It was late in the day, and Don Mikami could barely talk. His throat was raw, his voice was hoarse and his spirits were low. Mikami had spent the past 8 hours on the telephone, he said, listening to "calls of misery" that had left him heartbroken.
The hundreds of callers who got through the jammed switchboard of Mikami's Fountain Valley dental office were not seeking medical attention. Like Mikami, they had purchased bonds issued by American Continental Corp., the troubled parent company of Irvine-based Lincoln Savings and Loan Assn., and they had heard that the dentist was trying to do battle on their behalf.
Their bonds have plummeted in value now that American Continental has filed for bankruptcy-court protection and Lincoln has been seized by regulators. And the calls that Mikami received barely scratched the surface of the some 14,000 bondholders who overall may have lost up to $192 million.
The bonds "make great wallpaper, like stocks after the Depression," said William J. Crawford, California's savings and loan commissioner.
The aggressive marketing of American Continental bonds to Lincoln depositors has created a new class of victims in the nation's continuing thrift debacle and has raised a ticklish problem for savings and loan regulators. Unlike ordinary S&L depositors, whose accounts are protected up to $100,000 each, the bondholders must stand in line with other American Continental creditors as the company attempts to reorganize its financial affairs.
The past 2 weeks have rendered many of American Continental's bondholders broke and beleaguered. But while they are tied together by tales of loss and bad luck, some are also beginning to unite to fight the company that they contend has taken their money and run.
Some bondholders contend that they bought the securities without fully comprehending that they were, in effect, high-risk "junk bonds" that were not backed by the federal government's deposit-insurance program.
Because holders of the company's secured debt are legally entitled to recover their funds first, the possibility exists that the army of small investors who hold American Continental's unsecured, high-risk bonds will get back little, if any, of their money. American Continental already has stopped making monthly interest payments on the bonds.
Jean and Donald Bowman invested $120,000 in these American Continental bonds, which technically are known as subordinated debentures. Jean Bowman said that sales representatives at a Lincoln branch office in the San Fernando Valley told her that American Continental Chairman Charles H. Keating Jr. had "one of the most successful private enterprises in the U.S."
"They implied that everything he touched was very safe, and that's what I fell for," she said. "They said what good condition Lincoln was in. They weren't high pressure, but they made you feel like you were very safe. They were very sweet."
Mikami said that callers such as the Bowmans "have been unanimous in their opinion that they were defrauded and misled . . . at the tellers' windows of Lincoln offices."
Mikami himself purchased $25,000 of American Continental bonds last summer at a Lincoln branch in Huntington Beach. The fact that the bonds were sold through Lincoln offices, peddled by overwhelmingly upbeat salesmen, led him to invest.
"It was the personality of the salesperson that sold it," Mikami said. "He said that American Continental is the parent of Lincoln, which is a safe, insured institution, that American Continental is backed by umpteen million dollars in assets and that he'd recommended (the bonds) to his family and friends."
According to Mikami and others, the same scene was repeated over and over at Lincoln Savings offices throughout the Southland.
Thousands of Lincoln depositors who went to Lincoln offices with the intention of investing their personal savings or retirement funds in federally insured certificates of deposit were steered instead into American Continental debentures, bondholders said.
"This is a type of borrowing that American Continental was doing using depositors' money--money that would otherwise have been going into deposit accounts," said James M. Marks, an analyst with SNL Securities in Hoboken, N.J. Customers "were brought into branches and tempted by yield to buy products that were not suited for them."
Many American Continental bondholders said they were assured that the subordinated debentures were as safe as certificates of deposit. And they generally paid about 1 1/2 percentage points more than the CDs available at Lincoln.
Harriet Mulac, 67, of Los Angeles, was one of those investors. In 1985, she bought a $20,000 Lincoln certificate of deposit, which was fully insured by the government. When it matured in 1986, she renewed it.
But when it matured again in 1987, the teller introduced Mulac to the office's American Continental salesman, who told her about the subordinated debentures.