CenTrust Bank

Last updated
CenTrust Bank
Type Public
American Stock Exchange: DLP
IndustrySavings & Loan
Founded1934;88 years ago (1934)
DefunctFebruary 2, 1990;32 years ago (1990-02-02)
Fate Insolvency
Successor Great Western Bank
HeadquartersMiami, Florida, US
Key people
David Paul

CenTrust Bank, A State Savings Bank was a Miami, Florida-based savings and loan. Its failure in 1990 was one of the largest and costliest failures of the savings and loan crisis.

Contents

Background and downfall

Dade Savings & Loan Association opened in 1934. In 1983, the failing thrift, with 32 branches and $2.2 billion in assets, was acquired by real estate developer David L. Paul for $32 million [1] [2] and the following year was renamed CenTrust Savings & Loan Association. [3] It grew rapidly to become the largest thrift in the southeastern United States, with over $9 billion in assets at its peak in 1989.

The bank was placed into government conservatorship in February 1990, [4] with Great Western Bank acquiring the bank's assets in June 1990. [5] CenTrust had $8.2 billion in assets at that time and was the 23rd largest thrift in the country. The failure resulted in an estimated $1.7 billion loss to the government at the time it was seized.

Chairman and CEO David Paul was convicted in November 1993 in federal court on 68 counts of tax fraud, obstruction of justice and misapplication of bank funds. [6] He was sentenced to 11 years in prison and required to pay $60 million in restitution and a $5 million fine. He later pled guilty to 29 counts of securities violations. He was released from prison in 2004. [7] The government charged that Paul had used bank funds for personal reasons such as making improvements on his home and paying the expenses on his $7 million yacht "Grand Cru." In addition the bank had also bought the sailboat "Bodacious" for $233,000. The bank acquired a $29 million art collection, including the Peter Paul Rubens painting "Portrait of a Man as the God Mars" for $13.2 million, which Paul kept at his house. [8]

The bank's headquarters were located in the newly built CenTrust Tower (now Miami Tower), a Miami landmark designed by I. M. Pei and featured in the opening credits of the television series "Miami Vice." CenTrust's executive offices were opulent, featuring gold-plated plumbing, gold-leaf ceilings, a $1 million Italian marble staircase, and a bulletproof shower door. [9] [10]

When the Financial Institutions Reform, Recovery and Enforcement Act of 1989 was passed it banned the purchase of junk bonds by thrifts and required them to dispose of their holdings by 1995. They were also required to carry the bonds on the bank's books at market value, not face value. The act also disallowed supervisory goodwill by phasing it out through 1995. This resulted in the bank becoming insolvent. [11]

CenTrust and Bank of Credit and Commerce International

Bank of Credit and Commerce International (BCCI), through nominee Saudi businessman Ghaith Pharaon became CenTrust's largest shareholder with 28% ownership. Pharaon was also BCCI's nominee owner of Independence Bank of Los Angeles, as well as National Bank of Georgia, which was formerly owned by Bert Lance, a close friend of former United States President Jimmy Carter. Pharaon was indicted in 1991, and again in 1993 under a revised indictment, but remained a fugitive until his death in 2017. The indictments covered the nominee ownerships of the Georgia and Los Angeles banks, as well as his securities trading activities at CenTrust. BCCI had bought $25 million in subordinated debentures out of a $150 million offering in a sham transaction in 1988, with the securities bought back two months later by CenTrust at a loss. [12] [13]

CenTrust and Drexel Burnham Lambert

CenTrust was one of the largest buyers of junk bonds (high yield bonds) in the country, with over $1.4 billion on the bank's books at its peak. It was part of Drexel Burnham Lambert's "daisy chain" of junk bond buyers like Lincoln Savings in Irvine, Imperial Savings in San Diego, Gibraltar Savings in Simi Valley, Silverado Savings & Loan in Denver, and Columbia Savings in Beverly Hills. [14]

CenTrust had dealings with Lincoln Savings' parent American Continental Corporation when it bought $9 million in Playtex stock from American Continental Corp. and then sold $9 million in stock of Memorex to American Continental Corp. The intent was to boost the prices of the stocks on the thinly traded securities and book bogus profits. Both of the stocks were issued by companies that were clients of Drexel Burnham Lambert. [15]

CenTrust and its political influence [16]

Paul extensively used CenTrust's money to gain political influence, with its political action committee contributing $328,000 to campaigns and other political causes. [17] Paul was co-chairman of the Democratic Senatorial Campaign Committee with Senator John Kerry (D-MA), with CenTrust contributing $30,000 in political action funds to the committee. The committee also leased Paul's yacht for fund-raisers. Paul met with Kerry five times in 1988, while Kerry was investigating BCCI for money laundering. Paul flew in six chefs from France for a $122,000 "Great Chef's Party." [18] Its 61 guests included Senator Kerry. (Kerry later wrote an opinion piece for The New York Times entitled "Where Is the S&L Money?") [19]

Paul met four times with chairman of the Federal Home Loan Bank M. Danny Wall. [20] He also had meetings with Senators Bob Graham (D-FL), John Breaux (D-LA), Tim Wirth (D-CO), Ted Kennedy (D-MA), Joe Biden (D-DE), Alan Cranston (D-CA), and Donald W. Riegle Jr. (D-MI).(The latter two senators were also members of the Keating Five.) [21]

Miami Beach mayor Alex Daoud was convicted of taking $35,000 in bribes to help Paul obtain permits to expand the dock at his house on La Gorce Island for his yacht "Grand Cru." [22]

See also

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References

  1. ↑ Birger, Larry (September 23, 1982). "New England Firm to Buy Dade S&L" . Miami Herald . p. 14C. Dade Savings and Loan Association, one of South Florida's largest thrifts, is being acquired by a major New England real estate development company under an agreement in principle announced Wednesday... Through the acquisition, Westport will infuse approximately $32 million of additional net worth into the newly created stock association... Ronald Lipton, whose family founded Dade Savings in 1933, said that under the agreement he will remain as chairman and chief executive officer.
  2. ↑ Stickler, Robert (September 30, 1983). "Dade Savings Takeover Approved" . Miami Herald. p. 21A. Financially troubled Dade Savings and Loan Association Thursday received permission to convert to a stock institution under the control of The Westport Co... Under the plan approved by the Federal Home Loan Bank Board, Westport Chairman David L. Paul will convert his Westport stock into Dade Savings stock. He owns more than 95 per cent of Westport. About $32 million in cash and real estate held by Westport will be transferred to Dade. Federal regulators will not give financial assistance. Florida's third largest S&L expects to sell additional new stock within three months to add to its equity base. Unlike other conversions occurring around the country, Dade customers will not get priority in buying stock because the institution's net worth, which is theoretically their stake in the company, has run out. Dade, which has $2.2 billion in assets and 32 branches around Florida, almost has run out of net worth, its supporting capital reserve.
  3. ↑ "Dade Savings Now Centrust Savings" . Miami Herald. October 9, 1984. p. 4D. Dade Savings and Loan Association, which officially changed its name to CenTrust Savings Monday, also announced ambitious expansion plans. Florida's fourth largest savings and loan association said it hopes to more than double its 34-branch system in Florida within the next 15 months... In the year since David L. Paul has taken over the financially-ailing S&L from the Lipton family, assets have grown from $1.8 billion to $3.6 billion, the institution said. CenTrust will be moving into the World Trade Center building it is constructing in downtown Miami sometime in 1986.
  4. ↑ Nash, Nathaniel C. (February 3, 1990). "U.S. Seizes Centrust Of Miami". The New York Times .
  5. ↑ "CenTrust sold to California thrift". United Press International . June 29, 1990.
  6. ↑ "Ex-Chief of Centrust Bank Is Convicted on 68 Charges". The New York Times. November 25, 1993.
  7. ↑ Bell, Maya (August 3, 2004). "Icon Of S&L Extravagance, David Paul, Revels In Freedom". Orlando Sentinel .
  8. ↑ Labaton, Stephen (October 23, 1990). "Return of $30 Million Sought From Ex-Chief of Centrust". The New York Times.
  9. ↑ MacPherson, Myra (March 19, 1990). "The Banker's Toppled Tower". The Washington Post .
  10. ↑ Wayne, Leslie (April 21, 1991). "Centrust Tower: The R.T.C.'s Shimmery Headache". The New York Times.
  11. ↑ "Centrust Bank reports earnings for Qtr to Sept 30". The New York Times. January 18, 1990.
  12. ↑ Schmidt, Susan (July 30, 1991). "Federal Reserve Links BCCI To Miami, Georgia Banks". The Washington Post.
  13. ↑ "Department of Justice Press Release February 8, 1995" (Press release). U.S. Department of Justice. February 8, 1995.
  14. ↑ "Drexel, Milken Join Keating as Class-Action Defendants". Los Angeles Times . February 10, 1990.
  15. ↑ Kelley, Lane (December 31, 1989). "U.S. Tracks Paper Profit Trail From Milken To Centrust". Fort Lauderdale Sun Sentinel .
  16. ↑ "TIE BETWEEN PAUL, LEADER OF INQUIRY PROMPTS QUESTIONS". Sun Sentinel. Retrieved 2022-08-16.
  17. ↑ Mufson, Steven (August 6, 1991). "Miami SL Chief Said To Be In Contact With BCCI Figure". The Washington Post.
  18. ↑ Schmalz, Jeffrey (December 7, 1988). "Working Ego to Ego, 6 Chefs Dish Up a Formal Dinner for 60". The New York Times.
  19. ↑ Kerry, John (June 1, 1990). "Where Is the S&L Money?". The New York Times.
  20. ↑ Skidmore, Dave (March 27, 1990). "CenTrust Chief's political Contributions Probed". The Washington Post.
  21. ↑ Beaty, Jonathan & Gwynne, S. C. (1993). The Outlaw Bank: A Wild Ride Into the Secret Heart of BCCI. Random House. ISBN   978-0679413844 – via Google Books.
  22. ↑ Yanez, Luisa (April 15, 1995). "Ex-mayor Daoud Gets Early Release". Fort Lauderdale Sun Sentinel.

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