State Agencies Escalate Attack on Lincoln S&L; : Thrifts: Reiner asks for a grand jury investigation. The Corporations Department is seeking the return of at least $200 million.
Two state agencies, escalating their legal attack in the Lincoln Savings & Loan scandal, are pressing for civil fines and criminal penalties against the former operators of the failed Irvine-based thrift.
Los Angeles County Dist. Atty. Ira Reiner, acting as a specially appointed state attorney general, said Thursday that he has asked for a wide-ranging state grand jury investigation into the scandal resulting from Lincoln’s collapse and the loss of investor funds in its parent company, American Continental Corp.
Reiner said a special grand jury, which could be approved and impaneled by the end of next week, was needed to handle only Lincoln matters because the current grand jury’s term will expire in June and the investigation is expected to last six to nine months.
In addition, the state Department of Corporations, stung by claims that it mishandled the approval of American Continental’s securities offerings, is going on the attack by seeking the return of at least $200 million in investor funds from the former operators, including Charles H. Keating Jr., the parent company’s chairman.
The corporations agency plans to seek restitution from Keating and two top aides in a civil lawsuit to be filed this week in Los Angeles County Superior Court that alleges violations of state securities laws. The agency also will ask the Los Angeles and Orange County district attorney offices to launch investigations into possible criminal fraud in the sale of those securities, a source close to the case said.
What is unusual about the agency’s action, the source said, is that it focuses on investment fraud charges while the plethora of investor suits center on alleged misleading statements and actions by Keating, his accountants and lawyers. Federal regulators have sued Keating and other executives on fraud and racketeering charges.
Corporations Commissioner Christine W. Bender said her office would make available today copies of statements from about 100 of the 22,000 small investors who bought American Continental bonds. The agency also will provide statements from some Lincoln and American Continental employees who sold the securities in Lincoln’s 29 Southern California branches.
Federal regulators seized Lincoln last April, a day after Phoenix-based American Continental filed for bankruptcy protection. Bailing out Lincoln is expected to cost taxpayers $2 billion, making it the costliest thrift cleanup ever.
The bankruptcy left in the lurch an unusual class of investors. Many of the 22,000 people who bought nearly $200 million in short-term bonds were not accustomed to buying stocks or bonds. They were mostly Lincoln customers with large savings deposits. Many claim in lawsuits that they were subjected to “bait-and-switch” techniques by overly aggressive salespeople, and were led to believe erroneously that the bonds were federally insured.
Ironically, their state court lawsuits also name California as a defendant, alleging that the corporations department failed to reject the bond sale or, later, halt further sales when it knew American Continental could not repay the debt.
An additional 1,000 more-experienced investors bought about $55 million in bonds in the normal manner--through brokerage houses. It was unclear Thursday if the corporations department will be seeking $250 million for all bondholders or just the amount for those who bought bonds at Lincoln.
Executives at American Continental--already subjected to other state and federal civil and criminal probes and to a congressional investigation--seemed unfazed by Thursday’s actions.
“Reiner? Isn’t he a candidate for something?” asked Bradley J. Boland, an American Continental spokesman.
Reiner, a Democrat, is running for state attorney general but denied that politics have anything to do with the investigation.
He and Sacramento County Dist. Atty. Steve White were appointed in December by state Atty. Gen. John Van de Kamp, also a Democrat, to look into possible criminal charges in the Lincoln case. Van de Kamp decided that he had a conflict of interest because he had to defend the state in lawsuits brought by bondholders.
Reiner, who hired former aide Lynn Miller to head the Lincoln investigation, said his agency was taking the lead role in the investigation and that White, a former Van de Kamp aide, was helping.
Included in the grand jury’s work will be a review of the role that state officials played in the Lincoln debacle, he said.
Reiner said a grand jury was needed because it alone had powers to subpoena witnesses and documents and to grant immunity to compel testimony.
