Cranston Seeking Way for Lincoln Investors to Sue U.S. Government

U.S. Sen. Alan Cranston indicated Friday he will seek to forge a path so that jilted bond holders of Lincoln Savings & Loan can make a claim against U.S. taxpayers for their losses, which are figured at $200 million or more.

As part of a new campaign to take the political offensive in the scandal of Lincoln’s collapse, the beleaguered Cranston held press conferences in Los Angeles and San Diego to insist that federal regulators were culpable in the sale of bonds to more than 22,000 Californians--bonds that now are believed to be worthless.

Bond holders have said that they wrongly believed the investments they bought at Lincoln branch offices were backed by federal insurance.

The four-term, 75-year-old senator is struggling for his political survival as a result of the Lincoln collapse, in which his intervention with federal regulators on Lincoln’s behalf has drawn heavy criticism.

Cranston said regulators, under Edwin J. Gray, the former head of the Federal Home Loan Bank Board, “had overall responsibility for examining the sale of uninsured bonds at Lincoln Savings--and he had responsibility for stopping the sale if it was improper.”

Therefore, Cranston said, the foundation exists “for claims by the unfortunate bond holders against the United States government,” in the event the bonds cannot be covered by the assets of the bankrupted Lincoln, its holding company, American Continental Corp., and its chairman, Charles H. Keating.

But federal law is complicated in this area, and Cranston acknowledged that he believes bond holders do not have the right to sue the U.S. Treasury, at least not yet.

“But that’s a step that may be dealt with,” said Cranston. “I’ll have more to say on that shortly.” It was the second time in a week that Cranston told the bond holders to hang tight, offering them some hope.

Cranston was asked how the bond holders could come to have the opportunity to sue the government in this case.

“One way could be legislation to grant them that right. I’m considering that. I’ll have an announcement on that shortly,” he said.

He scheduled a press conference on the subject for Monday.

Cranston seemed at pains, though, to keep bond holders from hoping for too much, too fast.

He said he was not at all sure that the restitution of lost savings could be accomplished by 1992, when he will run for reelection. “It is impossible to get an instant solution,” he said.

Bond holders already have sued the state government, seeking restitution.

Cranston’s troubles in the Lincoln debacle stem from the acceptance of $850,000 from Keating by voter registration committees linked to the senator and his acceptance of $47,000 in campaign contributions. Cranston later intervened on Lincoln’s behalf before federal regulators.

Cranston had previously asked the General Accounting Office to determine whether U.S. taxpayers were liable for the losses suffered by the people who invested their savings in Lincoln bonds. Last month, the GAO declined to offer an opinion while the bond holders still had claims pending against Lincoln. But the GAO noted that there is no provision in the law requiring taxpayer restitution for such high-risk bonds.

Nevertheless, on Friday Cranston said he had reviewed the facts in the case and concluded that U.S. government regulators had failed in their responsibility.

Cranston rejects any blame for Lincoln’s collapse. He insists that he sought only to bring to a conclusion, one way or another, a long-running audit of the troubled savings and loan. Federal regulators said Cranston and four other senators who received Keating contributions and joined in the intervention were applying undue pressure on the regulatory process.

For months the Lincoln mess has drained Cranston’s political support, as measured by polls, and has encouraged any number of fellow Democratic politicians to plot primary election challenges against him.

This week, Cranston, No. 2 in leadership in the Senate and one familiar with the bare-knuckles style of campaigning, began an audacious comeback effort. He began personalizing the dispute as one between himself and the then-chief regulator, Gray, and said regulators were trying to blame the senators to cover their own bungling.