Dykstra: From penthouse to jailhouse

Lenny Dykstra is facing 13 federal counts alleging bankruptcy fraud and obstruction of justice. (Nick Ut/AP Photo)
Lenny Dykstra is facing 13 federal counts alleging bankruptcy fraud and obstruction of justice. (Nick Ut/AP Photo)

Lenny's tale of trouble and turmoil laced with charges and countercharges

Posted: June 17, 2011

LENNY DYKSTRA was an undersized, skinny, 12th-round draft choice of the Mets out of Garden Grove High School in Orange County, Calif., in 1981. He went on to make three All-Star teams and twice placed in the top 10 of the National League MVP voting, including a runner-up finish in 1993.

His first nickname was Nails and it reflected his intense refusal to admit defeat, a trait that allowed him to succeed far beyond what his natural physical ability suggested.

Once he reached the majors and started making big money, he was inevitably surrounded by people who were there to pick up after him. Agents. Flunkies. Team officials. And he took full advantage of that privileged lifestyle.

Those two realities go a long way toward explaining why Dykstra, down and out, today sits in a Los Angeles County jail cell facing 13 counts of federal bankruptcy fraud charges and 25 state counts involving shady business practices, credit card fraud and drug possession.

He is being held on $500,000 bail on the state charges after being arraigned yesterday. Dykstra has pleaded not guilty in each case and faces 92 years in prison if convicted and given maximum sentences. His next court date in the state case is July 11 to set a preliminary hearing. His federal case is scheduled for trial Aug. 9, coincidentally when the Phillies are in town to play the Dodgers.

There are two sides to every story, though. And the 48-year-old Dykstra - so beloved when he helped will the 1993 Phillies to the World Series, now so reviled by so many people - has a version that is far different than the cartoon stick figure that has circulated to this point. His firm belief is that a complex Kafkaesque daisy chain has dragged him from the almost unimaginable opulence he once enjoyed to the depths that he now finds himself in, a national punch line.

Three points:

* Dykstra is not a saint and this is not an attempt to suggest that he is. He is not blameless.

* This story focuses on the crimes he's currently alleged to have committed, not other incidents that spattered his reputation. The carousing with Charlie Sheen. The allegations of sexual impropriety. The string of lawsuits. The perception that people who followed his investment advice lost millions.

* What follows is a summary of the sequence of events that has led to his breathtakingly rapid fall from grace, from his perspective, as described in a lengthy interview with the Daily News late last month. He and his business manager also provided hundreds of pages of documents in an effort to support his claims. The Daily News did subsequent interviews with many others and reviewed additional documents in an attempt to separate fact from fiction.

It all started with greed. Or at least overreaching. The former player and his then-wife, Terri, were living in an 8,000-square foot house on Ladbrook Way in Thousand Oaks, Calif., worth more than $5 million. It was located in the exclusive Sherwood Country Club, a Jack Nicklaus Signature course, that has featured Tiger Woods, various members of the Hollywood elite and former President Ford as members.

Across the way, though, was an even larger and grander mansion owned by hockey great Wayne Gretzky that he coveted. "I always loved that house. I really did," Dykstra admitted during a May 22 interview in Lynchburg, Va. With a judge's permission, he was attending a Class A game to see his son, Cutter, play for the Potomac Nationals against the Lynchburg Hillcats.

"I said if I ever get a chance to buy it, I'm going to buy it."

Word got back to Gretzky. A deal was struck. Dykstra would buy the house for $17.425 million and retain the house on Ladbrook Way.

To be able to afford the Newbern Court property, though, he needed to rearrange his finances. He decided to sell his string of successful car washes for $38 million: $125,000 per month for 10 years plus a balloon payment of $23 million at the end. To do that, he needed to take control of the shares owned by his high school friend, Lindsay Jones, which resulted in a 2005 lawsuit in which Jones accused Dykstra of using steroids and using him to place bets on Phillies games. Dykstra prevailed in the bare-knuckled legal dispute and got the money he needed.

He also wanted a negative amortization loan in which he would put no money down. In this situation his monthly payments of $48,000 would be less than the interest due with the difference being added to the loan balance. He said he was willing to do that because he planned to flip the Gretzky house in a few years for a nice profit. By the time he was ready to re-sell the property, though, the housing market had crashed.

It should be mentioned at this point that America was on a lending spree at the time. Banks were making millions selling mortgages to people who ultimately couldn't afford them. The collapse of the subprime market and the sharp economic downturn it helped cause wasn't on the radar screen. Tens of thousands of people went through the same thing Dykstra eventually did. They just didn't have as many zeroes on their loans and most chose to walk away rather than fight.

Dykstra figured he was set. His payment on the Ladbrook house was also around $48,000 per month. He was bringing in $125,000 a month from the car wash sale. He should have plenty of cash to spare.

Then things started going very wrong.

STRIKE ONE

When he showed up to finalize the loan, Washington Mutual had only $12 million. He would be required to take out a piggyback loan for $8.5 million. The payments would now total $180,000 per month for both properties.

"I said, '[Expletive] you, no deal.' Obviously. And they said, 'Oh, no, hold on. We've got a bank over here that's going to give you a hard money loan and we're going to [re-finance] you right out of that into the same product in 30 days.' So I said, 'Well, OK, if you're going to do that, OK, because I can handle one payment [of $180,000] there.' They overfunded it, actually, but I didn't care because they were going to re-fi me right out. I say, 'You come in at $48,000. I'm not that smart a guy, hit by a lot of pitches, but I think I can figure it out. I still have $25,000 to play with,' " Dykstra said.

The deal was finalized on or about Aug. 31, 2007. One of the loans was in Terri's name only. "I didn't sign the note because they had to shuffle in two sets of documents to make this work with Terri's credit. It's very complicated," he conceded.

"So that's how it aaaaaall begins, dude. I said, 'You're going to re-fi me, obviously, because you're not in the business of bankrupting your own customer.' Not knowing that they were. So 30 days go by and I'm waiting and calling them. 'What's up? Where's the re-fi?' They disappeared."

Washington Mutual didn't exactly disappear. It was taken over by JP Morgan Chase, but not until more than a year after this loan was made. Dykstra claims he has a written assurance that the re-finance would take place, but did not produce that documentation.

It's also fair to note that, on one hand, Dykstra was presenting himself as a financial wizard while at the same time is claiming he was duped.

"If they had agreed to refinance the house, he would not be where he is right now," West Chester-based business manager Daniel Herman said earlier this week. "If what they were telling him was true and they had re-financed on a mortgage that made sense, he'd have been able to pay it.

"This happened to tons of people, millions in California. But most of the other people just walked away. Lenny didn't."

There appears to be no evidence that Washington Mutual or JP Morgan Chase did anything illegal. Chase was not involved in the original loan and acquired the assets of Washington Mutual from the FDIC after the bank had been taken over by the government. A JP Morgan spokesman declined to comment.

Around the same time, the other shoe dropped. The car wash buyers stopped making their payments. Dykstra said he made the $180,000 monthly payments as long as he could but eventually had no choice but to file for Chapter 11 bankruptcy.

"An 11 is something that Donald Trump's had 6 times," he said. "Meaning you do 11 only if you have a way to make a plan and come out of it. It's a reorganization where you have a plan and you're going to come in and come out of it on your own," he said. "So remember, I didn't go into 11 because I'm a [expletive] idiot. I had a plan. I didn't just do it. I was foreclosing on the [car wash buyers]. They were in default."

In August 2008, he reworked his car wash deal, accepting a $12.8 million, lump-sum payment. At the time, though, he was also trying to launch Players Club magazine and had run up large debts with a charter jet service. That money didn't cover his expenses. He also was facing about 20 lawsuits, many connected to the magazine and the planes.

"He was forced to make a wrong decision," Herman said. "The intention was to take that money and float on it until he could sell the house, but that's when the financial market went down and he couldn't sell the house. That was his exit plan. But it didn't last long enough."

Dykstra filed for Chapter 11 on July 7, 2009. He thought his financial problems were coming to an end. Instead, they were only beginning.

STRIKE TWO

On Aug. 3, less than a month after he filed for bankruptcy, an emergency hearing was called based largely on a lack of insurance on the Gretzky mansion. That left the largest asset unprotected.

Fireman's Fund sent a letter dated Aug. 13 confirming that the policy had been canceled for non-payment of the July 14 premium, a past history of late payments and four separate water-damage claims reported that year.

Dykstra claimed that he was less than 60 days behind in his payments and that Fireman's Fund had violated the "automatic stay" clause in his policy. The automatic stay is a mechanism that basically creates a timeout from creditors pursuing a debtor. It does not specifically have to do with having your insurance canceled for non-payment of premiums.

A settlement was reached in March 2010 between the company and the trustee for Dykstra's bankruptcy estate, but Dykstra and the company remain in litigation.

"I'll say this," Herman said. "If the coverage wasn't dropped, he would have been able to stay in Chapter 11. He would have been able to keep his assets. He was on fumes when they made these decisions and the fumes ran out after the decisions were made. But he had enough to keep everything moving up until it hit Chapter 7."

In the meantime, though, the forces to convert him into a Chapter 7 were already in motion. The court issued the order on Nov. 20, 2009. That was a big deal because, at that point, Dykstra's assets were seized and he lost all administrative control of his estate. The power belonged to his bankruptcy trustee, Arturo Cisneros. His assets were to be sold with the proceeds going to his creditors.

"I wasn't even supposed to be in [Chapter] 7. That's for people who are done. Destitute. Over. Not [expletive] somebody who's got $150 million in assets. Which they're still trying to burn down," Dykstra said.

Cisneros was supposed to mediate between Dykstra and JP Morgan Chase, but the former player claimed a conflict of interest.

"I'll get to the heart of it. Arturo Cisneros," Dykstra said acidly. "He's the trustee. You know what a trustee is? I didn't, either. A trustee is the guy who handles the Chapter 7 case. You have to understand something. Trustees are like God.

"These guys billed me over a million dollars. They took it out of my money. They paid themselves a million. They paid the creditors nothing, not a [expletive] dime. These are the guys who are behind it all."

Said Herman: "The point was to make money and to do to Lenny what they did to thousands of other Americans, which is wash them away. Get the toxic assets out of the hands of the bank. Which is not the wrong decision. They should rightfully remove the toxic assets from their banks. But you've got to do it within the means of the law."

In June 2010, the trustee accused Dykstra of lying under oath, improperly hiding and selling assets and repeatedly acting in a "fraudulent and deceitful" manner.

Representing Dykstra, attorney Moshe Mortner filed a motion on August 6, 2010, asking that Cisneros be removed on the basis of conflict of interest. Instead Cisneros resigned, a day before Judge Geraldine Mund was scheduled to consider the request. He was succeeded by David K. Gottlieb.

But did Cisneros do anything wrong? He's still listed on the Department of Justice website for the U.S. Trustee Program. And Lawyers.com shows him as a practicing attorney based in Irvine, Calif., with a 5 out of 5 peer rating.

The law firm Shulman Hodges and Bastian LLP has represented both trustees for the bankruptcy estate, first Cisneros and later Gottlieb, for more than 2 years and is well aware of all the nuances of this case.

A portrait emerges of Dykstra as a legal waif who doesn't know nearly as much about the law as he thinks.

"[Mund] provided Mr. Dykstra every opportunity in the bankruptcy proceeding to present his side of the story," said Robert Huttenhoff, one of the partners at Shulman Hodges. "Ultimately, Mr. Dykstra squandered each opportunity given him by the court."

Huttenhoff disputed Dykstra's claims:

* According to the court, the failure to maintain insurance on the house was only one factor of several involved in the Chapter 11 trustee being appointed. The court deemed Dykstra unable to "act as a fiduciary for his creditors," Huttenhoff said.

* The conversion to Chapter 7 happened because the trustee deemed that a reorganization of the assets under Chapter 11 was not possible and that liquidation was in the best interests of the creditors.

* Cisneros did not reveal his work in cases involving JP Morgan Chase because that institution was not listed in the original petition. He resigned only to avoid the appearance of impropriety and both settlements he recommended, with Fireman's Fund and Chase, were approved by the court. Cisneros did not return a request for comment.

* The professionals of the estate are always paid before the creditors and the only reason the fees were so high was because Dykstra prolonged the process by "challenging every action taken by the trustee," continuing to fight the settlements that had been reached on his behalf. Otherwise, the fees would have been a fraction of what they ended up being. Even the judge rebuked Dykstra for causing "excessive administrative expenses, which are eating up the assets of the estates."

Dykstra's problems were far from over. In fact, they would only get worse.

STRIKE THREE

Perhaps the heaviest punch Dykstra has taken came from Judge Geraldine Mund, of the U.S. Bankruptcy Court. She delivered a withering written rebuke to Dykstra in an opinion denying his motion to vacate the entry of judgment denying his bankruptcy discharge. In an opinion dated Jan. 19, 2011, she wrote:

"Mr. Dykstra has been very disingenuous about the history of this case and the adversary proceeding. Unlike the representatives in the motion, he has not been a poor abandoned debtor trying to make his way through a complex bankruptcy process. In fact, he has had counsel after counsel who came in as attorney of record and has represented to the court that he has been assisted by an attorney who has not actually made an appearance.

"Also, I have warned him on the record that he needs to take this matter seriously . . .

"Further, Mr. Dykstra has no credibility with this court. I have told him this more than once on the record . . .

"His failure to be represented by counsel (is of) his own doing and rather than a result of his alleged financial circumstances.''

She also noted that he had paid his original attorney with a check that bounced.

Dykstra remained undeterred. On April 12, 2011, Mortner sent a letter via Federal Express to Cisneros. It asked for third-party intervention to settle Dykstra's claim that Cisneros owed him compensation. It said in part that "there can be no doubt that your conduct as a trustee in the Dykstra matter violated the standards'' set for bankruptcy trustees.

Specifically, the letter noted that Cisneros had represented JP Morgan Chase in 50 cases prior to executing a verified Statement of Disinterestedness in the Dykstra proceeding . . . and took on 252 new representations afterward.

Mortner asked for a response by April 27. "I am sure if you have learned anything about the Dykstras; it is that they are tenacious litigants, so it is my hope that you will accept this offer of mediation,'' it concluded.

That same day, April 12, Dykstra was charged with federal bankruptcy fraud and related crimes.

One day later he was arrested in Los Angeles County for investigation of grand theft auto and jailed. He said he was not informed of the charges against him, that he wasn't allowed to make bail and that he had several teeth knocked out and suffered a gash over his eye while in custody.

"There was a pole. They put the cuffs on me real tight. And they put me on the ground,'' he said. "The cuffs were so tight I sat there for 2 hours, screaming. 'You [expletives]! You better [expletive] kill me.' Luckily these two nurses were walking by. They run in and take my blood pressure. It's 180 over 120,'' he said.

"They tortured me, man. I was put in jail for 7 days, dude. Seven days! No bail! Then I finally get out. I think I'm out after 7 days. And then the FBI picks me up and takes me to federal court. It's like the movies. There were never any charges. For 7 days they have me going from jail to jail, fighting for my life.''

Steve Whitmore, an LA County Sheriff's department spokesman, said it is possible Dykstra was shifted to various jails because of the different jurisdictions involved in the case. Police records indicate that Dykstra was incarcerated from April 13 to 19 before state prosecutors declined to file charges. He was transferred to federal custody. Dykstra made the $150,000 bail, but was ordered to live with his bookkeeper until arraignment.

As for the allegations of abuse, Whitmore said, "We deny them outright. He has every right, and I encourage him if he believes this to be true, to file a complaint with the Sheriff's Department. It will be investigated thoroughly not only by the Sheriff's Department but by the Office of Independent Review.''

On June 6, he was arrested again and charged with the 25 state counts. Herman, who put up the bail to spring Dykstra the first time he was jailed, still believes he has a chance to emerge largely unscathed legally.

The federal charges center on the allegation that he illegally removed $400,000 worth of items from the Gretzky mansion. Dykstra's story is far different.

"You know what they're bringing it for, right? That I stole furniture. Two pieces of furniture,'' he said in disbelief. "It's like my [former] attorney said when he was late for one of the hearings. I said, 'Where were you?' He said, 'I had a murder case, death row.' I said, 'Oh, from murder to the furniture, huh?' It's crazy.''

Dykstra's version simply doesn't square with the apparent facts, though.

According to Huttenhoff, during the first month or so after the Chapter 11 trustee's appointment, Dykstra essentially looted his own house, removing two stoves, flat screen televisions, movie projectors, chandeliers, light fixtures, countertops, plumbing fixtures and even the hardware on cabinets through the house. He said that after the case had been converted to a Chapter 7, Dykstra removed all personal property from an office, including office furniture, memorabilia, a safe, wine refrigerator.

In each case, Huttenhoff said, Dykstra said the items were in storage. The trustee never found the items, and some of them were later found to have been put up for sale online.

Herman, painting the best-case scenario, says it's all a matter of semantics.

"When he was doing this, he had no direct counsel. It wasn't like somebody was explaining to him the complicated issues of what you can and can't do,'' the business manager said. "He's a guy stuck in a huge house with no money. What would you do? I know what I would do. I'd sell everything I can. He didn't know it was wrong. And most people who go before a judge, the judge would be like, 'All right' and just throw it out and just get with the technical issues.

"Are you really going to tell a guy he doesn't have any money, he can't qualify for food stamps or anything like that because basically he still has the income from his [major league] pension . . . Which is like $5,700, and it all goes to the house across the street [where his former wife is living]. That buys them food and gas to get [their son] to school. That's nothing. So he has no money, he's in a house by himself, and what do you do? You have to look around you and sell what you have. That's just common sense. You have to survive. Was he supposed to die?''

In other words, ignorance is his defense.

"I don't have the transcript, but my guess is they said, 'Are you violating the terms of your bankruptcy?' And he said, 'No, I'm not, your honor.' My guess is they didn't ask him, 'Did you sell the French marble sink?' Why would he lie to the judge but not anyone else around him? It must have been a very broad question,'' Herman continued.

"I think federally a lot of this stuff is going to get thrown out. I think what will get thrown out is the items, the sports memorabilia. I think he'll get stuck with the perjury. The federal government really doesn't lose these kinds of cases. But a lot of people get probation for bankruptcy fraud.''

Dykstra's defense of the state charges is similar, that he had no idea what a 27-year-old associate named Robert Hymers in a business called Home Free Systems was doing. What he was doing, according to the state, was using the identity of one Wilberto Hernandez to lease three cars from a Southern California dealership. Christopher Gavanis, 30, was also charged.

The state contends the business is a shell company. Dykstra insists the company is real and that he leased the cars for use by his employees. Dykstra says the company has 210 customers and that he needed to hire four more employees to keep up with them.

"They said we had no income. Well, yes we did," Dykstra said, referencing a document on his laptop and then showing the company's website. "This guy brought in 250 grand. Here's the agreement . . . Here's our distribution. This is like a real agreement. It's [expletive] insane. Not only that, I have real customers."

Herman placed the blame squarely on Hymers.

"They're going to tear him apart on these state charges, but you can quote me as saying Robert Hymers is the mastermind behind this whole case,'' Herman said. "The whole case is based on the identity theft of his best friend. Do you think Lenny has access to the social security number of Robert Hymers' best friend? No way. That's major.''

Deputy District Attorney Alex Karkanen doesn't buy it. "He [Dykstra] has scammed everybody he knows,'' he was quoted as saying.

Hymers, who works for the accounting firm Ernst & Young, and Gavanis are both out on bail and pleaded not guilty yesterday. There are whispers that Gavanis is currently working on a plea bargain in which he'll blame everything on the other two.

Herman also believes the drug possession charges for having cocaine, human growth hormone and Ecstasy should be tossed because they were found in a rented home while the police were searching for evidence involving the alleged grand theft auto.

The problem is that it takes money to hire top lawyers and investigators to prove these points. And Dykstra, clearly, doesn't have it. Dysktra was represented by a deputy federal public defender Monday in the bankruptcy case. He is being represented by criminal defense attorney Andrew Flier in the state case.

Admitted Herman: "It's an uphill battle but we've still got soldiers out there trying to help him. Just because he's locked up, it doesn't mean it's going to end.''

LAST AT-BAT?

The best thing about baseball is that, no matter how badly today's game goes, there's almost always another chance for redemption tomorrow.

On that languid afternoon in Lynchburg, Dykstra pointed excitedly at the computer screen, which displayed a copy of a letter under the letterhead of the United States Securities and Exchange Commission.

The one-paragraph note said simply: "This investigation has been completed as to Lenny K. Dykstra, against whom we do not intend to recommend any enforcement action by the Commission.''

That will be the basis for a $50 million suit, he said, against a book company for publishing a manuscript that claimed he was a fraud. That killed his career as an investment adviser, he said, although it's extremely difficult for public figures to prove slander and/or libel.

He'll go after the police for allegedly mistreating him while he was in custody. After Fireman's Fund and Arturo Cisneros. After JP Morgan Chase.

He has hired Alan G. Goedde, a member of Freeman & Mills, an accounting, economics and management consulting firm with headquarters in Los Angeles, to calculate a dollar value on the wrongs he believes he'd endured. Goedde's report suggests that Fireman's Fund alone caused actual damages of $3,158,378 and that punitive damages, if awarded, would be $48,230,000, in his opinion.

Fireman's Fund strongly contradicts this version. In an email statement, spokesperson Suzanne Meraz wrote:

"In the bankruptcy matter, a global settlement between the Trustee for Dykstra's bankruptcy estate and Fireman's Fund/Associated Indemnity Insurance Corporation was approved by the court in March 2010 . . . As part of that settlement, Fireman's Fund paid out $1,005,162.06 to the Trustee for Dykstra's bankruptcy estate for all insurance issues and claims.

"Fireman's Fund is currently in litigation with Mr. Dykstra in a related bankruptcy adversary proceeding. We are pleased that the court recently granted our motion to dismiss certain causes of action that Dykstra brought against Fireman's Fund without leave to amend, specifically Dykstra's claims for breach of insurance contract and for breach of the covenant of good faith and fair dealing. Dykstra has until July 8, 2011 to file an amended complaint with respect to four other causes of action that the court also dismissed.''

Dykstra, however, insists he's going to emerge from all this bigger and better than ever.

"Out of all this, dude, guess what I found? I found a billion-dollar company. It's called Pro Players Choice [a company geared to lifestyle advice for the rich and famous]. When one door closes, another opens. Granted, this was a [expletive] rough door they slammed in my face. They stole my life for 3 years. Like I told Charlie [Sheen], '[Expletive] that litigation, man, because no one [expletive] wins,' ''he said.

"They steal your life,'' he said. "You're supposed to go in there and just die. I said, '[Expletive] that, man.' I'm not stopping. Because if I stop, how can you help people. What about all these people out there who are being abused? That don't have the wherewithal, that don't have the constitution that I have that allows me to keep fighting?

"What's the price of a family these days? Because I don't have one no more because of bankruptcy. What about basically my life? Because [they] stole it. I don't have it no more. Is there a price for that?''

The game is still in the sixth inning but Dykstra has to get to the airport. He packed his things and got into a waiting cab. Fifteen days later he was back in jail, but if he goes down he's going to go down swinging.

The odds are long. But if he somehow rallies again, this would be the biggest comeback of his career.

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