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subsidiary had "authority to act for or to represent itself in any such matter. Accordingly, ACC had the responsibility to file the 1988 consolidated tax returns including information concerning the income of Lincoln and its subsidiaries. As the result of an extension filed by ACC on March 15, 1969, the 1988 federal returns were due on September 15, 1989 and no further extensions could be obtained. In order to complete these returns, however, ACC required access to certain financial information in the possession of Lincoln. The FDIC refused ACC's requests for that information and required ACC to seek and obtain a court order for the production of documents from Lincoln's accountants over the regulators' objections in order to have even a part of the information necessary for the filing. These actions by the FDIC, for no discernible legitimate purpose, exposed ACC to the possibility of the assessment of penalties and interest by the Internal Revenue Service. In another example, the FSLIC/FDIC objected to a proposed settlement between à first tier ACC subsidiary and a lessor of an aircraft whereby the lessor agreed to the termination of the aircraft lease and waived its rights to collect a deficiency judgment against that subsidiary or ACC. That settlement was clearly in the best interests of ACC and its creditors but the regulators pursued their objections.

Throughout the recent summer, following the Chapter 11 filings and conservatorship, the regulators continued their leaks of confidential and damaging information which were acknowledged in the ERC memorandum of April 1988 to have occurred at times when these leaks were sure to have the maximum damaging value before the various courts in which ACC presently must appear. The Leventhal Report discussed above, for example, was released on the day a purported class of securities plaintiffs was required by the court to present evidence of the basis of their claims against the professionals employed by ACC or to have their claims against those professionals dismissed. Without that report they would have been unable to produce anything colorably passing as such evidence. Simultaneously, the same securities claimants sought the appointment of an examiner for ACC in the Chapter 11 proceeding, notwithstanding the lack of support for such motion by the creditors' committee or the United States Trustee. Notwithstanding the obvious frailties of the Leventhal Report, however, the judge in the Bankruptcy Court appeared to give credence to the Leventhal Report in granting the request for an examiner, made by only a handful of individual creditors.

Perhaps the most striking example of the Regulators' use of the media as a platform for their campaign of harassment is found in the events that led to and followed the September 15, 1989, filing of the action styled Resolution Trust Corporation v. Charles H Keating, Jr., et al. That suit, which in the RTC's own estimation seeks damages of approximately $2.4 billion, purports to state claims for violations of the Racketeer Influenced and

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Corrupt Organizations statute ("RICO") but the real impact of that lawsuit has not been its allegations (which merely rehash further the allegations of the various FHLBB examinations, cast in a new form) but rather the manner in which it was filed and has been prosecuted.

Stories began to appear in the media as early as June of 1989 that federal authorities were investigating ACC and its subsidiaries to determine whether ACC executives had made false reports to federal regulators or profited from loans to insiders of Lincoln. By July 1989, the media was reporting that federal regulators had said that they were looking at the possibility that Lincoln and ACC had used fraudulent transfers of funds and fraudulent accounting methods to make Lincoln appear healthier than it really was. The prefiling media campaign intensified in early August 1989 when reports surfaced that the FDIC had reportedly targeted Charles H Keating, Jr. and were contemplating the filing of a RICO lawsuit. Throughout August 1989, those reports intensified as the media continued to quote named and unnamed federal regulatory sources and lawyers representing the RTC. Throughout August and early September media reports of various aspects of the federal investigation of Lincoln and ACC continued to proliferate, culminating in the middle of September when news accounts around the country began to state that federal regulators were shortly expected to file a civil racketeering. lawsuit against ACC executives. On September 14, 1989, the day before the RICO action was filed, various newspapers and other media reported that the racketeering suit was imminent and some reports gave factual accounts of the allegations of the as yet unfiled complaint which were accurate enough in their descriptions of the document to lead to the conclusion that advance copies of the complaint had been leaked to certain select media.

Inevitably, the media treatment of the preannouncements of the RICO lawsuit prominently featured the use of the term 'racketeering" in describing the conduct ascribed to ACC and its executives by the federal regulators. Public exposure of charges before they are formally made, liberally salted with pejoratives such as "racketeering" can only be viewed as an effort to poison public opinion and to make as inhospitable as possible the public climate surrounding persons who had yet to be sued for anything by the federal regulators. Moreover, the named defendants in the RICO action that was filed on September 15, 1989, were not limited to ACC entities and executives. The federal regulators also named as defendants the spouses of the named defendants, taking care to name as many members of the Keating family as possible without charging any of the spouses with any wrongdoing whatsoever.

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18 U.S.C. SS 1961 gt seg.

R 000305

The federal regulators' campaign of harassment reached new depths in the wake of the filing of the RICO complaint. After an agreement had been reached between counsel to avoid the need and expense of personal service of the summons and complaint, the RTC directed that the summons and complaint be served upon the individual defendants on a Thursday evening, apparently calculated to assure that such service could be accomplished openly before the eyes of spouses, children, and neighbors of the defendants who, based on assurances by the federal regulators' lawyers, were to be spared the embarrassment of such intrusive service of process.

Thus, since at least midsummer 1989, the RICO action has served the purposes of the federal regulators less as a lawsuit than as a vehicle and excuse for publicly pillorying defendants, humiliating them and their families, and permitting the media to ac. as billboards for the federal regulators' campaign of harassment and innuendo.

Not satisfied with the embarrassment imposed on ACC officers' spouses, children and neighbors in connection with the service of the RICO complaint, in contravention of agreements reached with their counsel concerning such service, the regulators repeated this tactic on November 20, 1989, again unnecessarily. As noted above, a series of hearings is scheduled to begin on or about December 7, 1989 in the United States District Court for the District of Columbia in connection with ACC and Lincoln's claims that the FHLBB-imposed conservatorship and receivership were without lawful grounds. At the November 8 and 9 hearings at which these hearings were scheduled, ACC's counsel assured the Court of ACC's cooperation in making witnesses available. Counsel repeated those assurances to the RTC's counsel on November 13, 1989. Inexplicably, RTC counsel stated their intention to serve subpoenas on these individuals nonetheless. What they didn't say was that they intended to do so in a manner and at a time designed to cause the maximum personal embarrassment and discomfort. Subpoenas were in fact served at the individuals' homes between 7:00 a.m. and 9:00 a.a. on Sunday morning, November 20, 1989 and attempts were even made to serve Keating in the midst of his appearance before the House Banking Committee and the public on national television, notwithstanding that Keating's counsel had already agreed to accept service, and in fact, had accepted service on his behalf.

CONCLUSION

As set forth above, almost since the time ACC acquired Lincoln in 1984, ACC and Lincoln have been the victims of unprecedented regulatory excesses which have severely damaged ACC and Lincoln and led ACC to file the Chapter 11 case in which it

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now operates. The continued abuses of regulatory process, which, ACC fears, are designed more to justify the enactment and funding of broad legislation restructuring the savings and loan industry than to pursue legitimate regulatory goals, will continue to obstruct ACC's efforts to confirm a plan of reorganization if not checked. ACC continues to be committed to reorganization and, thereby, satisfying the claims of its creditors. To do so, however, it must have the similar commitment of the parties in interest in a climate in which facts, and not innuendo, are the basis for decisions.

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TABLE OF EXHIBITS

Letter from David M. Serxner, Supervisory Agent of the FHLBB, Eleventh District, to the Board of Directors of Lincoln, dated November 8, 1982, concerning Lincoln's declining operating performance prior to ACC's acquisition.

Application of ACC on Form H-(e)l to acquire Lincoln (the "Application"), excluding exhibits.

Exhibit Number

1

[blocks in formation]

Application of ACC on Form H-(g) for the issuance of debt ("the Debt Application"), excluding exhibits.

A. The initial Debt Application, dated
January 4, 1984.

3A

38

Amendment #1 to the Debt Application,
dated January 26, 1983.

Correspondence between counsel for ACC and the
California Department, concerning
ACC's application to acquire Lincoln.

Revised Lincoln Operating Plan filed with the
with the FHLBB, dated November 16, 1984.

Letter from Alan Greenspan to the FHLBB, dated November 1, 1984, concerning the proposed direct investment rule.

5

A000308

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