Lincoln Savings’ Law Firm to Pay U.S. $41 Million

A law firm that represented Lincoln Savings & Loan will pay the federal government $41 million in the biggest enforcement settlement ever reached against lawyers involved in the savings and loan scandals, regulators announced Sunday.

The agreement also provides an unprecedented penalty for two partners at the firm of Kaye, Scholer, Fierman Hays & Handler, who will be barred for life from representing any bank or thrift institution.

Last week, the Office of Thrift Supervision charged that Kaye, Scholer “knowingly aided and abetted” massive violations of federal thrift rules by Lincoln S&L.;

The OTS said it was seeking $275 million from Kaye, Scholer and sought to freeze the New York firm’s assets and the assets of three partners by ordering creation of a special fund to pay the government’s claims.

But OTS Director Timothy Ryan said Sunday night that the $41 million is a strong settlement because it represents an amount equal to 35% of the net worth of the 74 partners who would have been financially responsible if Kaye, Scholer eventually lost its legal struggle with the government. The settlement amount is 273% of the firm’s capital.

“This amount is almost double the settlement that was on the table six months ago,” Ryan said.

“It was not our desire to close the firm and unduly penalize the partners who had nothing to do with it,” said Stuart Gerson, assistant attorney general, whose office worked closely with the OTS in developing the case.

Kaye, Scholer will pay the government $25 million on March 31, and will make four annual payments of $4 million each, starting Dec. 15, 1993. Interest will be paid on the $16 million at the Treasury bill rate.

Two of the partners with the main responsibility for handling the Lincoln case, Peter M. Fishbein, a former managing partner of the firm, and Karen E. Katzman, accepted a highly unusual penalty: a lifetime prohibition from doing any legal work for a federally insured bank or S&L.;

A third partner, Lynn Toby Fisher, accepted a cease and desist order promising to avoid any future violations.

The firm had denounced the OTS last week, and promised a vigorous effort to defend itself. But the prospect of suffering financial penalties that could have threatened its existence and the livelihood of its partners apparently prompted the settlement reached late Sunday after a weekend of intense negotiations.

Kaye Scholer is one of the nation’s largest law firms, with about 400 lawyers and offices in Washington, New York, Los Angeles, and overseas offices in Brussels and Hong Kong. “There are an awful lot of people who just get on an elevator each day and go to work--partners, associates, secretaries and messengers--who had nothing to do with this,” said Ryan.

Kaye, Scholer said the settlement “will not adversely affect the firm’s ability to continue its practice” and noted that some of the $41 million will be paid by its insurers.

“The firm is gratified that this matter is now behind us so that we can continue to provide the highest quality legal services to our clients for many more years to come,” said Fredric W. Yerman, the chairman of the executive committee.

Irvine based-Lincoln collapsed into insolvency and was seized by the government in 1989. The failure of Lincoln, controlled by Charles H. Keating Jr., will cost $2.6 billion--making it the most expensive of the more than 600 thrift failures.

Under the settlement, Kaye, Scholer must select a partner with at least 10 years of banking experience to take charge in cases where the firm “provides significant representation” to a financial institution, the OTS said.

Instead of cooperating with a government financial exam of Lincoln, “Kaye, Scholer chose to convert this to an adversarial position,” Ryan said. “They treated the client as if they were dealing with a criminal case.”

The firm refused to give government financial examiners access to Lincoln records or personnel, Ryan said. “They went outside the role of the lawyer,” said Harris Weinstein, the OTS general counsel.

The settlement represents a major victory for federal financial regulators in their aggressive campaign against lawyers and accountants involved with S&Ls; that later collapsed into insolvency.