Checks in Mail for Small Bit of Bondholders’ Loss

Small investors, who lost $192.8 million after the parent company of Irvine-based Lincoln Savings & Loan filed for bankruptcy nearly two years ago, will soon be getting checks for a small bit of their money back--about 6 cents on the dollar.

Star Bank in Cincinnati mailed the checks Wednesday totaling $11.6 million to 11,472 registered holders of American Continental Corp. bonds, said Thomas R. Schuck, a bank attorney. The actual number of people benefiting may be nearly twice the number of holders because each registered bondholder typically includes two people.

Star Bank was the trustee for two American Continental bond issues sold through the Southern California branches of the company’s primary subsidiary, Lincoln Savings. The thrift was seized by federal regulators after its parent filed for bankruptcy. Lincoln’s failure is expected to cost taxpayer’s $2.6 billion.

Bondholders, the majority of them elderly Lincoln depositors, have claimed in more than 18 state and federal lawsuits that they were misled into believing that the bonds were safe or insured. Instead, they were risky, uninsured and the lowest-ranking bonds issued by American Continental.

Besides Star Bank, three other banks acting as trustees for about $70 million in higher-ranking American Continental bonds sold to institutional buyers or through brokerages received a total of $4.3 million to refund to bondholders.

The money for the refunds comes from a settlement last summer among three groups--the bondholders, other creditors of American Continental and the Resolution Trust Corp., the federal agency that ran Lincoln and sold its branch system two weeks ago.

The RTC, through Lincoln, provided $21 million to the unsecured creditors committee formed in American Continental’s bankruptcy case. The committee forwarded $11.6 million to Star Bank as a partial refund to those who bought bonds at Lincoln and $4.3 million to the other banks.

But the refunds to bondholders come with strings attached.

Under certain circumstances, bondholders must repay amounts received from the RTC out of future settlements or judgments against the more than 60 defendants that the bondholders have sued. Two law firms that were defendants settled last year for $24.3 million, but that money is not yet being disbursed to bondholders, partly to avoid possible repayment to the RTC.

Also, the RTC has the right to pursue certain claims that creditors and bondholders had against former American Continental Chairman Charles H. Keating Jr. and others.

“Whatever the amount is, most of these people need it,” said Shirley Lampel of Tustin, who recently sold her condominium because she no longer could afford to make payments after losing her investment.

“And even if it’s not much, it’s heartening to know that people were wrong when they said we were never going to see a dime,” she said.