Lincoln Parent Investors Near Settlement
Small investors in bankrupt American Continental Corp.'s debt securities are close to picking up $20 million in an out-of-court settlement with the Phoenix company’s New York law firm, lawyers on both sides said Monday.
The settlement with the firm of Kaye, Scholer, Fierman, Hays & Handler could come as early as today, the lawyers said.
It would give debt holders of American Continental, the parent of Irvine-based Lincoln Savings & Loan, about 8 cents on the dollar. But it also would mean that a previous $14.3-million settlement with a Los Angeles law firm would be reduced to $4.3 million.
Earlier this year, the Los Angeles law firm of Parker, Milliken, Clark, O’Hara & Samuelian agreed to pay $14.3 million for its role in getting the bonds approved for sale. But the settlement included a $10-million reduction if the plaintiffs settled with other defendants.
About 23,000 holders of five debt offerings lost about $250 million when American Continental filed for bankruptcy protection in April, 1989. Federal regulators seized Lincoln the next day. The thrift now is predicted to become one of the nation’s costliest failures ever, costing taxpayers $2 billion or more.
The biggest group of debt holders were mostly elderly Lincoln depositors who traded in their insured accounts for the high-risk, uninsured securities offered at the thrift’s 29 Southern California branches. Many allege in lawsuits that they were duped by tellers and salespeople into buying the bonds.
Star Bank in Cincinnati, the trustee for that group of bondholders, cannot determine yet the exact number of people listed on 14,742 bonds, which now appear to be worthless. About $192.8 million remains outstanding on those bonds.
Kaye, Scholer is one of six professional defendants--three law firms and three accounting firms--sued by bondholders. Charles H. Keating Jr., American Continental’s controversial chairman, and other directors and officers also are among the defendants.
The proposed settlement would need federal court approval.
“For all intents and purposes, it’s a done deal,” Ronald Rus of Orange, one of the bondholder lawyers, said about the settlement. “It appears there are no obstacles.
He said that $20 million represents “significant potential liability that all defendants face as their part in continuing the American Continental fraud.”
Kenneth R. Feinberg, a Washington lawyer for Kaye, Scholer, pointed out that a few points were still being negotiated and that it was “erroneous” to call the settlement final. But he said an agreement could be ironed out as soon as today.
The settlement with Kaye, Scholer would be one of three settlements in the works that could provide plaintiffs in 17 class-action lawsuits with a partial return of their investments.
This week, a bankruptcy committee of unsecured American Continental creditors, including the bondholders, is expected to reveal details of a revised $21-million settlement it has worked out with the Resolution Trust Corp., the federal agency running Lincoln.
A large chunk of that money, believed to be about $14 million, would go to bondholders and would be repaid to Lincoln from future settlements or judgments, according to previous statements by lawyers in the case.