Misconduct by Ex-Officers Reportedly Cost American S&L; $400 Million

A document that had been sealed in court claims that misconduct by the former top officers of American Savings & Loan cost the thrift more than $400 million, according to a published report.

The Monterey Herald reported in a copyrighted story Friday that it had obtained a copy of the company’s proof of loss document, which was lodged under seal with Monterey County Superior Court Judge Richard Silver last year.

The document was part of a lawsuit between American Savings and hotel developer A. Cal Rossi of Pebble Beach and San Francisco. The lawsuit involves the $40-million Monterey Plaza hotel on Cannery Row.

Former San Francisco Mayor Joseph Alioto, representing Rossi in the suit, brandished the document in court last February, claiming that it was the thrift’s “confession” of its own “racketeering practices.”

The current management of American Savings agreed to provide a copy to the Herald after attorneys for the newspaper filed a motion to unseal it.

The losses would represent about a fourth of the $1.5-billion federal bailout proposed Wednesday by Financial Corp. of America, the parent of American Savings.

The $400 million in losses attributed to mismanagement would also be nearly equal to the total loss of $468 million in 1987, also reported by FCA on Wednesday.

‘Self-Aggrandizement’

The document accuses former officers of manipulating hundreds of millions of dollars in questionable loans to artificially inflate the value of American Savings stock. It also said they concealed bad loans by coercing new borrowers to buy them as a condition of obtaining their own loans.

The document was signed in June, 1986, by William J. Popejoy, chairman and chief executive of FCA. He submitted it as part of a claim against the three insurance companies that bonded his predecessor, Charles W. Knapp, and his management team.

In it, Popejoy blames Knapp and other former officers for causing the massive losses “for his own personal financial gain and self-aggrandizement.”

Popejoy replaced Knapp in August, 1984, amid a $6.8-billion run on American Savings deposits. Knapp was forced to resign by federal regulators after highly publicized problems at the thrift triggered investigations by the Securities and Exchange Commission, the FBI and various grand juries.

Among the charges in the document is an allegation that Knapp extorted $2 million in a “severance payment” as the price for his resignation.

Arthur Greenberg of Los Angeles, an attorney representing Knapp, denounced the document as “scurrilous.”

In a telephone interview with the Herald, Greenberg said the document was a “self-serving” attempt by American Savings to force the insurance companies to cover millions of dollars in losses by the firm.

Those companies, and the policy-limit claims American submitted as of June, 1986, are Mutual Fire, Marine & Inland Insurance Co. ($37.5 million); Insurance Company of North America ($38.8 million), and Fireman’s Fund Insurance Co. ($20 million).

Greenberg said the insurance companies were “resisting” the claims. Greenberg also said the document was the basis of several lawsuits in state and federal courts between Knapp and American Savings.

In the only judgment entered so far in that litigation, Greenberg said, a Superior Court judge in Sacramento ruled in 1986 that Knapp “was not personally involved in any of the alleged misconduct.”