Seidman Says Wall Erred by Meeting With Lincoln Chief

L. William Seidman, chairman of the Federal Deposit Insurance Corp., told a congressional committee Tuesday that the nation’s top thrift regulator had erred seriously by meeting with the owner of Irvine-based Lincoln Savings & Loan at a critical point in 1987.

Seidman said the action by M. Danny Wall, former chairman of the Federal Home Loan Bank Board, violated ethical standards to which Seidman would have adhered in such a situation.

“I usually do not meet with institutions if they are in a controversy at the regulatory level,” he said of the meeting between Wall and Charles H. Keating Jr., chairman of Lincoln’s parent company, American Continental Corp. of Phoenix.

Seidman, whose agency controls what remains of Lincoln and its subsidiaries, said he also told Wall in 1987 that it was a “very, very bad precedent” for the bank board’s Washington headquarters to take the matter out of the hands of regional regulators in San Francisco.

Seidman’s remarks came in the opening day of hearings by the House Banking Committee into the collapse of Lincoln, perhaps the nation’s costliest thrift debacle.

Committee chairman Henry B. Gonzalez (D-Tex.), said Wall met Keating about the same time that Wall rejected a proposal to place the troubled thrift in receivership, an action Gonzalez called a “$2 billion mistake.” Wall’s agency did not order the seizure of Lincoln until last April.

Keating and Wall have been subpoenaed to testify before Gonzalez’ committee on Nov. 7.

Judging from questions asked during the first day of hearings, Wall is certain to be quizzed extensively by the House Banking Committee about his contacts with Keating.

In addition to evidence that he met with Keating in 1987, panel members suspect that Wall may have tipped off Keating shortly before the government seized Lincoln this year, enabling Keating to file for bankruptcy ahead of the seizure and complicating government moves.

Wall, who now heads the bank board’s successor agency, the Office of Thrift Supervision, apparently knew Keating before he became bank board chairman in June, 1987, according to Gonzalez.

A former adviser to Sen. Jake Garn (R-Utah), Wall helped raise money for the Garn Institute of Finance, a think tank founded in 1986 by the senator at the University of Utah, Gonzalez said.

Keating and his firm contributed between $25,000 and $100,000 to the Garn Institute of Finance, according to the Washington Post.

American Continental spokesman Brad J. Boland acknowledged that Keating contributed to the Garn Institute, but he insisted that Wall “absolutely, positively never solicited” money directly from Keating.

Boland said he knew nothing about a 1987 meeting between Wall and Keating.

The contacts between Wall and Keating could shed new light on circumstances surrounding the financial collapse of Lincoln, a high-flying institution that took advantage of industry deregulation to invest in junk bonds, real estate and other risky ventures.

Lincoln was seized on April 14, just one day after American Continental filed for protection from creditors in U.S. bankruptcy court. It will cost the government’s thrift insurance fund an estimated $1 billion to $2.5 billion to clean up the mess.

The committee’s focus on the Wall-Keating relationship is likely to deflect some attention from the efforts of five senators, including Assistant Majority Leader Alan Cranston (D-Calif.), to influence regulators on behalf of Keating in April, 1987. All five senators received large campaign donations from Keating and his associates.

But Seidman of the FDIC told the committee that federal officials have not ruled out the possibility of lawsuits based on evidence that Lincoln assets were diverted by its officers for the purpose of making political contributions.

The San Francisco regulators had recommended in May, 1987, that the federal government seize the assets of Lincoln on grounds it was being run improperly by American Continental.

Gonzalez said he did not know the exact dates when Keating met with Wall and the bank board’s enforcement staff to discuss the matter.

But he indicated that the meeting or meetings occurred about the same time Wall decided to reject the recommendation of the San Francisco regulators. He said the regional regulators were excluded from the session between Keating and Wall.

“The upshot: no conservatorship, no receivership, no cease and desist,” he said, referring to the recommendation of the San Francisco regulators that Lincoln be seized or placed under a binding cease and desist order.

Gonzalez noted that the Washington office later issued a “memorandum of understanding” that permitted Keating to continue running Lincoln for another two years, a document he described as “a memorandum heavy on ‘understanding’ and light on enforcement.”

It is estimated that Lincoln registered an additional $2 billion in losses after May, 1987. In addition, American Continental sold nearly $200 million in high-risk bonds during that period, mainly to Lincoln customers, and the bonds are now worthless.

Seidman said his agency never would have permitted Lincoln to continue to operate after receiving the recommendations of the San Francisco regulators, who cited the thrift with numerous questionable practices. He said members of his staff who reviewed the same evidence available to Wall in 1987 told him it “depicted an institution that warranted immediate enforcement action.”

When the government finally decided to seize Lincoln, according to Seidman, Wall decided that former Rep. John Rousselot (D-Calif.) should be permitted to remain as the newly selected president of the thrift.

It was not until Seidman told Wall that the FDIC did not intend to take control of Lincoln under those circumstances that Wall agreed to remove Rousselot, who was trying to arrange a sale of the institution.

Gonzalez said he was visited twice during that period by Rousselot, who had drafted a letter for the committee chairman to sign recommending sale of Lincoln. Both Gonzalez and the committee’s ranking Republican, Rep. Chalmers P. Wylie of Ohio, refused to sign the letter.

Gonzalez charged that someone at the bank board also “leaked” to Keating the news that the thrift was about to be seized by the government.

The parent company filed for bankruptcy only a day before the seizure, and one of Lincoln’s subsidiaries, Investment West Inc., was sold just six hours before the government acted, according to testimony before the House committee.

Committee members praised Seidman for the actions his agency has taken since taking control of Lincoln. Among other things, the FDIC has filed a $1.1-billion fraud and racketeering lawsuit against Keating and his associates. Rep. Jim Leach (R-Iowa) even called Seidman “a true American hero.”

Gonzalez said it was unfortunate the FDIC did not have authority over Lincoln before April. “Danny Wall had the wreckage towed in and said, ‘Here, Bill, it’s all yours, you write the check, we’ve done the job,’ ” he said.

Times staff writer James S. Granelli in Orange County contributed to this report.