Pursue S&L restitution

August 18, 1992

Some disgruntled staffers have charged that top officials of the Resolution Trust Corp., the government agency responsible for cleaning up the nation's failed banks and thrifts, is easing its commitment to collect damages from former directors. Their congressional testimony suggests the RTC is no longer interested in seeking restitution.

Three lawyers testified that subtle changes in the agency's guidelines have thwarted their recent recovery efforts. Instead of going after people whose thievery, negligence or inattention contributed to the collapse of S&Ls, three RTC lawyers said they were subjected to political pressure not to pursue certain cases. One case involves a top official of the Mormon Church who also served as a director of a failed Utah thrift. Two lawyers said they were demoted when they complained about the RTC's relaxed collection efforts.

The people who stand to gain most from these softer guidelines are the thousands of former directors who served on the boards of failed savings and loans and banks. Many of these directors are socially and politically prominent people. Not all of these people failed to fulfill their fiduciary obligations, but those who contributed to the demise of the S&Ls should pay restitution.

Unhappy with the administration's efforts, Congress is fashioning its own solution. The House Banking Committee has approved a measure that allows private attorneys to become, in effect, bounty hunters. If the RTC makes no attempt to collect restitution, private attorneys can bring action an behalf of the government. The attorneys would be allowed to keep between 5 and 30 percent of the amounts they recover. While maximizing restitution is an admirable goal, this sort of ambulance-chasing is undesirable. The government should decide which cases to pursue, not some lawyer hungry for a large contingency fee.

The RTC ought to learn some lessons from Maryland. When the state's privately insured S&L system collapsed in 1985, officials sought damages from people responsible for the collapse of the S&Ls. To date, Maryland has recovered more than $60 million from former S&L officers, directors, lawyers and accountants, ultimately reducing the financial burden on state taxpayers.

The final bill for bailing out the nation's failed S&Ls and banks has yet to be presented to the American taxpayer. It is likely to be greater than $200 billion. The less money the government recovers from wrongdoers, the more money American taxpayers will have to contribute to the cost of the rescue. Obtaining restitution is imperative.

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