Washington Post: Omaha's Hurricane of Scandal - Apr 4, 1990 - Omaha World-Herald
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Apr 4, 1990 Washington Post: Omaha's Hurricane of Scandal; [Sunrise Edition]
Rick Atkinson. Omaha World - Herald. Omaha, Neb. pg. 15
Full Text (2833 words)
(Copyright 1990 Omaha World-Herald Company)
EDITOR'S NOTE: Several major newspapers and television programs have recently done stories about the Franklin Community Federal Credit Union. The following story ran last Sunday in the Washington Post. It is reprinted here in its entirety. Although The World-Herald has essentially reported the facts in the account below, it is being run as a service to readers who might like to see how other newspapers are covering the story.
Lawrence E. King Jr., everyone now agrees, had a remarkable knack for stretching a dollar.
On a salary of $16,200 a year, the credit union manager drove a $70,000 white Mercedes - and still could afford to spend $10,000 a month on limousines. His credit card charges topped $1 million, he owned a four-story house on 26 acres overlooking the Missouri River, and his floral bill alone came to $146,000 during a fragrant, 13-month period in 1987-88.
A former McGovern Democrat who converted to the GOP, King threw a $100,000 party for 1,000 close friends at the Republican National Convention in New Orleans two years ago, leasing a warehouse used to store Mardi Gras floats.
Four years earlier, before singing "The Star-Spangled Banner" at the Republican convention in Texas, he hosted a similar bash by renting Southfork, the ranch used to film "Dallas."
When visiting Los Angeles, King preferred a two-story suite at the Beverly Wilshire Hotel.
In Washington, he paid $5,000 a month to occupy a palazzo on California Street, next to the Venezuelan Embassy.
A federal jury this summer was scheduled to decide whether King, 45, was guilty as charged of looting $38 million from the Franklin Community Federal Credit Union in a predominantly black neighborhood of north Omaha.
But Friday a federal magistrate here said King is mentally incompetent to stand trial now and should be hospitalized for what a psychiatrist has called "probable delusional paranoid disorder-grandiose type."
Yet it isn't Larry King's finances that have Nebraska in a Great Plains pother. Last week, a county grand jury, under the direction of a special prosecutor, began sifting through allegations tying King to a child prostitution and exploitation ring that reputedly catered to some of Omaha's most respected burghers.
Those implicated - in this city's venomous rumor mill if nowhere else - include businessmen, media personalities, lawmen and educators. "We've got a firestorm of suspicion and rumors of hurricane force," said James Martin Davis, a former Secret Service agent who is now an attorney here. "And if it doesn't stop, Omaha is going to gossip itself to death."
40 Charges Filed
Moreover, King's high profile in the GOP has "got the Republican Party here as nervous as a long-tailed cat in a roomful of rocking chairs," added former State Sen. John DeCamp, a Republican.
King has pleaded not guilty to 40 counts of embezzlement and fraud. The sexual allegations, which he has denounced as "garbage," are based on murky and still unverified reports from half a dozen young people who reportedly have described being auctioned like love slaves, flown to the coasts for wild parties, or plied with drugs and alcohol as part of a bisexual bacchanal.
According to a story in Thursday's Lincoln Journal, two of the witnesses recently "failed" lie detector tests administered by the FBI.
"I don't know if the witnesses are telling the whole truth or part of the truth, but they appear credible to me," State Sen. Loran Schmit, chairman of the legislative committee appointed to investigate the scandal, said in a recent interview. "I'd rather cut my arm off than find that these allegations are all true, not just because of the alleged perpetrators, but because if true, there has been a series of heinous crimes against children here for a long time."
The recriminations are bitter, brutal and apparently bottomless. "The whole damned shebang of investigative agencies were lax in pursuing this," Schmit charged. That "shebang," including the Omaha police, FBI and state attorney general, contends that investigations were thorough and failed to turn up sufficient corroboration of sex crimes.
The local media have been upbraided for being either too timid or recklessly irresponsible. Others in Omaha have been accused of McCarthyism or, conversely, abetting a cover-up.
"We're a very populist state - ordinary, decent, solid individuals who, in our own minds, are classless," Davis said. "But an ugly flame has been lit to set Nebraska ablaze on that prairie of populism in that these child exploitation accusations seem to focus on bigwigs. And populists by nature are against bigwigs.
"This is an opportunity for people with old scores to settle: They mention an enemy's name two or three times and suddenly it's all over town. People want to believe it. . . . We have people's reputations being assassinated in the shadows without them even knowing it."
Larry King was a self-made bigwig. Son of a meatpacker, he claimed to have been offered a job singing for New York's Metropolitan Opera in the 1960s but preferred to make his way in the business world. After training in a bank, he took charge of Franklin Community in 1970, two years after the credit union was founded to provide consumer loans and other financial services in Omaha's minority neighborhoods. For 20 years, Franklin remained, as King later put it, "my baby."
Glib and energetic, King "preached a bootstrap philosophy with much appeal among the business and civic elite here," as a profile in the Wall Street Journal once put it.
He persuaded charities and other non-profit organizations to deposit funds at Franklin as a means of boosting the city's blacks. One of his biggest supporters was Harold W. Andersen, former publisher of The Omaha World-Herald, who helped underwrite the remodeling of Franklin's main office on North 33rd Street and even plugged the credit union in a television commercial.
'Man of Integrity'
King also had friends in Washington. When the National Credit Union Administration (NCUA) warned that Franklin was financially shaky 10 years ago, several Nebraska members of Congress fired off letters of support to the federal agency.
The late Sen. Edward Zorinsky, D-Neb., in a note obtained by The World-Herald, even hailed King as "a young man of integrity and one who has rendered great service to the total community."
But according to the federal indictment and an NCUA lawsuit, King was rendering his greatest service to King. In 1976, Franklin's chief accountant, E. Thomas Harvey Jr., discovered that credit union funds were being used to pay some of King's personal expenses.
Not to be outdone, Harvey began paying his own bills with Franklin money. He and King covered their tracks by drafting phony ledger cards at night, the indictment alleges.
To fool federal examiners, King rubbed the cards on his office carpet to make them look older. By the end of the year, the credit union was short $`400,000. (Harvey and his mother, Mary Jane, subsequently pleaded guilty to embezzling $1 million and are cooperating with authorities. King, through his attorney, declined to be interviewed.)
By the early 1980s, King allegedly had latched onto the same scheme that made multimillionaires of so many high rollers in the savings and loan industry. He set up a "boiler room" at Franklin, where salesmen peddled certificates of deposit at unusually high interest rates. As the money rolled in, more and more deposits were needed to pay interest on the deposits and underwrite King's lavish lifestyle.
No Audit in 4 Years
U.S. government insurance guaranteed Franklin's accounts, but federal scrutiny was less than rigorous. When Franklin eventually went belly up in November 1988, the books had not been audited in four years.
The proximate cause of that failure, according to a report submitted to a congressional subcommittee, was "unbridled consumption."
Even the boiler room had trouble keeping pace with King's extravagance. NCUA records showed that he spent $1,500 a month just to have his swimming pool serviced.
When King threw a birthday party for his wife, Alice, according to one press account, he flew in a band from Las Vegas, ordered an eight-tier carrot cake, and gave her a diamond pin shaped like a cockroach.
In Washington, King often shopped at pricey Larimer's Market. Flamboyantly dressed, knuckles encrusted with large rings, he wandered through the gourmet grocery with his chauffeur, scooping up champagne, caviar, steaks, roasts, "whatever struck his fancy," Andrew Zimmerman, the store owner, recalled last week. "He definitely was not feeding a small-size family. This was party material."
King liked to share the wealth, particularly with his young male friends. For example, according to The World-Herald, he reportedly gave a $2,800 deerskin coat and 18-karat gold bracelet to 29-year-old Charlie Rogers, who later blew his own brains out with a shotgun.
Another young man told the newspa*END COL 1** per that King "wanted to own you - a sugar daddy thing. Over two years he bought me $2,500 in clothes and $23,000 in furniture."
A third man recounted flying with King to Los Angeles to buy a $23,000 crystal chandelier for King's house.
King has denounced the comments as "outlandish lies" uttered by "scum."
King once served as business committee chairman of the National Black Republican Council, an organization with official ties to the party.
Federal Election Commission records show that he donated more than $30,000 to various political causes in the 1980s, including $2,500 to the Republican National Committee, $15,000 to a gay rights political action committee and, in 1987, $1,000 to Jack Kemp, plus another $5,000 to a Kemp PAC. "He was in fact a contributor, but one of thousands," a spokesman for Kemp said Thursday. "They met at a fund-raiser, but King was not a personal friend."
Whether Omahans should have been alerted by King's conspicuous spending remains hotly disputed. "I didn't know King from a bale of hay, and I was suspicious," said DeCamp, the former state senator who attended both the New Orleans and Dallas convention parties. "For the people who knew him intimately, the signs of his lavish lifestyle should have screamed out that something was wrong."
But G. Woodson Howe, editor of The World-Herald, replied, "If I were still a reporter, I would find it offensive if somebody said, 'Hey, there's a black man driving a Mercedes. Why don't you find out why?' "
To the curious, King suggested that the riches came from his wife's wealthy family in Jamaica. "In fact," the federal indictment declares, "no substantial gifts or inheritances from relatives existed." At 1 p.m. on Nov. 4, 1988, federal agents and Omaha police - initially alerted by an audit of King's personal taxes - swept into Franklin Community and closed the place.
The investigators soon concluded that since 1984, King and his family had taken $10 million and that $2 million had gone to prop up King's various businesses. About $9 million in interest was paid to depositors and another $9 million was spent in running Franklin.
The NCUA regional administrator, who had presumed that Franklin was a $2 million institution, acknowledged suffering a bad case of "heartburn."
King complained of "out-and-out racism."
But the heartburn was just beginning. In June 1988, a social worker at a mental hospital in Omaha had reported allegations of possible child abuse to the Nebraska Foster Care Review Board, an agency that monitors the placement of several thousand children in the state.
The board subsequently asked Omaha police and the state attorney general to investigate possible "child exploitation," a "child prostitution ring" and "inappropriate activities by Larry King." One teen-age girl, according to a published account, "said that she had sat naked at parties and that men engaged in sexual activity, although penetration was not allowed."
Another girl told of witnessing a murder. In December 1988, a month after Franklin was closed, a state senator first made public the child abuse allegations.
Yet the lawmen who were investigating "did nothing," despite the fact that one witness passed four polygraph tests, Dennis Carlson, former vice chairman of the board and now an official with the Nebraska State Bar Association, complained in a recent interview in Lincoln.
Not so, the lawmen replied. The attorney general's office told of putting "hundreds and hundreds" of hours into investigating the charges without finding sufficient corroboration.
Former Omaha Police chief Robert Wadman said he could find "no substance" to the allegations. An FBI agent told The Omaha World-Herald in February 1989: "At this point, I'm satisfied there is no substance to the allegations as far as federal criminal statutes go."
There matters remained for months. The issues were complex: Had Nebraska law - which places the age of sexual consent at 16 - been violated? Had the five-year statute of limitations for sexual assault expired? Were there airplane ticket receipts or other documents that could corroborate charges that minors had been transported across state lines for purposes of prostitution, a federal crime? Was any of this even remotely true?
In late 1988, the State Legislature had entered the act by appointing an investigative committee headed by Sen. Loran Schmit. By a 4-3 vote, the committee rejected Schmit's choice of counsel - former CIA director William E. Colby - in favor of Lincoln lawyer Kirk E. Naylor Jr., who tried to untangle both the financial and sexual accusations linked to Franklin and King.
"Credibility was always a big concern," Naylor said in an interview last month. "It was difficult to tell whether some of these kids were playing upon the neighborhood and statewide hysteria, or were really telling the truth."
Last summer, after six months of work, the committee ruptured in dissension over how to properly pursue the case. Naylor, his investigator and two state senators resigned.
New Counsel Named
A new counsel and investigator were appointed and, in December, produced 21 hours of videotaped testimony from three new witnesses, all in their early twenties, who said that, as minors, they had been victims of physical and sexual abuse. They reportedly described lurid sex parties - and named two dozen people who had either committed abuses or at least attended these parties.
In December, the tapes were shown to the Highway Patrol, attorney general's office, FBI and Douglas County (Omaha) sheriff.
On Jan. 18, DeCamp, the former state senator who once chaired the legislature's finance committee, wrote a memo to the "Omaha World-Herald and the public" alleging that "the most powerful and rich public personalities of the state are central figures in the investigation."
DeCamp listed King and four other men, soon dubbed the Franklin Five; the memo circulated widely when a candidate for state office mailed copies to 10,000 homes in eastern Nebraska.
One of those named, recently retired publisher Andersen, earlier this month denounced the allegations as false and decried "the atmosphere of vicious rumor, innuendoes and vilification of individuals."
Another individual, former World-Herald columnist Peter Citron, also denied any ties to Franklin or King; in late February, Citron was arrested on apparently unrelated charges of sexually assaulting two children by fondling their genital areas. He has pleaded not guilty to the charges.
The local rumor mill has circulated at least two dozen other names of those either linked to the sex ring or involved in covering it up. The media - particularly The World-Herald - have been accused of timidity in pursuing the scandal. "You've had the press abdicate their responsibility here," DeCamp charged.
"Over these 16 or 18 months, we've had five of the best reporters in the Midwest on this story," replied Howe, editor of the newspaper. "We've not been timid. We've run 700 stories and put 7,000 reporter hours into this. . . . What frustrated the sleaze-mongers was that we never did confirm that these kids were procured from state custody and dragged into a sex ring with help from some kind of state power structure."
On the sixth floor of the county courthouse here, not far from the ceiling murals of oversized farmers and Indians and cowboys, a grand jury is sifting through the evidence of sexual crimes.
If indictments are not forthcoming later this spring, many Nebraskans hope the jurors will at least issue a report that tries to distinguish fact from fiction. Otherwise, as Howe noted, "it raises the specter that this thing will never be resolved."
Many Nebraskans are appalled at what the state is doing to itself, particularly the ease with which character assassination is practiced. "I think it's disgraceful. I think it's awful," said Naylor, the onetime counsel for the legislative committee's investigation. "This has gotten completely out of hand."
Added lawyer Davis, "It's a social black plague that's spreading throughout the city. It's as unhealthy as any social phenomenon can be. . . . And it's atypical of Nebraskans to engage in this kind of thing, because we are stable, honest, forgiving, very conservative.
"But we'll get through it. We'll survive. You're seeing us now in the midst of a disaster."
King and wife . . . Son of Omaha meatpacker led a lavish lifestyle.
Schmit Harvey Howe Naylor DeCamp Davis
World-Herald - [Illustration]
Credit: The Washington Post