Former State S&L; Commissioner Lawrence Taggart : Ex-Regulator’s Ruling on Lincoln Questioned
Lawrence W. Taggart, former commissioner of the California Department of Savings and Loan, made a ruling favorable to Lincoln Savings & Loan in late 1984, a month before he left office to join a firm that then received a $2.9-million investment from the S&L.;
Taggart acknowledged Thursday that he gave Irvine-based Lincoln approval in December, 1984, to put $800 million into subsidiaries that were allowed to make direct investments in real estate, securities and other risky ventures.
On Jan. 1, 1985, Taggart left office to join TCS Financial Inc., a San Diego-based financial services firm. About three weeks later, Lincoln invested nearly $2.9 million in TCS to pick up a 19.1% stake in the firm’s initial public offering of stock.
The nation’s top thrift regulator at the time, Edwin J. Gray, said Thursday that Taggart was “lining up (future) clients rather than regulating.”
Consultant to S&Ls;
Taggart has become a target of criticism in recent years for permitting speculative practices by S&Ls--even; though they were allowed by law--that some critics say caused the industry’s multibillion-dollar debacle and led to the recently enacted bailout law.
He has also been criticized for agreeing to consult for S&L; executives who were running their institutions into the ground with risky business strategies. Taggart said he has offered his services to those most in need--troubled institutions.
Since leaving his state post, Taggart has tried to devise new business plans for such insolvent institutions as Vernon Savings & Loan in Texas, which failed in 1987 when regulators said that 96% of its loans were bad. The failure cost the government $1.3 billion.
He also headed a subsidiary of Trafalgar Holdings, the company that Charles W. Knapp founded after being ousted from American Savings & Loan. Knapp’s policies were blamed for leading American Savings into insolvency and costing the government $1.7 billion.
In regard to Lincoln, Taggart denied that there was any “quid pro quo” in his actions toward the S&L; while he held public office. He said in an interview that he didn’t even know in January, 1985, that Lincoln had bought TCS stock.
Thomas C. Stickel, the founder of TCS Financial (now called TCS Enterprises) and a prominent state Republican with ties to Gov. George Deukmejian, said it was “absolutely ridiculous” to suggest that Taggart had anything to do with Lincoln’s investment in TCS. In fact, Stickel went on, the investment came only after he (Stickel) met with Charles H. Keating Jr., whose Phoenix-based company, American Continental Corp., owned Lincoln.
Approved Application
Regulators seized Lincoln on April 14, a day after American Continental filed for bankruptcy protection. Regulators recently declared Lincoln insolvent and put it in receivership. The S&L; is projected to cost taxpayers up to $2.5 billion to sell or close, which would be the nation’s costliest thrift failure.
Taggart became the state’s S&L; commissioner in 1983 as industry deregulation was attracting numerous real estate developers and other entrepreneurs into the business. In early 1984, he approved American Continental’s $51-million purchase of Lincoln. It was one of about 150 applications he approved, he said.
From the start, though, Lincoln was aggressive, embarking on rapid growth through investments. The S&L; rapidly turned away from making traditional home loans in favor of funding large real estate developments. The new direction was permitted under the industry’s deregulation, which allowed S&Ls; to invest federally insured deposits in a variety of risky ventures.
Taggart said Lincoln was often asking approval for one type of investment or another. Through 1984, he said, he approved about half of Lincoln’s requests.
Meantime, Gray, chairman of the Federal Home Loan Bank Board, was becoming alarmed about the new investments that some S&Ls; were making, and he proposed a rule that would force all S&Ls; to limit direct investments to 10% of their assets.
In late 1984, Lincoln applied to move $800 million into subsidiaries that would be allowed by the new rule to continue making direct investments. Gray’s rule was adopted in early 1985, and “grandfathered” such transfers of cash made before Dec. 10, 1984.
On Dec. 7, 1984, Taggart approved the transfer, thus allowing Lincoln to beat what would become the deadline.
‘Hit it Off’
A month earlier, Taggart had announced he would step down as commissioner at the end of the year. He said no one but Stickel knew that he would join TCS. Stickel, a self-made millionaire, said he had been trying to lure Taggart from his post for most of that year.
In early January, Taggart said, Keating called him to arrange a consulting contract, and the former commissioner said he took Stickel with him to Phoenix to meet Keating. From there, he said, Stickel and Keating “hit it off” and began working on deals he was unaware of.
TCS, for instance, invested $400,000 in the Hotel Pontchartrain in downtown Detroit and received a 4% interest in the hotel. A partnership in which Lincoln was a general partner and Keating one of the limited partners owns the hotel.
Lincoln’s $2.9-million investment in TCS was more than half the $4.3 million the company raised in the stock offering. It bolstered the 18-month-old firm, which had been losing money from start-up costs, Stickel said.
TCS lost $1 million in its first two years, but had earned $1.3 million in the next three years. It posted net income of $538,000 for the first six months of its fiscal year ended April 30.
