Crime Pays

How the Feds let S&L swindler Clifford Sinclair get away with millions

The next month, Sinclair agreed to sign a permanent injunction and take his business out of Arkansas.

In May 1978, Sinclair was indicted in Alabama on 46 counts of theft by fraud for the same loan scam. Sinclair based his business in Plano, and Alabama authorities did not pursue him after he stopped doing business in their state.

The charges would languish without prosecution for years, and then pop up again in the midst of the I-30 scandal.

In the late 1970s and early 1980s, Sinclair sold homes in the Dallas area, first for custom builder J. Stiles and later for Nes Nesbit.

As a normal course of business, Sinclair himself would later testify in court, he would help buyers fake their financial statements or dummy up false tax returns to qualify for loans.

If a potential buyer did not have enough income to qualify for financing, Sinclair could help. He might, for instance, have the buyer's spouse list a job and salary at a doctor's office where Sinclair's wife, Kitty, worked. When underwriters called, Kitty would confirm--falsely--that the person worked there.

If someone had bad credit, Sinclair testified, he could help with that too. He would tell customers to write down the wrong Social Security number on their loan applications. "It was a known fact at Stiles--and this is practiced quite frequently in the new home building industry--that you can scramble Social Security numbers and change the birth date of a person by one month and one day, and the credit computers cannot pick it up," Sinclair stated in testimony.

To Sinclair, such illegal practices were part and parcel of doing business. They were cause for little concern.

(Jerry Stiles, once one of the largest home developers in Dallas, was convicted earlier this year on 11 counts of conspiracy and misuse of bank funds stemming from the failure of Hallmark Savings Association of Plano.)

Despite his ability to move from scheme to scheme, there are no indications that Sinclair amassed great wealth from his various business dealings before 1982. He would later claim to have been worth almost $600,000 before he jumped into the Interstate 30 condominium binge, but that figure would prove to be hugely overstated.

"Sinclair was a hustler," says attorney Mike Fawer, who defended first James Toler and then Danny Faulkner in the two biggest I-30 trials. "But for most of his life, he was only a moderately successful hustler."

Then came the spring of 1982.
Clifford Sinclair would later testify that he met Danny Faulkner and James Toler early in 1982. The two men were already rolling in money from condominium projects they had built along the interstate near Lake Ray Hubbard.

At the time, double-digit interest rates were making it impossible for many families to buy their own homes. Condominiums seemed to offer a solution.

What began with a few successful projects built by Faulkner and Toler soon mushroomed into a wild-eyed gamble involving scores of investors.

Usually, Faulkner, Toler, Sinclair, or other developers would buy large chunks of raw land cheap. The land would be subdivided and resold again and again, to individuals or partnerships made up of anyone from doctors and lawyers to construction workers who wanted in on the bounty.

Agreeable bankers, like Empire's Spencer Blain, would loan tens of millions of dollars for the projects without proper appraisals or underwriting.

Those at the top of the pyramid--like Faulkner and Toler--made millions by buying cheap land and reselling it at huge markups.

Ever an opportunist, Sinclair jumped into the act and set up a new company, Kitco Developers. Sinclair's main job was to find investors for the projects and help them obtain financing, although he later began buying and selling land himself.

Real estate speculation, of course, is not illegal. But on I-30, speculation crossed the line into fraud.

Land prices were pumped up by using falsely inflated appraisals. Many investors, who could not possibly qualify for loans on their own, were encouraged to file faked financial statements to qualify for financing.

Since the money was all coming from federally insured deposits, it was a no-risk free-for-all.

Taken together, the projects made no economic sense. There was no way the market would absorb the thousands of condominium units that would have to be built--and sold at a profit--to pay back all of the loans.

Faulkner and Toler, the government would later convince a jury, masterminded the scheme. They were able to bank millions of dollars by selling the land for inflated prices, and walked away with their profits before the scheme collapsed.

As president of Kitco, Sinclair earned his millions by finding investors and getting them qualified for financing. In that role, his old skills in faking paperwork proved useful. Sinclair eventually would plead guilty to helping investors falsify tax returns and lie about their net worth to get loans.

Prosecutors agree that Sinclair was one of the top players in the I-30 scheme, and that his company was the main conduit for the fake financial statements and loan applications that fed it.

Sitting atop the pyramid, Faulkner and Toler made the most money, at least $40 million each. It is unclear how much Sinclair made. A signed financial statement dated March 1, 1983, which Sinclair later turned over to investigators, put his net worth at $79 million, but later court testimony indicated that figure was overstated.

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