Bar Ends Probe of Lincoln Figures Tied to Governor

Saying it had found no evidence of wrongdoing, the State Bar of California on Friday ended its investigation into the ethical conduct of three individuals closely tied to Gov. George Deukmejian over their role in the Lincoln Savings & Loan scandal.

The State Bar, in a statement issued late Friday, said an “absence of evidence” ended its probe into the activities of Deukmejian fund-raiser Karl M. Samuelian of Los Angeles; the governor’s law partner, Franklin Tom, and state Corporations Commissioner Christine W. Bender.

The investigation was being closed “without prejudice,” the Bar said, leaving open the option that the case could be reopened if new evidence is uncovered.

The three were being investigated for a possible conflict of interest in the sale and regulatory approval of uninsured, high-risk bonds issued by Lincoln’s corporate parent.

The Bar’s decision removes one of a plethora of probes over the collapse of Irvine-based Lincoln Savings and the bankruptcy filing of the parent, American Continental Corp. of Phoenix. Dozens of lawsuits and state and federal investigations are pending in what could become, at an estimated $2 billion, the single most costly thrift failure ever. The three lawyers cleared by the Bar face the wrath of plaintiffs in a number of lawsuits.

“I think it completely vindicates me,” Bender said about the Bar’s decision. “I’m delighted they came to the conclusion that I knew all along they would come to.”

A lawyer for Samuelian and Tom said they were pleased that the Bar agreed to close its investigation.

“It should be clear to everyone that Karl Samuelian and Franklin Tom are people of the highest integrity who honestly and competently represented their clients,” said their lawyer, Seth Aronson of O’Melveny & Myers.

The State Bar, which monitors lawyer conduct, initiated a preliminary probe in November based on news reports and other information it had. News of the investigation was revealed two weeks ago.

Samuelian and Tom represented American Continental in its efforts to win state approval to sell debt securities at Lincoln’s 29 Southern California branches.

Nearly $200 million in debt securities was sold to some 22,000 small investors at Lincoln branches. Most investors were elderly Lincoln depositors who say they were encouraged by Lincoln and American Continental employees to put their funds into the bonds. The investors said salespeople led them to believe that the bonds were insured and as safe as their deposits in Lincoln. But the bonds were not insured, and many lost their life savings.

Lawyers for bondholders, who have filed 17 lawsuits to get their money back, would not comment on the State Bar’s action.

Their pending lawsuits, however, name Tom and Samuelian’s Los Angeles firm as defendants. Seven suits filed in Orange County Superior Court also name the state as a defendant for the role the Corporations Department played in approving the bond sales.

Bender’s office approved the second of two public offerings of American Continental debt securities. Tom, her predecessor, approved the first offering.

After returning to private practice in early 1987, Tom and Samuelian and others at Parker, Milliken, Clark, O’Hara & Samuelian met with Bender several times to counter information her agency had developed on American Continental’s apparent inability to repay the debt it wanted to issue.

In the end, the department approved the offering for sale.