Bondholders Get Reprieve in Suits by Lincoln Parent
The former parent company of failed Lincoln Savings & Loan agreed Tuesday to temporarily halt its effort to recoup $24.5 million from investors who were paid interest or principal on their bonds just before the company entered bankruptcy.
American Continental Corp. notified investors in the last few days that it had filed lawsuits seeking recovery of the so-called preference payments. Such suits are common in bankruptcies and specifically allowed, though not required, under the Phoenix company’s court-approved liquidation plan.
The company will hold settlement talks with lawyers for some of the bondholders. If no agreement is reached by Sept. 1, however, the bondholders will have 30 days to pay the money back.
U.S. District Judge Richard M. Bilby, who is overseeing the civil litigation filed in the aftermath of Lincoln’s collapse, is expected to approve the temporary stay in a hearing today.
Nearly 90% of the investors named in the American Continental suits are not among the thousands of bondholders who lost more than $250 million and sued the company’s operators and professional advisers in a series of class actions. They are, instead, investors whose bonds matured during the prefiling period and who received all their money back.
Still, for some of the bondholders, the action adds insult to injury because they were also among those who lost money after American Continental filed for bankruptcy protection on April 13, 1989. Regulators seized the Irvine thrift the next day.
American Continental’s recent lawsuits are aimed at investors who received more than $1,000 in the 90 days preceding the company’s bankruptcy filing.
A thorny issue in the negotiations is a possible conflict of interest, said Ronald Rus of Orange, one of the class-action attorneys. The company will be negotiating with class-action lawyers, but those lawyers do not represent most of the investors sued by the company.
In a related action, the federal agency liquidating Lincoln has sought to add an Atlanta law firm as a defendant in the $2.7-billion fraud and racketeering lawsuit stemming from the Irvine thrift’s collapse in 1989.
But the Resolution Trust Corp. has not yet decided to sue the law firm’s most visible player in the Lincoln scandal--Lee Henkel, a former partner and former top U.S. thrift regulator.
The RTC accuses the firm of Troutman, Sanders, Lockerman & Ashmore of malpractice and aiding and abetting former American Continental Chairman Charles H. Keating Jr. and other executives in breaching their fiduciary duties.
Without the help of Troutman, Sanders and other professionals, the agency contends in its action, Keating would not have been able to loot the thrift.
The RTC asked Judge Bilby on Friday to include the law firm as a defendant over six claims, including the promotion of Henkel for a spot on the three-member Federal Home Loan Bank Board in late 1986. Certain financial arrangements to ease the appointment were improper, the agency contends.
Henkel, who had received millions of dollars in loans from Lincoln, quit the board early in 1987 after proposing a rule that would have benefited the thrift. The action spurred the threat of a conflict-of-interest investigation, which was dropped with his resignation.
