Account Hired By Thrift After Vouching For S&L's Solvency
Dec. 26, 1989
WASHINGTON (AP) _ Three days before federal bank regulators approved a delay in seizing Lincoln Savings and Loan in May 1988, the private accountant whose audits influenced the decision switched jobs and went to work for the thrift's owner, according to documents and interviews.
The two regulators whose votes delayed the seizure for a year say they did not know at the time that the accountant, Jack D. Atchison, had taken the new job - said by one member of Congress to pay $900,000 annually.
But in recent statements, both said their decision concerning the fate of Lincoln - the nation's costliest thrift failure - might have been different if they had been informed.
''Certainly, it would have had an effect on the decision had he (thrift regulator M. Danny Wall) known, said an aide, Karl Hoyle. ''Could it have swung the other way (in favor of immediate seizure)? Maybe.''
Attempts to reach Atchison for comment proved futile. His lawyer also declined to discuss the matter, first reported by The Arizona Republic, and said that Atchison would not talk about it with reporters.
By a 2-1 vote on May 5, 1988, Wall and the Federal Home Loan Bank Board decided against a recommendation from San Francisco regulators to seize the troubled savings and loan. The group decided instead to launch a new federal examination of the thrift's books. The effect of the decision was to permit the bank to continue operating for an additional year under the ownership of Charles H. Keating Jr.
By the time the regulators ousted Keating and took control on April 14, 1989, the cost of protecting depositors had soared, and may now total more than $2 billion.
Wall at the time was chairman of the three-member Federal Home Loan Bank Board, and now is in charge of its single-administrator agency, the Office of Thrift Supervision. He announced his resignation from the OTS post after Congress pressured him to quit because of his handling of the Lincoln case.
The delay in seizing Lincoln generated a barrage of news stories about Keating, especially the $1.3 million he and associates contributed to campaigns and causes of five senators who intervened with the regulators on his behalf.
The Senate Ethics Committee has begun a formal investigation to determine whether the intervention was linked to the money. All the senators have denied any wrongdoing.
Since 1986, favorable audit reports on Lincoln had been written by Atchison, who was managing partner in the Phoenix office of the large accounting firm of Arthur Young - now Ernst & Young.
Bradley Boland, Keating's spokesman, said Atchison began working for Lincoln's parent firm - American Continental Corp. of Phoenix - on May 2, 1988, three days before the crucial meeting of the bank board. House Banking Committee Chairman Henry B. Gonzalez, D-Texas, said Atchison's salary with American Continental was $900,000 a year.
An Arthur Young memo confirmed the timing of the job change, saying that Atchison ''decided to accept a position with American Continental Corp. effective May 1, 1988.''
Last Nov. 7, Atchison refused to answer questions before Gonzalez' committee, claiming a Fifth Amendment constitutional right against self- incrimination.
At the time Atchison switched jobs, the San Francisco-based regulators were telling the bank board that Lincoln was in such serious trouble that it should be taken over by the government.
But Atchison's audits, according to a transcript of the bank board's May 5, 1988 meeting, concluded that the thrift had enough reserves to cover losses and had met net worth requirements.
Faced with the differing opinions, the bank board conducted its 2-1 vote to freeze Lincoln's level of investments, transfer the bank board investigation from San Franciso to Washington and begin a new probe of the Irvine, Calif. thrift.
Wall and board member Roger F. Martin voted in the majority, while member Lawrence J. White constituted a single-vote minority who favored immediate government seizure.
Martin said in an interview that ''I didn't know '' that Atchison had gone to work for American Continental three days before the meeting. He said he ''would have been concerned'' had he known, and ''absolutely'' would have raised questions about the impartiality of the audits.
''We were were very dependent on the accountant's opinion,'' he said.
Wall spokesman Hoyle said his boss ''did not have any knowledge'' of the job change. Had Wall known, Hoyle said, ''at a minimum, he would have wanted to go back and check with Arthur Young. No doubt we would have looked at things differently, because it would have made the data suspect. It's a significant factor if you knew perhaps these numbers were tainted.''
D. Jeffrey Hirschberg, associate general counsel for Ernst & Young, said, ''We clearly have no evidence Jack (Atchison) committed any impropriety when he was a partner at Arthur Young'' in his two decades with the firm.
''We have partners that leave all the time for better-paying jobs in industry. It's not unusual. Just because Jack left does not mean the audit was improper.''