7 Southland S&Ls; on Priority List for FBI Investigation
Federal thrift regulators and the FBI have given top priority to investigations of seven failed Orange County and Los Angeles savings and loans as part of the Bush Administration’s new coordinated effort to push for criminal prosecutions in thrift fraud cases.
A surprise among the seven targeted S&Ls; is Mercury Savings & Loan in Huntington Beach, where there was no previous hint of a criminal probe. Regulators seized the insolvent S&L; on Feb. 23, ousting its officers and chairman, long-time industry leader Leonard Shane.
Lawrence G. Lawler, special agent in charge of the FBI district in Los Angeles, said Mercury and the other S&Ls; have been singled out for special scrutiny by the Office of Thrift Supervision, which regulates the nation’s S&Ls.;
He said that, while the OTS does not set his priorities, his office had already determined that its biggest thrift fraud cases involved the same seven institutions, including one of the nation’s most notorious collapses, that of Lincoln Savings & Loan in Irvine.
Lawler identified the other top priorities as First Network Savings Bank, Westwood Savings & Loan and Brookside Savings & Loan, all in Los Angeles, and two defunct thrifts, American Diversified Savings Bank in Costa Mesa and Consolidated Savings Bank in Irvine. All but Brookside and Westwood have been reported previously as under investigation.
“Those cases are the reason we can’t get to the other investigations,” Lawler said about a backlog of 286 requests to probe financial institution fraud.
The seven institutions are among 29 failed thrifts and six failed banks that Lawler’s office is investigating currently.
Lawler said the OTS information was given to him last week when he was in Washington for a news conference at which President Bush outlined his stepped-up strategy to put “the cheats and the chiselers and the charlatans” of the savings and loan industry behind bars.
The OTS would not identify its priority cases. But T. Timothy Ryan Jr., director of OTS, said he has turned over to the Justice Department a list of 100 thrifts that regulators want the FBI to view as priority investigations. Regulators consider 20 of those cases to be top priority, he said. The seven local thrifts are among them.
Ryan is heading the Administration’s effort to focus Justice on major cases and to raise the public’s awareness of the thrift fraud problem. Bush created a new Justice Department post to handle financial institution fraud and asked Congress to authorize $25 million more for extra federal agents to investigate and prosecute financial fraud.
Lawler, whose FBI district covers seven counties stretching from Orange County to San Luis Obispo County, declined to provide details of the investigations of the thrifts.
The FBI usually discloses only that bank fraud and embezzlement investigations are pending at specific institutions. In some cases, the agency will not even acknowledge that an investigation is being conducted. Earlier this week, for instance, it still refused to confirm that it was probing Lincoln Savings.
The addition of Mercury to the top-priority list surprised industry observers, including William D. Davis, the commissioner of the state Department of Savings and Loan. Davis said he had no inkling of any possible criminal wrongdoing at the S&L.;
Shane, Mercury’s former chairman, has been one of the industry’s most persuasive and compelling spokesmen and a campaigner for the traditional thrift role of home lending. Through much of the last decade, he has been both adviser to and supporter of regulators, though the relationship has soured in the last two years. And he has been vocal in his call to rid the industry of crooks and others who recklessly invested insured deposits in risky ventures.
Shane said Friday that he was not aware of an investigation of Mercury and had no idea what it was about. “I can’t imagine why, unless it was our complaints they’re investigating,” he said. He would not elaborate on the complaints, but they are believed to involve several former executives in a loan-kickback scheme.
Mercury has been touched by scandal twice before. The thrift lost $17 million in the early and mid-1980s when a former executive and a contractor engaged in a loan-kickback scheme in Northern California and when a Southern California builder used fraudulent documentation to obtain loans. The losses were written off in 1986.
Accounting errors and two defaulted hotel loans eventually sank the thrift in red ink. It lost $53.6 million in 1988 and 1989.
The takeover of Lincoln in April, 1989, and its aftermath, including a House Banking Committee hearing into the collapse, has been well documented. More than two dozen major civil lawsuits have been filed against the former operators and others, and regulators have filed a racketeering suit against them.
American Diversified and Consolidated, both seized in 1986, were involved in a number of deals together, including the sale of vacant Carson land that was once a hazardous waste site. Consolidated was closed a few months after it was seized. Regulators closed American Diversified in June, 1987, refunding a record $1.14 billion to depositors.
First Network, seized April 20, was headed by Carl M. Rheuban, an amateur magician, philanthropist and developer who had close ties to Democratic politicians. Rheuban was a major contributor to political campaigns, including those of Sen. Alan Cranston (D-Calif.) and Sen. Joseph Biden (D-Del.).
Westwood and Brookside were seized last year.
Times staff writer James Bates contributed to this report.