American Continental’s Law Firm Will Pay Bondholders

A New York law firm representing bankrupt American Continental Corp., parent of Irvine-based Lincoln Savings & Loan, agreed Friday to pay the company’s bondholders $20 million to settle a lawsuit charging it with fraud.

The settlement with the firm of Kaye, Scholer, Fierman, Hays & Handler gives debt holders, who invested about $250 million in Phoenix-based American Continental, about eight cents on the dollar. It also reduces a previous $14.3-million settlement with a Los Angeles law firm to $4.3 million.

Both settlements must be approved by a federal court judge. One other law firm and three accounting firms remain as defendants along with a host of American Continental directors and officers.

Ronald Rus, a lawyer for debt holders, called the Kaye, Scholer settlement significant. “It shows there is a real likelihood of liability by those who contributed to the continuing fraud perpetrated by American Continental,” he said.

A Kaye, Scholer partner, however, denied any liability, saying the firm settled the case reluctantly. “No state or federal agency has accused us of doing anything wrong,” said the partner, Kenneth R. Feinberg.

He said the firm’s insurance carrier will pay the entire amount.

“We also felt that we should settle because of the uncertainty of going forward, the time it would take and the dollars it would take, both in cost and in partner time,” he said. “We felt a settlement was a better course of action.”

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 most expensive failures, costing taxpayers $2 billion or more.