Compared to Burkle, Gary Winnick and the late Roland Arnall mostly flew under the radar of the media, so their paths to the riches that paid for their Los Angeles palaces are not as well lit. What is abundantly clear is that both walked away with fortunes from the financial wreckage of corporations they formed during economic bubbles.
Arnall, the secretive buyer of Owlwood and the two homes flanking it on Sunset Boulevard in 2002, has been called the Johnny Appleseed of the subprime mortgage industry that almost brought down the international economy in 2008. So it seems oddly apt that his last home was built by the widow of the man who paid all cash for John Wolfskill’s Rancho San Juan de Buenos Ayres.
Details of Arnall’s life are sketchy at best; he rarely spoke to the press, gave interviews, or proffered personal information, but according to Michael Howard’s book on predatory lending, The Monster, he was born in Paris to a Romanian tailor and a Czech nurse. During World War II, the Jewish Arnalls pretended to be Roman Catholics in a small village in the south of France; only when the war ended did the six-year-old learn who he really was.
After the war, his family relocated to Montreal until his father returned from a trip to say he’d found “a place where there were no poor people”: Beverly Hills. Roland started out there selling eggs door-to-door, but it wasn’t long before he graduated to buying and developing real estate, keeping the sharp elbows he’d needed to work the streets. In 1968, he was accused (and later cleared) of bribing a Los Angeles city councilman and in 1973, his development company REA Enterprises (his middle initial was Edmond) sued the Beverly Hills bank that was financing him over a failed development deal. Though he often teetered on the financial brink, he managed to make big loans to politicians and in 1979, opened a savings and loan bank that was used, said an ex-employee, “as a piggy bank.” In the eighties, he was charged with intentional fraud in a lawsuit; the case was settled out of court, confidentially. That would become a pattern.
After the collapse of the S&L industry in the mid-1980s led to strict regulation, Arnall literally burned his bank’s official charter to ashes he kept in an urn on his desk, telling regulators “to shove it,” according to Chain of Blame, another history of the mortgage mess. Little did he know that his next act would light a fire that would scorch the whole developed world.
In 1994, Arnall created Long Beach Mortgage, a nearly unregulated business funded by Wall Street instead of federally insured savings deposits; it specialized in subprime loans to borrowers with bad credit or low income. Fascinated with technology, Arnall created systems to grade borrowers, who were charged increasing rates and fees based on the risk they presented. In 1995, Arnall created a subsidiary, Ameriquest Mortgage, to issue higher-quality mortgages and turned Long Beach into a sales network focused on subprime loans.
Arnall’s allergy to public notice was such that he created a maze of corporations to keep his name from public documents when he finally went public in 1997 via Long Beach Financial Corp., raising almost $150 million. A holding company he created at the same time still controlled 70 percent of the public company and he walked away with about $100 million. He also kept his retail outlets. He’d gone from rich to seriously so.
It was clearly not a coincidence that just before the IPO, Arnall and his wife separated; they would formally divorce two years later in 1998 after thirty-seven years. He was brutal to her in the negotiated end of their marriage. He lied and hid assets and even bullied her to settle on the same day his mother died. They made a deal: He kept his corporate holdings, she got two homes, but only $11 million. A stay-at-home mom, she’d paid no attention to her husband’s business and believed him when he told her what he was worth.36
In 2000, Arnall reivented Ameriquest as a subprime lender, undertaking a national expansion of the retail business he’d kept, turning it into the largest source of subprime mortgages in America. Though he stayed in the shadows, Ameriquest began to resemble Herbalife, with salesmen fired up at sales meetings, compensated based on the volume of loans they wrote—top salesmen earned millions—and rewarded with prizes like Porsches and junkets to Vegas and the Caribbean. Through the next half-decade, as recession caused interest rates to drop, subprime mortgages soared, their growth driven in part by another Arnall innovation, stated-income loans, also known as liar loans, that saw loan officers accepting as truth whatever income a borrower claimed. By 2003, Ameriquest and its subsidiaries would be originating $40 billion in loans, about a third of which were the liar or limited-documentation mortgages that would shortly begin defaulting in horrifying numbers.
Regulators weren’t entirely asleep. In 1996, Arnall had denied wrongdoing but paid $4 million to settle federal charges that his lending operation charged higher fees to women, senior citizens, and members of minority groups than it did to young white males. Now, in spring 2000, protesters stormed one of the new Ameriquest offices, chanting about “loan sharks” charging excessive fees. A protest leader denounced the firm as “slimy mortgage predators.” The Federal Trade Commission opened an investigation. The next year, federal prosecutors in San Diego indicted several Ameriquest loan officers for fraudulently raising appraisal values on homes in order to generate larger loans and larger fees for themselves. Arnall and his top executives would claim such actions were aberrations committed by rogue employees. Watchdogs would pointedly note his $1.2 million in donations to local Democrats in the preceding decade—and suggest he’d bought himself a free pass.
Arnall had always worked with members of his family. In 1998, he hired Dawn Mansfield, a blonde MBA twenty years his junior. She’d started her career literally selling the family farm, then worked in commercial real estate in Chicago and L.A. for twenty years before joining Arnall at Ameriquest. Two years after hiring her, he married her in a ceremony performed by California governor Gray Davis, another recipient of his contributions and fund-raising skill. Davis appointed Dawn, an animal lover, to a post on California’s veterinary board.
After his second marriage, Arnall made the series of trophy real estate purchases that announced his intention to emerge from the shadows and begin leading a more public life. He bought the ten-acre estate on Carolwood from Ghazi Aita and Enge Humperdinck and two years later, the 650-acre Mandalay Ranch between Snowmass and Buttermilk ski areas in Aspen from the movie producer Peter Guber. It was another relative bargain. Guber initially asked $63 million for his land, 15,000-square-foot home, 3,500-square-foot guest cabin, barns, and outbuildings. Arnall reportedly bought it all for $46 million, still managing to set a local record.
Greg Hagins, Aita’s estate manager, said Arnall signed him to a one-year contract worth $125,000 to continue working on the Holmby Hills estate. “He was the weirdest person I’ve ever known,” Hagins said. “He kept me because I knew where the gas and electric lines were. He tore everything up within two weeks. He wanted it done quick so he could have fund-raisers for Bush and Cheney.” Bush’s response to 9/11 was said to have motivated Arnall’s switch in loyalty to the Republicans, though their opposition to financial regulation probably didn’t hurt.
“He took down the Pink Palace first, bulldozing everything except the pool,” Hagins continued. “He did it without permits and paid fines.” Hagins got word to the local historical society and there were protests, but Arnall “didn’t care,” said Hagins. Shortly after the tear-downs, South Carolwood Drive, once a public street, was closed off with a gate. Hagins thought Arnall used his political connections to accomplish that. “They called it a security issue but he didn’t want regular people sitting on lawn chairs out there.”
Arnall wasn’t only buying; he was making changes in the volume and direction of his giving and fund-raising. He’d already won a reputation for philanthropy and public service, serving sixteen years on the board of California State University (appointed by Jerry Brown after he became governor) and cofounding and serving as chairman of the board of a Jewish human rights organization, the Simon Wiesenthal Center and Museum of Tolerance in Los Angeles. In 2001, Arnall became the first president of the American Friends of the London School for Jewish Studies and gave a plot of Beverly Hills land to his local synagogue. But in 2004, his focus shifted to reelecting George W. Bush. By bundling contributions from his employees and family members, he made Ameriquest the twelfth-largest contributor to the Bush campaign. The Washington Post called the Arnalls “the single biggest source of financial support for Bush since 2002.”
Ameriquest had also begun advertising and promoting itself, spending millions on ads, buying naming rights to the Texas Rangers stadium, sponsoring NASCAR drivers Dario Franchitti and Danica Patrick and a tour by the Rolling Stones, and hiring Paul McCartney to play a branded half-time show at the Super Bowl. It was all so out of character for Arnall, it suggested that he might be gearing up to sell the company, and get out while the getting was still very good. In 2003, Chain of Blame authors Paul Muolo and Mathew Padilla noted, Ameriquest and its affiliates were grossing $1 billion a year through its thousands of employees and hundreds of retail outlets. Investment bankers were dying to take the company public.
If Arnall seemed inclined to sell, though, by late 2004 it was too late. A series of exposés were about to appear that signaled the beginning of the end of Ameriquest. The Los Angeles Times revealed that between 2000 and 2004, its customers had filed more complaints with the Federal Trade Commission than its two biggest competitors combined.37 Allegations of fraud, deception, forgery, unfair practices, bait-and-switch sales tactics, and falsified documents and appraisals were piling up in other states’ offices and courthouses, too. The Times noted the Arnalls’ $3.8 million in campaign contributions in the preceding year, and listed who’d attended their most recent holiday party at Owlwood, from Governer Schwarzenegger and his wife Maria Shriver to California’s attorney general. The writer then quoted a former loan officer to devastating effect, explaining how Boiler Room, a movie glamorizing stock swindlers, was assigned to Ameriquest employees as homework as an example of “the energy, the impact, the driving, the hustling” needed to make it in the subprime world. A follow-up story told how the bipartisan Arnall had financed a weekend at the Pro Bowl in Hawaii for the leader of California’s assembly and four other Democratic officials.
Just as Ameriquest’s troubles were mounting—more investigations across the country, the abrupt end of its attempt to go public, and reports Arnall planned to sell $1 billion in bonds in order to cash out—the Bush administration revealed Arnall’s reward and his exit strategy by nominating him to become U.S. ambassador to the Netherlands. Democrats in Congress opposed the appointment; all of Ameriquest’s problems, both domestically and overseas, were raked over again, and citizen’s groups accused Arnall of buying government favors and access, as well as the job in The Hague. He did little to court public opinion—he even refused to release a photograph of himself—again blaming employees for Ameriquest’s bad actions. “I have made ‘do the right thing’ my motto,” he said.
All through the fall of 2005, Arnall’s appointment to The Hague dangled in the wind as Democrats and Dutch parliamentarians pushed back against it. The required revelation of his investments (in everything from real estate and film to baby wipes and clip-on sunglasses), his offer to resign as chairman of Ameriquest and five other companies (including an oil company that allegedly paid him over $100 million a year) and hand the reins of all to wife Dawn, and his agreement to sell his holdings in ten corporations, including the Dutch brewer Heineken, Royal Dutch Shell, and the British-Dutch Unilever, proved insufficient to still the opposition. Finally, under pressure from senators Paul Sarbanes and Barack Obama, Ameriquest agreed to settle with the forty-nine states where it did business, and set aside $325 million to pay penalties and restitution and reimburse the states’ legal fees. Again, the company admitted no wrongdoing, but under an injunction requiring it, said it would mend its ways.
Arnall was finally confirmed as ambassador in February 2006. That May, faced with steeply lower demand for its products, Ameriquest closed all 229 of its retail offices, slashing 3,800 jobs and claiming it would replace them all with four telephone centers (a plan that soon failed amid rumors the company was losing a fortune). And late that year, his wife (operating, presumably, as he’d promised, without consulting him as owner) put Ameriquest up for sale. Early in 2007, after Dawn agreed to put a seven-figure sum back into the company, according to a former Ameriquest advisor, Citigroup made a deal to buy its mortgage operations for an undisclosed price.38 Not long afterwards, attorneys for more than twenty borrowers seeking to combine their lawsuits against Ameriquest into a class action asked a judge to add the newly minted ambassador’s name as a defendant, causing his family’s spokeswoman to note that he’d left the board “far in advance of the meltdown of the non-prime industry,” as if he’d had nothing to do with it. “If you’re building a Mount Rushmore of people who should be on the face of the mortgage lending crisis, I think Roland Arnall has a distinct place in that litany,” commented Ira Rheingold, executive director of the National Association of Consumer Advocates.
Arnall moved to The Hague in 2006 and Owlwood “became a ghost town,” said Greg Hagins. Then, in February 2008, less than two years after winning his diplomatic post, Arnall abruptly resigned and returned to the United States because his son had Hodgkin’s lymphoma. They didn’t have long together. Arnall soon fell ill himself and checked into a hospital, where he was diagnosed with esophageal cancer and died five days later at sixty-eight. As had happened with so many of his neighbors, litigation lived on after his death.
Not only did Arnall’s longtime lawyer sue his estate but the next January, Arnall’s brother, Claude, sued too, claiming Arnall owed him $47.6 million for his share of a mortgage company they owned. Dawn Arnall responded that the lawsuit violated a no-contest provision in Arnall’s trust and threatened that if he didn’t stop, Claude would be disinherited. Her lawyer added that the “alleged stake” was “in a worthless and defunct company,” was “based on a secret verbal agreement,” and that Claude’s claim was “completely without merit.” A decision in the case was pending as of early 2011.
In 2010, the last big litigation over Ameriquest ended with a stipulation that disposed of those class action cases with small payments to claimants (who were expected to net about $100 each) and their lawyers. “The profits,” Michael Howard wrote, had long since been “transferred into Roland Arnall’s personal accounts.” Which were presumably inherited by Dawn Arnall, who continues to live in the homes she and Roland shared in Holmby Hills and Aspen. “She deserves some credit for the way she wound down the company,” says the former advisor. “She made the decision to negotiate settlements that cost her a lot of money.… I’m not saying she’s now poor by any means,” he adds.
Greg Hagins died early in 2011, but shortly before that, he said, “she’s letting [Owlwood] deteriorate. The lawns are yellow.” A visitor attempting to confirm that pulled into the cul-de-sac off Sunset that was once South Carolwood Drive one afternoon not long ago to be greeted by a private security guard. Asked if it was possible to peek at what had once been a public thoroughfare, he replied, “The owner wouldn’t like that.”