FBI Probing Favoritism in Sales of S

The FBI has launched a major investigation into allegations of political favoritism and influence peddling in connection with the government’s sale to private investors of dozens of insolvent savings and loans in Texas, knowledgeable sources said Wednesday.

One federal regulator said in an interview that he was offered immunity by an FBI agent in return for testimony about deals in which billion-dollar taxpayer subsidies went to “political favorites.”

The regulator, who said that he would lose his job if he were identified, said that objections raised to several deals by lower-level federal officials were overruled by their superiors.

The inquiry, which has been under way for at least a month, represents a dramatic widening of investigations into accusations of wrongdoing in the government program to clean up the savings and loan debacle, which is expected to cost taxpayers at least $500 billion and has become a volatile political issue.

Another government source confirmed that the investigation is focusing on some of the 15 transactions in the so-called Southwest Plan, which resulted in the sale of 87 failed Texas thrifts in 1988. Financial assistance and tax benefits awarded in the 15 deals alone are expected to cost the taxpayers $52 billion, according to government estimates.

The source stressed, however, that not all of the Southwest Plan transactions are suspect and he refused to identify any of the deals that are under scrutiny. The second source also spoke on condition that his name be withheld.

The investigation is being run by a special Justice Department taskforce created in 1986 to look into thrift fraud in the Southwest, according to the sources. The Dallas-based task force includes 26 prosecutors and 58 FBI and Internal Revenue Service agents.

Among the Southwest Plan’s controversial deals was the sale of 15 insolvent Texas thrifts to Phoenix businessman James M. Fail after a former aide to then-Vice President George Bush intervened with regulators on Fail’s behalf. The sources refused to say whether the Fail transaction is part of the inquiry.

Fail, who had a history of legal and regulatory problems before he bid for the thrifts, put up only $1,000 of his own money and obtained federal assistance worth as much as $3 billion for the thrifts, which were consolidated under the name Bluebonnet Savings in Dallas.

Lobbyist Robert Thompson, an aide to Bush when Bush was vice president, represented Fail with Washington regulators. So close were Thompson’s ties to regulators that he was shown a confidential copy of an internal government report raising questions about his activities, according to documents and congressional testimony.

Sen. Howard M. Metzenbaum (D-Ohio), who is conducting hearings on the 1988 deals, has singled out the Fail transaction as the worst case uncovered by his subcommittee’s investigators. In testimony before the panel Tuesday, regulators defended the Bluebonnet deal and said that no improper influence had been exerted.

But an Arizona businessman who was a losing bidder in two other major S&L; acquisitions said that he had been questioned repeatedly in 1989 by bank board investigators as part of a separate inquiry. They suspected that “political connections and influence was the defining factor that got the deal closed,” he said.

“They told me I should have been the winner,” said Robert W. Stallings, now the chairman of Phoenix-based First Western Partners Inc. “Their sense was that the guy who won out got the deal because of a job in a previous Republican Administration.”

The disclosure of the FBI inquiry marks the first time that investigators are known to be examining some of the government’s 1988 S&L; deals for evidence of possible criminal wrongdoing. The disclosure occurred the day after a top Treasury Department official warned that there will be a “volcanic eruption” once the cost of the 1988 deals is reported to Congress.

At the time, the Southwest Plan was portrayed by regulators as a bold attempt to sell as many sick thrifts as possible as quickly as possible to private investors and to healthy savings and loans. But earlier this year the General Accounting Office, an investigative arm of Congress, said that the program had been marred by irregularities and favoritism.

The GAO said that regulators from the Federal Home Loan Bank Board often negotiated terms with a selected bidder and excluded other qualified bidders. The GAO charged also that only a few officials were involved in choosing the winners and that record-keeping was sloppy.

A separate disclosure, from an internal government audit, showed that investigators from the Federal Home Loan Bank Board uncovered evidence as early as last year that unfairness and favoritism tainted the process by which the S&L; buyers were chosen in the Southwest Plan.

The extensive audit by bank board inspectors found that qualified bidders in the Bluebonnet deal had effectively been excluded by federal regulators, whose actions “compromised the integrity” of the competition.

In cases cited in the document, the bank board regulators provided crucial information about the bidding process to institutions that had never expressed interest in the acquisition while denying the same material to qualified investors.

In at least five cases, the inspector general concluded, investors who were qualified to acquire the Texas banks “were not afforded such an opportunity,” ensuring that “competition . . . was not as significant as it could have been.”

The excerpts from the report, released by the Senate subcommittee investigating the Bluebonnet deal, address alleged wrongdoing in that case alone. But a cover sheet included in the disclosure makes clear that the report reviews the implementation of the entire Southwest Plan, and individuals interviewed by the investigators said it was clear that the government is looking into allegations of a far wider pattern of wrongdoing.

The regulator who was approached by the FBI agent said that he was not certain what transactions the criminal investigators were interested in. He said that the offer of immunity was not related directly to any role he had in assessing the deals. He added that he has not decided whether to cooperate in the investigation.