Judge Puts Off Decision on Dismissing Fraud Case

To the defense attorneys, it’s a case of constitutional rights and governmental wrongs. To the U.S. attorney’s office, it’s a case of misconduct that never occurred.

To the judge--U.S. District Judge David V. Kenyon--it’s a decision he won’t get around to making until early October.

“I’ve been living on this bench,” Kenyon said Thursday after five days of hearings and two days of final arguments. Until his schedule calms down, Kenyon said, he will not have time to study and scrutinize the United States vs. Donald P. Mangano and John Lee Molinaro.

What Mangano and Molinaro want is for Kenyon to throw out the U.S. attorney’s criminal fraud case against them.

The two have pleaded not guilty to an indictment alleging that they engaged in conspiracy and bank fraud by looting the now-defunct Ramona Savings & Loan Assn. of assets before it was seized by regulators in 1986. If convicted, Mangano faces a maximum of 155 years in prison and Molinaro 165 years for their actions as the thrift’s former owners.

Before the indictment, the Federal Savings and Loan Insurance Corp. filed a $40-million civil lawsuit against the pair in an effort to recover some of the Orange-based thrift’s assets.

Mangano and Molinaro’s attorneys contend that evidence gathered for the civil suit has been improperly used against them in the criminal proceeding.

Those attorneys contend that Richard Fruin, chief lawyer for the federal bank regulators in the civil case, knew the civil case would lead to a criminal proceeding. He knew it, said James Duff, Mangano’s attorney, when Mangano and Molinaro were spilling their stories as part of the civil proceedings.

He knew it, Duff said in court, even when Fruin told Mangano and Molinaro that they could testify in the civil case without their testimony being used against them in a criminal case.

“The government’s policy was that civil defendants would not be informed of criminal referrals,” Duff told the court on Wednesday. “They were making a conscious decision to infringe upon the constitutional rights of Mr. Mangano.”

According to Duff and Chester Brown, who is Molinaro’s attorney, the question of whether to tell the defendants was discussed by Fruin and Mark Gabrellian, senior trial attorney for the Federal Home Loan Bank Board. The bank board oversees the Federal Savings and Loan Insurance Corp.

The defense attorneys contend that Fruin and Gabrellian consciously decided not to tell the defendants. If they had told Molinaro and Mangano, Duff said, the defendants would have invoked the 5th Amendment, stopped talking and hurt the civil case.

Fruin and Gabrellian’s action? Misconduct and deceit, say Duff and Brown.

Assistant U.S. Atty. Steven Zipperstein, however, told the court on Wednesday and Thursday that Fruin and Gabrellian never agreed to withhold information about the criminal proceedings. No misconduct occurred, he said, and there is no basis for the judge to punish the government attorneys by dismissing the fraud case.

Zipperstein’s evidence during final arguments was earlier testimony by Fruin and Gabrellian--testimony that he read in court on Wednesday. In that testimony, Gabrellian said he and Fruin had indeed discussed whether Fruin should tell the defendants, if asked, that a criminal case was in the works. They decided that Fruin was “to be truthful to the defendants and tell them that, yes, a referral had been made.”

The case was forwarded to the U.S. attorney’s office for criminal investigation in June, 1987. Zipperstein contends that attorneys for the defendants never asked after that point whether a criminal case was proceeding.

Said Zipperstein: “Mr. Gabrellian . . . did not tell Mr. Fruin to change the civil case into a vehicle to gain evidence for the criminal proceeding. . . . The bottom line is that the civil case the FSLIC filed against these defendants was done in good faith, not as a subterfuge to obtain criminal evidence.”

No deceit, he said, no misconduct, no dismissal.

And until October, no decision.