Law Firm Reaches Settlement in Lincoln S&L; Case : Thrifts: Chicago-based Sidley & Austin agrees to pay up to : $34 million in suits filed by bondholders of American Continental Corp.
A major national law firm used by now-defunct Lincoln Savings & Loan to lobby in Washington for the appointment of a top regulator and for special treatment has settled a number of class-action lawsuits against it for up to $34 million.
Sidley & Austin in Chicago has agreed to pay $4 million now and guarantee payment of up to $30 million more if bondholders in Lincoln’s parent firm don’t win any more money from a list of about a dozen other defendants. Nearly 100 individuals and companies have been sued by bondholders.
The Sidley settlement, considered generally favorable, blocked a settlement with similar terms by another major defendant, sources said. The accounting firm of Touche, Ross & Co., now known as Deloitte & Touche, had tried until last week to get a similar arrangement. But now it’s unlikely another such deal will be made until other settlements match the amount of the Sidley guarantee.
Sidley is the third major defendant to buy its way out of the complex litigation stemming from the 1989 collapse of the Irvine thrift and its Phoenix-based parent, American Continental Corp. The other two, paying a combined total of $25.9 million, also were law firms.
Thousands of investors in American Continental’s bond offerings lost more than $250 million in the collapse of the financial empire headed by Charles H. Keating Jr. They accuse Keating and his top aides of fraud and racketeering and the company’s outside lawyers and accountants of negligence and other wrongdoing.
Another major defendant could be the state of California, which had been dismissed from the action previously. The state Department of Corporations approved the continued sale of American Continental bonds in May, 1988, even though its staff doubted the company was financially able to repay the borrowings.
On Monday, bondholders argued in the state Court of Appeal in Santa Ana that California should be reinstated as a defendant. In questioning lawyers, the justices were sympathetic to the fate of the bondholders, but the longstanding principle of sovereign immunity may be difficult to overturn. Under the immunity, ordinary lawsuits are prohibited from being filed against the state without its permission.
Meanwhile, the agreement, reached late last week with Sidley, has no effect on the law firm’s negotiations with the federal government, which has threatened to include it and other law and accounting firms in the pending $2.7-billion fraud and racketeering suit against the owners and operators of Lincoln.
Sidley and one of its partners in Washington, Margery Waxman, were accused of improperly pressuring regulators on Keating’s behalf and taking part in a scheme to conceal information and misrepresent the finances of Lincoln and American Continental.
In settling the case, Sidley & Austin and Waxman did not admit any liability. “Our insurance carrier wanted to settle because the amount of the cash payment ($4 million) was no more than what it would have cost to try the case,” said R. Eden Martin, chairman of Sidley’s management committee. “Given the circumstances--the complexity of the case and the remaining defendants--it appears likely that little, if any, of the guarantee will have to be paid.”
Leonard B. Simon, a bondholder’s lawyer who helped negotiate the settlement, agreed that Sidley would not likely have to pay any of the $30-million guarantee. “It would take a lot of disasters in the case for that to happen,” he said.
Among the major defendants whose settlements would reduce Sidley’s guarantee are the national accounting firms of Touche Ross, Arthur Andersen & Co. and Arthur Young & Co., now known as Ernst & Young; the law firms of Jones, Day, Reavis & Pogue in Cleveland and Mariscal, Weeks, McIntyre & Friedlander in Phoenix, and several banks.
Keating and his former top aides also are defendants--accused of fraud and racketeering--but they have asserted that they are broke.
Simon said that up to half of the Sidley settlement payment of $4 million may be turned over to the Resolution Trust Corp., the federal agency that manages and liquidates failed S&Ls.; The RTC gave the bondholders $12 million last summer as part of an agreement that halted the competition for various American Continental and S&L; assets and rights arising from the collapse. Under certain circumstances, that money must be repaid to the RTC.
The suit alleged that Sidley’s Waxman lobbied in late 1986 to get Lee Henkel, a Lincoln borrower and Keating friend, appointed to the three-member Federal Home Loan Bank Board, then the nation’s top S&L; regulatory agency. The suit contended that she made it look as if Henkel’s assets were put in a blind trust when, instead, American Continental or one of its subsidiaries had agreed to buy the assets after it was placed in trust.
Henkel resigned from the bank board in early 1987 after proposing a rule that would benefit Lincoln and after learning that he was being investigated for possible conflicts of interest. The rule was not adopted.
Waxman also was accused of attempting to mislead five U.S. senators, including Alan Cranston (D-Calif.), about the health of Lincoln. She accompanied Keating on visits to the senators and was involved in getting a letter from accountants stating that the S&L; was healthy and that regulators were hurting it with a long, harassing audit, according to the suit.
Finally, the suit alleged, Waxman helped to delay regulatory action against Lincoln in 1988. In a now infamous letter, Waxman told Keating that she “put pressure” on the nation’s top regulatory agency to re-examine Lincoln with new auditors and to put new government officials in charge of overseeing the S&L.;
“You have the (Federal Home Loan Bank) Board right where you want them and you should be able to reach an agreement . . . which will completely satisfy you,” she wrote in her May 10, 1988, letter.
Martin, Sidley’s top partner, said that “neither the firm nor any partner” did anything wrong.
In February, former Gov. George Deukmejian joined Sidley’s Los Angeles office. He benefited from Keating’s largess, receiving nearly $153,000 in campaign donations from Keating, his associates, American Continental and Lincoln.
His chief fund-raiser, Karl M. Samuelian, was involved in getting state approval for the sale of American Continental bonds. Samuelian’s law firm was the first firm to settle, paying bondholders $4.3 million. It later kicked in an additional $1.6 million under a special provision of the settlement.
The New York law firm of Kaye, Scholer, Fierman, Hays & Handler, also has settled by paying $20 million.
