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Bondholders Still Wait to Recover Keating Losses : S&Ls: Small investors burned by failure of Lincoln Savings & Loan are angry at how slowly they are recouping their funds.

September 14, 1993|JAMES S. GRANELLI | TIMES STAFF WRITER

IRVINE — Small investors in Charles H. Keating Jr.'s company won a record courtroom verdict 14 months ago, but they have since recovered barely half of the money they lost after his Lincoln Savings & Loan collapsed.

Two months ago, a group of mostly elderly bondholders meeting in Sherman Oaks were so frustrated that they sent a scroll with 300 signatures to Joseph W. Cotchett Jr., their chief trial lawyer, asking when they might receive more of the $286 million that investors lost altogether.

Cotchett and other lawyers who once talked frequently with the bondholders, the biggest group of investors representing 69% of the loss, now communicate mainly through letters.

Some who bought bonds at Lincoln branches are so angry about slow payments and evasive attorneys that they are talking about hiring new lawyers to investigate the current ones, said Tom Shelley of West Hills, one of the coordinators for a bondholder group.

"We were told originally that we would get 100% of our money back plus interest," Shelley said. "Then it was 95%, then 90%. Now I don't think we'll even get 70%."

None of the bondholders have the time or ability to delve into the matter, he said, which is why some want to hire other attorneys. But Shelley is hesitant, saying, "We don't want to make an enemy of Joe (Cotchett)."

"People are feeling confusion, anger, uncertainty, disappointment," he said. "They feel he's not servicing the account. Despite great skills in the courtroom--we owe him everything--he's off and running with no time for us."

Cotchett and other trial lawyers for the investors could not be reached Monday for comment.

Several hundred bondholders are expected to meet today in Van Nuys to discuss the situation and to talk with U.S. Atty. Terree A. Bowers about getting some help.

Bowers, whose office won convictions of Keating and his son, will be asked to discuss the government's prospects for recovering any money from possibly hidden, Keating-controlled accounts. Keating has said repeatedly that he is broke and has no hidden accounts. Bowers also will discuss the criminal process that sent Keating to prison for 12 years and seven months.

Regulators seized Irvine-based Lincoln Savings in April, 1989, a day after Keating put the thrift's Phoenix parent company, American Continental Corp., in bankruptcy. A taxpayer bailout of $2.6 billion makes Lincoln one of the nation's costliest thrift failures.

In addition, seven groups of securities holders lost their investments in American Continental, and a plethora of lawsuits ended with a $4.4-billion verdict in July, 1992. A judge later reduced the award, however, to $1.8 billion. That verdict, however, was gained against Keating and other mostly insolvent defendants, and therefore is nearly meaningless.

The major defendants--accountants, lawyers, investment bankers--settled before or during trial for a total of $167.2 million.

The bankruptcy estate of the brokerage Drexel Burnham Lambert added $31.6 million to the total in July and will add $13.3 million as liquidations occur over the next year or two, said George Bauer, a New York lawyer in those cases.

Also, former Drexel junk bond promoter Michael R. Milken and others, in a global settlement of numerous cases expected to be approved Sept. 29, could add about $60 million, with about two-thirds of it available immediately, he said.

Those additions would bring the total recovery to $272 million. Bondholders, the most vulnerable group of investors, have received 49.85 cents on the dollar so far.

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