Deukmejian Backer Helped Kill Thrift Plan : Banking: League of Savings Institutions proposal would have limited risky investments.

Working on behalf of Lincoln Savings & Loan, Gov. George Deukmejian’s top political fund raiser participated in a behind-the-scenes effort in 1985 that killed a proposed regulation that would have limited the kinds of risky investments that contributed to the thrift’s failure, The Times has learned.

Los Angeles attorney Karl Samuelian, Deukmejian’s campaign finance chairman, joined other prominent supporters of the governor at a November, 1985, meeting in the office of then-Assembly Republican Leader Pat Nolan of Glendale in an effort to persuade the lawmaker to fight the proposed industry-backed regulation.

Also at the meeting were Deukmejian’s former savings and loan commissioner, Lawrence W. Taggart, and San Diego financier Tom Stickel, a top GOP fund raiser and a gubernatorial appointee to the board of trustees for the California State University system.

At the meeting, officials of the California League of Savings Institutions--trying to clean up their own industry--sought Nolan’s endorsement for a regulation restricting risky direct investments in real estate, stocks and junk bonds by state-chartered thrifts. But the opposition to their proposal by Nolan, Stickel and Taggart was so strong that the League simply backed down and abandoned its effort, industry officials said on Thursday.

“We just felt whipped,” recalled Jerry Barrone, then the chairman of the league and president of Coast Savings in Los Angeles, who attended the meeting.

Barrone said he had not known who Samuelian was before the meeting nor was Deukmejian’s name ever mentioned in discussing the regulation. In fact, he said, Samuelian was relatively quiet during the discussion. But in the middle of the meeting, a Nolan staffer interrupted the session to tell Samuelian that the governor had telephoned him and he needed to return the call.

Samuelian could not be reached for comment, but his attorney confirmed that he attended the meeting.

“There was a call from Karl’s secretary saying that the governor was trying to reach him,” said Robert S. Draper, Samuelian’s attorney.

Although Samuelian was representing Lincoln at the meeting, “the call had nothing to do with (the investment issue),” Draper said.

However, Barrone remembers suspecting at the time that the interruption was done for effect.

“We thought it was done for saber-rattling purposes,” he said, to show that “these people were in with the governor.”

Earlier this year, Deukmejian emphatically denied any knowledge of efforts by Lincoln and its owner, Charles H. Keating Jr., to pressure his Administration into approving expansion of its high-risk investments and authorizing bond sales of its parent corporation, American Continental Corp.

In April of this year, American Continental declared bankruptcy, and federal regulators took over operations of the thrift. It has been estimated that Lincoln’s collapse could cost taxpayers as much as $2 billion.

In the wake of the American Continental bankruptcy this year, Samuelian was among a long list of people associated with the company who were named in a series of lawsuits filed on behalf of 23,000 investors in the Irvine-based thrift. The investors, many of them Southern California retirees, claim to have lost $250 million.

Keating and his thrift have been heavy contributors to Deukmejian and Nolan, as well as to many major politicians of both parties. Keating, his business enterprises and associates have contributed an estimated $189,000 to Deukmejian’s campaign committees and at least $20,000 to Nolan.

Nolan was the author of 1982 legislation that lifted restrictions on savings and loan investments. The purpose was to make the thrifts more competitive with banks.

But as increasing numbers of savings institutions began to fail, the industry itself sought regulations to ensure the safety of its investments. It proposed that state Savings and Loan Commissioner William J. Crawford adopt a rule limiting high-risk investments to 20% of an institution’s holdings.

However, Nolan said Thursday that he was fearful that the California League proposal would be too restrictive and would not get at problems of poorly managed savings and loans.

“I had strong feelings that arbitrary regulations wouldn’t help; that they would hurt the good (savings) associations,” Nolan said.

The assemblyman said he convened a meeting at his office at the industry’s request but also invited Deukmejian fund raiser Stickel and former Savings and Loan Commissioner Taggart to state their objections to the proposal. Confronted with opposition to their proposal from the Assembly minority leader and influential political allies of Deukmejian, the industry withdrew its proposal.

“The feeling was we got beat up pretty well at this meeting and we wouldn’t get anywhere with such a strong groundswell of opposition,” Barrone said.

After the meeting, Nolan said, he called Commissioner Crawford to argue against the proposed regulations. Crawford ultimatedly scuttled the proposal but contended that he did it at the request of the league, not because of Nolan’s call.

Stickel’s opposition to the proposed regulation came less than a year after his company, TCS Enterprises, went public and Lincoln bought 19% of its stock for $2.9 million. Stickel had also hired Taggart as an executive, who was acting as a paid consultant to Keating.

Stickel said he tried to ensure that Nolan’s 1982 legislation was not tampered with and that regulators “were very careful before they revised the laws in any way that restricted savings and loans from doing business the way it had to be conducted in the 1980s to survive.”