Crime Pays

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

Allen Pusey, a staff writer for The Dallas Morning News--who along with writer Christi Harlan broke many of the earliest stories on I-30--became the main beneficiary of Sinclair's anonymous information.

According to later trial testimony, Sinclair and Pusey began a long and mutually beneficial relationship. Pusey got the inside track on the biggest fraud story unfolding in Texas, and Sinclair was able to paint others as the leading villains.

The relationship culminated when Sinclair agreed to face-to-face interviews at hotel rooms of Sinclair's choosing. Sinclair, testimony showed, had hidden microphones in place to record the conversations.

When cross-examined at later trials, Sinclair acknowledged that he was trying to move the spotlight from himself and onto others.

And it worked. However meritorious, Pusey's stories did begin to play into Sinclair's hand, focusing more and more on Faulkner, Toler, Blain, and others, and saying less about Sinclair's role in the scheme.

Pusey, however, dismisses any suggestion today that his stories were manipulated by Sinclair. "We wrote extensively about Clifford Sinclair and what his culpability was in the thing, so I think our stories speak for themselves," he says. "I don't think we have anything to be ashamed about with what we did in I-30, to say the least."

At one point, Sinclair testified, Pusey even gave Sinclair an advance copy of one of Christi Harlan's stories before it was printed in the paper so Sinclair would know what was about to come out.

Pusey says he never provided Sinclair with the printout and does not know how Sinclair obtained it. "All I can tell you is it didn't happen the way [defense attorneys] believe it happened," Pusey says.

The I-30 story was also garnering national attention. When the television show 60 Minutes wanted to produce a report on the disaster--Empire was still the biggest thrift failure in history at the time--Sinclair agreed to be interviewed for the program.

He appeared in disguise, wearing a fake beard and copious makeup. His voice was scrambled to protect his identity. (Sinclair would later claim at trial that the disguise was the television show's idea. CBS provided defense attorneys with a letter stating that Sinclair insisted on the disguise as a condition for the interview.)

Predictably, Sinclair laid the blame for I-30 on Faulkner, Toler, and Blain. In part of the interview not broadcast--but taped secretly by Sinclair--he referred to himself in the third person as a simple "hired hand" who got sucked into the scam.

"Why are you telling me this?" Mike Wallace asked Sinclair.
"For the safety of the S&L industry," Sinclair responded. "It needs to be cleaned up, Mike."

The very day he was interviewed for 60 Minutes-- December 17, 1985--Sinclair and a business partner were indicted on 24 federal counts of conspiracy and fraud for helping prepare and submit falsified documents to federally insured thrifts.

Sinclair's wife, Kitty, who served as his secretary at Kitco, was also indicted.

Two months after the Sinclairs were indicted, another new corporation came into being in Texas. This one, called Better Half, Inc., had one stockholder--Kitty Sinclair.

Better Half's assets consisted of about $3 million, loaned to the company by its only stockholder, almost exactly the amount Kitty Sinclair had received in cash during the earlier partition of the couple's property. Later, Kitty Sinclair would also set up a trust fund in the Virgin Islands containing about $3 million, trial testimony showed, and the assets of Better Half would decline accordingly.

On March 24, 1985, the Sinclairs were scheduled to go to trial. The indictment against them had been expanded to 36 counts, and the couple were looking at the possibility of serious jail time.

But on the eve of trial--literally--Clifford Sinclair cut a deal.
Throughout Sunday, the 23rd, Sinclair's attorneys and the government hashed out a settlement.

It was finally agreed that all charges against Kitty would be dropped. Sinclair would plead guilty to four counts, face a maximum of 13 years in prison, and agree to cooperate with the government in building cases against others.

Federal investigators at that point still were not sure how much money Sinclair had made from I-30, former U.S. Attorney Marvin Collins says, so the issue of restitution was left open-ended.

Effectively, the government negotiators agreed to let Sinclair tell them how much money he had.

The agreement required Sinclair and his wife to provide a federal judge with a complete accounting of their finances, showing how much bounty they reaped from I-30. The government, in return, agreed that Sinclair could keep any money he had before becoming involved in I-30.

Sinclair proceeded to cheat the government on both ends.
Right off the bat, court records and other documents show, Sinclair, his attorneys, and accountants found a way to make him look richer than he really was before entering I-30.

Sinclair gave the government a financial statement dated January 1, 1982, showing his net worth as just under $600,000. The statement, however, included ownership of two companies--valued at about $200,000--that did not even exist on that date. One of the companies was Kitco Development, which Sinclair formed later in 1982 specifically to do business on I-30.

By inflating his earlier worth, Sinclair was able to convince prosecutors that, at a minimum, he should be allowed to retain at least $600,000 after paying restitution.

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