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A Lurid, Mysterious Scandal Begins Taking Shape in Omaha- Dec 18, 1988 - New York Times

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Dec 18, 1988 A Lurid, Mysterious Scandal Begins Taking Shape in Omaha - The New York Times Sunday, Late City Final Edition

For several weeks a Federal investigation has riveted attention here on a failed local credit union formed to help the poor, on $38 million that it is missing and on its manager, a nationally active Republican politician whom the Government accuses of embezzling at least some of the funds.

Now the inquiry, joined by state investigations, is widening and has begun to take on the stark trappings of lurid melodrama.

The collapse of the credit union and the Government's lawsuit alleging embezzlement were the extent of the case, at least on the public record, until last Monday. Then rumors that had been circulating in Omaha for much of the last month made their way into remarks presented to the Executive Board of the State Legislature in Lincoln. The speaker was State Senator Ernie Chambers of Omaha, who said he had received numerous reports, to which he clearly gave credence, that instances of child sexual and physical abuse were linked to the scandal.

Mr. Chambers did not describe the nature of that linkage and has consistently declined to identify the sources of the reports, going only so far as to tell The Omaha World-Herald that they were people ''I consider credible.'' But participants in a closed meeting that followed the Executive Board's public session say he told of boys and girls, some of them from foster homes, who had been transported around the country by airplane to provide sexual favors, for which they were rewarded.

Three Related Inquiries

The Executive Board, which acts for the full Legislature in periods of adjournment, had been called into session to organize a committee that would investigate only the credit union's collapse. But by the end of the day Monday, the committee, with Mr. Chambers as vice chairman, had been given a mandate to look into the broader case as well.

Then the Omaha office of the Federal Bureau of Investigation acknowledged that it had independently received reports of sexual abuse and that they were a subject of its own criminal inquiry into the credit union affair. And the office of the Nebraska Attorney General said it had directed the state police also to investigate the reports.

If sensation has begun to characterize the case, so has mystery. The various investigators, their efforts barely begun, decline to speak of them in detail. Mr. Chambers himself says he wants to disclose just enough to encourage those with information on the affair to give testimony before the legislative committee.

As a result, there are these large gaps in public knowledge about the case, among others:

* If child prostitution was involved, how vast was it?

* If foster homes were involved, which ones?

* Nick O'Hara, special agent in charge of the F.B.I.'s Omaha office, says his investigation centers also on money-laundering, but he will not elaborate.

* State Senator Loran Schmit, chairman of the legislative committee, says ''a responsible law-enforcement person'' has told him ''that drugs were involved,'' but the Senator declines to say in what way.

* In the Executive Board's public session Monday, Mr. Chambers said the activities of Lawrence E. King Jr., the credit union's manager for the last 18 years and the central figure in its collapse, were ''just the tip of an iceberg, and he's not in it by himself.'' But Mr. Chambers added nothing that would shed light on his cryptic assertion.

The Defendant's Denial

None of the investigators have declared that Mr. King personally recruited or abused young people, although the inquiries are clearly aimed in part at determining whether children were transported or paid with any of the money that the Government's suit accuses him of diverting from the Franklin Community Federal Credit Union.

The suit was brought last month in Federal District Court here, where Mr. King has filed a motion denying all the allegations of embezzlement.

Mr. King's lawyer, William Morrow, has declined to make him available for press interviews. But Mr. Morrow said his client contended that personal payments and contributions of more than $4 million that Mr. King made this year and last, all of them itemized by the Government in documents that it filed with its suit, had come from his own accounts at the credit union. Records to support that contention are not available, Mr. Morrow said, because all the credit union's papers have been seized by Federal agents.

As for the inquiries into sexual abuse, Mr. Morrow noted a World-Herald article Tuesday in which Mr. O'Hara, the F.B.I. agent, was quoted as saying, ''We are looking for credible witnesses.''

''I think,'' said Mr. Morrow, ''that he is saying the F.B.I. has no credible evidence.''

A Flamboyant Figure

Mr. King is a 44-year-old Omaha resident who wholly or partly owns several small businesses here and lives with his wife and school-age son in a large house in one of the city's better neighborhoods. He is a tall, expansive figure well known for his costly style of dressing, lavish celebrations and extensive travel, sometimes in chartered jets and often with an entourage of young men.

In 1972 he headed a national political organization, Black Democrats for George McGovern. But he gained greater prominence after he had switched parties a while later, serving for a time as vice chairman of the National Black Republican Council, an official affiliate of the Republican Party, and becoming a familiar figure on the Republican social scene.

Mr. King has maintained a $5,000-a-month residence off Embassy Row in Washington and has also entertained generously at Republican National Conventions. At the 1984 gathering, in Dallas, where he sang the national anthem on the convention floor, he rented the ranch where the television series ''Dallas'' is filmed and organized a party there for black Republicans. And at this year's convention, in New Orleans, an organization he heads, the Council on Minority Americans, held another spectacular celebration, this one in a building where stored paraphernalia of the Mardi Gras provided a dramatic backdrop.

Dismay in Omaha

Mr. King's trouble with the authorities came to the surface early last month when officials of the Government's National Credit Union Administration, acting on information from the F.B.I. and the Internal Revenue Service, arrived at the offices of the Franklin Community Federal Credit Union and shut it down. Then, on Nov. 14, the agency, which oversees the nation's federally chartered credit unions and insures their deposits, filed the Government suit against Mr. King, whose salary as Franklin Community's manager had been less than $17,000 a year.

The development spread shock among the city's business and political leaders. Some of them, including Mayor Walt Calinger, had been devoted supporters of the credit union, in the belief that by helping to attract deposits there they were providing a source of funds for the poor north Omaha area that Franklin Community had been created to serve.

The suit said Government investigators had been able to find Franklin Community assets totaling only $2.5 million. It put the amount of missing money at $34 million, a figure that the National Credit Union Administration has since revised upward, to about $38 million. Most of the missing funds, the suit said, are reflected in Franklin Community records showing that at least $35 million in certificates of deposit sold by the credit union are outstanding as liabilities, including more than $33 million recorded in ''a second and secret set of books.''

Documents filed with the suit itemize large payments that the Government says Mr. King made with money from Franklin Community accounts. Among them were more than $1 million to American Express for credit card charges; $148,000 to limousine services in Omaha, New Orleans and the New York City area; $120,000 for car leases; nearly $60,000 to jewelry stores; $55,000 in rent for his Washington home; $45,000 to a charter-plane service, and various sums in donations to charitable and political organizations, including $25,000 to Citizens for America, a group of conservative lobbyists, and $18,000 to the Human Rights Campaign Fund, a political action committee for homosexuals that focuses chiefly on AIDS-related issues.

In all, the listed payments, for periods of the last two years that totaled 13 months, amounted to $4.6 million. Where did the rest of the missing $38 million go? ''It's been a massive operation reconstructing the whole thing,'' said J. Leonard Stiles, regional director of the credit union agency, ''and a lot of things still remain a mystery to us.''

GRAPHIC: Photo of Lawrence E. King Jr., manager of the Franklin Community Federal Credit Union (NYT/Terrence McCarthy)


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