2 Plead Guilty in Equipment Leasing Scheme

A Newport Beach woman and her husband have pleaded guilty to defrauding three financial institutions of $14.2 million through a phony equipment lease scheme that relied on help from about 180 people, including several police officers.

Through their Sonora Group Inc., Lucy F. Looney-Rau, 53, and Charles B. Rau III, 50, sold $12.5 million worth of equipment leases to Bank of Newport, which failed in August 1994 after discovering that there was no equipment underlying the leases. Almost $2 million more in leases were sold to other institutions.

“The failure of the bank cost about 100 people their jobs,” said Assistant U.S. Atty. Richard E. Robinson.

The couple pleaded guilty late Tuesday in federal court in Los Angeles to one count of conspiracy and three counts of financial institution fraud.

Rau also pleaded guilty to evading $804,000 in income taxes, and Looney-Rau pleaded guilty to aiding and abetting him.

Neither the Raus nor their lawyers could be reached for comment. The Raus are each free on a $50,000 secured bond until sentencing, which is scheduled for May 19.

The guilty pleas come at a time when banks have been boosting their revenue with lucrative equipment leasing operations. Bankers across the nation are buying and leasing out everything from airplanes and railroad cars to fax machines and personal computers, according to Forbes magazine.

But the business also opens the doors to fraud. Chase Manhattan Bank, NationsBank and Signet Banking Corp., for instance, have been hit by large leasing scams in the past two years.

In 1994, Bank of Newport was a troubled institution that was on the mend, from cash infusions by some shareholders and from a pending agreement for sale to a group of East Coast investors. But, through a tip, the bank learned about the Raus’ scam.

“What these people did single-handedly caused the failure of the finest small bank franchise in Orange County,” said the bank’s lawyer, Ronald Rus of Irvine. “This fraud ended the merger and made failure inevitable. The scheme was so intricate and sophisticated that even bank examiners specifically reviewing the leasing department failed to perceive the scheme.”

The scheme also astounded bankers and law enforcement authorities because so many generally law-abiding people helped to keep the fraud going.

Sonora was a financing and leasing company for truckers and others who needed heavy equipment but couldn’t get a bank loan themselves. Looney-Rau--by all accounts, a friendly, charming, persuasive woman--ran the company. Rau ran Lionheart Equipment, which sold and repossessed trucks, trailers and other rolling equipment.

Sonora would buy, say, a forklift from Lionheart and lease it to a needy company. Then Sonora would sell the stream of payments owed under the lease to Bank of Newport, which collected monthly checks from the lessees.

But from early 1991 to April 1994, Looney-Rau and her husband created bogus equipment leases, using the names of several people--including a tax accountant and a dozen police officers--with legitimate credit histories.

For up to $5,000 each, most of the people agreed to lie on documents submitted to the bank. Some of those people were paid an additional $1,000 for each person they referred to Sonora.

The people became lessees of equipment they never saw, and both Sonora and the lessees became responsible for repaying the loans.

When the bank periodically called to check on the equipment leases, the people would lie about having the equipment. When the bank sent someone to look at the equipment, Rau would move a piece onto the lessee’s property for a day.

“These people were swindled into signing away their credit on the basis of Looney-Rau’s statement that a fellow trucker had cancer or was about to go bankrupt and needed help,” said Mark O. Hiepler, an Oxnard lawyer who represented most of the lessees in lawsuits that ensued.

The lawsuits have been settled for an average payment of about 5% of the amount owed. One lessee may still face criminal action, but the rest won’t be prosecuted, sources said.

The Raus each face up to 100 years in prison and $3.5 million in fines at their sentencings before U.S. District Judge George H. King.

Under the plea agreements, prosecutors will recommend sentences of 78 months to 97 months for Looney-Rau, identified as the organizer and leader of the scam, and 63 months to 78 months for her husband.