co., State Security Savings, Kerrey's own panoply of private business dealings, and, finally, the creation and uses of the Nebraska Investment Finance Authority." According to information published in the Metro Update and other documentation, those implications are that Kerrey and Bill Wright used the powers of state government to: 1) loot State Security's depositors of at least $4 million and as much as $10 million, 2) deprive the depositors of Commonwealth of at least $40 million, 3) set up a new state agency, with the sole apparent purpose of giving Kerrey and his cronies millions of dollars in low interest loans, 4) cheat farmers out of $200 million in subsidized loans, and 5) peddle junk bonds to investors who thought they were getting high-grade state bonds. The voluminous evidence of these activities can be found in a 1986 state Senate investigation, which I chaired, of the failures of State Security and an Omaha bank, the American Savings Company; in 1988 brochures of the Concerned Citizens for Responsible Government; in the Omaha Metro Update of July 16-22, 1990; in a set of three tightly documented reports submitted to the Nebraska Legislature in 1990 by a group of depositors from the failed Commonwealth bank, led by Reuben Worster of Lincoln and veterinarian Dr. Melvin Bahensky of rand Island; and in a 1991 tort claim filed by myself as attorney and on behalf of Commonwealth depositors. According to his own account, Bob Kerrey entered politics to make money. In September 1981, as he was contemplating a run for the Nebraska governorship, Kerrey lamented to businesswoman Dana Saylor Robinson, that in business, "You have to know someone or cater to this or that politician, to get anything. The only way you are going to be able to make any money is to be in politics." The record shows that, with the advice of financial genius Bill Wright, Kerrey fulfilled his ambition at the expense of the citizens of Nebraska. *** Late one night in the last week of 1982, Democratic Governor-elect Kerrey and Bill Wright summoned Republican Paul Amen, the state banking director, to a meeting to ask him to stay on in the new administration, Anticipating the request, Amen brought with him "our highly confidential, secret, sensitive list of problem institutions," as he later told my legislative committee when we were looking into the State Security and American Savings failures. High on the list were Commonwealth Savings, controlled by Lincoln businessman S.E. Copple and his son Marvin, and State Security, whose president and leading stockholder was none other than Bill Wright. In 1986, testifying before my committee, Amen was asked if he hadn't felt a little strange showing the governor this list in the presence of Wright, whose own bank was on it. Amen replied, "No, Senator Harris, I didn't even think in terms of that. I thought in terms of the fact that Bill Wright was the Governor's principal adviser and the Governor had wanted him present at the particular meeting." Wright was a prominent lawyer in Lincoln, a member of a wealthy, established family, and one of the rising stars in Nebraska politics during the 1970s. State Security, which he and associates acquired in 1978, in a highly leveraged buyout, had made many loans to businessman Bob Kerrey. Wright became the guiding force behind Kerrey's gubernatorial campaign, headed his transition team, and served as the governor's personal counsel. His law firm, Wright, Rembolt, and Ludtke, soon became official adviser to the Nebraska State Banking Department. On October 31, 1983, while Banking Commissioner Amen was on the East Coast negotiating for a purchaser to buy the troubled Commonwealth bank, Governor Kerrey suddenly issued a late-afternoon press release which said, "We are monitoring the activities of Commonwealth; we are looking at that institution with more interest than we are the other institutions which we monitor." The next morning, panicked citizens mobbed the bank. State authorities shut its doors by the afternoon. According to a release from Concerned Citizens for Responsible Government, "In the Lincoln Star of November 1, [1983] Kerrey himself was quoted as saying that he was barred by law from publicly indicating how serious the Commonwealth situation might be, that is to prevent a public official from creating a run on a financial institution. Yet, by his own words on television and in the newspapers, Kerrey caused exactly that result." Commonwealth could have filed for reorganization under the bankruptcy code, to protect its depositors in the wake of the run. But Kerrey forestalled that action by securing a legal opinion from his appointees at the State Banking Department's legal counsel -- Bill Wright's law firm -- that bankruptcy should not be allowed, but that the state should seize the bank. By statute, Commonwealth also should have had ten days to find new capital, before being seized. The bank had at least two offers -- the one Amen was working on, and one from a local group of investors. S.E. Copple was willing to sell his controlling stock in the bank to this local group for $1, in return for an infusion of $8-10 million in capital, in order to save the bank. The bank, as Commissioner Amen later testified to the Legislature, would have been saved. Some $50 million of depositors' funds would have been preserved as well. But Kerrey's press release, the resulting run, and the governor's refusal to allow Commonwealth to be purchased after its seizure, preempted that possibility. The failure of Commonwealth, the biggest collapse of a financial institution in the history of Nebraska, was a human tragedy of major proportions. Many of its depositors were elderly people, who had their life savings in Commonwealth. When it collapsed, some of them were left without even money to buy food. By 1991, eight years after the collapse, one-third of the depositors have died. Many of them died from heart attacks or strokes, within the first 90 days after their bank's doors were shut. Seven families with retarded children had put their life savings in the bank, to care for the children after the parents die; that money was all gone. *** Kerrey claimed to have great compassion for Commonwealth's depositors, but his actions spoke otherwise. Throughout 1983, the State Banking Department pressured Commonwealth president S.E. Copple to put up over $8 million of his personal assets and those of his son Marvin, to secure unsecured loans that Commonwealth had taken from other banks. In one instance, a multi-million dollar property got pledged, to secure an approximately $750 thousand loan. These were debts to, among others, Bill Wright's State Security Savings and the National Bank of Commerce, owned by Kerrey's associate Jim Stuart. Now, after seizing Commonwealth, Kerrey's administration pressured the 88-year-old man to dispose of whatever personal assets he had left, including his residence, to "pay back depositors." The bulk of Copple's substantial assets, however, were no longer available to the depositors. They had already been taken by Kerrey's friends. The Copple family was descended from some of the first pioneers in Nebraska. It had a tradition of fierce independence from the state's financial establishment, whence Kerrey received campaign funding, The Copples' bank had been a source of liquidity for farmers and small and medium-sized entrepreneurs. When Federal Reserve Chairman Paul Volcker doubled interest rates to nearly 20%, in the fall of 1979, many Nebraska banks, including Commonwealth, landed in trouble. But there was a decision to attack the Copples, while sparing institutions tied to Kerrey. The brouhaha over Commonwealth's collapse diverted attention from State Security Savings, which Amen testified had been in worse shape than Commonwealth. State Security escaped the kind of pressure applied to the Copples. Rather, Kerrey's permission for State Security to remain open until July 9, 1984 made possible its "milking and draining" by Bill Wright and other bank officers, in the words of our 1986 Senate investigation. (That investigative report was unanimously adopted by all members of the legislative committee by which it was prepared, Republicans and Democrats alike, including some of Governor Kerrey's previously staunchest supporters.) Then, State Security was allowed to file bankruptcy, contrary to the standard set for Commonwealth by Wright's law firm via the State Banking Department. Wright's double standard was glaring. It was Wright, who took State Security into federal bankruptcy, which shielded it from possible attempts by local officials to investigate its affairs or to protect depositors. Yet Bill Wright's law firm, acting as official adviser to the Banking Department, had prohibited that same course from being followed by Commonwealth, by issuing its opinion that such a declaration of bankruptcy by Commonwealth would be illegal. At the age of 88, S.E. Copple was stripped of everything he owned, sent to prison, and died a pauper, while Bill Wright quietly moved out of Nebraska, into a million-dollar mansion in Rancho Santa Fe, California. *** While he was closing down Commonwealth, Bob Kerrey made money on business deals arranged by the institution he allowed to remain open, State Security. On April 5, 1983, the governor, Wright and others formed a partnership called American Investment Group. The chief purpose of AIG was to acquire a choice block of Lincoln real estate, the Shoppers Fair shopping center. This business opportunity resulted from a maneuver by State Security. Bill Wright's bank had loaned businessmen Jerry Joyce and Robert Rentfro, the owners of Shoppers Fair, millions of dollars for other projects. It threatened to foreclose on all those loans, unless Joyce and Rentfro sold Shoppers Fair for a million dollars below its assessed value. When Joyce and Rentfro prepared to sue, State Security looked for another arrangement. Ultimately, Shoppers Fair was delivered to the Kerrey group, in return for State Security writing off $3 million of Joyce/ Rentfro debts. State Security financed the purchase by AIG with a loan at 4% under the prime rate. The $3 million write-off of Joyce/Rentfro loans and the new below-prime loan to enable AIG to acquire Shoppers Fair, relieved State Security's depositors of substantial funds. Those depositors lost millions in other financial swindles, which reveal the brutality of the Kerrey group's actions, masterminded by Bill Wright. Wright and others gained control of State Security in 1978 by purchasing its stock, through a holding company they owned, with a very preferential loan from First National Bank of Lincoln (FirsTier Bank, after its 1984 merger with Omaha National Corporation); the loan required no personal guarantee and carried no personal obligation, meaning that if it went "bad" and the company folded, Wright and his partners had no obligation to repay. Ultimately, they did not repay it. Having gained control of State Security, they sold its most valuable asset, a downtown Lincoln office building, to themselves (using a disguised corporate name) for one fourth of its actual value. Since the depositors really owned the equitable value of the building, this transaction alone robbed them of a small fortune. Adding insult to injury, Kerrey's friends then effectively sold the building back to the selfsame depositors, using a long-term lease. The new owners leased it to them at the actual value, four times higher than what they had just paid for the building! On May 28, 1986, with the statute of limitation on prosecution for these activities about to expire, several members of the Legislature's investigative committee wrote to Banking Director James Barbee and Attorney General Robert Spire, "We urge you to consult immediately with the appropriate law enforcement authorities to determine whether criminal prosecution is warranted." Nothing was done. The disgust of Senators over such patent corruption shows up in the transcript of a subsequent hearing. Senator Higgins: "I am sick and tired of this pussyfooting around with these boys," Senator Schmit: " ... the statute will have expired and the people that needed to be protected will have been protected, that is putting it very bluntly." Senator Higgins, incidentally, was the Legislature's most stalwart Democrat and Kerrey supporter. As a member of the investigative committee, privy to details that showed just how sordid the affair was, even she had had enough. The senators subpoenaed Spire and other Kerrey-appointed officials, who stated that it was their prerogative to prosecute or not, and they chose not to. We called Kerrey himself as a witness, and instructed him to bring his personal financial statements. According to the Metro Update, "Kerrey said he resented the request for his bank records. He parried the request by saying that the committee was essentially saying, 'It is OK if your banker tells us everything they know about you.' Kerrey eventually did consent to appear before the committee. Highlights included his denial of improper influence by William F. Wright. Key decisions of the administration were based upon advice from the Department of Banking [whose counsel was Wright's law firm] and other official channels, Kerrey testified." Kerrey's AIG deal was already a scandal when it transpired, in 1983. Talking about his business affairs to my legislative committee in 1986, the governor claimed that he had taken every politician's routine precautions: "I prepared and executed a business trust that naturally moved all the assets physically that I owned, all the business assets, away from even indirect control." But somehow this did not prevent Kerrey from personally signing the papers to set up AIG. If it was supposed to be a typical blind trust, to shield a public official from knowledge of how his assets are being managed, Governor Kerrey's trust had at least one eye open. Metro Update described it, "Kerrey's blind trust: It was his sister, Jessie, and her husband, Dean Rasmussen, Kerrey's very active partner in Prairie Life, the restaurants and other business deals. How can you have a blind trust with a bunch of partners you see maybe every day? You maybe eat dinner with them. Or they come over from time to time?" *** In November 1983, Kerrey acted quickly to shield himself and his associates from investigation during the uproar over the collapse of Commonwealth. On November 5, 1983, news media reported what was an apparent leak from administration sources, that Republican Attorney General Paul Douglas, who normally would have handled the Commonwealth investigation, was involved in improper Commonwealth loans. Douglas was a long-standing friend of the Copples. With impeachment proceedings under way, Douglas resigned. Kerrey replaced Douglas as attorney general with his own man, Robert Spire. (Today, Spire serves as U.S. Senator Kerrey's chief of staff.) To oversee the Commonwealth investigation, he named a new special assistant attorney general, David Domina, formerly a law clerk in Bill Wright's law firm! On November 15, 1983, Kerrey fired Banking Director Paul Amen and replaced him with John Miller, whom he had appointed to the State Liquor Control Commission in June. Miller admitted he had no knowledge of the banking business, telling the press, according to the Metro Update, "I can't even balance my checkbook." The Legislature's Banking, Commerce, and Insurance committee, then chaired by this writer, Senator John DeCamp, was prepared to investigate the Commonwealth collapse, which came under its purview. But Kerrey handpicked a special new committee for the job. In a November 21, 1983 letter to the governor, I protested Kerrey's actions: "Governor, it would be most unfair and unreasonable to expect your own people, Mr. Domina, Mr. Miller and yourself, for example, to investigate yourselves since you are the administration officials in charge of the Banking Department and since the Attorney General's office is the attorney with the responsibility of providing the legal guidance to the Banking Department and to you." The ostensible investigation by this made-to-order committee turned out as expected. A 1990 report to the Legislature by Reuben Worster of Lincoln and other Commonwealth depositors characterized its findings: "The conclusion of the Domina Report was filled with speculation and 'Who Dunits' and the final analysis determined that Kerrey was an innocent bystander, Amen and [his assistant in the Banking Department] Lake exercised poor judgment, and Douglas was guilty of a multitude of crimes surrounding the failure of the financial institution." Although Commonwealth had been looted before its collapse, Worster's group charged that post-seizure actions planned by Kerrey were even more egregious. In their three-volume report, these Commonwealth depositors argued that Kerrey had tried to establish, through changes in law and personnel, the ability to devalue Commonwealth's assets by 50% and then sell them to individuals of his choice, with loans financed by a new, Kerrey-appointed agency, the Small Business Development Authority. Although this alleged scheme attributed to Kerrey bogged down in legislative resistance, Commonwealth assets did get inexplicably devalued by 54%, and did wind up in the hands of Stuart and other Kerrey-connected creditors, Worster's group has charged. Commonwealth depositors got paid only $8.5 million by the state, against their $50 million in losses. There was no reason for them to have lost a nickel. The bank had assets, mainly in real estate, then valued at $50-60 million. The Commonwealth property at 40th & Old Cheney in Lincoln, for instance, would have been worth $35 million if properly developed, according to an estimate given in 1985 by state-appointed receiver John Queen, in front of depositors' representative Dr. Breiner and attorney John Robinson. At the fire sale after Kerrey's liquidators devalued Commonwealth's assets, choice properties, such as 40th & Old Cheney and the Commonwealth Building, went to Jim Stuart's National Bank of Commerce. *** On another project to make millions from the creation of a new state body, the Kerrey clique evidently had more success. The Omaha Metro Update of July 16-22, 1990 summarized the case: In 1982, the fortunes of Prairie Life Center, [businessman] Kerrey's planned sports center in Lincoln, were at a low ebb. His managers were saying in published accounts in the Lincoln press that the project was dead. It would not fly, they said, because interest rates made it financially impossible. It was announced that subscribers to membership had their downpayments refunded. But then it was 1983 and a miracle. Kerrey was in as governor, Wright was his trusted, closest financial adviser. Kerrey's announced highest governmental priority became the creation of NIFA (Nebraska Investment Finance Authority], the very body that could breathe new life into Prairie Life. Three public agencies that had been lending money in the areas of agriculture, home building, and industry were to be consolidated into one, into NIFA, which was to be created as a new public authority. And there was one additional area of lending; loans could now be made to commercial enterprises. Suddenly, Kerrey's enterprise, Prairie Life, which couldn't fly in 1982, could soar in 1983. Suddenly, it became economically feasible. The senator and his partners got a loan of $2.55 million, some 4 percentage points under the going rate. ... After the bill to set up NIFA passed, Kerrey appointed all nine members of its board, including Bill Wright. One of NIFA's very first loans was to Prairie Life. Four days after approval of this loan to Kerry's project, Lancaster County Republican Chairman Randy Moody wrote to Senator Yard Johnson, chairman of the Legislative Council Executive Board, about the obvious conflicts of interest. "This insider deal seems a slap in the face of the taxpayers and business community of the state of Nebraska," Moody wrote. "It's obvious the governor has taken advantage of his elected position to line his pockets and he, his sister and brother-in-law [partners in Prairie Life] are laughing all the while." Metro Update reporter Bob Hoig also came to me with some questions about NIFA: This writer went to former Sen. John DeCamp, who spearheaded NIFA into existence in 1983 as head of the Banking Committee. What, the Omaha Metro Update asked DeCamp, has NIFA accomplished that it could not have accomplished as three separate agencies, even if the agencies had to be amended in some way, except to make the type of loan that went to Kerrey and his partners and that, of course, allowed Kerrey to appoint the original board? DeCamp said he could think of nothing. DeCamp is a Republican. He was once close to Kerrey but he said they are not close now. He knows NIFA as well as any legislator, past or present. And he can think of no reason for its existence other than to make a new class of loan and to allow Kerrey to appoint its board. In 1986, NIFA marketed a $200 million bond issue, for the avowed purpose of funding low-interest loans to Nebraska's distressed farmers. Kerrey negotiated a deal with New York-based junk bond peddlers Drexel Burnham Lambert, for Executive Life Insurance Company of California to market the issue. (Executive Life failed in 1991 due to its Drexel-linked losses.) Drexel and associated firms earned their fat fees, the value of the bonds collapsed, and not one dollar out of the $200 million ever reached a Nebraska farmer! According to a federal law suit filed in April 1990 by holders of the devalued bonds, the main purpose of the financing was never to provide funds to farmers, but to provide "inexpensive funds to Executive Life for reinvestment ... in junk bonds ..." While the actions of Kerrey and his associates outraged legislators and tens of thousands of depositors who suffered, there was deafening silence from Nebraska's major press, the Omaha World-Herald, the Lincoln Journal, and the Lincoln Star. The Metro Update of July 16-22, 1990 gave some insight into why: John Gottschalk, an important World-Herald figure in the business sense since 1975 and publisher of the newspaper since last January, has invested through his daughters in Kerrey's ventures since Kerrey's earliest days in business in the early 1970s. The daughters, now ages 15 and 23, own a $50,000 share in the Prairie Life Center in Omaha. As for the Lincoln Journal-Star, one of its three board members since 1981 has been Bill Wright. *** From covering up financial swindles, it was a short step to covering for prominent businessmen who were involved in organized drug peddling or for politicians and publishers with a weakness for young children. Reviewing the Commonwealth case and the Franklin Credit Union scandal side by side, it is striking how the casts of characters overlap. Key personnel in the Kerrey-appointed apparatus, who snowed the Commonwealth depositors, will intervene again as Franklin unfolds. The state regulators in charge of the Commonwealth receivership were John Queen and Robert Kirchner. Deputy receiver under Queen was one Kent Johnson, Commonwealth's former comptroller and the state's star witness against S.E. Copple; Johnson was to be indicted in 1990, for stealing over one million dollars of Commonwealth depositors' funds, during the receivership. Queen and Kirchner will get a federal contract to analyze the Franklin Credit Union in 1989. On this new assignment, they will hire Johnson once again. Kirk Naylor was special prosecutor for a grand jury probe of Attorney General Paul Douglas and his ties to Commonwealth; Douglas' resignation cleared the decks for Kerrey's men. Jerry Lowe was a Lincoln police officer, without prior training in financial investigations, assigned to go through the records of Commonwealth. As the first counsel and investigator, respectively, for the Legislature's Franklin committee, Naylor and Lowe will quit suddenly in 1989 in what some senators see as an attempt to torpedo the committee. Naylor will argue that Carol Stitt of the Foster Care Review Board lied, in her reports of child abuse. Richard G. Kopf was legal counsel for the special legislative committee set up on Commonwealth, bypassing the Legislature's banking committee. Prior to this starring role, Kopf was a country attorney of no significance in a country town called Lexington, Nebraska. As a United States magistrate -- Lincoln sources insist the appointment was a reward for the Commonwealth job -- Kopf will issue, and seal, the order that closes Franklin's doors in 1988. An order from Kopf will get Larry King out of town at a critical moment in 1990. Kopf will preside over the federal grand jury that indicts victim-witness Alisha Owen later that year. And finally, surprise of surprises, on August 27, 1991, Kopf will vault ahead of a host of qualified attorneys to be in the lead position for appointment as a new federal judge.
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