Crime Pays

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

Faulkner became famous around Dallas for his ostentatious shows of wealth, even in a city then wallowing in money. He bought a small Lear Jet, and then traded up for a bigger one. He had helicopters and Rolls Royces. He passed out Rolex watches to friends and business associates.

Sinclair did quite well himself. He also bought a helicopter and a plane, along with a horse ranch and some thoroughbreds. He would later testify that he was making more money than ever before in his life.

Absent any buyers for the thousands of condominiums that were built or planned along the I-30 corridor, the scheme was destined to collapse.

It did in March of 1984, when the Federal Savings and Loan Insurance Corporation took control of the insolvent Empire.

In the next few years, the I-30 scam would pale in comparison to far larger thrift failures. But at the time, it was the biggest loss to date in the 51 years that the FSLIC had been insuring deposits.

The financial implosion of I-30 attracted intense attention from both federal investigators and the media. Sinclair would manage to play both to his advantage.

But before his role in the scam became clear, Sinclair would quietly undertake a series of moves to shield his money from the inevitable accounting with the government.

Less than a month after the FSLIC took control of Empire, Sinclair and his wife did something that had never before proved necessary in their 30-plus years of marriage. The couple executed a partition agreement--a legal device that allows a couple to divide its assets into two chunks of sole and separate property.

Clifford Sinclair relinquished all claims to the property that was partitioned to wife Kitty, including $3.1 million in cash, stock in six companies, a Cadillac, a Mercedes Benz, and 12 pieces of jewelry, mostly diamonds.

According to the partition document, Sinclair kept as his own separate property only $500,000 cash. He also kept the helicopter, the airplane, a Rolls Royce, and most of the couple's real estate and stock holdings.

The agreement does not specify how much the couple's assets were worth, but an October 31, 1984, financial statement of Sinclair's puts the couple's net worth at $34 million and change.

Sometime during 1984, Sinclair would later testify, he also moved $3 million offshore to the Virgin Islands in the first of two trust funds set up for his children. The trust originally was for the couple's two daughters, but later Sinclair added adopted son Dusty as a beneficiary.

In early 1985, the heat from I-30 and the Empire failure began to focus on Sinclair. Early newspaper stories concentrated almost entirely on Sinclair and Kitco, since his name was all over the paperwork on the soured deals. There was virtually no mention of Faulkner or Toler.

And just as his name and picture were showing up in the papers, Sinclair learned that Alabama wanted him back to face the 1978 fraud charges that had been gathering dust for years.

Then-Governor Mark White signed papers extraditing Sinclair back to Alabama to face trial. But Sinclair was able to avoid extradition by advancing a curious argument. His attorney convinced a visiting judge in Rockwall County that Alabama's paperwork did not establish his client as the Clifford Ray Sinclair sought in the indictment. The judge blocked the extradition.

(Three years later, Sinclair attorney Bill Boyd of McKinney cleared up the still pending charges. On August 23, 1988, Boyd formally incorporated Diversified Financial and Management Services--the name of Sinclair's old company--with the Texas Secretary of State. Two days later, Boyd appeared in the Circuit Court of Montgomery County, Alabama. A judge agreed to dismiss Sinclair individually as a defendant, and allow the company to plead guilty and pay a $24,000 fine by noon that day. Four months later, Boyd formally dissolved the corporation.)

By March 26, 1985, Sinclair apparently knew he was in deep trouble. On that date, his attorneys sent a letter to the White House seeking a presidential pardon for his role in the I-30 scam, even though Sinclair had not yet been charged with a crime.

White House Counsel Fred Fielding wrote back the next month, explaining that the president did not pardon individuals who had not been convicted of anything.

In May, Sinclair received his first indication that prosecutors might be willing to let him plead guilty for his role in the scam if he testified against others.

In his own hand, Sinclair recorded his impressions of a May 4 meeting with his attorneys, who were recounting a discussion they had with then-U.S. Attorney James Rolfe. (Marvin Collins would replace Rolfe within a matter of months.) According to Sinclair's notes, he could receive a 25-year sentence in exchange for meeting six conditions. Key among them was that he "be broke" after pleading guilty.

Sinclair would also be expected--his note shows--to "tie a ribbon around Faulkner and Toler."

Sinclair rejected the notion of pleading on such terms. But ultimately, he would make himself appear broke--and testify.

At roughly the same time, Sinclair later acknowledged from the stand, he began a calculated effort to shift press attention away from himself by feeding reporters information that implicated Faulkner, Toler, Blain, and several prominent politicians, including former state Attorney General Jim Mattox and former state Senator Ted Lyon.

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