He’s No Angel

Wayne Reeder lets his daughter provide the colorful details. He keeps it spare when asked about his past, though one project he mentions by name is a Radisson Hotel in Mission Valley, California.

He neglects to mention that the project went bust.

The company that developed the Radisson -- Reeder was a 50 percent owner, according to the Los Angeles Times -- defaulted on a $27.5 million construction loan. The year was 1984, in the midst of what would become known as the savings and loan crisis. Carelessly deregulated in the early 1980s, S&Ls across the country failed by the hundreds, their deposits wasted on shady deals like the Radisson. The S&L that lent the money to Reeder and his partners was seized by the government. Regulators found $200 million in "grossly imprudent loans" on its books.

The LA Times reported that Reeder severed ties with Carroll Davis, the Radisson development's general partner. A suit filed later in bankruptcy court, however, accused Davis, Reeder and another man of making off with $1.4 million of the development company's assets.

Reeder was mentioned in other S&L debacles. The Houston Post reported in 1990 that he allegedly defaulted on $14 million in loans from Silverado Savings and Loan of Denver. Silverado's demise cost taxpayers $1.3 billion. (Neil Bush, the son of then-President George H.W. Bush, was a Silverado director.) According to newspaper reports in Knoxville, Tennessee, Reeder posted the bail of and gave away the bride to C.H. Butcher Jr., a banker who spent 7 years in prison for fraud and money laundering.

Reeder lived in freewheeling times. Inside Job, a 1989 book about the savings and loan scandal, puts Reeder at an arms demonstration conducted in 1981 for the benefit of Nicaraguan Contra leaders. According to the book, the Contras were considering buying military equipment from John Nichols, Reeder's partner in an American Indian reservation bingo parlor. Nichols was later sent to prison for his role in a murder-for-hire scheme.

Reeder also was friendly with Henry Beebe, who in testimony before Congress was referred to as "the godfather of the failed Texas S&Ls." Beebe served time in prison after he was accused of defrauding 16 banks and S&Ls in 4 states.

Reeder tells the Pitch that he knew Beebe from La Costa, a resort north of San Diego, where both men had homes. It was Beebe who introduced Reeder to a smooth-talking Texan with an idea to buy insurance companies.

A high school dropout from Dallas, Charles "Chris" Christopher had a gift for salesmanship. In the 1970s, he convinced Lloyd's of London to insure computer leases that he and others sold.

Lloyd's regretted accepting the proposition. The venerable insurer faced more than $200 million in claims -- its largest loss in history, at the time -- when advances in computer technology prompted the lessees to want out of their existing deals. Time magazine, in its account of the affair, called Christopher a "hustler" and a "sharpie."

Christopher tried oil after the computer business. Then he decided he wanted to run insurance companies.

He found two that he liked: American Universal Insurance in Rhode Island and Diamond Benefits, which was licensed in Arizona but had offices in California. Neither was a winner. American Universal, for instance, invested primarily in humdrum government securities. Christopher vowed to jazz up the portfolios.

Reeder provided much of the capital that Christopher needed to get his hands on the companies. He contributed $62 million in promissory notes that were secured by three of his properties, including a golf resort. In return, Reeder received 60 percent of Resolute Holdings, a company Christopher formed.

Insurance is a regulated industry. In order to buy American Universal and Diamond Benefits, Resolute Holdings had to show that it was sound. On May 24, 1988, Reeder signed a capitalization agreement representing that "no actions, suits or proceedings" threatened the properties which secured the promissory note to American Universal.

But it wasn't true.

A $10 million note on one of the properties, Heritage Ranch, was past due. Continental Bank in Chicago had demanded full payment on the loan a month before Reeder signed the capitalization agreement. He owed another bank, Home Fed, $7 million.

Reeder was walking a financial high wire. Once Resolute Holdings took control of the insurance companies, they were used to settle his existing debts. Diamond Benefits was flush with cash after Resolute had arranged for it to assume the annuity obligations of another insurance company. Diamond Benefits took on the obligation in exchange for $18 million upfront, with another $11 million to follow.

Within days of coming under Resolute's control, Diamond Benefits made an $18 million loan to Reeder's Hill Top Developers. (The word "loan" is surrounded by quote marks in a 1999 decision by the U.S. Court of Appeals to uphold Reeder's conviction. That decision is the primary source of the information printed here.) Reeder used the new loan to pay his old ones. He settled with Continental Bank for $8.7 million. Home Fed got $5.9 million.

Reeder also paid himself. According to the Court of Appeals decision, he admitted that a portion of $825,000 transferred from a Diamond Benefits bank account to a trust maintained by one of his lawyers represented payment he felt that he was owed by Home Fed.