Minnesota S&L; Cases, Similar to Neil Bush’s, Raising Questions

Three former executives of a Minneapolis savings and loan face federal criminal charges and a fourth has pleaded guilty in connection with loan practices similar to those used by the Denver thrift where Neil Bush served on the board.

While there are differences in the cases, their similarities raise questions about Atty. Gen. Dick Thornburgh’s statement Sunday that he has seen no evidence that the President’s son may have been involved in any criminal activity at Silverado Banking, Savings & Loan in Denver.

Thornburgh’s comment came after 11 Democrats on the House Judiciary Committee asked him to appoint an independent counsel to investigate Neil Bush. They contend that the Justice Department cannot handle the inquiry fairly.

Thrift regulators have already accused Neil Bush of violating conflict-of-interest rules while a director of Silverado. Now the actions of Silverado’s former directors are being investigated by the Federal Deposit Insurance Corp. to determine whether they followed their duty to assure the safe operation of the thrift.

In Bush’s case, both the conflict-of-interest charges and the question of whether directors met their fiduciary responsibilities involve civil, not criminal, inquiries. As the Minneapolis case demonstrates, however, a failure by officers of a financial institution to meet their obligations to protect depositors can lead to criminal charges.

As far as Bush is concerned, there is one difference between the Minneapolis and Denver situations. The criminal charges were filed against board members who were also executives of Midwest Federal Savings & Loan, working full time in its operations. While Bush approved similar loan agreements as a member of Silverado’s board, he was not an executive there.

The similarities between Silverado and the Minneapolis thrift involve loan practices allegedly used to inflate the apparent financial strength of the two institutions when they came under the scrutiny of federal regulators.

In the Minneapolis case, four former executives of Midwest Federal were indicted on 38 criminal counts by a federal grand jury on June 25. One of the four pleaded guilty to reduced charges on Friday.

Thornburgh thought the case was important enough that he flew to Minneapolis in June to announce the indictment and use the occasion to emphasize the department’s crackdown on savings and loan fraud.

Among the Minneapolis accusations is a charge that the executives tried to prevent federal regulators from discovering the thrift’s shaky financial condition by loaning money to customers who then used the money to buy stock in the thrift. The indictment identified three instances in which loans were tied to stock purchases before the thrift was taken over by regulators last year.

Similarly in the case of Silverado, according to documents released by thrift regulators, the Denver thrift began requiring many major borrowers in 1986 to buy stock in its holding company after federal examiners raised questions about its financial health. Regulators called it a “quid pro quo program.”

In testimony before the House Banking, Finance and Urban Affairs Committee in May, officials from the Office of Thrift Supervision said the loan approvals represented “the failure of the board of directors to responsibly oversee and guide the institution in a safe and sound course of action.”

For instance, Silverado loaned one customer $26 million to buy and develop an old department store in downtown Denver. Silverado required the borrower to use $1.25 million of the loan to buy stock in the thrift’s holding company--thereby raising its apparent financial strength. The loan, which had been rejected by 20 other lenders, ultimately went into default and cost Silverado--and now the taxpayers--more than $13 million.

The department store loan, like other “quid pro quo” loans, was based on a highly questionable appraisal, according to documents. Silverado obtained an appraisal valuing the building at $29 million when it made the loan. Nine months later, a reappraisal ordered by regulators placed the value at $13 million.

A similar loan was made to an entity controlled by Bill Walters, a business associate of Neil Bush. Some of the conflict-of-interest accusations against Bush involve Walters, who was an investor in Bush’s oil exploration business.

Regulators said losses from the “quid pro quo” loans increased the credit risks “exponentially” at Silverado and led to massive losses.

The loans were approved by Silverado’s directors, with only one dissenting vote on one of the loans over a two-year period. That vote was not cast by Bush.

Bush has maintained in congressional testimony and interviews that he did nothing wrong and vowed to fight the civil charges. His lawyer did not return repeated telephone calls Monday.