Ex-S&L; Chief’s Penalty Set at $100 Million
A former Texas savings and loan executive, accused of participating in a massive loan fraud that led to the failure of a Texas S&L;, agreed Wednesday to a $100-million civil penalty, believed to be the largest settlement by an individual in thrift industry history.
Spencer H. Blain Jr. agreed in a Dallas court to settle a civil suit brought by the Federal Home Loan Bank Board for his role in the March, 1984, failure of Empire Savings & Loan Assn. of Mesquite, Tex. It was the largest failure in S&L; history at the time, in terms of the assets and deposits involved.
Blain, who was chairman, chief executive and largest shareholder of Empire, was accused by the bank board of helping defraud the thrift of more than $142 million through fraudulent loans to speculative condominium developments in the Dallas area along Interstate 30.
The failure resulted in the Federal Savings and Loan Insurance Corp. having to pay about $300 million to reimburse Empire’s depositors. It was the most expensive depositor pay-out in the history of the federal insurance agency, which itself is now technically insolvent, having made depositor pay-outs on a growing number of S&L; failures in recent years.
“The settlement agreement strips Blain of virtually everything he owns,” the bank board, which regulates S&Ls;, said Wednesday in a statement. It said the judgment “should serve as a strong warning that the bank board will take all reasonable steps to recover damages caused by the actions of those whose duty it is to properly manage FSLIC-insured institutions.”
The settlement by Blain will help reimburse FSLIC’s expenses in the case. In consenting to the agreement, Blain neither admitted nor denied any wrongdoing.
However, bank board officials do not realistically expect to receive all of the $100-million settlement, given that Blain probably does not have that much in cash and assets from his Empire activities, said Jack D. Smith, who, as deputy general counsel for the bank board, represented the agency in the case. The $100-million figure was set so high to make sure that the S&L; insurance fund receives any and all assets that Blain may have received from his Empire activities, Smith said.
To Surrender Holdings
The settlement requires Blain to immediately surrender virtually all his personal holdings, the board said, including more than $700,000 in cash, three autos, his residence in an exclusive north Dallas neighborhood and his interests in scores of oil and gas wells. The immediate forfeiture is valued at about $3 million, the board said.
He also will have to report everything he earns or acquires over the next 10 years, and some of that may be used to satisfy the $100-million judgment, the board said. Blain may live off his future earnings, however, as the bank board cannot garnish his future wages, Smith said.
The agreement is the first settlement of 139 civil suits brought by the bank board in the Empire case against appraisers, designers, real estate developers, lawyers, borrowers, and Empire officers, directors and employees, Smith said. In addition, 83 individuals have been convicted of racketeering, perjury, tax fraud or other criminal violations in the case, he said.
The case, measured either by numbers of people or numbers of dollars involved, is one of the largest frauds ever involving an S&L;, industry officials said. Bank board Chairman Edwin J. Gray has said the thrift’s demise involved “one of the most reckless and fraudulent land investment schemes this agency has ever seen.”
On Rare Scale
“You do run across cases like this, but on this scale it’s rare,” Smith said.
The civil suits allege that Blain and other Empire officials knowingly accepted inflated real estate appraisals and other false paper work as the basis on which to make loans on the mammoth condominium projects between mid-1982 and early 1984. Many of the condos were never built and others were unsold at the time of Empire’s collapse, thanks to the Southwest’s weakening economy resulting from a slump in the region’s oil industry.
Blain received improper payments of $14.9 million and a $1.1 million resort in Colorado that rightfully belonged to the thrift, a bank board suit alleged.
Cites Examiners’ Neglect
Neglect by bank board examiners, who knew about the risky loans as early as October, 1982, also may have contributed to Empire’s failure, bank board Chairman Gray has admitted.
Blain’s activities at Empire also are the subject of a criminal investigation by the U.S. attorney’s office, but there have been no indictments against him, Smith said.
Blain, who could not be reached for comment late Wednesday, once was an official at the bank board’s regional office in Little Rock, Ark., and was a former president of the Texas Savings and Loan League, a trade group.
