Drexel, Hutton Sued for S&L; Failure
The Federal Deposit Insurance Corp., the agency that insures deposits at banks, said Friday that it brought a $516-million lawsuit against Drexel Burnham Lambert, E. F. Hutton and others over the failure of a Texas thrift.
The suit, filed in federal court, stems from an alleged fraud scheme that the FDIC claims led to the demise of the Guaranty Federal Savings & Loan Assn. in Dallas, the sixth-largest thrift in Texas.
The federal agency claims in its suit that the two former co-chairmen of the bank, Paul Sau-Ki Cheng and Simon Edward Heath, and five former Hutton and Drexel salesmen tried to defraud the bank by diverting profits from the sale of government securities for a failed takeover bid.
Cheng and Heath attempted to take over U.S. Home Corp., a major developer, but the bid failed in 1988.
The FDIC contends that Drexel’s Beverly Hills office served at the time as U.S. Home’s investment banker. The FDIC said unidentified personnel at Drexel “advised and encouraged” Cheng and Heath to attempt the takeover of U.S. Home.
Meanwhile, Goldman, Sachs & Co. said Friday that it has agreed to buy Drexel Burnham Lambert Inc.’s entire portfolio of mortgage-backed securities. Terms of the transaction were not disclosed. Shearson Lehman Hutton Inc. is negotiating to acquire 28,000 brokerage accounts from Drexel, a Shearson spokesman said Friday.
