Lawsuit: King Diverted Millions From Franklin - Nov 15, 1988 - Omaha World-Herald
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Nov 15, 1988 Lawsuit: King Diverted Millions From Franklin; [Sunrise Edition] David Thompson Paul Goodsell. Omaha World - Herald. Omaha, Neb. pg. 1
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(Copyright 1988 Omaha World-Herald Company)
A federal agency alleged Monday in a $4 million lawsuit against Omaha businessman Lawrence E. King Jr. that he diverted money from the Franklin Community Federal Credit Union, which he headed, for his personal use and for use in his businesses.
The civil lawsuit, filed in U.S. District Court in Omaha by the National Credit Union Administration, asks a federal judge to freeze King's assets and to appoint a receiver to take control of them.
King's attorney, William Morrow, said his client will contest the allegations.
"The existence of those records, if they do exist, is one thing," Morrow said. "Tying those to Mr. King and making him responsible is quite another."
Morrow said King keeps his money in the credit union and pays his bills from his own account.
"Mr. King will deny that any Franklin funds were used to pay his personal expenses," he said.
The National Credit Union Administration seized control of Franklin Nov. 4. The board decided last week that Franklin was insolvent and should be liquidated.
Monday's lawsuit contends that King is liable for at least $4,183,053 in damages - mainly for certificates of deposit issued by Franklin and not recorded on the credit union's books.
"A second and secret set of computer records was maintained, and that record demonstrates that such unrecorded certificates totaling at least $3,283,053 are now outstanding," the lawsuit alleges.
Some of the deposited money was used to pay for interest and redemption of earlier unrecorded certificates, the lawsuit alleges.
The lawsuit also alleges that some of Franklin's funds were diverted to:
- Pay personal expenses for King and his family. From June through December 1987 and April through October 1988, those expenses totaled $,739,845, the lawsuit says.
- Pay expenses for corporations and other businesses owned or managed by King. Those payments totaled $31,530 during the same 13-month period, the lawsuit says.
- Give money to people or entities on King's behalf. The payments, directed by King, totalled $,200,985 during the 13 months, the lawsuit says.
King, 44, has managed Franklin since July 1970. He has been praised by community leaders for saving the credit union from near-collapse and building it into a $.5 million institution.
The credit union accepts deposits and makes loans to mainly low-income residents in both north and South Omaha. The credit union's affiliate, Consumer Services Organization Inc., provides financial counseling and educational programs.
King also operates a catering service, the Cafe Carnavale and Akasaka restaurants and the Showcase Lounge. An active Republican and an accomplished singer, King sang the national anthem at the 1984 Republican National Convention in Dallas.
At the credit union, the lawsuit alleges, King "was in control of virtually all aspects of its business and operations, including the hiring, firing and supervision of all personnel, the recommendation of members of the board of directors, and the recommendation of outside consultants and professionals."
Franklin advertised its certificates of deposit at "above-market rates" and sold them, yet did not record them on credit union books or financial statements, the lawsuit alleges.
As of Sept. 30, 1988, the credit union listed assets of $.5 million, liabilities of about $0,000 and deposits of about $ million, compared with "at least $5 million in purported certificates" that federal regulators believe are outstanding, the lawsuit says.
J. Leonard Skiles, regional director for the national credit union agency, said in an interview that the unrecorded certificates were found after investigators seized computers and other records.
Besides finding a computer listing of the unrecorded certificates, Skiles said, investigators also have located copies of the actual certificates.
So far, depositors have brought in their copies of more than $5 million in unrecorded certificates, Skiles said.
Morrow, King's attorney, said it is difficult for him to imagine that Franklin, a small credit union, could have attracted that much money.
"I don't know what they're basing their allegations on," he said. "These are just charges made. Just because they write them down doesn't make them true."
Even if there are unrecorded certificates, Morrow said, King was not aware of the problem and did not use the money for his personal or business expenses.
The lawsuit contains handwritten lists of payments allegedly made on King's behalf for personal or business purposes. The alleged payments include:
- $,033,875 for American Express bills.
- $48,375 to Old Market Limousine.
- $5,743 to General Motors Acceptance Corp.
- $0,475 to Floral Concepts.
- $1,079 to Mastercard.
- $5,460 to Janousek Florists.
- $4,801 to Davidson's Furniture Showcase.
- $2,342 to the Omaha Club.
- $9,498 to Citibank.
- $7,730 to Lawrence King.
- $9,512 to Borsheim's.
- $7,000 to Omaha Jewelry.
- $6,069 to the Omaha Press Club.
The lists also include payments allegedly made to pay payroll taxes and pension contributions.'Astronomical'
Morrow said he cannot tell whether the lists reflect payments actually made by King, noting that the writing is "only semi-legible."
"Some of the numbers are what would appear to be astronomical," he said.
Morrow questioned whether an American Express bill could be as large as listed in the lawsuit.
"My credit cards aren't that good," he said.
In any case, he said, the lawsuit does not "explain what account at the credit union those checks were charged against."
If the money came from King's personal account and not Franklin's funds, Morrow said, the federal authorities have no case against King.
Misconduct Financial ReportCredit: World-Herald Staff Writers