Alleged Pyramid Scheme Boasted Impressive Cast
Courts: Key Palm Springs area leaders are among those indicted. Defense lawyers say games were legal.
July 14, 1996|TOM GORMAN and DIANA MARCUM | SPECIAL TO THE TIMES
PALM DESERT — Of the nine police booking mugs, Kathleen Rector and Diana Hodgkins are flashing the sunniest smiles. Of course. They are concierges at the wankiest hotel in town and are visions of cheer, even after being indicted.
The local college president appears decidedly more subdued.
So do the former executive director of the prestigious McCallum Theatre for the Performing Arts and the theater's former controller, the fired school district superintendent and the censured school board trustee.
It's an impressive cast: Some of the most visible faces in this community stand accused of promoting an illegal pyramid scheme that swept across the Coachella Valley--from the resorts of Palm Springs and Palm Desert to the working-class neighborhoods of Cathedral City and Indio--like some blistering sandstorm.
Of about 1,000 people who allegedly exchanged an estimated $1 million over a year's time, these nine were the only ones indicted June 27 by the Riverside County Grand Jury. They were charged with enticing people to pay money into an endless chain with the hopes of collecting large paybacks from others who would follow suit. The specific roles of these nine suspects are unclear; the grand jury transcripts remain sealed.
But what is clear, said Jay Orr, who heads the fraud division of the Riverside County district attorney's office, is that prominent community leaders used their positions of influence to draw friends and underlings into the scheme.
"People were getting involved because they trusted the superintendent of schools, the college president--people with titles who used their position to line their pockets at other people's expense," Orr said.
Today, careers are soiled if not ruined, three institutions of stature are reeling, and much of the community is outraged--if not at the pilloried game players, then at the district attorney's office for prosecuting them.
"It's overwhelmingly hysterical to me that they're painting these pillars of the community as diabolical schemers," said Lou Penrose, host of the Coachella Valley's most-listened-to talk radio program. "This was like the jet set getting together to buy better jets. They're not fleecing the poor."
"Not true," Orr said. "This wasn't between equals. Some of the ones at the top were making more than $100,000 while little guys--a lot of teachers--lost $6,000."
Each of the nine suspects has pleaded not guilty. They are:
* David George, for 10 years the president of the valley's only campus for higher education, the College of the Desert. He has resigned effective next month, but will remain on the faculty as a business management instructor.
* Dolores Ballesteros, who was fired as superintendent of the Desert Sands Unified School District after she publicly acknowledged her role in the alleged pyramid scheme.
* Matthew Monica Jr., a College of the Desert counselor and member of the Desert Sands school board who was censured by his board colleagues after admitting his role, and his wife, Mary Ann Monica, who is a college secretary.
* Nancy Dolensek, who resigned as executive director of the McCallum Theatre--the valley's acclaimed performing arts venue--and Vickie Brown, the theater's controller.
* Diana Hodgkins and Kathleen Rector, concierges at Marriott's Desert Springs Resort who, prosecutors say, were involved in introducing the alleged pyramid games to the region.
* Marianna Dorson, a retiree who, according to sources close to the investigation, made a full-time job of the games.
Deputy Dist. Atty. Edward Kotkin, who is prosecuting the case, said this insular valley's tight-knit social and business circles provided the perfect environment in which the scheme could incubate.
The money club, known as "Friends Helping Friends" and the "Gift Exchange," had links connecting bankers and beauticians, schoolteachers and socialites. Many believed that the games were no more devilish than Saturday night poker, a World Series office pool or a Tupperware party.
"The only reason I wasn't involved was I didn't have the $2,000," said Craig Prater, executive director of the Palm Springs International Film Festival.
"These are good people. Some of them are close friends. What they did was no different than me saying to you, 'Let's go to the casino . . . and we'll hoot and holler the whole time we're losing money.' "
The parties were held at private homes, hotels and even a local church. Two-liter bottles of lukewarm soda and bowls of stale pretzels substituted for the usual fresh raspberries and chilled champagne of monied desert galas.
"My friend said, 'It's fun. You meet people. They hand out money,' " said Gloria Greer, a local television entertainment reporter whose society column in the Desert Sun newspaper was dumped after she acknowledged her brush with the game. "He said the pyramid party was the damnedest thing he ever saw
"So I went two nights later. There were 150 people there--people who own art galleries, charity chairpersons, real estate people, members of the Daughters of the American Revolution--very respectable people.
"And people were turning over money and hugging one another, like a spiritual revival. And it was the damnedest thing I ever saw."
Everyone who showed up was amazed, it seemed, by whom they ran into. There was the star of the old television drama. The retired judge. A retired police captain. Friends from the local Rotary Club.
"I brought my doctor along," said a local financial investment counselor who--like others interviewed for this story--was afraid of career repercussions if identified.
According to investigators, this is how the scheme worked:
Charts decorated with foil stars showed the structure of four-tiered pyramids: eight places on the bottom, then four, then two, then the top. When the bottom eight people each paid $2,000 to the person at the apex, the recipient "retired," the pyramid split in two and everyone moved up a level. Eight new participants then had to be recruited to sustain each new pyramid. Thus, prosecutors say, the scheme was endless.
The cash payoffs had the trappings of a pep rally. As players forked over $2,000 in cash, a hundred-dollar bill at a time, giddy, cheering participants shouted aloud: "One hundred! Two hundred! . . ."
Some players even spun off their own mini-pyramids, for $100 antes, authorities said. Others marveled at the new spoils spotted around town: the hotel employee now sporting a powder-blue Jaguar; another showing off her 2-year-old as a Ralph Lauren fashion plate.
Concern that the games might be considered illegal was discounted.
Cheerleaders for the games would declare: "This isn't a pyramid, it's a tree!" attendees said.
Indeed, promotional material touted the games' supposed legality. One handout said a player's neighbor--a judge--looked at the plan and declared, "Go for it!" And players were admonished to pay income taxes on their winnings.
Lawyers for the defendants said that since the games' brochures announced an ending date of Dec. 31, by which time players would be weaned off, that made them legal.
Kotkin scoffed at that notion. "Who would want to enter a pyramid if they knew it was going to end and they would lose their money?" he asked.
David Kogus, attorney for Brown, said the games were on the up-and-up.
"No one was given a single misrepresentation," he said. "Not one single victim was defrauded. There was not one deceptive practice or act."
Rodney Soda, attorney for the Monicas, said players had no reason to suspect that the games might be illegal. "When you are approached by friends who are prominent members of the community, and they give you literature that says it is not illegal and you won't get hurt and there's mechanisms to get your money back, and they are doing it--prominent people--then why would you think it is illegal?"
Orr responded: "It's not right for friends to rip off friends." And some said they were stung.
"I took out a $2,000 advance on my credit card and never saw it again," said one Marriott employee, waving her credit card bill. "I wanted to make enough money to pay my bills."
Institutions are doing damage assessment too, given how some people have now come to challenge their credibility.
Hollywood writer-director Val Guest and his wife, actress Yolande Donlan, longtime McCallum supporters, said they unwittingly attended a party for the game that put a crimp in their charitable impulses.
They said they were surprised to see Nancy Trapnell, the theater's director of development, making the pitch for the game.
"We thought it was a hell of a place for her to be," Donlan said. "We left immediately. There will have to be a lot of changes over there (at the McCallum) before we give them money again."
(Trapnell later testified before the grand jury but was not among the nine indicted.)
Former President Gerald Ford, a McCallum trustee, acknowledges the credibility problem. The board put the three McCallum employees on leave after learning of their involvement.
"A majority of the board . . . made the difficult but correct decision when the pyramid problems arose," Ford said. "It definitely appears [we] have restored community support."
Toni Graphos, president of the McCallum board, said, "It is safe to say there was somewhat of a cloud on the institution." Fund-raising efforts for the theater have stalled and the pyramid scandal "certainly didn't help," Graphos said.
Reverberations from the games have also reopened political infighting in the Desert Sands school district, giving new ammunition to critics of Ballesteros and Matthew Monica.
College of the Desert trustees are assessing their management style in the wake of George's resignation.
"The board hadn't given a lot of thought to internal workings and organization of the college until this occurred," said board President Virnita McDonald. "We had a lot of confidence in Dr. George. Whatever he said was just fine with us. But the board was gravely disappointed [by his association with the games] and felt he had shown a lack of judgment."
It was a College of the Desert employee--Joyce Moore, president of the local college employees union--who blew the whistle on the games.
After she heard of George's involvement, she gave the man she's known for years a tongue-lashing. She then complained to the local newspaper and television station and fired off a letter to the Riverside County district attorney's office.
"The whole thing was getting out of control," she said. "We think we're sophisticated, but we're an isolated community. It's incestuous. The lines of relationships cross over and over again. Everyone out here knows each other."
When the story broke, Moore went on the local TV news, her face screened to protect her identity.
But everyone recognized her anyway--by her signature dangling earrings.