Taggart Testimony in Doubt Amid New Revelations

New revelations Friday cast doubt on congressional testimony this week by former California Savings and Loan Commissioner Lawrence W. Taggart on his financial ties to a failed Texas thrift and his decision while commissioner to grant speculative investment powers to Lincoln Savings & Loan in Irvine.

The revelations suggest that a personal loan provided to Taggart was used by a now-defunct Texas thrift to invest in a California savings and loan without proper regulatory approval.

The disclosures also show that Taggart approved broader investment powers for Lincoln in 1984 after being named a director of a San Diego company that Lincoln invested in a short time later. Lincoln’s risky investments were a key factor in its subsequent failure, an event that will cost taxpayers as much as $2 billion.

Late Friday, Taggart denied any wrongdoing.

In his testimony Tuesday before the House Banking Committee, Taggart acknowledged that Vernon Savings & Loan--a high-flying thrift that was closed in 1987 amid federal allegations that it was looted by its officers--bought a 1985 loan of his from San Diego National Bank.

Taggart planned to use the $600,000 loan to buy a one-third stake in Shelter Island Savings Bank, a fledging San Diego thrift that never opened because it was unable to get federal deposit insurance. Taggart, the state’s top thrift regulator in 1983 and 1984, was working as a consultant then.

Taggart told the committee that he discovered Vernon’s connection to the loan “when I started getting statements from Vernon Savings and started asking questions.” Taggart said in his testimony that he borrowed money from the San Diego bank and found out subsequently that the note had been sold to Vernon.

But two bank memos obtained by The Times show that Vernon’s purchase of the loan was arranged at the time it was funded in September, 1985. One memo, written in August, 1985, by a former senior officer at the San Diego bank, said Vernon would assume the note by the end of 1985. Another, written by former Vernon President Patrick G. King in September, 1985, specifies that Vernon would pay $620,000 for the Taggart loan.

“Both Vernon and Taggart were in the loan at the same time. It was up front, not after the fact as he indicated in his testimony,” said committee member Rep. Richard Lehman (D-Sanger).

In an interview Friday night, Taggart repeated that he was unaware of Vernon’s involvement. “I didn’t know about it at the time the loan was taken out,” Taggart said.

The loan arrangement with Vernon, along with other loan-related memos, raises questions about whether Vernon was trying to invest through Taggart in Shelter Island Savings without proper regulatory approvals. A separate memo obtained by The Times, written by a Vernon loan officer in July, 1986, states that the purpose of the transaction was “for Mr. Taggart to purchase a savings and loan institution in San Diego on Vernon’s behalf.”

Taggart denied that the purpose of the loan was to make thrift investments for Vernon. “That is the very first time I’ve ever heard that,” he said.

Taggart worked for Vernon in 1986 as a $10,000-a-month consultant.

In a separate development Friday, San Diego financier Thomas C. Stickel is disputing Taggart’s congressional testimony on when he joined Stickel’s TCS Enterprises financial services firm in San Diego as a director, according to a published report.

Stickel, quoted in the San Francisco Chronicle, said Taggart was named a TCS director effective November, 1984. That contradicts Taggart’s testimony that he became a TCS director on Jan. 1, 1985, when he also became president of a TCS subsidiary.

The date Taggart joined TCS is significant because it would show he had business ties to the firm on Dec. 7, 1984, the date he authorized Lincoln Savings to invest $800 million in speculative investments. A little more than a month after Taggart’s decision, Lincoln provided TCS a cash infusion of $2.9 million in exchange for a 20% stake.

Stickel was traveling and could not be reached for comment. But James B. Kylstad, a TCS executive vice president, confirmed that Taggart was named a director that November.

In his testimony, Taggart said that he had no involvement with TCS until 1985 and that the November date on Securities and Exchange Commission documents is wrong. In an interview, Taggart said he knew he would be joining TCS at the time of the Lincoln decision but said it was unrelated to his action.

“They (Lincoln executives) didn’t have the slightest idea I was going with TCS,” Taggart said.

Taggart said that even though he knew he would join the firm, he was not active with it until 1985.