From the start of his campaign for governor of California, Republican nominee Bill Simon Jr. has played down his role in the 1993 collapse of Western Federal Savings and Loan, a debacle that cost taxpayers $122 million.
By his account, he had nothing to do with the 1988 purchase of the Marina del Rey thrift by his family and other investors. By his account, he served on its board of directors for about a year to monitor the investment, but was not engaged in "anything to do with the operation of the thrift."
Court documents and other records, however, show that Simon was more deeply involved in the downward spiral of Western Federal than his public statements suggest.
He signed the application for government approval of the S&L purchase. He served for nearly two years on its 11-member board. For the next two years, until the government seized the thrift, Simon was one of five board members at a holding company that owned just one business: Western Federal.
During Simon's tenure as a Western Federal director, records show, government regulators rebuked the board for lax supervision of management. Month after month, S&L monitors alerted Simon and the other board members to rampant mismanagement on their watch. Lending practices were "liberal and imprudent," they told the board. Reserves to cover bad loans were too small. Western Federal used "inappropriate and misleading" accounting methods that overstated profits, they said.
Business World of Simon
The full scope of Simon's role at Western Federal is laid out in documents reviewed by The Times. Among the records are Simon family correspondence, confidential reports by thrift regulators and internal Western Federal memos.
They illustrate how Simon, who hopes to govern a state with a record $23.6-billion budget gap, carried out his responsibilities at an institution in severe financial distress.
They also provide a rare glimpse into the private business world of Simon. A central tenet of his campaign is that he was "a successful businessman," but the vast bulk of his other work at his family's privately held investment firm is shielded from public view.
Simon was not solely responsible for driving Western Federal into the ground, as his Democratic opponent, Gov. Gray Davis, has suggested. Over the course of its decline, the documents show, Simon was one of many players who tried--and failed--to restore the S&L to financial health.
"Making Billy the poster boy for the failure of Western Fed is absolutely ridiculous," said J. Peter Simon, the candidate's brother and fellow board member. "It's like blaming the sinking of the Titanic on someone working in the kitchen."
The governor has used the thrift's demise to argue that his challenger is unqualified to run California. On Monday, Davis launched a television ad that blames the taxpayer "bailout" of Western Federal on mismanagement by Simon.
In an interview last week, the Republican nominee acknowledged for the first time that he was on the Western Federal board for nearly two years. He denied that he and other board members were "remiss in their duties and responsibilities," as regulators put it in one 1989 report.
"You had this big thrift crisis nationwide," he said. Regulators "wanted to make sure that they could never be told that they were not tough enough. So what they did was they erred on the side of being overly tough."
The Simons have lashed back at the government, arguing in a lawsuit against the United States that regulators improperly seized Western Federal. They blame the losses--both their own and the taxpayers'--on the government's breach of an agreement struck when the Simon group bought the S&L.
Judge Emily C. Hewitt of the U.S. Court of Federal Claims in Washington has found that the government did indeed break its word. But the case is still set to go to trial in September to determine whether that was Western Federal's undoing.
By filing suit, the Simons invited the government to respond with its own story of how Western Federal died. The Justice Department, in court papers, says the Simons and their partners made a bad investment, then made it worse by retaining executives who mismanaged the thrift and put it on the path to insolvency. Among those at fault, it says, were members of the board.
Signed 1988 Application
The first trace of Bill Simon Jr. in the affairs of Western Federal is his signature on the August 1988 application for government approval of the purchase. He was one of three people who signed for the buyers.
Just six months earlier, he and his brother had gone into business with their father, William E. Simon, the powerful and notoriously hot-tempered former U.S. Treasury secretary. Simon Jr., then 37, had left his job as an assistant U.S. attorney in Manhattan to join William E. Simon & Sons, the family's new investment firm in New Jersey.