SACRAMENTO — Following reports that thousands of customers bought now-worthless bonds from local branches of embattled Lincoln Savings & Loan, state Atty. Gen. John K. Van de Kamp opened a criminal investigation Tuesday into allegations that the securities were sold by unlicensed salespeople in violation of state law.
California statutes "make it a felony to sell securities without a state license," said Duane Peterson, press secretary for Van de Kamp. "It would appear that Lincoln Savings & Loan and its employees sold bonds packaged for retail without being licensed by the state."
A violation of the law is a felony, punishable by up to a year in prison and a fine of up to $250,000 for each incident, Peterson said.
Until the announcement of the investigation, Van de Kamp's office had watched the unfolding story of Lincoln from a distance without launching an investigation of its own.
Last April, Lincoln's parent corporation, American Continental, declared bankruptcy, and federal regulators took over the operations of the savings and loan. With the collapse of American Continental, about 22,000 people--mainly retirees--lost $200 million in bonds purchased from the 29 Southern California branches of the Irvine-based thrift. In addition, about 1,000 investors bought $50 million in a separate bond offering through brokerages.
Last week, in emotional testimony before a congressional committee, three elderly California women said they had been assured by salespeople that the uninsured investments were safe.
In a lawsuit filed in Orange County, the bondholders contended that they were given a "canned presentation" by salespeople, assuring them that the bonds "were just as safe as federally insured (certificates of deposit), except that they paid slightly higher interest."
Peterson said continuing news accounts of the bond sales prompted the decision to investigate.
To sell securities in California, salespeople must be licensed by the state Department of Corporations, Peterson said. Ironically, it was the Department of Corporations that in 1988 gave final approval for American Continental's most recent application to sell bonds--a $200-million issue.
The approval came despite the objections of state Savings and Loan Commissioner William J. Crawford, who beginning in the spring of 1987 had raised questions about the value of American Continental's real estate holdings.
But Corporations Commissioner Christine W. Bender contended she had no choice but to approve the bond issue because her department had no hard evidence from other regulators that American Continental could not make good on the bonds.
In recent interviews, however, Crawford described his own efforts to stop the sale of the bonds from Lincoln's branch offices. He said his examiners discovered that the thrift's offices were being used to sell bonds from an earlier American Continental issue without clearance from the state. But rather than halt the sales, the savings and loan department staff allowed the practice to continue until August, 1988.
"If they'd come to me, I would not have approved the sale at all," Crawford said.
Crawford said he later learned of the sales from a radio advertisement and immediately launched an investigation, only to discover that, because of the staff action, he could do nothing to stop sales until August, 1988.
He said he found no evidence of misrepresentation, but added that he told Lincoln officials that once the approval had lapsed, he would not permit any future sales.
Times staff writer Ralph Frammolino contributed to this story.
VOTE OF CONFIDENCE: S&L regulator M. Danny Wall expressed confidence in the owner of Lincoln Savings only days before the thrift was seized, documents say. A1