Regulator Gave Confidential File to S&L; Lobbyist

A former federal banking regulator testified Tuesday that he had provided a well-connected Republican lobbyist with a confidential copy of an internal government report highly critical of a questionable thrift takeover that the lobbyist had helped to engineer.

The arrangement--which enabled lobbyist Robert Thompson to propose revisions to a draft copy of the government audit--illustrates the cozy relationship between regulators and buyers that critics believe was a recipe for scandal in the nation’s savings and loan industry.

The disclosure of the collaboration, which followed the sale of 15 insolvent Texas S&Ls; to an unqualified Arizona investor, came as Sen. Howard M. Metzenbaum (D-Ohio) released documents suggesting that Thompson played a key role in winning federal approval for the controversial deal.

Thompson served as a Washington representative for the successful bid of Arizona entrepreneur James M. Fail to take control of the Texas S&Ls; in a deal that provided him with as much as $3 billion in federal assistance.

Fail, who had a history of legal and regulatory problems before he applied for control of the S&L;, put up only $1,000 of his own money in the deal.

Among Thompson’s principal contacts in negotiating the deal was Thomas Lykos, then the director of the so-called Southwest Plan, the effort by the Federal Savings & Loan Insurance Corp. to rescue troubled S&Ls; in Texas and Oklahoma.

Lykos was the regulator who acknowledged in testimony Tuesday that he later gave Thompson access to the confidential internal report.

Metzenbaum, whose Senate Judiciary subcommittee has been investigating what he calls the worst scandal yet uncovered in the S&L; selloff, declared Tuesday that there is “no doubt” in his mind Fail “would never have put his hands on $3 billion in tax-free subsidies without the help of Robert Thompson.”

Thompson, a former aide to then-Vice President Bush, defied a congressional subpoena and refused to appear before the panel Tuesday to explain his role in the affair. His attorney, Stanley Brand, charged that the subcommittee has no jurisdiction over the matter.

The documents released Tuesday provide a glimpse of what apparently were close ties between Thompson and a wide array of senior officials at the Federal Home Loan Bank at a time when the regulators were seeking suitable investors to take control of more than 200 bankrupt S&Ls.;

Among them are “Dear Danny” letters from Thompson to M. Danny Wall, then chairman of the now-defunct bank board, and confidential reports from Thompson to Fail relaying advice provided by other senior banking regulators about the Texas bid.

Responding to nearly seven hours of questioning Tuesday, former bank board officials steadfastly denied that they had given either Thompson or Fail special treatment. They suggested that Thompson might have boasted of powers he did not have to help impress his clients.

At the same time, however, the regulators also acknowledged that, as part of their hurry-up effort to divest the S&Ls; in the final days of 1988, they had overlooked crucial evidence that would almost certainly have eliminated Fail from the competition.

Most important, the regulators testified that they had not learned before the sale that the Arizona businessman had pleaded guilty in an Alabama securities fraud case in 1976--an action that by law is a “presumptive disqualifier” for anyone seeking to acquire an insolvent S&L.;

In his own filings, Fail disclosed only that he had been indicted in the case, not that he had pleaded guilty, the regulators’ testimony showed.

George M. Barclay, president of the Federal Home Loan Bank of Dallas, said that his staff had looked into the matter in December, 1988.

But Barclay said that a Dec. 22 deadline imposed by bank board officials in Washington had forced his staff to forward the Fail case to the capital before the investigation was concluded. Had he known of the buyer’s guilty plea, Barclay said, “I would have objected.”

Instead, according to the regulators, the Dallas bank board relayed the case to Washington on Dec. 21 without making a judgment about the merits of the application.

The next day, after Lykos called from Washington to demand that the board make a firm up-or-down decision, Barclay drafted a letter recommending that the sale be approved.

Both Barclay and Lykos denied Tuesday that there had been anything untoward about the interference. But the recommendation from Dallas proved instrumental in winning bank board approval in Washington for the takeover, which provided Fail with at least $1.85 billion in federal assistance in exchange for an initial investment of $70 million, nearly all of it borrowed.

Metzenbaum released a document Tuesday showing that details about Fail’s guilty plea had been sent to the Dallas bank board headquarters by Telefax on Dec. 21. But Barclay said that neither he nor his staff had ever seen the crucial document.

The omissions were crucial in fueling a chain of events that enabled Fail to acquire what Metzenbaum on Tuesday called a “secret moneymaking machine” and gave lobbyist Thompson a secret 2% stake in any sale--an arrangement potentially worth tens of millions of dollars.

The enormous profits resulted from arrangements that offered investors extensive subsidies to induce them to take over the ailing savings and loans. Such government assistance has made the newly acquired S&Ls; in the Southwest among the most profitable in the business.

Thompson’s lawyer, Brand, acknowledged Tuesday that his client had negotiated the arrangement calling for a 2% stake in any sale. But he rejected a separate assertion by Metzenbaum that his client had also been paid more than $1 million in fees for the project.

“That’s way off,” he said.

In separate action Tuesday, the House responded to widening public concern about the savings and loan scandal by giving overwhelming approval to legislation designed to help the government target a growing roster of “S&L; crooks.”

The measure, approved 424 to 4, would increase penalties for financial fraud, appoint a special counsel to investigate elected officials or top-level executive branch officials involved in the scandal and authorize special wiretaps to be used in S&L; investigations.

Similar provisions are included in the Senate version of its crime bill. In passing its measure, the House sought in part to arm its members for anticipated confrontations during their summer recess with constituents outraged over the savings and loan scandal.

Times staff writer William J. Eaton contributed to this article.