History

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When it comes to scamming in L.A., the more things change, the more they stay the same.

Consider one of the region’s earliest frauds, perpetrated during the great real estate boom of the 1880s. As rail fares to Los Angeles plummeted, hundreds of thousands of Midwesterners began flocking to the area, sparking a corresponding influx of real estate agents more than 2,000 of them to be exact, who began a heated sell-off of the old ranchos with promises of blue ocean, healthy breezes and cheap land.

One brochure for several thousand lots in “Chicago Park,” just south of Monrovia, depicted steamers and riverboats navigating the San Gabriel River which, in fact, was little more than a creek for most of the year.

Like more than 100 other towns mapped during the frantic five-year boom, Chicago Park never made it out of the planning stages. Thousands of would-be homeowners were left empty-handed.

Flash forward about 100 years to the case of Marshall Redman. Between 1978 and 1994, the L.A. developer led a massive land swindle that defrauded some 2,500 buyers, most of them Spanish-speaking, who were lured to an Antelope Valley housing tract on false promises that utilities and other improvements were on the way. Instead, they ended up stuck in makeshift homes with neither water nor electricity.

“L.A. has always been a boomtown, and boomtowns always attract scammers,” said Leonard Pitt, author of “Los Angeles A to Z.” “First it’s land, then it’s oil, then it’s quack medical treatments, then real estate in the boom mentality, the idea is to exploit something quickly and get out when you can. It’s a very deeply ingrained cultural trait associated with the place.”

Real estate speculation certainly has supplied its share of those boom-time opportunities. And for most of L.A.’s history, so has oil.

Perhaps the most celebrated oil swindle was perpetrated by C.C. Julian in the 1920s. A Canadian by birth, Julian was a flamboyant speculator who managed to attract investors to his Julian Petroleum Co. with newspaper ads promising dividends far beyond the firm’s actual earnings.

For a time, Julian was lucky, scoring a few wildcat successes that enabled him to post profits and attract even more investors. But as his luck began to run out, public pressure and government regulations forced the high-living Julian to abandon his own company. In 1927, trading in Julian Petroleum was halted and the company collapsed.

In the chaos that ensued, the L.A. district attorney was sentenced to jail for bribery and scores of others were convicted of bribery, embezzlement and other offenses. A witness was murdered in open court. Ultimately, some 40,000 shareholders lost $150 million. Julian himself fled to China, where in 1934 he committed suicide and was buried in a pauper’s grave.

L.A.’s other defining industry show business also has contributed its share of scandals and white-collar crimes to the local history books. Particularly memorable is the Columbia Pictures scandal of the 1970s, in which studio head David Begelman was implicated in an embezzlement scheme triggering a chain of events that vividly demonstrates the highly insular nature of L.A.’s “peculiar institution.”

The scandal, dubbed “Hollywoodgate,” broke in the fall of 1976, when actor Cliff Robertson discovered that he had never seen a check made out to him and allegedly endorsed by his own signature. It turned out that Robertson was one of four people, including director Martin Ritts, whose signature had been forged by Begelman.

Begelman was accused of embezzling just over $61,000 a paltry sum by Hollywood standards. But when Columbia’s president and Wall Street insider Alan Hirschfield sought to have Begelman removed, the board, impressed by the studio head’s track record, turned against Hirschfield instead.

It was only after Robertson went public that Begelman was arrested on felony charges of grand theft and forgery and relieved of his position.

While any city can boast its share of shady characters and crooks, there is something different about the schemers who have migrated to Los Angeles, says Kevin Starr, California state librarian and author of a series of books on state history.

“It’s certainly more vivid scamming the schemes are more cinematic, more spectacular,” Starr said. “It’s part of the volatile nature of the city. This is a city that attracts a lot of self-invented people. You have an atmosphere that lends itself to get-rich-quick schemes.”

For much of the early part of the century, one way Angelenos sought to reinvent themselves was through unorthodox health cures and concoctions. The legion of health seekers was too attractive a market for creators of questionable cures to resist, even for one of the region’s leading citizens: eccentric real estate tycoon H. Gaylord Wilshire, who developed the thoroughfare that bears his name.

In 1925, after a successful run in the local real estate markets and a failed run at Congress, Wilshire began promoting an electric belt called the “I-ON-A-CO,” which he claimed could cure everything from paralysis to athlete’s foot. The gadget, which turned out to consist of six pounds of 22-gauge insulation wire woven into a belt, retailed for $58.50. Wilshire’s cost per unit? About five bucks.

Corruption in Los Angeles has long been the domain of entrepreneurs and business people, a striking contrast to Eastern cities, where chicanery usually centers in the public sector.

“In the scheme of things, this is not a corrupt city,” said Xandra Kayden, president of the local chapter of the League of Women Voters and chair of the committee that drafted the city’s ethics code in 1989. “The corruption has always been on the private side, because there has always been so much money to be made and people feel perfectly comfortable taking advantage of each other.”

When it comes to private-sector scandals, one name that springs to mind is Barry Minkow. Minkow launched his ZZZZ Best carpet-cleaning company at age 16, taking the firm public before his 21st birthday and becoming the nation’s youngest chief executive.

But ZZZZ Best turned out to be an eloaborate Ponzi scheme and in 1988, Minkow was convicted of 57 counts of fraud. He was sentenced to 25 years in prison (he served 54 months) and ordered to pay $26 million in restitution.

That pales in comparison to the savings-and-loan and junk-bond debacles of the 1980s and in Los Angeles, one of the biggest thrift failures was Columbia Savings.

Thomas Spiegel, once the nation’s highest-paid thrift executive, was indicted in 1992 on 55 criminal counts alleging that he looted the Beverly Hills-based institution to support a luxurious lifestyle, including vacation homes in Utah and Palm Springs, a collection of high-powered guns and use of the company’s Gulfstream IV jet.

Columbia eventually was seized by federal regulators and liquidated at a cost to taxpayers of $1.1 billion. Spiegel, who claimed throughout that he was a scapegoat for ineffective regulators, emerged from the scandal relatively unscathed. He was acquitted of criminal charges and settled a civil dispute with the federal government, agreeing to pay just $270,000 in restitution.

Spiegel was a high flyer. But even run-of-the-mill Angelenos have been known to pull a scam when the opportunity has presented itself. In the aftermath of the 1971 Sylmar earthquake, the Small Business Administration reported that a large share of the $211 million handed out to assist quake victims went to thousands who did not deserve it.

So are Angelenos really more unscrupulous than people elsewhere? Maybe so.

“People here are willing to take gambles,” suggested Kayden. “And I would bet that they wouldn’t be as tempted in the communities that they grew up in. People came here to get the perfect life and strike it rich. And they still come here with that in mind.”

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