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Executive to Plead Guilty of Irregularities at Texas S&L

February 09, 1988|KATHLEEN DAY | The Washington Post

A top executive at Vernon Savings & Loan Assn. of Texas--which required the costliest federal bailout ever of an S&L--has agreed to plead guilty to filing a false financial statement for Vernon and to cooperate with a federal investigation of crime in the state's S&L industry, the Justice Department announced Monday.

The agreement by John G. Smith, a former senior executive vice president of Vernon, to plead guilty is potentially embarrassing for House Speaker Jim Wright (D-Tex.) and other Democrats. Wright has acknowledged intervening to get regulators to go easy on the troubled S&L, which was a big contributor to Democratic candidates in Texas.

In addition to Smith, three other businessmen have agreed to plead guilty in connection with the Texas probe, the Justice Department said. The department also announced a three-count indictment of a fifth businessman.

The legal actions are the first to come from the task force the federal government formed early last year to probe allegations of massive fraud and abuse at Texas S&Ls. The Justice Department agreed to accept the guilty pleas in exchange for promises by the defendants to help the government prosecute dozens of executives believed to have misappropriated billions of dollars from scores of Texas S&Ls that have failed or are near collapse.

Justice Department lawyers in Washington said they believe that some of the criminal activity they uncover in Texas eventually will be tied to fraud and abuse at S&Ls in California and in the Northeast.

Optimism Voiced

"This should signal that the (Justice Department) organization means business," said William Hendricks III, chief of the Justice Department's Fraud Section. "We're not going to be plodding along for years."

Hendricks said that winning an indictment and several agreements for guilty pleas just eight months after the Texas task force began its probe will create an atmosphere that will prod many executives to come forward.

"There's a reaction that there's no point in prolonging the inevitable, that they (S&L executives) might as well come forward and tell what they know," he said.

U.S. Attorney Marvin Collins of Dallas expressed similar optimism at a press conference in Texas.

"This is a significant step early in the life of the task force," the Associated Press quoted him as saying. "We're now seeing the first results of this investigative effort. We're hopeful this early success tends to cause others who are under investigation to decide what they are going to do."

More than 50 agents and lawyers from the FBI, the Internal Revenue Service, the Justice Department, the U.S. attorney's office and the Federal Home Loan Bank Board are involved in the investigation, which began last summer and is expected to last three to five years.

Officials in Dallas refused to say how many people are under investigation, but confirmed to the Associated Press that they were looking into irregularities at 25 thrifts and 10 banks in Texas.

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