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NC Congressman linked to fraud

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Taylor linked to loan fraud

But feds have not questioned him

By PAT STITH, Staff Writer

In 2000 and 2001, the former president of an obscure bank in the western end of North Carolina admitted to FBI agents that he had violated federal banking laws. He also implicated 11th District U.S. Rep. Charles H. Taylor of Brevard, who founded Blue Ridge Savings Bank and was chairman of its board of directors.

The banker, Hayes C. Martin of Asheville, and a major borrower, Charles E. "Chig " Cagle, a political confidant of Taylor, have pleaded guilty to scheming together to defraud the bank and launder money. In FBI interviews, Cagle also said Taylor was involved.

In April, Martin and Cagle testified against the lawyer who helped put the loan packages together. The lawyer, Thomas W. Jones, was convicted of bank fraud. All three now await sentencing.

Taylor, however, has not been charged. He was not subpoenaed before the federal grand jury that indicted the others. And the FBI hasn't interviewed him.

Lawyers for Jones are pressing their own case about why investigators have not questioned the congressman. They have filed an unusual motion in federal court that raises questions about whether a Republican administration in Washington stopped the FBI from investigating a Republican congressman.

The defense attorneys allege that U.S. Attorney General John Ashcroft or his assistants prohibited the FBI, the IRS and the U.S. attorney for the Western District of North Carolina from interrogating Taylor before a federal grand jury. Taylor sits on the House Appropriations Committee and a subcommittee that controls the Justice Department's budget.

Jones' attorneys have asked the trial judge, Graham C. Mullen, to reverse Jones' conviction because of prosecutorial misconduct.

Forest A. Ferrell, one of Jones' lawyers, said last week that Martin and Cagle both have told investigators that Taylor knew about the fraud and took part in it. "If they knew that then, why did they not interrogate him or ... compel his attendance before the grand jury?" Ferrell asked in an interview at his office in Hickory. "They didn't do that and therefore I must infer that it's because they could not."

Robert J. Conrad Jr., the U.S. attorney for the Western District of North Carolina, would not comment last week when he was asked if he had notified the Justice Department about the Taylor allegations or comment on what, if any, instructions he had been given.

Monica M. Goodling , deputy director of public affairs at the U.S. Department of Justice in Washington, also had no comment when asked whether Ashcroft or his aides had blocked an investigation of Taylor.

Both officials referred a reporter to a document filed in federal court last month in which Conrad said neither Ashcroft nor any of his assistants barred his office or the FBI from "speaking to" or "questioning" Taylor. Conrad's response does not say, however, whether the Justice Department barred Conrad from subpoenaing Taylor for questioning before a federal grand jury.

Taylor's attorney, Joseph B. Cheshire V of Raleigh, said assistant U.S. Attorney Richard L. Edwards called him about a year ago asking for an interview.

"They made a request to talk to him [Taylor], but logistically it never worked out," Cheshire said. "It died on the vine."

The News & Observer left messages last week at Taylor's congressional office in Asheville and at his home in Brevard. He did not return the calls.

Taylor, 62, has represented 15 of the state's western counties since 1991. In his congressional financial disclosure report this year, he valued his stock in Blue Ridge Savings at between $5 million and $25 million and said he owned $25 million to $50 million worth of stock in the bank's holding company, Financial Guaranty Corp. Overall, he reported assets of at least $34 million.

At Jones' trial, Ferrell introduced records of FBI interviews with Martin and Cagle in 2000 and 2001. In an interview, he said anyone who read those reports would find it "amazing" that Taylor has never been compelled to tell what he knows about the loans.

"According to the evidence," said Ferrell, a Democrat who was a Superior Court judge for 24 years, "he knew just as much about it as Hayes Martin, the banker. And 'Chig' Cagle, his political crony."

Ferrell used those FBI reports to hammer away at Martin -- the former bank president -- during Jones' trial this spring, the transcript shows.

"So he [Taylor] knew everything that you were doing, that you pled guilty to, didn't he? Isn't that right?" Ferrell asked Martin.

"He [Taylor] was aware of everything, yes sir," Martin answered.

Fraudulent loans

Blue Ridge Savings Bank is a state-chartered savings bank with offices in Asheville, Brevard and Hendersonville. It is regulated by the state and by the federal Office of Thrift Supervision because its deposits are insured by the Federal Deposit Insurance Corp . Based on the bank's capital, the maximum amount federal regulations allowed it to lend to any one person was $500,000.

Martin was president of Blue Ridge from 1991 to 1996 , when federal bank examiners began unraveling the fraudulent loans and forced his resignation.

Martin, 56 , and Cagle, 70, admitted that they conspired from 1992 to 1995 to get around the $500,000 loan limit by lending money to Cagle in the name of his mother, his mother's estate, and his daughter and son-in-law, Jamie and Cheri Espinosa. The loans totaled at least $1.3 million.

Cagle, who owned a Ford dealership in Sylva, told the FBI that he made up a fictitious Social Security number for the two loans to the Espinosas and forged both their names on the loan documents without their knowledge. The Espinosa loans totaled $467,000.

Martin and Cagle said they had known Taylor for 30 years and were friends through Republican politics. Martin was treasurer of the "Taylor for Congress" campaign from the early 1990s to 1996.

Cagle had been chairman of the Republican Party in Jackson County, one of the counties Taylor represents in Congress, and chairman of the party in Taylor's district. He told agents he had made many $1,000 political contributions to Taylor. The congressman's campaign contribution reports show Cagle gave him $6,000 from 1990 to 1995. Cagle said Taylor often called him on Thursday nights, when he returned from Washington, to talk politics.

Taylor was a micro-manager, Martin said. He told FBI agents that Taylor telephoned the bank 10 to 11 times a day, that Taylor would regularly call him and ask, "How much money have you made for me?" And "When can you pay me dividends?"

Even when Taylor was not a member of the bank's board of directors, he attended all of the board meetings, Martin said. He said Taylor became a director in 1992 and subsequently became chairman of the board. Taylor's wife, Elizabeth, owned 20 percent of the stock in Blue Ridge Savings Bank, according to Martin. The rest was owned by Financial Guaranty Corp., the holding company controlled by Taylor.

Martin said loans were approved by the bank's loan committee, which included Taylor, his mother-in-law and sister-in-law, or by the board of directors after the loan committee was dissolved.

According to Cagle, Taylor knew about Cagle's loans from the start. Cagle said he met with Martin about June 1992 and asked to borrow $950,000.

The FBI report says Cagle told agents, "Martin indicated that he needed to check with Charles Taylor ... regarding the loan request. Subsequently, Cagle was asked to step out of the room while Martin and [an attorney] made a telephone call to Taylor. The loan was approved."

The first loan, made in the name of Cagle and his wife, was for $500,000, the maximum allowed by the Office of Thrift Supervision. But before the year was out, Cagle was back for more.

The FBI report on one of the interviews said, "Cagle recalled one meeting in Taylor's office in which Taylor advised that the 'Feds are giving us [blank] about the Espinosa loans ... that's your loan isn't it?' Cagle stated that he [Cagle] responded 'Yes' and further explained that Taylor knew that he [Cagle] was the recipient of the money from the Espinosa loans."

When federal bank examiners, acting on a tip from the FBI, started investigating the Cagle loans in 1995, they accidentally gave away the FBI informant, Martin said.

Martin told FBI agents that an auditor from the Office of Thrift Supervision left a document in the bank that named a female bank worker who had given the FBI information. Martin said that he told Taylor and that Taylor responded, "Get her the hell out of there." Martin said the woman was transferred to another branch office.

Ferrell said he tried to subpoena Taylor to testify in the Jones trial last fall, when the trial was scheduled, and again in April when it took place.

"We had a private investigator retained," Ferrell said. "No progress, could not get to him. Tried it again this last time, for about six weeks. Couldn't get him, couldn't find him."

Staff writer Pat Stith can be reached at 829-4537 or [email protected].

Staff writer Joseph Neff and news researcher Brooke Cain contributed to this report.

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