Firm turns to est guru, still slides

The San Diego Union-Tribune/August 7, 1994

By Don Bauder

Even the teachings of expatriate Werner Erhard couldn't rescue Citizens National Mortgage, once one of San Diego's largest mortgage refinance machines.

The Kearny Mesa-based company has shrunk drastically to 100 employees from 650, is currently losing money and is trying to enter a new, unspecified area of business. More layoffs are possible, the company concedes.

Erhard, the one-time guru of post-1960s narcissism, was actually a charismatic Philadelphian named Jack Rosenberg, a used-car salesman who abandoned his family to launch the self-help movement that became known as est. But Erhard was bedeviled by lawsuits, the IRS and sexual abuse charges, and left the country in 1991.

That year, employees purchased Erhard's company. The successor is San Francisco-based Landmark Education Corp., and Erhard's brother, Harry Rosenberg, is its chief operating officer.

However, Landmark's chairman, Art Schreiber, says Erhard now has no involvement with Landmark, despite his brother's prominence. Landmark pays Erhard royalties for use of intellectual property, but he passes the money on to his creditors, Schreiber said.

Landmark markets self-help programs "based on technology generated by Mr. Erhard," says Schreiber -- but not est, which Erhard abandoned in the mid-1980s. Landmark's current Erhard-based programs are called "The Forum."

Erhard launched that program after he jettisoned est. Landmark has made refinements in it since 1991, says Schreiber.

Local player is pivotal

A San Diegan who became immersed in the Erhard-Landmark-Forum movement is James Frace, who launched Citizens National in 1986. In the 1990s, the company caught the refinance wave, specializing almost entirely in Federal Housing Administration and Veterans Administration rate reduction financings.

When this market was red hot, a bevy of telemarketers pitched the product through cold calls. In a lawsuit, a former Citizens phone spieler described her work as consisting "almost entirely of sitting in front of a computer terminal wearing a telephone headset and reading a script to individuals answering the telephone, which is automatically dialed by the computer."

The money rolled in. Employment zoomed to 650 from 50 in three years. Mortgage volume reached $124 million a month at the zenith.

After putting together the refi's, the company would package them for institutional investors. The refi rage evaporated this year.

Even though Citizens is no longer doing mortgage refi's, it is still servicing some mortgages and handling relationships with investors, according to the company's outside attorney, Jonathan Jaffe.

Jaffe and the company's associate counsel, Randolph Houts, are the only people who will speak for Citizens, and they will say very little. I called Frace repeatedly beginning in mid-May, and never got any response. Ditto for several in-house executives. None would talk.

"Jim Frace is a very private person," says Houts. "His natural shyness or introversion led him to react the way that he has."

But employees and ex-employees will talk. And the story they tell is not a pretty one. Apparently, the Erhard-Landmark-Forum mystique permeated the company, particularly at the management level.

Frace and other managers "created a culture where you were told that even if you were a hard worker and top producer, it wouldn't matter if you weren't in the program (The Forum)," says ex-employee Paul Young. "You were one of the first laid off if you were fighting it."

Says another former employee: "Frace and his top executives use the jargon invented by Werner Erhard , and have been attempting to influence as many employees as possible to attend the forum training."

"They were pressing people to get involved, but a lot of employees thought it was a cult," says a former employee.

"It was not a condition of employment, but there was a feeling that if you didn't do it, nobody would be fired, but you would eventually reach the point that you wouldn't want to be here," says an employee.

Frace hired a former Landmark functionary, Herb Tanzer, to try to talk up the program -- and also employee productivity -- on the premises. According to former employees, Tanzer would stand at the door at 5 p.m. and ask employees why they were leaving -- telling them that the only way to make it at Citizens was to put in very long hours.

Citizens declined to discuss any matters related to the Erhard-Landmark-Forum program.

"It's not surprising to me that a guy running a mortgage company would use the Erhard principles to get his people to work incredibly long hours," says San Franciscan Steven Pressman, author of the recent book " Outrageous Betrayal : The Dark Journey of Werner Erhard from est to Exile."

"Erhard worked his own employees, including unpaid volunteers, the same way -- they worked long, long hours to perpetuate Erhard and his fuzzy ideas," says Pressman.

Schreiber, who calls Pressman's book defamatory, says Landmark programs do not advocate working extra-long shifts. Also, "action by any employer to pressure or otherwise coerce its employees to participate in Landmark's programs is inconsistent with Landmark's policy," Schreiber adds.

Two employees have filed suit in Superior Court against Citizens, claiming it refused to pay them overtime to which they were entitled. Attorney Paul A. Kouris hopes to qualify the suit as a class action.

In a declaration supporting the suit, former employee Natalie Morghan says Frace had a meeting with employees at the time the company's volume was sinking fast.

"He said that the company was in the last two minutes of a football game and everybody had to increase productivity. He said that everyone should start working 9 (a.m.) to 9 (p.m.) seven days a week. He said words to the effect that if anyone did not want to work those hours and give more to Citizens, that they should not be working there."

Next, according to Morghan's statement, Frace "asked all the employees who were willing to put in these hours to raise their hands. Most of the people in the meeting put up their hands, indicating that they were willing to work 12 hours per day, seven days per week. Mr. Frace praised the people who raised their hands, and said that the people who did not raise their hands and were not willing to make the commitment to work the extra hours should see their supervisors about leaving the company."

One person did leave the company in a big hurry: Morghan. She was fired within three hours of making the declaration, according to Kouris. Jaffe denies that she was laid off because of the declaration.

But the company won't discuss anything related to the lawsuit.

Ex-Citizen employees remain peeved about what they believe to be Frace's lavish lifestyle. He is said to be buying a home in Fairbanks Ranch, but Jaffe denies it, and says that Frace only rented a home in Del Mar for vacation.

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