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Failed Lincoln S&L Invested $100 Million With Boesky

August 31, 1989

IRVINE, Calif. (AP) _ Lincoln Savings & Loan, whose failure may cost the government $2.5 billion, invested $100 million with inside trader Ivan Boesky, according to newspaper reports.

Lincoln’s heavy investments in high-yield, high-risk corporate securities are well-known, and were one reason why the recent federal savings-and-loan bailout bill banned thrifts from investing in such securities, called junk bonds.

Articles in Wednesday’s editions of The Los Angeles Times and The Orange County Register detailed other types of risky investments by Lincoln, including attempts to profit in various ways from takeovers.

Lincoln officials apparently had no knowledge of Boesky’s illegal information gathering, according to the Times, which cited unidentified sources familiar with Lincoln’s operations.

Lincoln invested $100 million with Boesky’s Hudson Funding Corp. Boesky, the Wall Street trader known for investing in companies that frequently became takeover candidates, was forced to liquidate the fund prematurely when he pleaded guilty to securities law violations.

The Times said Lincoln statements showed the company hoped to reap a 29 percent return on the investment in the fund, but quoted unidentified sources as saying the company realized a 9 percent profit.

The Register said Lincoln broke even on the investment.

Federal regulators seized Lincoln on April 14, the day after its parent company, American Continental Corp. of Phoenix, filed for protection under federal bankruptcy laws.

The House Banking Committee plans to reopen an investigation into Lincoln’s collapse, a failure that regulators and analysts say could result in the government’s most costly bailout, requiring more than $2.5 billion in federal funds.

Attorneys for American Continental dispute that figure, and say losses were brought on by the regulators who seized the thrift.

In November 1986, Boesky pleaded guilty to felony insider trading. He paid a $100 million fine and is serving three years in a federal prison.

The federal Office of Thrift Supervision found that Lincoln made numerous risky investments with federally insured deposits, even after regulators, citing the Boesky expenditures, criticized the thrift in March 1987.

However, Lincoln fared well with some of its high-risk ventures. The Register said investments with British financier Sir James Goldsmith earned Lincoln $31 million in 1986.

In a related development, The Arizona Republic in Phoenix reported in a copyright story prepared for Thursday’s editions that a California state official in late 1984 authorized Lincoln to engage in $800 million in risky ventures and then became a director and officer of a San Diego firm about the same time the firm received a $2.9 million investment from Lincoln.

Larry Taggart, commissioner of California’s Department of Savings and Loan from March 1983 to Jan. 1, 1985, on Wednesday told the Republic he helped arrange a meeting that may have led to Lincoln’s January 1985 agreement to purchase stock in TCS Financial Inc., a financial-services firm now known as TCS Enterprises Inc.

Taggart said there was no impropriety and no conflict of interest in his relationships with Lincoln and TCS.

″I’m not going to apologize for anything,″ he told the newspaper.

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