By Monica Alonzo
By Stephen Lemons
By Jason P. Woodbury
By Dulce Paloma Baltazar Pedraza
By Ray Stern
By Pete Kotz
By Monica Alonzo
By New Times
Eight days after Cal Star publicly announced it was under federal investigation, the company ceased operations, firing 113 workers in 11 offices scattered across six states.
As he had in the past, Brewer turned to the federal bankruptcy courts for protection, placing Cal Star in bankruptcy in August 1990. Three years later, creditors are still sorting out the mess from chaotic and incomplete records maintained by Brewer and Harshey, Cal Star's president. But one thing seems clear: The federal government would like to file criminal charges against Brewer for his role in Cal Star's demise. At least, that is what one source close to the federal investigation says, and such a contention should come as no surprise to Brewer. Since 1990, he has been using the excuse that he's under federal investigation to stall the civil suits pending against him in Orange County.
Brewer admits, through his California attorney, that the feds are ready to drop the ax; the attorney has filed court papers contending that "Brewer has every reason to fear that criminal charges may be forthcoming in the near future."
Federal investigators are focusing on Cal Star's borrowing from two savings and loan companies that later collapsed and were taken over by the Resolution Trust Corporation. Cal Star borrowed $30 million from a now-defunct Salt Lake City thrift, Williamsburg Savings Bank, but failed to repay $7.2 million of the loan. Cal Star also left ABQ Bank of Albuquerque on the hook for at least $6 million, according to court records related to Cal Star's bankruptcy filing.
Brewer says Cal Star's problems were caused by the failure of the two thrifts. When the banks collapsed, he claims, Cal Star lost its credit lines, and was unable to continue doing business.
Federal investigators say Brewer has it backward. Investigators and bankruptcy attorneys allege Cal Star's sloppy accounting and illegal operation contributed to the demise of the thrifts.
Investigators are still trying to determine where the $13 million in unpaid loan proceeds went.
"We've been tracing money in and out of various accounts of Cal Star, and we can't seem to locate a particular destination of those funds," says Jennifer Golison, an attorney working for the trustee liquidating Cal Star's debts.
Bankruptcy investigators have, however, decided one thing: Brewer spent lavishly during his years as chairman and chief executive officer of Cal Star.
"Brewer lived high on the hog," Golison says.
So far, investigators have discovered that about $1 million of Brewer's personal expenses were charged to Cal Star--including a $200,000 down payment on a golf-course home in posh Laguna Niguel, California.
Other personal expenses include $31,000 in charges on the company's American Express card for items such as a fur coat; Hawaiian vacations for Brewer's wife and kids while he traveled to New York; limousine and bodyguard services; tickets to Disneyland; and wild nights at Rick's Saloon, a Houston topless bar where thousands of dollars were spent on table-dancing women.
Bankruptcy trustees filed suit against Brewer, trying to collect some of the corporate money siphoned into his personal accounts. He refused to testify, invoking the Fifth Amendment, and the parties agreed to a settlement calling for Brewer to pay $125,000.
Brewer admits to "borrowing money" from Cal Star, but says he's done nothing wrong, pointing out that a settlement was reached with the bankruptcy court.
Two months after the FBI subpoenaed Cal Star's and Brewer's financial records, Brewer and Harshey moved their operation to Arizona. Within weeks, Brewer was negotiating to purchase Arizona Escrow and Title Co.
The state banking department seemed to think that purchase would be a fine idea.
@body:It doesn't take much to get Arizona's blessing to open a title and escrow company.
Banking department files indicate that anyone who is not a felon, who shows minimal competency in accounting and who posts a $100,000 bond can set up shop. And once in business, title-company owners have instant access to millions of dollars of cash deposited each day by the trusting public.
The state banking department's own files show it conducted what might be charitably described as a limited background check after Brewer filed to become a co-owner of Arizona Escrow.
The review asked Brewer for a cursory, four-page "statement of personal history" that doesn't even ask whether the applicant has ever filed for bankruptcy.
Harshey appears to have gotten off even easier. There is nothing in the department files to show that he submitted any statement whatsoever concerning his employment background and credit history. Yet the department apparently approved the sale of Arizona Escrow to Harshey in mid-1991.
(There is no record showing formal approval of Harshey's purchase of the stock, although court records indicate the deal was consummated in May 1991. Department records also show the state believed the former owner of the company, rather than Harshey, was still serving as president as late as May 1992. The banking department at least had a clue that Brewer could be trouble; records show the state never granted him permission to acquire shares of Arizona Escrow.)
State Banking Superintendent Richard Houseworth points to Brewer's credit report as the reason the state withheld permission to buy Arizona Escrow's stock. Although Brewer's credit report is confidential, it should have showed his 1985 personal bankruptcy filing.