Sen. Alan Cranston said Monday that he will introduce legislation, perhaps as early as today, to allow bondholders hurt by the collapse of Lincoln Savings & Loan and its parent firm to sue the federal government for negligence in approving the sale of the bonds.
The California Democrat, whose political career is jeopardized by the Lincoln scandal, also released a copy of a letter he sent the Justice Department last week asking for help in letting bondholders seek relief from the government.
Cranston's proposed bill is aimed at helping some 22,000 small investors recoup nearly $200 million in debt securities issued by Lincoln's parent, American Continental Corp. The investors are mostly older people who bought their bonds at Lincoln's 29 Southern California branches. Many mistakenly thought the bonds were insured by the federal government.
"What has happened to these bondholders is one of the most tragic events that have occurred during the time that I have been in the Senate," Cranston said. "Many of them are now bereft of all their resources. They can't pay their rent. They can't pay for decent food. They can't even heat their homes."
Meanwhile in a separate development in Washington, House Banking Committee Chairman Henry B. Gonzalez said Monday that the committee will decide today whether to subpoena junk bond financier Michael Milken as part of the continuing investigation of Lincoln and other failed thrifts.
Cranston's efforts come at a time when polls indicate that his popularity is at an all-time low because of his involvement in the Lincoln debacle. Bondholders in particular have blamed Cranston and four other senators for intervening with regulators in 1987 during a long audit of the Irvine-based S&L's financial condition.
Had regulators taken action against Lincoln then, they maintain, most of them would not now be holding worthless bonds.
In announcing his proposal Monday, Cranston said documents he received from the General Accounting Office provide "clear evidence" of negligence on the part of federal thrift regulators and the Securities and Exchange Commission in approving the bonds for sale and in monitoring how the company sold the bonds.
Cranston's bill would allow bondholders to look to the government for any losses they don't recover in pending litigation against American Continental executives, including its controversial chairman, Charles H. Keating Jr., and the lawyers and accountants who advised them.
Bondholders and their lawyers, who have been highly critical of Cranston in the past, were generally appreciative of his help.
"I believe Senator Cranston is sincere," said Shirley Lampel, who met with the senator for more than an hour at her home last Thursday. "The idea may be a good one and I'm happy to hear it, but I just don't know if it's possible to get done."
Cranston is one of five senators under investigation by the Senate Ethics Committee over their 1987 intervention with regulators on behalf of Lincoln and American Continental. Keating had raised more than $1.3 million for the senators' campaigns and their causes. Cranston got the biggest share with more than $39,000 in campaign contributions and $850,000 in donations to three nonpartisan voter registration groups he supported.
In Washington, Gonzalez said the committee would meet today to conduct hearings on the operation of the Resolution Trust Corp., the agency formed last August to oversee the restructuring of the thrift industry. He also said the committee would consider whether to subpoena Milken and two other individuals connected to Lincoln. Milken, who made a fortune selling junk bonds for corporate takeovers, is under indictment for securities fraud and insider trading.