Atty. Gen. Says a Fourth of S&L; Cases Involve Fraud

U.S. Atty. Gen. Dick Thornburgh said today that fraud was involved in at least a fourth of the hundreds of cases of insolvent savings and loan associations, but that it will be very difficult to get much of the money back.

He told the Senate Banking Committee that losses from fraud and abuse probably totaled $2 billion in 1988 alone, but the schemes involved were frequently highly sophisticated and run by “skilled and crooked business people” who have already spent or hidden much of the money.

“I think we’d be fooling ourselves to think any substantial portion of those assets is going to be recovered, notwithstanding our best efforts,” Thornburgh said. He was answering questions on the Justice Department’s role in prosecuting abuse in the thrift industry.

Training Investigators

Most such cases are beyond the ability of state and local prosecutors, but the Justice Department and FBI are hiring and training investigators to follow the paper trail left by fraudulent operators, he said.

In response to questions, the attorney general said he felt that there should be tougher prohibitions against an owner of an insolvent thrift getting back into the business. Investigators found “a good number of these mobile operators” who carry out fraudulent schemes in more than one location, he said.

Thornburgh said there was no indication so far that any outside accounting firms, which were supposed to audit the financial health of S&Ls;, had any criminal involvement in any of the insolvencies.

He also said the Justice Department would try to stop any banking regulatory agency from offering informal immunity in return for testimony from savings and loan officers suspected of fraud.

‘Didn’t Cause the Mess’

Owners of healthy S&Ls;, meanwhile, told Congress that they did not want to be penalized by the government’s bailout of failing institutions.

“We didn’t cause the mess. We weren’t the regulator in charge and we resent paying for it,” Donald Shackelford, chairman of the State Savings Bank of Columbus, Ohio, told a House Banking Committee hearing.