Scandal Nearly Swallowed Omaha Credit Union Failed In November 1988; Key Players in the Franklin Case; Franklin Chronology - Nov 1, 1998 - Omaha World-Herald
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Nov 1, 1998 Scandal Nearly Swallowed Omaha Credit Union Failed In November 1988; Key Players in the Franklin Case; Franklin Chronology; [Sunrise Edition] Rober Dorr.Â Omaha World - Herald.Â Omaha, Neb.Â pg.Â 1.a
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(Copyright 1998 Omaha World-Herald Company)
CORRECTION. The published version had an incorrect date; the online version has been corrected. Sidebars included. CORRECTION. The published version contained inaccurate information; the online version has been corrected.
It began as a financial scandal and took an improbable turn - producing sensational accusations that a dozen prominent Omaha men had abused teen-age boys and girls at drug-fueled orgies.
Franklin Community Federal Credit Union failed 10 years ago Wednesday. The collapse still ranks as the largest insolvency of a financial institution in Omaha. Counting lawsuit settlements and all other recoveries, Franklin's assets fell $30 million short of paying losses.
As a result of the Franklin collapse, federal credit union officials installed safeguards that have helped prevent massive embezzlement at other credit unions, and there never has been another Franklin.
The Franklin financial scandal was real. The sex- and drug-party accusations turned to dust, an enduring lesson of how a giant lie and a whirlwind of gossip can reap a painful harvest.
In early 1990, with the whirlwind going full force, Omaha lawyer James Martin Davis said that if the rumors didn't stop, "Omaha is going to be the first city in the history of the world to gossip itself to death."
Reflecting on that period, Davis said last week that the reputations of 20 or 25 people were sullied by repeated mention of their names in gossip and rumors.
Some of those names never appeared in grand jury reports or trial testimony, and how they were thrown into the gossip mill remains unclear.
"It was sexual McCarthyism," said Davis, a prominent defense attorney.
The two central figures still are serving prison sentences:
Lawrence E. King Jr., 54, will become eligible for parole on April 10, 2001. If King isn't paroled, he will complete his sentence on Oct. 9, 1002, assuming he gets credit for maximum good time.(SEE CORRECTION) King stole millions of dollars from the credit union he headed to buy $25,000 ostrich-skin coats and to pay for unforgettable parties. King became the bridge from the financial scandal to the allegations of sexual abuse.
Alisha Owen, 30, will become eligible for parole in two years. Two grand juries and one trial jury said Owen lied when she spun tales of abusive sexual free-for-alls at King's near-downtown apartment suite and in other places.
Franklin, a north Omaha credit union with special low-income-area status, became a money machine that paid for King's extravagant lifestyle.
King rented a $5,000-a-month town house in Washington, D.C., ran up $186,000 in limousine bills in 13 months, wore a glittering watch edged in diamonds and threw parties costing tens of thousands of dollars.
At the 1988 Republican National Convention in New Orleans, King rented a building where Mardi Gras floats are kept. His 1,000 guests ate shrimp, lobster, oysters and alligator meat. At the 1984 GOP convention in Dallas, King sang the national anthem to open one evening's program.
Federal prison doctors diagnosed King as having delusions of grandeur.
Franklin fooled federal examiners by keeping two sets of books. The public records showed $2 million in deposits. Secret computerized records showed another $39 million in assets, although that money was spent as fast as it came in.
The secret records were the key to understanding the fraud.
The secret account was constantly replenished by sales of certificates of deposit from a telephone boiler room at Franklin. Salesmen sought buyers in New York, Los Angeles and elsewhere. The Franklin CDs paid higher-than-market interest and were fully insured up to $100,000.
Franklin was a little credit union in Omaha trying to help poor people, the boiler room salesmen said, and buying a Franklin CD would help.
After the collapse, the federal credit union insurance fund repaid nearly all depositors 100 percent. The single big exception was a South Dakota order of Roman Catholic nuns that lost $2 million because its certificates of deposit exceeded the $100,000 insurance limit.
Federal credit union officials learned a hard lesson, said Robert Fenner, general counsel of the National Credit Union Administration, the agency that regulates and insures federal credit unions.
"You can't accept excuses for no audits," Fenner said. "All the basic controls must be in place."
A federal law that was passed because of Franklin gives regulators more authority to demand that credit unions have their books checked by an outside auditor. At Franklin, outside audits were consistently put off for what seemed like good reasons. That won't happen again, Fenner said.
Federal officials also curtailed the authority of credit unions in low-income areas to sell CDs or to accept deposits from outside their own memberships.
King's credit union salary never exceeded $16,200. Omahans who saw his extravagant living believed that he had married into a Jamaican- rum fortune or that his private catering and restaurant businesses were money makers. Neither was true.
King went to federal prison in 1991 for embezzlement and other financial crimes. He is now at a campuslike minimum-security prison in Florence, Colo., where he works in the printing plant.
He will become eligible for parole on April 10, 2001. If King isn't paroled, he will complete his sentence on Oct. 9, 1002, assuming he gets credit for maximum good time. (SEE CORRECTION)
King's wife, Alice, 52, served two years for filing a false income- tax return. After her 1993 release, she stayed in the Dallas area, where she works as a teacher's aide. The couple's 17-year-old son, Prince, lives with her.
Mary Jane Harvey, 77, a retired Presbyterian Church staff member who helped King at the credit union, stole $700,000 to buy expensive dolls and to travel abroad. She served a 40-month prison sentence and has returned to Omaha, where she works as a church secretary.
Her son, E. Thomas Harvey Jr., 56, a quiet workaholic, was Franklin's almost-invisible chief accountant. His computer wizardry made King's theft of millions of dollars possible. Harvey stole $94,000 for himself.
Harvey, who served 44 months in prison, lives with his parents in Omaha and works as a recreational director at a retirement center. An accomplished musician, he sings with the Opera Omaha Chorus and recently led the orchestra for a Ralston Community Theatre operetta.
Five lower-level Franklin employees served short prison sentences, house arrests or did community service work.
In 1993, a new credit union replaced Franklin. It wasn't able to survive on its own and has merged with a larger credit union.
The sexual-abuse accusations began when the investigator hired by the Nebraska Legislature's special Franklin committee was contacted by Michael Casey in the fall of 1989, nearly a year after the credit union's financial collapse.
Casey told the investigator that Alisha Owen, who was serving a check-fraud term in the Nebraska Center for Women in York, was ready to talk about a child-abuse ring led by King.
Casey had a history of dishonesty. He falsified his credentials to get a job at Boys Town, which fired him in 1974. He once led two Los Angeles Times reporters on a wild-goose chase across the Far East in a fruitless search for kidnapped newspaper heiress Patty Hearst, who never was there. Many people who know Casey described him as a con man, the Franklin grand jury said.
Owen and Casey had been patients together at St. Joseph Mental Health Center in Omaha. While there, they concocted a tale of incredible proportions.
The investigator, Lincoln detective Gary Caradori, went to York and videotaped Owen's accusations. Owen said she had taken part in dozens of sexual free-for-alls at King's apartment suite in the Twin Towers building west of downtown Omaha.
She said she was forced to have sex with then-Omaha Police Chief Robert Wadman and others. Owen claimed that Wadman fathered her child. Blood tests eventually proved that Wadman wasn't the father.
Two street hustlers who were friends of Owen's backed up her story. The two, Troy Boner and Danny King, who is not related to Lawrence E. King, added their own lurid details.
A Douglas County grand jury was called to examine the accusations. Samuel Van Pelt, the grand jury's prosecutor, recalled recently that he began his work early in 1990 believing that there must be some truth to the accusations because of all the talk and rumors in Omaha and Lincoln.
The grand jury investigated accusations of a nationwide pedophile ring, rumors of satanic activity and the claims of sexual abuse of children. "The stories were inconsistent, and they didn't make sense," said Van Pelt, a former Lancaster County District Court judge who lives in semi-retirement in Hickman, Neb.
Two of the four accusers, Boner and King, backed away from their claims. They helped Owen, they said, because they had dreams of making fortunes through lawsuits, books and movies.
In July 1990, while the grand jury was completing its work, Caradori died along with his young son when his small plane crashed- landed in an Illinois field.
The Franklin grand jury indicted Owen for lying under oath, and a jury convicted her. Owen was described by a prosecutor as a pathological liar.
The grand jury described the fourth young accuser, Paul A. Bonacci, now 31, as "the most pathetic witness" to appear before the jury because of his multiple personalities. The grand jury indicted him but the charges were dismissed. (SEE CORRECTION)
Bonacci has finished a prison sentence for sexually abusing two young boys, unrelated to the Franklin case, has married and is living in Omaha.
Owen and the other accusers tossed in names of prominent men for all sorts of reasons, the grand jury said. Wadman was accused because of his high visibility after his firing as police chief became an issue in the recall of Mayor Mike Boyle.
Wadman was cleared by the Franklin grand jury, but he became the victim of an extremist group that sent people to Omaha to keep the Franklin story alive for its own fund-raising purposes.
The Lyndon LaRouche group pursued Wadman to his new job as police chief in Aurora, Ill., distributing literature accusing him of sexual abuse in Omaha. Wadman resigned under pressure as Aurora's police chief. He took the same job in Wilmington, N.C. The accusations followed him there too, and he quit.
In neither city, Wadman said, did he resign solely because of the Franklin accusations. But in both police departments, he said, he was an outsider trying to make changes and the suspicions made that impossible.
Today, he said, Franklin is only a bad memory and his life is going well.
Wadman, 57, completed a doctorate in political science and is assistant professor of criminal justice at Weber State University in Ogden, Utah. He does private consulting.
He and his wife recently celebrated their 36th wedding anniversary. One son is a doctor, another is a police officer and a third graduated from law school. Their daughter is a hospital marketing director.
"What enabled me to get through this was the strength of my family," he said.
Retired World-Herald Publisher Harold W. Andersen, a volunteer leader of an effort to win business support for Franklin in the years before the collapse, probably was accused because of resentment against the newspaper, the grand jury said. Casey, for example, resented the newspaper's stories that exposed his false credentials.
Douglas County District Court Judge Theodore Carlson's name was tossed in by Owen, who got the judge's name from a fellow prisoner at York who believed Carlson had given her too tough a sentence.
Pure chance drew in then-Omaha Mayor P.J. Morgan. Boner picked Morgan's picture at random from a group of photographs that Caradori showed him.
The only person accused of committing Franklin-related sexual crimes who served time in prison was Peter Citron, a former World- Herald columnist and WOWT-Channel 6 entertainment reporter.
Citron was sentenced for fondling two boys who lived in his neighborhood, incidents that had no link to the Franklin case. However, the Franklin sexual accusations focused attention on Citron and resulted in his arrest.
Citron, 58, has returned to his home in the south Happy Hollow area. He is too ill to work. He barely gets by, he said, with his income coming from Social Security disability, a small pension, rental of rooms to college students and donations from friends. He suffers from eosinophilia-myalgia syndrome, which causes fatigue, muscle and joint pain, depression and an inability to concentrate.
Alan Baer, a wealthy Omaha businessman, was accused because of rumors about his homosexuality. He was the only one other than Citron to pay any penalty as a result of the sexual-abuse accusations.
Baer was indicted on two charges of pandering - paying others to commit prostitution. He pleaded no contest to a reduced charge and paid a $500 fine. Baer's offense involved homosexual sex and two young adult men whose names never became linked to any Franklin accusation.
The passage of time, Van Pelt said, has vindicated what the Douglas County Franklin grand jury did. Nothing has emerged in the intervening years that disproves the grand jury's conclusions, he said.
Van Pelt said some people are fascinated by conspiracy theories and, thus, are slow to accept the truth that the tales of child sexual abuse at parties were a giant hoax.
"I wish Alisha would come forward and admit that she made it all up and why," Van Pelt said.
Owen, who declined a World-Herald request for an interview, was convicted of perjury in 1991. She remained free until her appeals were exhausted in 1996. She is at the Omaha
Correctional Center and attends daytime classes at the University of Nebraska at Omaha, where she is a history major.
Owen, now married, will be eligible for parole on Sept. 3, 2000. Taking into account "good time," she would complete her prison term three years later.
Van Pelt said he mainly blames former State Sen. John DeCamp for the spread of rumors.
DeCamp, a Lincoln lawyer, wrote a widely circulated memo in early 1990 saying there was talk of five men being involved in drug and sexual abuse. He named the five: King, Baer, Citron, Wadman and Andersen.
The grand jury said: "It is our opinion that DeCamp issued his memorandum simply for personal political gain and possible revenge for past actions alleged against him."
In 1991, DeCamp filed a lawsuit on behalf of Bonacci against 16 defendants, accusing them of abusing Bonacci sexually and in other ways. U.S. District Judge Warren Urbom called Bonacci's allegations unsubstantiated and bizarre. Fifteen of the 16 have been cleared.
King, the only remaining defendant, isn't represented by a lawyer and hasn't filed any response.
DeCamp has not backed down. He said last week that he has sold some 66,000 copies of his self-published book, "The Franklin Cover- Up." The book contends that powerful forces in business, government and the media in Nebraska conspired to cover up what Alisha Owen and others alleged.
"Evidence developed from Franklin and King's activities leads into drug-trafficking, money-laundering, pornography, child prostitution and the kidnapping and sale of children in different parts of the United States and abroad," DeCamp wrote.
Van Pelt disagreed, saying that DeCamp "is very good at taking a half-truth here and a half-truth there and weaving them into a story that people believe."
The Legislature's Franklin committee, from which the sexual-abuse accusations emerged, completed its work and went out of existence. Throughout the committee's investigation,
Chairman Loran Schmit of Bellwood contended that Owen and the other accusers were believable.
Schmit, defeated for re-election in 1992 after 23 years as a state senator, declined last week to discuss the Franklin legislative committee's work. "I did what I thought was right at the time," he said.
Davis, the Omaha lawyer, said he is confident that Omahans will be more skeptical the next time they hear wild gossip.
"I think we learned an important lesson."
Key Players in The Franklin Case
Embezzler: Franklin manager Lawrence E. King Jr. will complete his federal prison term next summer.
Main Accuser: Alisha Owen is serving a prison sentence for lying under oath and is taking university classes.
Prosecutor: Samuel Van Pelt says time has vindicated the Franklin grand jury's decision that accusations of child sexual abuse were a hoax.
Cleared: Former Omaha Police Chief Robert Wadman, now a teacher at a Utah University, has been dogged by suspicions, but has moved beyond that.
Wrote Memo: Lincoln lawyer John De Camp, criticized by the Franklin grand jury for writing an accusation-spreading memo, wrote a book alleging a cover-up.
Wife Convicted: Lawrence King's wife, Alice, has been released from prison and is working in the Dallas area.
King's Helper: Mary Jane Harvey served her prison sentence and is back in Omaha working as church secretary.
Franklin's Accountant: E. Thomas Harvey Jr., after finishing his prison sentence, is working in Omaha and is singing in a chorus.
Headed Committee: Former State Senator Loran Schmit, who said the sexua-abuse accusers were believable, lost his re-election bid.
Nov. 4, 1988: Federal officials close Franklin Community Federal Credit Union in north Omaha. Assertions that the credit union had engaged in unsafe and unsound practices come as "a complete surprise," says Lawrence E. King Jr., Franklin's top officer.
Dec. 23: Accountants say Franklin had not been audited in more than four years. Two private accountants say they were delayed repeatedly by Franklin's chief accountant, E. Thomas Harvey Jr.
Jan. 11, 1989: The Nebraska Legislature forms a special committee to investigate the Franklin failure. State Sen. Loran Schmit of Bellwood is named chairman.
May 19: A federal grand jury charges King with 40 felony counts accusing him of crimes stemming from Franklin's failure. King's wife, Alice, is indicted on 12 charges.
June 3: A financial consultant tells a U.S. House of Representatives banking oversight subcommittee meeting in Omaha that $39 million missing from Franklin almost certainly was all spent.
June 13: Mary Jane Harvey of Omaha, a retired Presbyterian Church staff member who had close ties with Lawrence King, pleads guilty to embezzling and evading federal income taxes, as does her son, E. Thomas Harvey Jr., the Franklin chief accountant.
Dec. 19: Schmit, head of the Legislature's Franklin committee, says his committee has 21 hours of videotaped testimony from three young adults who had told committee investigator Gary Caradori that they had seen and experienced sexual and physical abuse as minors.
Jan. 30, 1990: Nebraska Attorney General Robert Spire asks Douglas County to convene a grand jury to determine whether allegations of child sexual abuse have any basis. He says he is concerned that names of alleged perpetrators are becoming public.
March 19: The Douglas County Franklin Grand Jury begins its investigation.
July 11: A small plane piloted by Caradori, the Franklin legislative committee investigator, and carrying his 8-year-old son, crashes into an Illinois cornfield in dark, rainy weather, killing both. Caradori family members and Schmit say they suspect sabotage. A federal investigation later rules out sabotage.
July 23: The Douglas County Franklin grand jury issues a report calling the allegations of child sexual abuse "a carefully crafted hoax." Alisha Owen is indicted on charges of lying under oath when she accused prominent men of sexual abuse.
Sept. 28: A federal Franklin grand jury agrees with the county grand jury that the sexual-abuse accusations are unfounded.
Oct. 24: Genetic testing shows that Omaha Police Chief Robert Wadman did not father Owen's 5-year-old daughter, as she had claimed.
Feb. 11, 1991: King pleads guilty to conspiracy, embezzlement and making false entries on the books of a federally insured institution. His wife pleads guilty to filing a false federal income tax return.
June 21: A Douglas County District Court jury convicts Owen of all eight perjury charges against her.
July 7, 1992: In its final report, the Legislature's Franklin committee criticizes the Douglas County grand jury's conclusion that child sexual abuse allegations were a hoax. The committee says it is uncertain who was telling the truth among the four accusers. Two stuck to their original stories and two recanted.
April 14, 1994: In the largest settlement of a Franklin lawsuit, the National Credit Union Administration accepts $6 million from the Omaha law firm of Erickson & Sederstrom and its insurance carriers. The NCUA, which paid insured losses after Franklin failed, contended that the law firm represented both King and Franklin and thus, had a conflict of interest.