Don't 'Crack,' King Reportedly Urged 7 Charged in Franklin Case - May 20, 1989 - Omaha World-Herald
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May 20, 1989 Don't 'Crack,' King Reportedly Urged 7 Charged in Franklin Case; [Sunrise Edition] David Thompson Paul Goodsell. Omaha World - Herald. Omaha, Neb. pg. 1
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(Copyright 1989 Omaha World-Herald Company)
Two days after federal investigators raided and closed the Franklin Community Federal Credit Union, Lawrence E. King Jr. allegedly told the credit union's accounting director, "As long as nobody cracks, we will get out of this thing."
King, treasurer and manager of Franklin, asked accounting manager E. Thomas Harvey Jr. to "not get scared and crack."
The conversation took place Nov. 6 at King's home, 13232 North River Road, according to a a federal grand jury indictment that accused King of 40 counts of fraud and tax violations.
Instead, Harvey and his mother, Mary Jane Harvey, cooperated with investigators looking into the disappearance of $38.9 million from Franklin, U.S. Attorney Ronald Lahners said Friday.
Unlike King and his wife, Alice, who were led handcuffed into the Zorinsky Federal Building Friday, the Harveys will be allowed to appear in court later to plead guilty to fraud and tax evasion charges, Lahners said.
King, 44, was accused of conspiracy, mail fraud, wire fraud, bank fraud, credit union embezzlement, making false entries in credit union records and filing false tax returns.
Alice Ploche King, 42, was indicted on 10 counts of wire fraud and two counts of bank fraud.
The Kings were arrested at their catering business at 2021 Wirt St., Lahners said.
Harvey, 46, and Mrs. Harvey, 68, were accused of embezzling about $1 million from Franklin since October 1984.
Three men who worked as development officers, soliciting certificates of deposit for the credit union, were indicted on federal income tax charges: Noel Seltzer, 37, of 3806 Patterson St.; Robert Morley, 35, of Ashland, Neb.; and Larry J. Murray, 39, of 4001 N. 42nd St.
They are accused of failing to report on their income tax returns the commissions that they received from the sale of CDs.
Seltzer and Morley were arrested by FBI and Internal Revenue Service agents early Friday afternoon.
At the time of his arrest, Seltzer was being interviewed by Jerry Lowe, a special investigator hired by a Nebraska Legislature committee investigating Franklin irregularities.
Morley was arrested at his liquor store business in Bellevue. Morley also was indicted on one count of perjury.
He is accused of telling the grand jury Nov. 14 that he averaged $6,000 a year in commissions when he actually had received $65,314 in 1987 and $206,383 in 1988.
Lawyers to Be Appointed
The Kings, Seltzer and Morley appeared before U.S. Magistrate Richard G. Kopf late in the afternoon and were released on their own recognizance without posting bail.
Seltzer, accompanied by his attorney, Donald Fiedler, pleaded not guilty. The Kings and Morley will be arraigned Tuesday on the criminal charges.
Kopf said he would appoint attorneys to represent the Kings, who said in sworn statements that they could not afford a lawyer. Attorneys Steven Achelpohl and Marilyn Abbott will represent King, and attorney Jerold Fennell will represent Mrs. King, said Kopf.
The Kings, accompanied by a deputy U.S. marshal, were led out a side door of the magistrate's courtroom after their appearance.
Both told a reporter that they would not comment. Indictment's Account
The indictment against King painted this picture of the alleged scheme:
Harvey and King worked together from 1976 until Franklin folded last Nov. 4 to manipulate the credit union's accounts.
Shortly after Harvey became accounting director in 1976, he noticed that some of King's personal expenses were being paid from an inactive account belonging to a local religious organization.
King told Harvey that it was a temporary situation and that the funds would be returned.
Harvey noticed, however, that other accounts were being handled the same way. Then, when Franklin switched from a manual accounting system to a magnetic posting machine, King told Harvey to keep certain accounts off the machine so that Harvey could keep better track of the shortages and pay King's bills.
About $400,000 was missing from those accounts by the end of 1976.
After Harvey discovered King's manipulation of the accounts, Harvey began to pay some of his own bills from the accounts.
At one point, as an examination by the National Credit Union Administration loomed, King and Harvey met after business hours. Harvey prepared fictitious ledger cards and King "would rub them on the carpet in his his office in order to give them some 'age' in order to deceive NCUA examiners."
When credit unions became authorized to sell CDs in 1978, "King's appetite for personal funding increased and the shortages escalated."
King told Harvey that he anticipated grants from charitable organizations would cover the shortages.
Eventually, however, both King and Harvey realized that no amount of grants would cover the shortage.
"Consequently, the manipulation of the books and records of (Franklin) became a permanent situation."
Development officers were hired to market and sell CDs at above-market interest rates.
Harvey maintained separate computer records and manipulated them to deceive NCUA examiners.
Meanwhile, depositors received regular account statements that were accurate.
The King family spent $10,223,217 in Franklin money from 1984 to November 1988. Another $1,901,653 went to subsidize King businesses.
To keep Franklin and its affiliate, Consumer Services Organization, afloat, King and Harvey diverted $9,086,058 for salaries and operating expenses.
Another $2,148,217 went for other expenses and individuals, and $2,877,420 has not yet been accounted for.
Before 1984, they diverted $3,620,010.
From the start of the alleged scheme until the credit union collapsed, King and Harvey paid $8,999,766 in redemption and interest to depositors.
Clothes, Jewelry, Travel
When Lahners announced the indictments Friday, he placed the loss at $41.8 million. A breakdown of figures he provided included $2.94 million in assets that the NCUA has seized.
The indictment said King used some of Franklin's money "for expenses of some of his male friends, including but not limited to automobile leases, apartment rents, clothing, jewelry, furniture and travel expenses.
King also gave those friends cash or credits at Franklin, while Harvey transferred Franklin funds into his mother's checking account, the indictment said.
Sometimes, it said, King and Harvey ran short of Franklin money to cover their expenses, prompting a number of check-kiting and fraudulent schemes.
In November 1985, five people allegedly were solicited to write personal checks totaling $235,000 on their own checking accounts payable to Franklin or King businesses - even though they did not have enough money in their accounts to cover the checks.
Franklin then deposited the checks into Franklin's account at Omaha National Bank, now FirsTier Bank. Meanwhile, checks from Franklin - not backed by actual deposits - were given to the five people, some of them employees of King or the credit union, to cover the ones they had written.
The scheme allowed Franklin to use Omaha National's money during the "float period" before all the checks cleared, said the indictment. By then, Franklin had attracted other deposits that could be used to keep the credit union solvent.
In July 1988, the Kings allegedly used a different scheme to help Franklin stay afloat. They wrote a $100,000 check on their account at Adams National Bank in Washington, D.C., and deposited it in FirsTier.
The indictment alleged that the Kings knew the check would bounce, but that the plan allowed Franklin to temporarily boost its bank balance with FirsTier.
'Take the Fall'
But even as King and Harvey struggled to keep the scheme going, federal investigators were closing in.
When Harvey received a subpoena for Franklin's records, just days before Franklin was shut down, King told Harvey he should offer $100,000 to a person "to take the fall" for the record irregularities, according to the indictment.
The indictment did not name the person Harvey was to solicit nor did it say whether Harvey approached the person.
Lahners said the investigation began when information about a civil audit of the Kings' personal income taxes was relayed to criminal investigators.
Later the investigation was expanded and the FBI and NCUA joined the IRS, he said.
The probe included more than 400 interviews of witnesses nationally and in Jamaica, where relatives of Mrs. King live, Lahners said. An extensive reconstruction of Franklin's books over a 12-year period was done.
"No previous federal investigation in this district involved more hours of investigative time and effort within this relatively short period of time than this case, with the possible exception of the (John) Joubert kidnapping-homicide case several years ago," Lahners said.
IRS agent Joseph Brazier, left, King and FBI agent Michael McCreery enter Zorinsky Federal Building . . . King was released on his own recognizance.
FBI agent Liz Tatum, left, Mrs. King and an IRS agent walk to hearing room . . . Mrs. King was indicted on 10 counts of wire fraud and two counts of bank fraud.[Illustration]
Mel Evans/World-Herald - Credit: World-Herald Staff Writers