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Lawyers Say Politics Thwarting RTC Pursuit of S&L Lawsuits : Banking: The trio, all of whom face ouster or demotion, says top agency officials have eased up on some former thrift directors and officials. But Chief Executive Albert V. Casey disputes the charge.

August 12, 1992|SUSAN SCHMIDT | WASHINGTON POST

WASHINGTON — Three managers in the Resolution Trust Corp.'s legal division told a Senate committee Tuesday that top agency officials have eased up in their pursuit of some former savings and loan directors and officials, and they said they believe that political considerations are behind the moves.

The three said that in the past several months the RTC has agreed to small financial settlements in some cases and has abandoned some lawsuits altogether, even though they said the suits were justified and potentially lucrative. They said all these actions came since the agency decided to replace many of its most experienced lawyers assigned to pursue fraud and negligence by S&L officials.

The trio of lawyers, all of whom are facing forced ouster or demotion, have been on the front lines of the government's effort to recover what it can for taxpayers from former S&L officers, directors, lawyers, accountants and appraisers. Spending to clean up after failed S&Ls since 1989 has reached $88 billion, with tens of billions more to come.

So far, the RTC has recovered $93 million from fraud or negligence claims. "The bad guys walk--they get off cheaply or they get off all together because we're not allowed to do our job," Bruce Pederson, until May the manager of professional liability suits in the RTC's western region, told members of the Senate Banking Committee.

Jacqueline Taylor, another one of the attorneys, said one lawsuit recently slated to be filed was abandoned in favor of settlement negotiations after President Bush met with some of the targets of the lawsuit.

Sources said that case involved Deseret Federal Savings & Loan, whose directors included Howard W. Hunter, a top-ranking official of the Mormon church. Bush met for about an hour with Hunter and other top Mormon officials during a campaign stop in Salt Lake City on July 17.

A church spokesman said Tuesday that the Deseret case was not mentioned during the meeting. White House spokesman Sean Walsh said last night that "the President has never intervened in any way on an S&L case."

RTC Chief Executive Albert V. Casey disputed the charge that the agency is going easy on S&L officials, saying: "I am completely satisfied that none of the individual personnel decisions nor the collective decisions were in any respect motivated by a desire to prevent the aggressive pursuit of . . . investigations and cases."

Several Senate Banking Committee Democrats charged that recent directives issued by top officials of the RTC are part of a deliberate Bush Administration effort to rein in government pursuit of S&L wrongdoers. They cited a draft policy statement, which sources said is being promoted by White House and Treasury officials, that would make it more difficult to sue bank and S&L directors who are not employees--outside directors, who are often politically well-connected and prominent in their communities.

The lawyers testifying before the committee Tuesday were Pederson; Bradley Smolkin, who was manager for the suits in the eastern region; and Taylor, a supervisor in the Denver office. All three said Washington officials are ordering that some directors be dropped from lawsuits and are making it difficult to bring negligence claims, the bread and butter of potential financial recovery for taxpayers.

They said they and about two dozen other RTC lawyers who have aggressively pursued these cases are being harassed and driven out of the RTC under the pretext of an agency reorganization. The result, according to Pederson, is a system close to chaos, with "hundreds of cases shuffled among attorneys nationwide" at a time when legal deadlines are expiring on the filing of suits.

Casey, however, said the effort to pursue S&L wrongdoers will not be hurt by the restructuring, which he said is intended to increase the number of staff attorneys and thin the management ranks.

Committee Chairman Donald Riegle (D-Mich.) called the recent developments in the RTC legal division "a stunning situation" and said that taxpayers should be concerned about the "tens of millions, hundreds of millions of dollars that are being foregone here or put in jeopardy."

He and Sen. Timothy Wirth (D-Colo.) said they see a broad effort by the Bush Administration to ease up on former S&L officials. Republicans on the Banking Committee have complained in recent months about their constituents being "harassed" by frivolous RTC suits, and several have been vocal opponents of an effort to extend the statute of limitations for such claims.

Wirth questioned Casey about an RTC memo written by agency General Counsel Gerald Jacobs that requires special treatment for politically connected applicants for legal jobs. Applications referred by the Administration, members of Congress or top-level RTC officials are to be handled by ranking lawyers in the agency whether or not vacancies exist, the memo said.

Wirth called the memo a blueprint for "political cronyism and political favoritism."

Casey said he was unaware of the policy and would order it rescinded.

Jacobs did not attend Tuesday's hearing because he is temporarily recused from all professional liability matters while the agency inspector general conducts an investigation into his representation of a Phoenix firm, Dicor Inc. The firm defaulted on more than $40 million in loans to a failed S&L, among them dealings branded as "sham" transactions by his own agency in a racketeering lawsuit against the S&L's officials.

Wirth said Tuesday that Jacobs also is under investigation by the Office of Thrift Supervision, which has the power to take administrative and enforcement actions.

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