Background: 'CALL BOYS at the White House'
With a story about "key officials of the Reagan and Bush administration" involved in a "callboy ring," the Washington Times in late June seemed poised to give this town the one thing it adores -- a summer scandal. But as of last week, journalists have been left debating whether the Times published a blockbuster or a "blockbluster," as one critic put it. The story is intriguing -- involving male prostitution and a lobbyist who used parties to promote his business connections and business connections to promote his parties. But is it a government scandal or just a sordid slice of life in a city that happens to be Washington, D.C.?
OMAHA — A scandal over $38 million believed to be missing from a shuttered Omaha credit union has spawned half a dozen federal, state and local investigations, some of which also are looking into allegations of sexual abuse of foster children.
Latest to join the inquiries is a special state legislative committee that last week interviewed former CIA chief William Colby as one of the candidates to head its probe.
The collapse of Franklin Federal Credit Union late last year attracted national attention, in part because its flamboyant, jet-setting manager-treasurer, Lawrence E. King Jr., is a prominent black Republican.
Allegations of sexual misconduct involving several 15- and 16-year-old girls and at least one teenage boy first emerged last month, when state Sen. Ernest Chambers, vice chairman of the special legislative committee, told colleagues he had received reports of child sexual abuse said to be linked with credit union officials.
No one has publicly linked King with any of the allegations and no formal charges have been filed, but FBI agents in Omaha said they are investigating the possibility that money taken from the credit union may have been involved in the transport of minors across state lines for vice activities.
More allegations of sexual misconduct with minors surfaced when files held by state foster care officials were turned over to the committee in December. The allegations, dating as far back as 1984, include nude photo sessions and fondling at parties in Omaha and elsewhere at which credit union officials were said to be present.
''These kids were telling them the highest bidder got to take the pictures and fondle them, but could not have sex with them,'' said State Sen. James McFarland of Lincoln, a committee member.
Julie Walters, a former family counselor who interviewed one of the alleged victims in 1987, reported that the girl-who was 16 at the time-claimed to have attended parties in Washington, Chicago, New Orleans, Philadelphia and the Bahamas, traveling under the guise of a babysitter for the family of a credit union official.
A Nebraska child-care official, who would not speak for attribution, said the same teenaged girl had passed four lie-detector tests administered by state officials.
Franklin, which was formed to help the poor of Omaha
s North Side, was closed Nov. 4, after federal investigators found a secret set of books listing $38 million in sales of unrecorded certificates of deposit. The money could not be found, and Franklin officially reported only $2.5 million in assets, loans and cash. The National Credit Union Administration is suing King for the missing millions. Even more investigations into Franklin may soon be underway. U.S. Sen. J.J. Exon (D., Neb.) has asked the Senate Banking Committee to look into Franklins collapse, and Rep. Douglas Berueter (R., Neb.) is seeking a similar investigation by the House Banking Committee.
National Credit Union Administration investigators say they have traced at least 40 percent of the missing millions to personal expenditures by King on jewelry, clothes, apartment rents, hotel, restaurant and flower bills, and chartered jets and limousines.
s astounding. Its the most unbelievable thing I
ve ever seen,'' Robert Fenner, legal counsel for the agency, said of the expenditures. King, 44, was once prominent in Omaha social and charitable circles. He is a former vice chairman of the National Black Republican Council and is also known as an extravagant entertainer at national GOP gatherings. He sang the national anthem at the partys 1984 national convention in Dallas.
Last Monday, the law firm of Erickson & Sederstrom, which had been representing King, asked U.S. District Judge William Cambridge for permission to withdraw from the case, saying King had failed to comply with a payment schedule for legal services.
About 18 percent of the missing millions went to pay dividends to certificate of deposit holders, Fenner said. Six percent went for salaries of the Consumer Services Organization, an organization connected with Franklin that sought to help poor people manage their finances. An additional 16 percent went to other business ventures involving King.
Fenner said the remaining 20 percent went for ''other'' purposes, apparently still being traced.
When the Community Services Organization did not have money to pay its bills, Fenner said, certificate of deposit money received by Franklin was funneled into it. Then, with forged letterheads from charitable and religious organizations, some of the money was funneled back to the credit union as bogus grants and donations, Fenner said.
Meanwhile, the certificate of deposit operation at Franklin was operating as ''a classic Ponzi scheme that got started small and got out of control,''
according to Fenner.
New CD sales were going to pay dividends on old CDs, while deposits from the old CDs were being funneled out of Franklin for King`s personal use, the National Credit Union Administration charges in its suit.
''It snowballed until it went absolutely insane,'' Fenner said.
The agency has paid out $35 million from its insurance fund to Franklin depositors.