Federal Silence on S&L; Settlements Criticized : Thrifts: The state’s top regulator says the public has a right to know about the deals made over lawsuits of two failures.
The state’s chief savings and loan regulator criticized his federal counterparts Tuesday for withholding information from the public about the settlements of lawsuits in two high-profile Orange County thrift failures.
William D. Davis, commissioner of the state Department of Savings and Loan, said taxpayers are paying for the failures of the S&Ls; and thus should be told the details of settlements with owners of defunct American Diversified Savings Bank and Consolidated Savings Bank.
“I find it really outrageous because there is a tremendous amount of taxpayer money that is being spent to administer these lawsuits, and I think the taxpayers are entitled to know how the litigation came out,” Davis said.
“For the federal government to make these deals in secret and then tell the public they can’t know about it is ridiculous. I think the settlements have to be open and the public should have access to the resolutions.”
A spokesman for the federal regulators said the Consolidated settlement would be made public, but only upon written request. But the American Diversified terms would not because the settlement prohibits any disclosure.
“American Diversified does have a specific confidentiality clause,” FDIC spokesman Alan Whitney said. “It was an ill-advised provision to agree to, but we’re stuck with it. Our general position is not to hold these things in confidence. American Diversified is an aberration.”
John Thomas, an FDIC lawyer, said the confidentiality provision was needed to entice the defendants to settle.
The 1986 failures of American Diversified, which was based in Costa Mesa, and Consolidated, which was based in Irvine, are expected to cost U.S. taxpayers $798 million and $43 million, respectively.
Federal regulators recently settled civil litigation, including claims of fraud and racketeering, with Consolidated owner Robert A. Ferrante of Newport Beach and with Ranbir S. Sahni, former chairman and 96% owner of American Diversified. Regulators had seized both institutions in 1986.
Thomas said the Consolidated settlement would be made available to anyone filing a request under the Freedom of Information Act, a notion that angered Davis further.
“For people to have to go and exercise their rights through the Freedom of Information Act, I just think that’s an imposition on the public,” Davis said.
Ferrante’s lawyer, Brian C. Lysaght of Los Angeles, said the Consolidated settlement was not filed publicly in court because it included “competitive business information” over the continuing effort of regulators and a Ferrante investor group to develop Consolidated’s biggest asset, a 157-acre former hazardous-waste dump in Carson.
The Ferrante group has put $3 million into efforts to evaluate the site environmentally and clean it up for construction of a shopping center-office complex, Lysaght said. In addition, he said, Ferrante is helping regulators sell other assets of Consolidated.
But Davis doubted both the value of the business information and the ability to build on the Carson property.
“I recall reading an environmental impact study saying that parcel couldn’t be used for commercial buildings and couldn’t be used for a golf course and couldn’t even be used as a parking lot because the land sinks and the lot would have to be repaved periodically,” Davis said.
Unlike the Consolidated case, the American Diversified settlement will probably remain secret.
American Diversified still holds the record for the biggest total refund to S&L; depositors. When the S&L; was closed in 1988, thrift regulators paid back $1.14 billion in insured deposits to account holders.
The thrift was also a complex business with investments in real estate syndications, wind-turbine farms and electronic pagers. Yet Sahni kept such poor records that 55 lawyers from the San Fraancisco law firm of Petit & Martin hired by regulators spent months unraveling the deals and gathering evidence for a series of lawsuits against Sahni.
The legal bills ran a total of more than $15 million, one of the costliest for thrift regulators. But the FDIC isn’t sure it knows exactly how much was paid because at least three different agencies--two of them now defunct--at different times oversaw the legal effort.
“The legal fees in American Diversified have to be awesome,” Davis said. “There were very complicated matters, and the litigation was going on for almost five years.”
The settlements do not affect separate FBI investigations into the failures of the two thrifts. The two criminal investigations are among seven top-priority bank fraud and embezzlement cases in Southern California.