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Numerous Charges Of Agency Wrongdoing Detailed at RTC Hearing

September 23, 1993

WASHINGTON (AP) _ A parade of federal savings and loan cleanup employees painted a grim picture of the Resolution Trust Corp. Thursday, telling senators that fraud and mismanagement in the RTC cost taxpayers millions of dollars and that whistleblowers are punished.

Testifying under oath, 13 witnesses described how a combination of allegedly fraudulent contracting procedures, a bungling bureaucracy, and alleged cover-up of wrongdoing create an agency, where, as one former RTC official put it, ″taxpayers are taking it in the shorts.″

″This is horrible,″ Sen. Howard Metzenbaum, D-Ohio, blurted out at the end of the five-hour investigative session of the Senate Banking Committee. ″This is one of my most embarrassing moments in government.″

When it was over, Metzenbaum, who is not on the panel but has long scrutinized RTC affairs, had secured a pledge from the chairman, Sen. Don Riegle, D-Mich., that the allegations made Thursday would be formally presented to Attorney General Janet Reno for potential prosecution.

″It’s too purposeful to be gross incompetence,″ Riegle agreed.

″These people are punished for telling the truth,″ said Sen. John Kerry, D-Mass., ″but the managers are running around getting promotions. They’re the ones who ought to be fired.″

No RTC management officials testified, although Riegle said they would have the opportunity to do so at a future hearing.

″Some very serious allegations were made by some people who seem to believe all or most of what they were saying,″ said agency spokesman Steve Katsanos. ″There’s going to be a new CEO, and his job will be to sift through what has been said and decide what is fact and fiction and take any appropriate action.″

Florida real estate developer Stanley Tate has been nominated by President Clinton to head the troubled thrift bailout agency, but the Senate has not held confirmation hearings.

″I don’t want to confirm anyone,″ Riegle said, ″until we have a plan to stop this kind of thing - period.″

Among the chief allegations:

- That officials from the agency’s independent inspector general’s office shredded documents from a probe of former top agency attorney Gerald Jacobs after concluding that Jacobs’ involvements with a failed Arizona thrift warranted no further investigation. ″That is blatantly and totally untrue,″ said Clark Blight, assistant inspector general for investigations.

- That the agency has often offered phony numbers to congressional fact- finders, including one 1992 request by the House Banking Committee for property sales figures. ″It was taking a long time,″ said Hans Mangelsdorf of the Newport Beach., Calif., office, ″so management told us to stop where we were, double it, add 10. Those were the numbers we gave you.″

- That the agency routinely rejects top-dollar bids for property, includes them in bulk sales packages where they sell for less, or is stuck when willing buyers become frustrated by red tape. One former official estimated losses at $500 million or more in California alone.

- That investigators and attorneys in Texas were often unable to pursue cases - or even issue subpoenas - even though Texas thrifts accounted for 41 percent of S&L losses. Tom Burnside, a former agency attorney in Dallas, said that the Houston field office issued just three subpoenas in the 37 cases it handled.

- That top officials in the agency’s Newport Beach, Calif., office received promotions even though they had been found by agency investigators to have sexually harassed and discriminated against female RTC employees.

- That two top legal managers in the agency’s Atlanta office were unqualified, one having previously worked as a receptionist, the other as a butcher. ″They only promote people more incompetent than they are so that they’ll look good,″ said Atlanta legal assistant Debbie Sherrill.

Retaliation against whistleblowers was a common theme, but especially for Bruce Pederson, an attorney in the agency’s Denver office.

Since he criticized RTC practices in a Senate hearing in August 1992, Pederson has been transferred to an isolated office, stripped of his responsibilities, threatened with transfer to another city and had his computer files copied without his permission.

″For the last 12-15 months, my life has been a living hell,″ Pederson said.

John Waechter, the computer technician who copied Pederson’s computer files for the attorney’s superiors in Washington, broke down in tears as he described his role in the affair.

″I would like to say I’m sorry for not being able to stand up and say no to something that was wrong,″ Waechter said, ″something that was an act of terrorism to Bruce Pederson.″

The agency’s inspector general recently concluded that the clandestine search of Pederson’s computer did not violate federal employee privacy guidelines.

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