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American Continental's Lincoln Thrift

Is Being Investigated by U.S for Fraud

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By David J. Jefferson

Staff Reporter of The Wall Street Journal 03.02 89

WALL STREET TOURNAL (J)

AMCO

TENDER OFFERS, MERGERS, ACQUISITIONS (TNM)

SAVINGS AND LOANS, THRIFTS, CREDIT UNIONS (SAL)

LOS ANGELES -- Federal prosecutors disclosed that a fraud investigation of Lincoln Savings & Loan Association was under way just as an agreement by American Continental Corp., Lincoln's parent, to sell the controversial thrift expired. Assistant U.S. Attorney Terree Bowers wouldn't say if American Continental executives are targets of the investigation, and declined to comment. A spokeswoman for American Continental of Phoenix, Ariz., said she didn't have any knowledge of a criminal investigation involving the Irvine, Calif., thrift subsidiary. "This is the first we've heard about it," she said..

News of the investigation came as American Continental, in a sudden turnabout, announced Tuesday night that it wouldn't proceed with the sale of Lincoln to an investor group headed by veteran thrift executive Spencer Scott. American Continental said the group's offer had "expired in accordance with its terms" and that the company "declined to grant an extension. American Continental wouldn't elaborate.

However, Charles H. Keating Jr., chairman of American Continental, said the company is having continuing discussions with other parties, which he didn't identify, that have expressed an interest in acquiring Lincoln.

Mr. Keating added that Mr. Scott's group will continue to pursue their application éto acquire Lincolnè, even though the deadline has passed." Mr. Keating has been engaged in a long-running dispute with federal regulators over Lincoln's real-estate development activities and nontraditional securities investments, and recently expressed relief at the prospect of disposing of the company's only thrift.

Individuals close to the transaction said that Mr. Scott
encountered difficulties securing financing for the
acquisition. "When it came down to it, he didn't have the
money," said one regulator close to the transaction, who
declined to be identified.

Another official familiar with the transaction said:
"American Continental thinks the Scott deal is a dead duck.
Frankly, I don't see it ever coming back together, because of
the financing. And the economics of the transaction never
made sense."

SPECIAL COUNSEL

Mr. Scott acknowleged yesterday that it's difficult to arrange financing for an acquisition of any savings and loan now," with so much attention focused on the federal government's plans to bail out ailing thrifts. But he said his group had commitments for 75% to 80% of the $55 million it needed to raise, and that "within another week we should have it all." He declined to identify the sources of the funding or say exactly how much money had been committed. Mr. Scott said he's not unhappy" that the offer expired, "because we want to renegotiate some of the terms of the transaction." He wouldn't be more specific.

Mr. Scott, a former chairman of Fidelity Federal Savings & Loan Association and its parent, Citadel Holding Corp., Glendale, Calif., had offered to acquire the common stock of Lincoln in exchange for $288.8 million of new preferred stock that would be non-voting and non-convertible and would pay American Continental a 9% dividend. American Continental also was to have bought back certain real-estate and securities investments from Lincoln for $388 million in 10-year notes, paying 10% interest.

A few weeks ago, American Continental tried to dispel rumors that the deal had fallen through by announcing that the closing of the acquisition was "imminent." That announcement riled the Califòrnia Department of Savings & Loan. The state agency quickly fired off an announcement saying that "there is no way that the sale can be imminent " because the application for approval submitted to the department by Mr. Scott had "significant, material omissions" and was incomplete.

The department gave Mr. Scott 30 days to provide the required information. William Davis, chief deputy commissioner for the department, said yesterday that Mr. Scott's group hasn't yet provided the information, but that Mr. Scott has said he doesn't plan to withdraw his group's application.

Mr. Davis declined to comment on the fraud investigation involving Lincoln. Mr. Scott said he was surprised by news of the investigation. "There's nothing in the due diligence review that even suggests there's anything like this going on," he said.

END OF DOCUMENT

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United States Senate

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TO: SENATOR DeCONCINI

FROM: Laurie Sedlmayr Los

RE: Federal Home Loan Bank Board/Limitations on Direct Investments
DATE: June 11, 1984

Since your conversation with Bob Kielty of Continental, I have spoken with the Arizona Savings and Loan League and the U.S. League about the limitation on direct investment" issue. Both the Arizona League and the U.S. League take a much more moderate position on this issue. They agree with the FHLBB that there should be some restriction on direct investment and are looking either for a 30% limitation or a 10/10/5 limitation. The state of Arizona currently has

a 10/10/5 limitation limiting S&L's to 100 investment in

a service company, 10% in real estate and 50 in equity securities.
Such a limitation would be keyed to an associations net worth.
The Arizona League is united on this issue (including the
Driggs' who are heavily into outside investment.) Gordon
Murphy tells me that he will let me know if there is anything
that they would like you to do, but that right now they are
working it through with the FELBB themselves.

The state of California has deregulated to such an extent

that S&L's can have 1008 outside investment.

do not support such an approach.

The Arizona S&L's

SPECIAL COUNSEL
EX. 521

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