Pentz says he didn't know about bogus notes

And for nearly seven hours on the eighth day of his trial, jurors in U.S. District Judge John Steele's courtroom heard the complicated inner workings of Waterford Mortgage Bank Corp.

But not before Pentz, 42, told of his Alabama upbringing, working his way through the University of Alabama, where he earned a finance degree, according to him -- a management degree according to prosecutors. Pentz got his first job managing restaurants across the South for Pillsbury Corp. before starting his own restaurant. But when the business failed, he returned to restaurant management and soon was transferred to a Fort Myers Applebee's.

And that's where he burned out on the long hours of running restaurants and became a waiter at The Vineyard's Country Club in Naples. But Pentz was new to fine dining and the waitress whose tables were next to his took him under her wing so he wouldn't get fired.

That waitress, Lauri Smith, would later become Pentz's partner at Waterford Mortgage Bank Corp. Seven years after going into business with him, Smith would die a mysterious death in a San Diego hotel room. California authorities ruled it a suicide.

Today, Pentz is standing trial for the missing millions at Waterford. He is accused of bilking Naples businessman Ron Brown out of $8 million. Brown thought he was financing mortgages notes, but instead held a safe full of forgeries.

Pentz is facing three counts of wire fraud and five counts of money laundering. He spent most of Thursday explaining why none of the fraud was his fault. Smith was the one who ran the company, he said. Smith made the financial deals with Brown. After that, her sister, Cathy Fraser, closed on and assigned loans. The crimes Pentz is charged with occurred after Smith's death.

Pentz kept a polite demeanor throughout his cross-examination, even when Assistant U.S. Attorney Jesus Casas accused him of threatening to kill a man and his family after losing $2.4 million on a loan.

Pentz said that threat never occurred. He also denied using the Mafia as a threat to business associate Eugene McDowell, to whom Pentz was trying to sell Waterford Mortgage. Pentz said he had sold his 50 percent share of Waterford to Smith in 1995, because he disagreed with the financial arrangements she wanted to make with Brown.

"We made $100,000 apiece in 1994. The agreement had a minimum payment (to Brown) at $30,000 a month," he said.

The agreement for 1995 had Brown being paid $30,000 a month in interest. Pentz said that if he and Smith were paid a total of $200,000 in 1994, he could not understand where $360,000 would come from to pay Brown in 1995.

Brown was lending money to Waterford at 11 percent interest. But Waterford was financing loans at 8 percent.

For $110,000, Pentz agreed to sell his share to Smith, and continue working sales and projects for the company. Two years later, however, he had an option drawn up that gave him the right to purchase the company back at will. After Smith died, that's what he did.

Pentz said he needed the assurance because Smith kept firing him and had fired him six or seven times.

"She didn't mean it. She was very strong-willed and opinionated. She would flare up a lot," he said. He said he was usually fired for 30 seconds to several days.

Before Smith's death in April 1998, Smith ran the books and her sister, Fraser, who is serving 27 months in prison for her role in the fraud, closed on the loans.

Pentz said he was the people person, sticking with sales and real estate projects. He also was involved in researching the ancillary businesses Waterford opened, including two title companies, holding companies and an insurance company that never got off the ground.

After Smith's death, he discovered there really was no set of Waterford books.

Brown kept records of the mortgages he held, and Pentz had only Brown's records to rely on, he said.

During a cross-examination by Casas, Pentz admitted to setting up the spreadsheet Brown used and titling all the entries.

But Pentz denied knowing that a bundle of mortgages he asked Brown to pay for on Dec. 30, 1999, for $1.5 million, had already been funded by Brown. He blamed Fraser for assigning the mortgages to be funded.

Fraser testified last week that, for her $29,000-a-year salary, she did only what Pentz told her to do.

When asked whether Pentz recognized some of the paperwork for the loans, he said matter-of-factly, "I don't know whether it's a real note or a forged note."

He claimed not to know about the forgeries until Brown told him in April 2000.

Pentz appeared cool and collected until prosecutors showed him the company's American Express credit card account and the spike in spending after Smith's death.

He said he could not have spent $26,000 in a California plastic surgery clinic because his credit card showed he was in Michigan the day before and the day after the surgery charge. "I don't think it's mine," he said.

"Did anyone else have your card?" Casas asked.

"Not that I know of," he replied.

He admitted to having plastic surgery when a bill was produced, but did not admit to the $26,000 entry. Later, when Pentz's federal defense attorney, Russell Rosenthal, requestioned him, Pentz said Nicole Young, a former Waterford employee, had surgery at the California clinic.

Pentz and prosecutors went around and around again when Casas asked whether Pentz had tried to start an insurance company.

"What do you mean?" Pentz asked.

Casas read from court transcripts of civil litigation where Pentz admitted he and Smith tried to start up an insurance company together.

But for the most part, Pentz kept repeating politely, "I don't know. I don't know. I am sorry. I just don't know," when asked about several expenses totaling $7 million that prosecutors documented as the missing millions.

Pentz's side was boosted when Rosenthal called forensic certified public accountant William Frank to the stand. Frank said that he had gone through an eight-week federal trial in Miami where jurors acquitted him of all charges and that he understands what it's like to be on the other side of federal charges.

Frank then claimed that Waterford was a straw company for Brown and that the only one who benefited from the arrangement between Brown and Waterford was Brown.

Waterford, in fact, had lost nearly $1 million from the period of 1995 through 1998.

"Mr. Brown controlled Waterford," Frank testified, adding there were no internal controls, no books. Brown held the records of what was owed to him and the mortgages he held.

Frank said that at times the interest rate on the notes went as high as 15 percent.

"I couldn't see why someone would be paying this high a rate of interest. It didn't make sense," he said.

The trial continues today at 9 a.m. in federal court in Fort Myers.