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millions of dollars invested in that plan. FDIC terminated the personnel employed to market the project and aborted the apparently successful effort to have Estrella named as the site of a national war museum which ACC believed would draw millions of visitors to Estrella, substantially enhancing its value and its sales.

Similarly, FDIC refused to permit routine maintenance of a commercial plant nursery operated as a joint venture of AMCOR Investments and Manuel Diaz Farms, Inc. A substantial part of the inventory of that joint venture, living plants and trees, was destroyed as a result of the failure to water or otherwise maintain those plants and trees.

AMCOR Investments requested the Bankruptcy Court approve a settlement and refunding of the 1985 Bond Issue used to construct the waste water treatment plant in Gilbert, Arizona. During the pendency of this matter, the FDIC's conflict of interest became apparent when an FDIC witness referred to a Memorandum in support of the proposal which included a statement that under certain circumstances, the proposal would not benefit AMCOR Investments, but would benefit third parties, including other financial institutions controlled by the FDIC. Further, AMCOR Investment's FDIC counsel represents Western Savings and Loan, an FDIC controlled institution that will benefit if the Bankruptcy Court approves the bond refunding. The FDIC's agenda appeared to favor its liquidation plan for other seized institutions, rather than exercise prudent management and good business judgment for each entity it operates and their creditors. Settlement is pending, awaiting a final hearing on January 11, 1990.

In yet another Lincoln Subsidiary, SSPLC, the FDIC oversaw the destruction of its business. SSPLC is a holding company for a securities brokerage firm, Young, Smith & Peacock, Inc. (*YSP*). YSP's president informed FDIC that another YSP officer had phoned a competing brokerage house and was attempting to join and solicit accounts, customers and employees for that competing house. FDIC fired the president. As the president had warned, the YSP officer succeeded in diverting virtually all of YSP's business to the competing house without compensation to YSP. FDIC also ignored the president's own offer to purchase YSP's assets, permitting the offer to lapse and YSP's business to be completely dissipated. As a result, TSP has several floors of empty office space for which it is paying rent and, at the first meeting of creditors for this Subsidiary, an FDIC representative testified that notwithstanding that YSP had received offers for the sublease of that space, the FDIC was simply "unable" to respond to offers to lease that space.

PDIC refused to expend sums for tenant improvements in a shopping center project owned by yet another Lincoln Subsidiary, PCP, virtually insuring that those tenants, the source of the

project's revenue, would go elsewhere and that the project's value would decline. Similarly, FDIC terminated a loan program offered by another Lincoln Subsidiary, Castle Meadows, to increase sales of lots in a development project in Colorado. As a result, sales in the project were virtually halted and the peak spring and summer selling seasons in Colorado have passed, likely resulting in further losses.

On November 16, 1989, the Honorable Sarah Sharer Curley, presiding United States Bankruptcy Judge, appointed an examiner to investigate the conduct and potential misconduct of the management and counsel for PCP in connection with PCP's relationship with Sterling Homes, Inc.

In August 1988, when Lincoln was controlled by ACC, PCP entered into a construction loan agreement with Sterling Homes, Inc. to provide up to $10,500,000 for development and construction of 102 homes in Sacramento County, California. PCP negotiated a 50% profit participation in the project, in addition to its interest charges and loan fees.

As of August 1989, the loan was in full force and effect, without default or apparent problem. After the FDIC took control of Lincoln, the FDIC-controlled management of PCP caused the loan to go into default by its failure to advance funds to Sterling Homes, Inc. as agreed or seek Bankruptcy Court approval to terminate the construction loan agreement. PCP's defaults have subjected the PCP estate to claims by Sterling in excess of $1,163,000.

Further, PCP sought Bankruptcy Court approval to waive PCP's profit participation in the loan, without revealing to the Court that the equity participation had appreciated from $900,000 in August 1988 to $1,600,000 in November 1989. PCP wanted to trade off the highly valuable profit participation against Sterling's claims against PCP, created by the FDIC-caused breach of Sterling's loan agreement, without full and complete disclosure of the events surrounding the loan and PCP's defaults.

On November 28, 1989, Ronald E. Warnicke, the court-appointed Examiner in the PCP case, filed the Examiner's Preliminary Statement (*Statement") with the Bankruptcy Court. Notwithstanding that the Statement was preliminary, based on a limited research and investigation, Warnicke made several important and revealing conclusions and criticisms of the

management and operation of PCP, and PCP's relationships with its parent corporation, Lincoln, both of which are under FDIC management.

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First, Warnicke concluded that "[t]he transaction has been portrayed to the Court as a PCP problem without reference to Lincoln's potential liability and responsibility. This means the existing analyses of the transaction (sic) have not been adequate because at no point has any analysis addressed a key factor, which is Lincoln's involvement However, no demand (to fund the Sterling loan] was ever made on Lincoln apparently because Lincoln [under FDIC_controll decided no demand should be made (emphasis in the original.)1087

Second, Warnicke criticized PCP's failure to consider other business alternatives to Sterling's pay-off of the loan and a release by PCP of its valuable, appreciating profit participation in the loan, stating that "[d]espite other possibilities, however, there appears to have been no attempt by Sterling or the Debtor [PCP) to negotiate anything but a loan take out until October [1989] and no effort to obtain funds from Lincoln. 1097 Warnicke concluded that it was easier for the FDIC-controlled personnel of Lincoln to make low level decisions to liquidate assets rather than operate assets (and, thereby, maximize their value], stating that the FDIC seems to require a more stringent analysis of a transaction like this to justify going forward than it requires for a decision to liquidate the asset... [a] payoff was obviously much easier to accomplish internally.-1107 Further, Warnicke stated that "FDIC procedures may have influenced the fact that no one analyzed whether to go forward or attempted to negotiate with Sterling.∙llI/

Third, Warnicke criticized the PCP management framework, citing that the potential seriousness of the problem should have been better appreciated and a more long term approach evolved at some point and surely before mid-November (1989)-1127 He concluded that those who acted on PCP's behalf were for "all practical purposes Lincoln employees (under FDIC direction] who performed duties for PCP and were not decision makers at all.-113/

In summary, Warnicke's preliminary Statement criticizes the PDIC "liquidation" mentality under which FDIC policy makes it easy

[blocks in formation]

A000291

to liquidate assets than to reorganize or operate business He states in his summary:

entities.

The same lack of underwriting procedures and
policies for which various pre-petition
examination reports [1.e. the FHLBB

Examination Reports] criticize Lincoln for its
initial underwriting practices for joint
venture transactions seem to be replicated in
the way PCP (under FDIC controll has
approached the Sterling loan transaction
post-petition.. . no underwriting personnel
are in place to underwrite. This creates
concerns of a broader nature, especially as
the FDIC seems to require more information to
justify a decision to go forward than it
requires to decide to liquidate an

asset (emphasis added). 1147

The FDIC approach to "operation" of the Subsidiary service companies is simple, namely, employ deficient business analysis to support a liquidation decision by low-level administrative personnel, in furtherance of the FDIC plan to liquidate, rather than operate the businesses of the Subsidiaries to maximize value, reorganize the business, and preserve what is ultimately taxpayer funds. Thus, the FDIC creates the self-fulfilling prophecy that Lincoln, and hundreds of other possibly solvent thrifts under FDIC siege, are insolvent and worthless, perpetuating the FDIC myth of its grand plan to protect the American taxpayers and depositors. In fact, the FDIC blindly charges forward to fix transactions that are not broken and to abort reorganization efforts by ACC made necessary by the regulators' vendetta against and ultimate destruction of Lincoln.

One of the assets of AMCOR Investments consisted of the Madison Vista swimming pool facility, a high technology facility utilized by the nonprofit Phoenician Resort Swim Team Foundation ("Foundation") for various uses, including without limitation, training swimmers to compete in state, national and international swimming competitions and providing swimming instruction to children in the Phoenix community.1157 Prior to the appointment of the conservator, the Foundation operated and maintained the

1147

115/

Statement, p. 21, lns. 6-20

The pool facility was originally intended as an off-site facility for the Phoenician Hotel. Lease of the facility to the Swim Team Foundation both demonstrated the Hotel's community involvement and generated positive public relations for the Hotel.

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Madison Vista swimming pool pursuant to an oral agreement with AMCOR Investments, and during the course of its use of the facility, the Foundation spent approximately $50,000 for improvements to the property in addition to paying various expenses for pool maintenance of $3,000 per month. Without prior notice, the FDIC purported to evict the Foundation from the facility on June 7, 1989 and rejected the Foundation's offers to purchase the property or to continue to lease the premises. FDIC representative's informed the Foundation that FDIC would shut down the swimming pool rather than allow the Foundation to use it even by paying market value for its use. Indeed, the motivation of the FDIC to further its vendetta against ACC and Charles H Keating, Jr. is apparent in this instance when, in further discussions with the Foundation, FDIC indicated its willingness to lease the facility to the Foundation provided that no Keating family member" have anything to do with the Foundation or swim on the Foundation team or otherwise use the facilities.

The lack of experience of those charged with the management of the Subsidiaries was apparent, among other times, at the initial meeting of creditors for four of Lincoln's Subsidiaries held two full months after the FDIC installed new management for these Subsidiaries. Randi Reed, employed as a "credit specialist" with the FDIC was the only officer who appeared at this meeting. She serves as secretary of all of the Subsidiaries. Her testimony was noteworthy in a number of respects:

1.

2.

3.

4.

She was unable, in the course of close to ten minutes of questioning, to describe her basic responsibilities as secretary of these entities or the matters on which she typically devoted her time.

She could not answer a basic question concerning the income stream generated by AMCOR Funding's investments and indeed indicated that no one was actively managing those assets. Rather, a banking firm employed by Lincoln had been engaged to analyze the assets and prepare a report which was not expected for several weeks and Reed did not expect to give attention to these assets until the report was received.

Until prompted by counsel, she could not identify the investment banking firm charged with reviewing AMCOR Funding's close to $1 billion investment portfolio.

Reed admitted that no one had contacted brokers to find out the price at which AMCOR Funding's portfolio was trading before schedules of AMCOR

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