CenTrust Bank, A State Savings Bank was a
Miami
Miami ( ), officially the City of Miami, known as "the 305", "The Magic City", and "Gateway to the Americas", is a East Coast of the United States, coastal metropolis and the County seat, county seat of Miami-Dade County, Florida, Miami-Dade C ...
, Florida-based
savings and loan
Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an I ...
. Its failure in 1990 was one of the largest and costliest failures of the
savings and loan crisis.
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
David Lewis Paul (May 1, 1939 – January 18, 2022) was an American banker, real estate developer, philanthropist and founder of CenTrust Bank.
Biography
Paul was born in on May 1, 1939, in Miami[Great Western Bank Great Western Bank may refer to:
* Great Western Bank (1919–1997), defunct bank headquartered in California
* Great Western Bank (1907–2022), bank headquartered in South Dakota
{{Disambiguation ...]
acquiring the bank's assets in June 1990. 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. 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. 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
Sir Peter Paul Rubens (; ; 28 June 1577 – 30 May 1640) was a Flemish artist and diplomat from the Duchy of Brabant in the Southern Netherlands (modern-day Belgium). He is considered the most influential artist of the Flemish Baroque traditio ...
painting "Portrait of a Man as the God Mars" for $13.2 million, which Paul kept at his house.
The bank's headquarters were located in the newly built CenTrust Tower (now
Miami Tower
The Miami Tower is a 47-story, landmark office skyscraper in Miami, Florida, United States. It is located in central Downtown. It is currently the 16th tallest building in Miami and Florida. On April 18, 2012, the AIA's Florida Chapter placed it ...
), a Miami landmark designed by
I. M. Pei
Ieoh Ming Pei
– website of Pei Cobb Freed & Partners ( ; ; April 26, 1917 – May 16, 2019) was ...
and featured in the opening credits of the television series "
Miami Vice
''Miami Vice'' is an American crime drama television series created by Anthony Yerkovich and produced by Michael Mann (director), Michael Mann for NBC. The series stars Don Johnson as James "Sonny" Crockett and Philip Michael Thomas as Ricardo ...
." CenTrust's executive offices were opulent, featuring gold-plated plumbing, gold-leaf ceilings, a $1 million Italian marble staircase, and a bulletproof shower door.
When the
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.
CenTrust and Bank of Credit and Commerce International
Bank of Credit and Commerce International
The Bank of Credit and Commerce International (BCCI) was an international bank founded in 1972 by Agha Hasan Abedi, a Pakistani financier. The bank was registered in Luxembourg with head offices in Karachi and London. A decade after opening, BCC ...
(BCCI), through nominee Saudi businessman
Ghaith Pharaon
Ghaith Rashad Pharaon (September 7, 1940 – January 6, 2017), was a Saudi fugitive financier and businessman who was founder of Attock Group, Attock Cement, and at one time an investor in the Bank of Credit and Commerce International (BCCI), ...
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
Thomas Bertram "Bert" Lance (June 3, 1931 – August 15, 2013) was an American businessman who served as director of the Office of Management and Budget under President Jimmy Carter in 1977. He is known mainly for resigning from the Carter admini ...
, a close friend of former United States President
Jimmy Carter
James Earl Carter Jr. (born October 1, 1924) is an American politician who served as the 39th president of the United States from 1977 to 1981. A member of the Democratic Party (United States), Democratic Party, he previously served as th ...
. 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.
CenTrust and Drexel Burnham Lambert
CenTrust was one of the largest buyers of junk bonds (
high yield bonds
In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit events, ...
) in the country, with over $1.4 billion on the bank's books at its peak. It was part of
Drexel Burnham Lambert
Drexel Burnham Lambert was an American multinational investment bank that was forced into bankruptcy in 1990 due to its involvement in illegal activities in the junk bond market, driven by senior executive Michael Milken. At its height, it was a ...
's "daisy chain" of junk bond buyers like
Lincoln Savings
Lincoln most commonly refers to:
* Abraham Lincoln (1809–1865), the sixteenth president of the United States
* Lincoln, England, cathedral city and county town of Lincolnshire, England
* Lincoln, Nebraska, the capital of Nebraska, U.S.
* Lincoln ...
in Irvine, Imperial Savings in San Diego, Gibraltar Savings in Simi Valley, Silverado Savings & Loan in Denver, and Columbia Savings in Beverly Hills.
CenTrust had dealings with Lincoln Savings' parent
American Continental Corporation
American Continental Corporation was a Phoenix, Arizona-based p. 108. real estate company of the 1970s and 1980s.
History
The company was created in 1978 pp. 161–163. as a spin-off of American Financial Group, meant to do residential home constr ...
when it bought $9 million in
Playtex
Playtex is an American brand name for undergarments, baby products, gloves, feminine hygiene products, and sunscreen. The brand began in 1947 when International Latex Corporation (ILC) created a division named Playtex to produce and sell latex p ...
stock from American Continental Corp. and then sold $9 million in stock of
Memorex
Memorex Corp. began as a magnetic tape, computer tape producer and expanded to become both a consumer media supplier and a major IBM plug compatible peripheral supplier. It was broken up and ceased to exist after 1996 other than as a consumer ele ...
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.
CenTrust and its political influence
Paul extensively used CenTrust's money to gain political influence, with its political action committee contributing $328,000 to campaigns and other political causes. Paul was co-chairman of the
Democratic Senatorial Campaign Committee
The Democratic Senatorial Campaign Committee (DSCC) is the United States Democratic Party, Democratic Hill committee for the United States Senate. It is the only organization solely dedicated to electing Democrats to the United States Senate. ...
with Senator
John Kerry
John Forbes Kerry (born December 11, 1943) is an American attorney, politician and diplomat who currently serves as the first United States special presidential envoy for climate. A member of the Forbes family and the Democratic Party (Unite ...
(D-MA), with CenTrust contributing $30,000 in political action funds to the committee. The committee also leased Paul's
yacht
A yacht is a sailing or power vessel used for pleasure, cruising, or racing. There is no standard definition, though the term generally applies to vessels with a cabin intended for overnight use. To be termed a , as opposed to a , such a pleasu ...
for fund-raisers. Paul met with Kerry five times in 1988, while Kerry was investigating BCCI for
money laundering
Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...
. Paul flew in six chefs from France for a $122,000 "Great Chef's Party." Its 61 guests included Senator Kerry. (Kerry later wrote an opinion piece for ''The New York Times'' entitled "Where Is the S&L Money?")
Paul met four times with chairman of the
Federal Home Loan Bank
The Federal Home Loan Banks (FHLBanks, or FHLBank System) are 11 U.S. government-sponsored banks that provide liquidity to the members of financial institutions to support housing finance and community investment.
Overview
The FHLBank System was ...
M. Danny Wall. He also had meetings with Senators
Bob Graham
Daniel Robert "Bob" Graham (born November 9, 1936) is an American lawyer, author, and politician who served as the 38th governor of Florida from 1979 to 1987 and a United States senator from Florida from 1987 to 2005. He is a member of the Dem ...
(D-FL),
John Breaux
John Berlinger Breaux (; born March 1, 1944) is an American lobbyist, attorney, and retired politician who was a member of the United States Senate from Louisiana from 1987 until 2005. He was also a member of the U.S. House of Representatives fr ...
(D-LA),
Tim Wirth
Timothy Endicott "Tim" Wirth (born September 22, 1939) is an American politician from Colorado who served as a Democrat in both the United States Senate (1987-1993) and the United States House of Representatives (1975–1987). He also served in ...
(D-CO),
Ted Kennedy
Edward Moore Kennedy (February 22, 1932 – August 25, 2009) was an American lawyer and politician who served as a United States senator from Massachusetts for almost 47 years, from 1962 until his death in 2009. A member of the Democratic ...
(D-MA),
Joe Biden (D-DE),
Alan Cranston
Alan MacGregor Cranston (June 19, 1914 – December 31, 2000) was an American politician and journalist who served as a United States Senator from California from 1969 to 1993, and as a President of the World Federalist Association from 1949 to 1 ...
(D-CA), and
Donald W. Riegle Jr.
Donald Wayne Riegle Jr. (born February 4, 1938) is an American politician, author, and businessman from Michigan. He served for five terms as a Representative and for three terms as a Senator in the U.S. Congress.
Early life and family
Donald W ...
(D-MI).(The latter two senators were also members of the
Keating Five
File:AlanCranston.jpg, Alan Cranston (D-CA)
File:Dennis DeConcini.jpg,
File:John Glenn Low Res.jpg, John Glenn (D-OH)
File:John McCain.jpg, John McCain (R-AZ)
File:Riegle2.jpg, Donald Riegle (D-MI)
The Keating Five were five United States Sen ...
.)
Miami Beach
Miami Beach is a coastal resort city in Miami-Dade County, Florida. It was incorporated on March 26, 1915. The municipality is located on natural and man-made barrier islands between the Atlantic Ocean and Biscayne Bay, the latter of which sep ...
mayor
Alex Daoud
Arnold Alex Daoud (born May 19, 1943Nelson Gary. ) is the former mayor of Miami Beach, Florida who served the City from 1985 to 1991. In 1991, Daoud was indicted for 41 counts of bribery. He was convicted and served seventeen months in a federal ...
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."
See also
*
List of largest U.S. bank failures
This is a list of the largest U.S. bank failures with respect to total assets under management at the time of the bank failure (banks with $1.0 billion or more in assets are listed here). Assets of the banks listed here are figures provided by ...
References
Further reading
*
*
*
{{Authority control
Defunct banks of the United States
Banks established in 1934
Banks disestablished in 1990
Savings and loan crisis
Bank failures in the United States
Fraud in the United States
1934 establishments in Florida