Van de Kamp Rejects Blame in S&L; Losses : Thrifts: Attorney general denies that advice from his office allowed additional junk bond sales to retirees. He points finger at legislation that deregulated thrifts.

Testifying before a legislative committee looking into the troubled Lincoln Savings & Loan, state Atty. Gen. John K. Van de Kamp on Wednesday denied charges that legal advice from one of his deputies might have allowed an additional $10 million in junk bonds to be sold to unsuspecting Southern California retirees.

“We are not the regulators. We don’t make the law,” said Van de Kamp, who faulted the Legislature for passing a 1982 bill that in effect deregulated state-chartered S&Ls.; The statute allowed Lincoln and its parent company, American Continental Corp., to invest a large part of the thrift’s assets in high-risk investments, including ownership of hotels and development of land in the Arizona desert.

Van de Kamp’s unscheduled testimony before the Assembly Committee on Finance and Insurance was intended to end suggestions that his office was at least partly responsible for losses experienced by some of the 23,000 investors who purchased high-risk bonds from American Continental. Those bonds became virtually worthless when American Continental went into bankruptcy last April.

In December of 1988, state S&L; Commissioner William J. Crawford issued a cease-and-desist order that forced Lincoln to end its direct investment in real estate development, to change its internal accounting practices and to stop making insider business deals.

Richard E. Newsom, a state Department of Savings and Loan examiner, told the committee that the attorney general’s office had objected to language in a draft of that order that might have forced American Continental to disclose the shaky status of its real estate investments to prospective bond purchasers. He said the draft order was written “to build a fire under the behinds of other regulatory agencies.”

Newsom acknowledged that most of the $250 million in American Continental bonds had already been sold by December, 1988, when the Lincoln order took effect. But he contended that the disclosure requirements might have discouraged any more bond sales. And at least $10 million in bonds were sold over the next several months.

“The cows were long since out of the gate, but we were trying to save at least somebody,” Newsom explained.

In response to Newsom’s charges, which were first aired at a committee hearing last month, Deputy Atty. Gen. C. H. Rehm Jr. insisted that he had simply raised questions about the authority of Crawford to act on unproven alle gations of possible security laws violations by American Continental. Rehm said he told an attorney for the S&L; department that the disclosure requirement was “subject to challenge in court,” but never advised her to redraft the document.

During his Wednesday testimony, Newsom charged that his own department and the attorney general’s office had tried to paint him as a liar and were trying to cover up their responsibility for the losses of bond purchasers.

But Van de Kamp, a Democratic gubernatorial candidate, fiercely defended the actions by Rehm, a one-time Republican political consultant.

Van de Kamp accused Assemblywoman Cathie Wright (R-Simi Valley) of turning the small part played by his office into a political issue.

“We are in opposite political parties, and I know what is going on and you know what is going on,” Van de Kamp said.

Earlier this week, Van de Kamp announced that he is launching a criminal and civil investigation into the causes of Lincoln’s collapse. But because his office represents state regulators in a lawsuit filed by American Continental bondholders, he has turned over the criminal probe to Dist. Attys. Ira Reiner of Los Angeles and Steve White of Sacramento.

BACKGROUND

The takeover of Irvine-based Lincoln Savings & Loan by federal regulators last April is the biggest bailout of a thrift ever, and it could cost taxpayers more than $2 billion. To raise money to support its high-risk investment strategy, Lincoln’s parent company, American Continental Corp., sold $250 million in bonds through the S&L;’s branches. When American Continental began bankruptcy proceedings this year, the bonds became virtually worthless. Now those bondholders are charging “massive fraud” and suing company officials, regulators and others in order to recover their money.