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There was another, darker side to U.S. Financial. It borrowed money from a questionable, small Swiss institution, the Cosmos Bank. As a 1974 article in Business Week and a 1978 article in Forbes pointed out, this bank, which failed in the mid-1970s, had made deals to fund some very shady operations. One was Los Angeles-based Equity Funding, called "the fraud of the century" in one of three hot-selling books about the company published in the 1970s. Another was the Paradise Island Bridge, which connects a controversial gambling casino to Nassau, Bahamas. Another company getting money from Cosmos was Westec, considered one of the major auditing failures of the 1960s. Said Forbes, "Cosmos also made a concealed loan of $800,000 to Peñasquitos Corp., a [San Diego] land developer, which also received $100 million in loans from the much-investigated Teamsters Union Central States Pension Fund. The owner-operator of Peñasquitos, [San Diego's] Irvin J. Kahn, who died in September 1973, was involved in numerous deals with principals related to organized crime." (Full disclosure: as a staff member, I provided reams of information on the Cosmos Bank to Business Week. Also, I was a major contributor to the 1978 Forbes article.)

Investigative author Dan E. Moldea in his book Interference says that former president Richard Nixon stashed $35.9 million in the Cosmos Bank in 1971 and 1972. According to the Business Week story, "the Senate Watergate Committee and the special prosecutor's office looked into Cosmos Bank, among others, to learn whether it was a conduit for illegal Republican campaign contributions."

Like U.S. Financial, C. Arnholt Smith, who controlled Westgate-California and United States National Bank, had questionable associations. Owner of the Padres, Smith was beloved of the San Diego establishment. The downtown Rotary Club named him "Mr. San Diego," and a San Diego Union writer called him "Mr. San Diego of the Century." He was a close friend of the Copley newspaper clan -- as I soon learned in 1973 -- a lion of society, and the leader of the business establishment. But another longtime Smith associate was John Alessio, who ran a bookmaking operation in Mexico and went to prison in 1971 for tax evasion. Alessio boasted in a Union-Tribune article that he was one of the biggest shareholders in Smith enterprises. In the late 1960s, the two tried unsuccessfully to get the Del Mar Racetrack license and move it to their Oceanside track, San Luis Rey Downs, according to the North County Times.

In 1933, Smith and his brother had bought the ailing United States National Bank, and in ensuing decades, they acquired other banks.

Smith launched Westgate-California in 1960 and through rapid acquisitions created a hodgepodge: Yellow Cab operations in 13 California cities, a tuna fleet, the Westgate Plaza Hotel, regional airline Air California, Airport Limousine and Trucking Services, diversified manufacturer Golconda Corp., and scattered raw land.

In the mid-1960s, some Las Vegas entrepreneurs decided to build a posh resort in North County, named La Costa. The leader was Morris "Moe" Dalitz, a charter member during Prohibition of Cleveland's Mayfield Road Mob. In the 1950s, when Senator Estes Kefauver was investigating organized crime, Dalitz, asked about rum-running, snapped famously, "If you people wouldn't have drunk it, I wouldn't have bootlegged it."

U.S. National made the interim loans on La Costa, according to James Mulvaney, later the government-installed president of the bank. Then the Teamsters' funds would assume the U.S. National loans, explains Mulvaney. Teamster head Frank Fitzsimmons, "who had taken over for Jimmy Hoffa, used to come down to the ballpark regularly when the Padres were a minor-league team, and also when they were in the majors," says Mulvaney.

According to federal banking and securities regulators, the Smith-controlled bank would dole out money far in excess of legal insider-lending limits to the Smith-controlled conglomerate Westgate-California and also to Smith's cronies, such as Alessio, La Costa developers, and owners of farm acreage.

"Smith used the bank as his cash register," says Dave Stutz, who probed Smith and John Alessio for a combined federal and state organized-crime strike force. Stutz, who retired last year from the district attorney's office, says Smith made sure that the majority of bank officials "were in his pocket; they would approve anything -- gave him a cash cow to build his empire and fund his friends," such as Alessio and Dalitz.

The strike force was investigating alleged hoodlums that hung around La Costa, says Stutz. Despite bad national publicity about La Costa, U.S. National didn't stop shelling out construction loans; it kept funding the Vegas entrepreneurs, particularly for purchasing surrounding real estate. "I saw all the loan reports generated internally within the bank for La Costa," says Stutz. Dalitz and his pals would routinely request loans of $50,000 and $100,000 and get them. "The bank carried the La Costa loans on the books; they were rolled over but not always paid."

As the bank headed for insolvency in the early 1970s, phantom transactions appeared, says Stutz. Smith and bank officials "set up 80 or so different corporations that were just on paper. There was no corporation. They would roll the loans over into these entities."

In the early 1970s, the Securities and Exchange Commission accused Smith of fraud. Trading in Westgate stock was halted. In a settlement, Smith was removed from office. Federal banking authorities shut down the bank in 1973 -- at the time, it was the largest bank failure in U.S. history. Almost 40 percent of the loans were to Smith companies or cronies. Comptroller of the Currency James E. Smith called the bank's unkempt operations the result of "total fraud." The Smith financing machine was "self-dealing run riot." Initially, stockholders of both the bank and the conglomerate got clobbered.

Smith eventually pleaded no contest to federal felony bank fraud. The government showed that when his bank was shoveling money to his pals, some of it was going into his pocket, pointed out press articles of the time. But Smith was given probation. The public howled. The district attorney nailed him for embezzlement of almost $9 million. In 1984, he was incarcerated, sort of -- he tended flowers for eight months at a work furlough center in Southeast San Diego. He died in 1996.

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