2 Lincoln S&L; Investigators at Cross-Purposes : Banking: One federal agency has asked a judge to block a settlement between some of the Irvine thrift’s executives and another federal agency.
Two federal agencies investigating the 1989 collapse of Lincoln Savings & Loan appear to be working at cross-purposes.
The Office of Thrift Supervision, which regulates the nation’s thrifts, has asked a federal judge in Tucson to block a proposed settlement between certain executives of the Irvine thrift and the Resolution Trust Corp., which is charged with liquidating failed S&Ls.;
The OTS isn’t concerned that its sister agency will be getting about $1.75 million in the settlement. It wants to change language in the settlement documents that might prohibit the OTS from taking enforcement action in the future against directors and officers who played a lesser role in the Lincoln scandal.
What is odd about the situation is that the allegations made by OTS represent only a portion of the contentions in the RTC’s $2.7-billion fraud and racketeering suit filed against former Lincoln owner Charles H. Keating Jr., his associates and the professional advisers he hired.
Perhaps more ironic is that any money the OTS recovers would go to the RTC anyway to cover losses at Lincoln. The thrift’s failure is the nation’s biggest, costing taxpayers $2.6 billion.
“If the defendants haven’t paid the full amount of the losses under one agency’s action, then another agency could go after them to make up the difference,” one senior OTS official said Thursday. “Lincoln lost a lot of money, and some of these people made a lot of money working there. It’s important for the government to pursue judgments against them.”
The OTS, which is still investigating Lincoln’s failure, won a $41-million settlement with the New York law firm of Kaye, Scholer, Fierman, Hays & Handler in March, and it picked up $600,000 more in a settlement last Friday with a Washington lawyer. It is seeking $36.5 million from Keating and six others in a pending administrative complaint.
The OTS has pursued its enforcement action against Keating even though it was urged last year by the Department of Justice and the Federal Deposit Insurance Corp., which operates the RTC, to delay its hearings until civil and criminal cases could proceed against Keating and others.
Keating was convicted in state court last December of securities fraud and is serving a 10-year prison term. He is also awaiting trial Aug. 4 on federal indictments charging him with fraud, conspiracy and racketeering.
Lawyers in the various lawsuits filed in the aftermath of Lincoln’s collapse have long disparaged the OTS for seeking enforcement action against executives it should have held in check five years ago.
Had the agency acted then, the lawyers have argued, few Southern Californians would have lost money by investing in the S&L;’s parent company, American Continental Corp.
Thousands of elderly Lincoln customers comprise the biggest group of creditors in the company’s bankruptcy. Small investors, including minority shareholders, lost a total of $285 million in the collapse of Keating’s financial empire.
Since March, a trial on their fraud and racketeering lawsuits has been underway in Tucson before U.S. District Judge Richard M. Bilby. As with the RTC case against most of the same defendants, a number of settlements have been reached so far.
The OTS motion to intervene in the RTC’s lawsuit will be heard June 8 when Bilby hears arguments about the fairness of one of those settlements. In that agreement, the insurance carriers that covered lower-level directors and officers agreed to pay $3.5 million, which is to be split between the small investors and the RTC.
