Lincoln Warned on Unsafe Loans, Letters Show
A lawyer for Lincoln Savings & Loan warned managers of the Irvine thrift nearly two years ago that its loans could be deemed “unsafe,” government documents reveal.
In four letters, a New York lawyer working for Lincoln questioned the lack of documentation for about 90 loans made by the thrift. Copies of the letters, which have not been made public, were obtained by The Times.
Lawyers for the Office of Thrift Supervision told U.S. District Judge Stanley Sporkin in a trial that began Thursday that they would seek to enter the letters as evidence to determine whether regulators had sufficient grounds to seize Lincoln last April 14.
A lawyer for the office, James P. Murphy, told Sporkin that the letters showed that Lincoln’s own legal counsel was raising the same questions about its lending practices as government regulators. He added that regulators discovered the letters in the S&L;’s files only in the last month.
Meanwhile, the Federal Election Commission said Thursday that it is investigating campaign contributions made by Lincoln owner Charles H. Keating Jr., his family and corporate associates.
The commission inquiry is focusing initially on donations to Sen. John McCain (R-Ariz.), who requested the inquiry. But a commission spokesman suggested that the investigation could spread to four other senators who--along with McCain--intervened with federal regulators on Keating’s behalf.
The trial on Lincoln’s $2-billion collapse is based on a lawsuit filed in Washington by S&L;’s parent company, American Continental Corp. in Phoenix, challenging the government’s seizure of the thrift on April 14. In addition, regulators have filed a $1.1-billion racketeering lawsuit against Keating and other managers of the failed thrift.
American Continental claims that regulators lacked sufficient cause to take over the S&L.; The parent company filed for bankruptcy court protection on April 13 and wants control so that it can reorganize the thrift under bankruptcy laws. Now insolvent, Lincoln is expected to become the nation’s costliest thrift failure.
Charles Stern, American Continental’s lawyer in the conservatorship challenge, declined to comment about the letters. He told Sporkin, however, that none of the issues in the trial involve the 90 loans discussed in the letters.
One letter from Lois Gordon, a lawyer at Kaye, Scholer, Fierman, Hays & Handler in New York, praised Lincoln for improving its loan files but cautioned the S&L; about poor loan documentation.
Keating, his son and one of his sons-in-law have been subpoenaed to testify in the trial. But they probably will not appear until January. After a second day of hearings today, Sporkin is expected to set a date next month to continue.
The commission inquiry into the Keating group’s donations to McCain may be broadened to include contributions to Sens. Alan Cranston (D-Calif.), Dennis DeConcini (D-Ariz.), John Glenn (D-Ohio) and Donald W. Riegle Jr. (D-Mich.), commission spokesman Scott Moxley indicated.
Times staff writer Paul Houston contributed to this report.
