RTC suit accuses ex-BFF officials of 'reckless' actions U.S. is seeking $32 million in thrift failure.

February 12, 1992|By Ross Hetrick | Ross Hetrick,Staff Writer

The federal Resolution Trust Corp. has filed a $32 million negligence suit against two former officers and eight past board members of Baltimore Federal Financial, a large thrift seized by regulators three years ago.

The suit, filed in U.S. District Court in Baltimore, charges the officers and directors with "unsound and reckless" lending policies.

Those policies contributed to the savings and loan's being declared insolvent by the Federal Home Loan Bank Board Feb. 7, 1989. Baltimore Federal's deposits were later sold to Household Bank FSB, which is based in Newport Beach, Calif.

The former officers named in the suit are Robert E. Hecht Sr., chairman and chief executive officer of Baltimore Federal from December 1974 to February 1988, and Thomas J. Reynolds, executive vice president from 1982 to June 1985.

The former directors who are defendants are Pearl C. Brackett, Leonard W. Dayton, James L. Fisher, John F. Ireton, Thomas F. Mullan, Melvin T. Pugatch, Gerald J. Stautberg and Ward R. Woods.

Baltimore Federal, which was one of the largest savings and loans in Baltimore, began liquidating many of its long-term, fixed-rate mortgages in 1982 and using the proceeds to make high-interest, higher-risk commercial real estate loans, the suit charges.

"At the time they embarked on this program, Baltimore Federal's officers lacked the training and experience necessary to prudently make these kind of loans," the RTC suit said.

It said that some of the loans were processed negligently.

The case is the first to be filed in Maryland by the RTC against officers and directors of a failed financial institution.

But the government agency has filed 71 such suits across the country since 1989, RTC spokeswoman Andrea Plater said.

Among the cases cited in the suit was a loan made July 25, 1985. Baltimore Federal lent $700,000 to Cambridge Creek Development Corp. for the acquisition of land in Cambridge, on the Eastern Shore.

The guarantor of the loan, W. W. Gilman, planned to build a 200-unit hotel and condominium complex on the property.

Baltimore Federal approved the loan even though another lender, Commercial Credit Development, had turned down Mr. Gilman on grounds that the site was too remote and that the project lacked sufficient investment by the developer. The loan resulted in a loss of more than $1 million for Baltimore Federal, the RTC said.

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