Crime Pays

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

On a ridge overlooking the scrub and pinon country of northern New Mexico, Clifford Sinclair crafted a monument to his own felonious ingenuity. From a federal prison cell, the confessed swindler directed construction of a house in an exclusive subdivision outside Santa Fe. It would be the home Sinclair retired to--after serving time for stealing the money that helped pay for it.

Technically, Sinclair does not own the house, which is carried on Santa Fe County tax rolls at a shade over $380,000. Rather, it belongs to one of the numerous corporations Sinclair's attorneys have formed over the years. Such arrangements are small nuisances Sinclair must bear in exchange for conning the government--and ultimately the country's taxpayers--out of an estimated $10 million.

The money is Sinclair's plunder from his starring role in one of the most notorious savings and loan ripoffs in Texas history.

The Interstate 30 condominium scheme was a frenzy of speculative condominium development that erupted in 1982 on the highway corridor east of Dallas. Runaway S&Ls lent millions of dollars based on vastly inflated land appraisals. Hungry investors lied about their finances to qualify for the free-flowing money.

The market could not bear the glut of condos, and collapsed before many of them were even built. At least $135 million in federally insured deposits at five savings & loan institutions in Texas and Arkansas was wiped out. More than 100 people were prosecuted for their parts in the debacle, which caused the failure of Empire Savings & Loan of Mesquite and was a precursor of the nationwide thrift meltdown that soon ensued.

Only now, more than a decade after the fact, are the final moments of the case at hand. The most notorious players on I-30, the supposed masterminds whose lawyers have long forestalled a final reckoning, are soon due in prison.

Garland developer Danny Faulkner, the illiterate house painter who rose to incredible wealth on I-30, lost his final appeal to the U.S. Supreme Court last month. A federal judge has told him to show up in court January 3 so he can be dispatched to begin his 20-year sentence.

The final appeals of former Garland Mayor James Toler and Mesquite banker Spencer Blain, who headed Empire Savings & Loan during its plunge into receivership, are expected to be resolved soon. No one believes they will be any more successful than Faulkner at avoiding prison.

Exacting retribution has been a lengthy and expensive struggle for federal prosecutors. It took two trials, the first lasting seven months and ending with a hung jury, before Faulkner, Toler, Blain, and other I-30 kingpins were ultimately convicted in 1991.

Most of all, it took the testimony of Clifford Sinclair--who became the government's key witness against his former business cohorts.

Which explains why the admitted swindler and his wife live comfortably today in New Mexico, with a fortune tucked away in offshore trust accounts.

Later trial testimony would show that Sinclair had as much, or more, to do with the I-30 looting spree than many of the better-known names that emerged from the case.

By rights, and by law, Sinclair should have been forced to pay back the money when he pleaded guilty to his part in the scheme. But Sinclair, a lifelong hustler, pleaded to four counts of conspiracy, fraud, and falsifying financial statements in 1986, before the full scope of his culpability was known. He then offered his help to convict others.

Becoming a snitch proved lucrative. Sinclair's cooperation with prosecutors cut his possible prison time from more than 100 years down to 13, of which he actually served less than five at the relatively posh federal pen in Fort Worth.

And while he was acting as the prosecution's key witness, assigning most of the blame for I-30 to others, Sinclair managed to spirit away about $10 million of the loot.

Some of the money went to his wife, Kitty, later trial testimony would show. Even more went into trust accounts in the British Virgin Islands, according to Sinclair's own financial records.

At one point, Sinclair adopted his 38-year-old chauffeur and made his newfound son a beneficiary of the Virgin Island trusts, creating another conduit through which Sinclair could gain access to the money.

As part of his plea agreement, Sinclair did return $600,000 of the money he made from I-30. But during just one of the years he was in prison, Sinclair made more than $700,000 in interest on the money he had squirreled away, according to copies of tax returns that Sinclair was forced to turn over to defense attorneys. And federal prosecutors, who needed Sinclair's testimony to bag Faulkner, did nothing to stop the financial machinations of their star witness.

Although Sinclair lied about his wealth to the Federal Bureau of Investigation, federal prosecutors, and U.S. District Judge Barefoot Sanders, he has never been made to account for his hidden fortune.

In part, that is because Sinclair has also skillfully manipulated the media, becoming an anonymous source for reporters covering the scandal. As an unnamed tipster, Sinclair was able to highlight the crimes of others while downplaying his own culpability.

News coverage reflecting Sinclair's spin on events heightened the pressure on the government to convict Faulkner, rendering Sinclair's cooperation even more important.

Federal prosecutors are now almost sheepish when asked how Sinclair managed to walk away with so much money, especially since the plea agreement Sinclair signed with the government required him to pay it all back.

Former U.S. Attorney of Dallas Marvin Collins, who signed the plea agreement with Sinclair, says his office did not have the time, resources, or expertise to chase down Sinclair's assets. He says he considers Sinclair's 13-year sentence harsh punishment in and of itself.

Terry Hart, the former assistant U.S. Attorney who used Sinclair as a witness to convict Faulkner, Toler, and Blain, hedges on the subject, saying the plea agreement was signed before he took over the case. "As far as the financial stuff," he says, "that was something that for whatever reason to whoever was involved at that time, it just wasn't that important."

Almost three years ago, Sinclair was released from custody, after serving 52 months in federal prison. He and his wife, Kitty, moved into their custom home, to live out their retirement years in the tranquil shadows of the Sangre de Cristo mountain range.

Dusty, the couple's adopted son and former chauffeur, lives next door in another custom-built house, complete with a recording studio. It was built, and is owned, by the same corporation as Sinclair's home.

Sinclair, and two of his attorneys, would brook no questions about his financial wherewithal.

"I'm taping the phone call. There's no comment from Mr. Sinclair or anyone representing Mr. Sinclair," said Arlington attorney James Robertson.

At age 67, the lifelong hustler has retired off the biggest scam of his career.

A child of the Depres-sion born in 1926, Clifford Sinclair spent a lifetime selling. He sold houses. He sold insurance. He sold advertising. For 25 cents a pop, he sold form letters that companies used to browbeat delinquent customers.

Slight and owlish, Sinclair could be alternately sour-faced or friendly, given to eloquence or curtness depending on his purpose.

Most often, he seems to have operated as somewhat of a free-lance rainmaker, working as a contractor or forming his own companies with names like Professional Motivation Associates or Secured Investments Company.

Before he pleaded guilty in the I-30 scandal, Sinclair had never been convicted of fraud. But he had come close several times, perhaps because of a proclivity for involving himself with business ventures that ran afoul of the law.

Over the years, Sinclair has been charged with fraud in Texas, Alabama, and Arkansas. In all three states the charges were dropped, usually after Sinclair made some sort of arrangement to atone for his missteps.

His earliest known troubles began in Texas in the early 1960s, when Sinclair ran an insurance agency and sold policies for the Southern States Life Insurance Company. According to a report issued by Texas Commissioner of Insurance J.N. Nutt when he canceled Sinclair's license in 1965, Sinclair and some of his sub agents were using "false and fraudulent misrepresentations and promises" to sell insurance.

Specifically, the report found, Sinclair had paid a Southern States vice president $16,950 for a list of company customers with paid-up life insurance policies. Sinclair and the others would then visit the customers and try to sell them more insurance--with a catch.

According to insurance commission and court records, Sinclair and his helpers convinced customers to take out new policies, and pay for them by borrowing against the value of the policies they already had.

But some customers were apparently misled into believing they were receiving more insurance for free. What they were really doing was allowing Sinclair to place a lien against their paid-up policies. Some might have missed that distinction, records show, because they were asked to sign blank forms.

As many as 16 customers sued when they realized what had happened, and Southern States paid out $53,000 to assuage policyholders.

Sinclair and one of his partners were charged with fraud in two Texas counties in 1964. The insurance commission yanked his license the next year, and the charges against Sinclair were eventually dropped.

During the 1970s, Sinclair moved from insurance to loan brokering, and this time found himself facing fraud charges in two states.

The scheme this time, according to court and regulatory records from Arkansas and Alabama, was fairly straightforward. Sinclair or his agents--working under the name Diversified Financial and Management Services--represented themselves as loan brokers.

For an up-front processing fee, the company claimed it would take loan applications from people looking for money to buy a house or start a business, and submit the applications to lending institutions.

According to a 1978 Alabama Securities Commission investigation report, at least 25 people in that state paid Sinclair's company a total of $3,875 to find them lenders. Although Sinclair sent signed letters to the customers assuring them their applications had been submitted to lenders, none ever received loans. The Alabama investigation found that none of the lenders Sinclair claimed to have contact with had ever received the loan applications.

In 1977, the Arkansas Securities Commission filed charges against Sinclair and Diversified Financial, saying the company did not have a license to do business there. In September, the state's securities commissioner signed a cease and desist order, concluding that Sinclair and his company had defrauded customers and barring them from further business in that state.

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.

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.

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.

But Sinclair's next move was even bolder. As he awaited sentencing before U.S. District Judge Barefoot Sanders, Sinclair's accountants submitted a financial statement to the court setting Sinclair's net worth--not including his wife's assets--at just $2.4 million.

There was no mention of the $6 million the couple had siphoned off to the Virgin Islands, which defense attorneys for Faulkner and Toler would discover later.

On October 8, 1985, Sinclair stood before Judge Sanders to receive his sentence. He was appropriately humble.

"I deserve whatever punishment you wish to give me and I will take it without whimpering whatsoever," Sinclair told Sanders.

"I am extremely sorry for what happened on I-30 and my involvement," Sinclair continued. "I regret the problems that I have caused my family, my relatives, my friends, and my government, and when this ordeal is over with, whatever time I have left I want to spend it with my family making amends and attempting to become a useful citizen again."

Sanders handed down the maximum 13 years Sinclair faced under the plea agreement, and then turned to the matter of money.

But when setting the amount of restitution, a transcript of the hearing shows, Sanders apparently misread Sinclair's financial statement and thought that the $2.4 million was community property, not Sinclair's alone.

Believing that, Sanders halved the total to $1.2 million. Then he knocked off $600,000--the amount Sinclair had falsely claimed to be worth before I-30. That boiled down to $600,000 in restitution, which Sanders ordered along with a $40,000 fine.

Sinclair, standing before the bench, said nothing about the judge's mistake. Nor did attorney Bill Boyd, who stood at Sinclair's side. (Sanders dod mpt respond to phone calls seeking comment on Sinclair's sentencing.)

On the day he walked out of that courtroom, documents and tax returns would later show, Sinclair and his wife actually had somewhere in the neighborhood of $10 million at their disposal.

But Sanders did not know that, and no one from the U.S. Attorney's office pointed it out. Later, as evidence emerged that Sinclair violated the terms of his plea agreement by hiding assets, the government would do nothing to revisit the issue.

Because even before he was sentenced, Sinclair had become the man who was going to put Faulkner, Toler, Blain, and the other I-30 heavyweights in jail.

By the time Faulkner and six other defendants perceived by the government as the key players of I-30 went to trial, more than 100 smaller fish had already been snagged by the task force assembled to pick over the remains of Empire.

"It was handled on the tried and true pyramid theory where you start at the bottom with the smaller fish and then work up to the medium size and then finally all the way up to the top," says former U.S. Attorney Marvin Collins.

To get the "sharks," as Collins calls them, prosecutors needed an insider, someone intimately involved in the fraud who could explain how the deals went down and who was giving the orders.

Sinclair did that, testifying at length during two separate trials.
The first I-30 kingpin trial opened in Lubbock in the spring of 1989, and ended about seven months later with a jury split 11 to 1 for conviction.

Two years later, the government tried the case again in Midland. The second time, it took about five weeks, and ended in convictions.

At both trials, Sinclair was the government's most potent weapon, paging through reams of documents and explaining how they proved the complicity of Faulkner, Toler, Blain, and the other defendants.

"The documents were the bones of the case, but to put the meat on the bones we had to get one of the co-conspirators," says lead prosecutor Terry Hart.

Although there were literally truckloads of documents in the case--including thousands of pages of Sinclair's own handwritten notes--few of them actually connected Faulkner and the other defendants directly to crimes.

Rather, it was Sinclair's interpretation of the documents, and his insistence that Faulkner or Toler had ordered certain things to be done, that implicated the men on many of the criminal counts.

"As far as his memory, the guy was phenomenal," Hart says. "I mean, he was extremely intelligent. I believed absolutely his rendition of the facts, because I spoke with him numerous times and we'd go over the thing deal by deal. I'd have my notes from the last time I spoke with him, and just from memory he would always tell it exactly the same."

Defense attorneys, of course, did their best to paint Sinclair as a self-interested liar. They resurrected Sinclair's previous fraud problems in Texas, Alabama, and Arkansas.

They also pointed out, in great detail, how Sinclair had lied about his hidden wealth during his own sentencing.

Sinclair, whose testimony for the prosecution showed nearly total recall of years-old conversations with the defendants--sometimes to the point of remembering who sat where in the helicopter during a flight--evinced almost total ignorance of his own financial situation. He testified that he had no knowledge of his wife's companies, or how much money they had.

Even when shown the large amounts of interest income the couple was reporting on its federal tax returns--including more than $700,000 of interest earned in 1989--Sinclair could not recall how much money he had tucked away.

At one point during the Lubbock trial, under cross-examination by defense attorney Fawer, Sinclair would provide only the sketchiest outline of his finances.

"Would we be in the ballpark if we suggested that right now, as you sit here, you are a millionaire?" Fawer asked. "Would that be a fair statement?"

"I would hope so," Sinclair responded.
Sinclair's professed ignorance concerning his own bank accounts rang hollow even with the prosecution.

"Believe me, it would have been a lot better from a prosecutorial standpoint if [Sinclair] had divested himself of everything, because we were beaten over the head pretty severely with that," Hart says. "If all this money going to the [defendants] was so bad, why did the government let Clifford Sinclair keep so much of his money? I don't really have an answer for that."

Why did the government let Sinclair keep so much money?
Collins says seeking restitution was not his office's "primary mission."
"We're lawyers, we're not accountants," Collins says. "As prosecutors, we probably have as little expertise as the man on the street at evaluating the financial accounting-type side of matters like this."

Collins says his goal was to put people in jail, and the 13-year sentence Sinclair received was pretty tough for an aging man.

"Our primary goal is not to chase money but to take hide off the defendants," he says. "As far as I'm concerned, when we have a high-level offender like Mr. Sinclair and he gets 13 years, I feel like we have done our primary job, which is to make the defendant pay back in years of his life for what he did."

Collins says he purposely left it to Sanders to assess Sinclair's finances and set restitution because prosecutors had no idea how much money the man had.

But when it became clear during the first trial in Lubbock that Sinclair had lied to Sanders, Collins says, his office did nothing to bring the matter to the judge's attention.

"If you're asking me whether or not in our opinion Mr. Sinclair was left with too much money, I guess my answer would be I think that's for others to judge," Collins says.

Mike Fawer, the attorney who defended Toler in the Lubbock trial and Faulkner in Midland, judges the government's deal with Sinclair harshly. If Sinclair would lie to prosecutors and a court to protect his money, Fawer says, what other lies was he willing to tell? For instance, how true was Sinclair's testimony that blamed Faulkner, Toler, and Blain for masterminding crimes Sinclair himself committed?

"There was no sense of an awareness of the ethical impropriety, the immorality, of treating Clifford Sinclair like they did," Fawer says. "They never made Sinclair come to terms with the lies. Why? They would have lost a witness. When they went to bed with Clifford Sinclair, they never looked back."

U.S. District Judge Lucius Bunton, who presided over the Midland trial, also seemed disturbed by the government's treatment of Sinclair. In January 1992, when he formally sentenced Faulkner and the other defendants, Bunton issued an unusually harsh statement from the bench, admonishing the government for allowing Sinclair to dupe them.

"The government is not without fault when it comes to what happened to Sinclair, who I thoroughly detest," Bunton said. "The government evidently thinks that 13 years was fair for him. Here is a guy that [is] living in a big house now in New Mexico. And I resent that."

Bunton continued: "As far as I know, the government has never done anything about what [Sinclair] lied to Judge Sanders [about] at the time of sentencing. There has been no move, so far as I can tell, on the part of the government...they sure haven't gone after the money."

Bunton sentenced Faulkner to 20 years and ordered him to pay $40 million in restitution, compared to Sinclair's $600,000. Toler and Blain received the same sentences, although the judge noted that former banker Blain had no money left to pay back.

The judge allowed the men to remain free pending appeals, which have proven unsuccessful.

Fawer argues that the harsher sentences for Faulkner and Toler are unfair, and that Sinclair has effectively been rewarded--both with money and freedom--for pointing the finger at others for his own crimes.

Tough, says former top prosecutor Collins.
"Clifford Sinclair got hard time and he did it," Collins says. "Now it is time for the top people in the scheme, the very top people, to do their time.

"They're looking back and saying 'Well, Clifford Sinclair was a big fish and he hid some assets and he's out enjoying the life of Riley, and we're about to go to the penitentiary.'

"What they leave unstated is that...one of the benefits that a big white collar criminal gets when they go ahead and plead guilty and take their time is that they get it behind them."

Less than a month after Faulkner
andthe others were sentenced in 1992, Sinclair left prison. The man who promised to spend the rest of his years making amends for his crimes moved to his new house in New Mexico.

Earlier this year, Sinclair asked Judge Sanders to return the passport Sinclair had to surrender when he went to jail. In late August, attorney Bill Boyd picked up the passport on Sinclair's behalf.

Sinclair's troubles with the government are not completely over. A lawsuit filed by the FSLIC years ago to recover assets looted from Empire is still pending. But it has languished for years as the criminal prosecutions dragged on, and defense attorneys say Sinclair has probably succeeded in placing his fortune beyond the government's reach.

Danny Faulkner, meanwhile, is ruefully preparing to go to prison. Once one of Dallas' most visible testaments to self-made wealth, he is now a disgraced swindler.

He spends much of his time at an old heliport on Lake Ray Hubbard, the former seat of the Faulkner empire. Friends and former business associates--some of whom have already served time in prison--stop by to talk or play cards.

One of the two helicopter bays is jammed with file cabinets and shelves full of legal documents--the detritus of Faulkner's years-long battle with the government. There are boxes of bank statements, loan documents, investigative reports, and reams of other paperwork that accumulated as lawyers picked apart every facet of Faulkner and his family's finances.

The Jacuzzi and racquetball court are filling with cobwebs, the once-familiar Faulkner logo fading on the heliport's facade.

Last year, Faulkner filed for bankruptcy, attempting to stave off all the creditors--including federal banking regulators--who want what is left of his wealth.

Bunton has already ordered Faulkner to pay $40 million in restitution for his role in I-30. His bankruptcy filing indicates that he may not have that much money left.

According to that filing, Faulkner still owns more than 250 pieces of real estate, most of it in and around I-30. But after factoring in the judgments against him, Faulkner lists his net worth at minus $175 million.

Fearful of risking the wrath of Judge Bunton, before whom he must still appear, Faulkner is averse to discussing the details of his case.

He does allow that the past few years have been tough, hanging in the wind, never knowing when he might have to leave his family and report to jail.

Faulkner will not directly discuss Sinclair, but his former attorney will.
Mike Fawer offers just a few words.
"Sinclair pulled it off," he says. "He won.

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