U.S. Sues Neil Bush for Role in Failure of S&L; : Thrifts: The President’s son, other Silverado officers are accused of negligence. The suit seeks $200 million.
Federal banking regulators Friday accused President Bush’s son Neil and other former officers of a failed Colorado savings and loan of gross negligence in a civil lawsuit seeking $200 million in damages from them.
The suit, which was filed by the Federal Deposit Insurance Corp. in federal court in Denver, is likely to bring the $500-billion thrift crisis closer to the President and the Republican Party as congressional elections approach in November.
For Neil Bush, the lawsuit is the second set of accusations brought against him by regulators in connection with his role as a director of Silverado Banking, Savings and Loan Assn. in Denver. He faces a hearing Tuesday on charges of conflict of interest lodged by the Office of Thrift Supervision, another federal regulatory agency.
An attorney for the President’s son did not return a telephone call on Friday. Bush, a Denver businessman, has denied any wrongdoing in congressional testimony, previous interviews and in the pending conflict-of-interest case.
According to the FDIC suit, Bush and other former directors and executives of Silverado “repeatedly breached” their responsibilities to run the institution safely, and their “gross negligence” contributed to its collapse in December, 1988. The failure of Silverado is expected to cost taxpayers more than $1 billion.
“Our conclusion is that Silverado was the victim of sophisticated schemes and abuses by insiders and of gross negligence by its directors and outside professionals,” said Douglas H. Jones, senior deputy general counsel at the FDIC. “We are seeking in this case to recover every available dollar for the federal deposit insurance funds and the American taxpayers.”
The lawsuit charges that millions of dollars in improper loans and investments were made by Silverado officers and approved by its directors. Many of the transactions violated federal regulations, it said.
Although the suit does not charge that Bush profited directly from his role at Silverado, he is accused of failing to properly disclose his business relationships with two of the thrift’s largest borrowers, including receiving a $100,000 loan from one of them that he never paid back.
A White House spokesman said that the President would have no comment on the lawsuit. In the past, President Bush has defended his son’s integrity but vowed to stay out of the legal process.
Both the FDIC and Office of Thrift Supervision accusations are civil in nature. A spokesman for Atty. Gen. Dick Thornburgh said that Thornburgh stands by his earlier statements that he has seen no evidence of criminal conduct on the part of the President’s son in the collapse of Silverado.
“We have not had an opportunity to review the FDIC lawsuit,” said Dan Eramian, a Justice Department spokesman. “But any credible allegations of criminal conduct will be pursued thoroughly.”
While the political stakes are high for his father and the Republican Party as Democrats seek to blame them for the S&L; scandal, the President’s 35-year-old son faces the prospect of enormous financial losses if the FDIC suit is successful. Silverado dropped its insurance protecting officers and directors before its failure, leaving Bush and the others exposed personally to any damages.
In addition to Bush, other ex-Silverado executives named in the suit are Michael R. Wise, chairman and chief executive; Robert M. Lewis, chief financial officer; Richard Vandapool, chief operating officer; Russell M. Murray, executive vice president; chief stockholder W. James Metz and five other board members.
The FDIC also accused Silverado’s outside law firm, Denver’s Sherman & Howard, and one of its partners, Ronald H. Jacobs, of placing “the interests of a few insiders over those of the institution that they were retained to protect.”
Christopher Lane, managing partner of Sherman & Howard, said: “We believe the government’s complaint against us is totally without merit. The work which we did for this client was of the highest ethical and professional standards. We stand behind that work. We are confident the judicial process will show the government’s claim is baseless.”
Wise and Metz were accused of “unjustly enriching” themselves by diverting Silverado loan proceeds to themselves, and Wise and Lewis allegedly received excessive compensation.
Bush served on the Silverado board from August, 1985, until August, 1988. Although most of the accusations against the directors in the suit are broad, Bush is singled out for failing to adequately disclose his business relationships with Denver businessmen Bill L. Walters and Kenneth M. Good, who eventually defaulted on $106 million in loans from Silverado.
“Moreover,” said the suit, “Walters and Good (or entities they owned or controlled) made various loans either to Bush personally or to JNB (Bush’s business), or advanced funds to Bush without obligation.”
Records show that, while on Silverado’s board, Bush voted to approve major loans to Walters and personally arranged a $900,000 line of credit from the S&L; for a drilling venture in partnership with Good.
In addition, he was silent in 1986 when Silverado released $11.5 million in collateral pledged by Good and instead settled a $30-million loan for payment of $3 million, with Good maintaining that he was broke. Federal regulators say that Bush did not tell his fellow directors that Good was planning at the same time to invest $3 million in Bush’s oil-drilling firm, JNB Exploration.
Good had extended a $100,000 loan to Bush in 1984, the year before Bush joined the Silverado board. Good invested the money for Bush in a commodities scheme and, when the investment yielded no gains, he forgave the loan.
The conflict-of-interest allegations echo the administrative complaint brought against Bush by the Office of Thrift Supervision, which shares some regulatory jurisdiction over thrifts with the FDIC. Bush is scheduled to appear at a rare public hearing on the thrift office’s charges Tuesday in Denver. That case, however, is not scheduled to be decided until next spring.
Silverado emerged last summer as a symbol of the savings and loan crisis as Democrats sought to highlight the role of the President’s son. Their case was aided when records showed that Colorado regulators had determined that Silverado was insolvent and sought to close it less than a month before the presidential election in 1988.
Instead, they delayed the closing, supposedly after receiving a mysterious telephone call from federal S&L; regulators in Washington. The Treasury Department’s inspector general has been investigating the incident, but the caller has not been identified.
