On November 21, 1989, Ma. Roconary Stewart testified before the Committee
concerning Lincoln Savings. In both her written and oral stategante, Xa.
Stewart essentially adopted Lincoln's theory of the case regarding a purported
"vendetta against Lincoln favings. Ma. Stewart made exceptionally harsh
statements attacking my character and that of former Bank Board Chairman Gray.
Subsequently, Ka. Stewart was deposed by counsel for Lincoln's parent, ACG.
As this letter recounts, Me. Stewart's deposition testimony (TR) is essential
in evaluating the charges made by No. Stewart to your Committee. I ask that
this letter be included in your hearing recote,

Before the Committee, Ms. Stewart testified that:

[v]ith the benefit of 20/20 hindsight, I now believe that certain
Agency officials wanted the (407) investigation pursued for the
Laproper purpose of sondusting an investigation to build a case for
criminal prosecution.

(Committed Hearing Transcript (Testimony), Part 5, p.274)

At her deposition, Ms. Stewart testified that it was her "suspicion" that Chairman Gray and I were engaged in such an effort. (TR 335) In an effort to establish her 'sasis for that suspicion, ACG's counaal asked:

Was that suspicion grounded on anything that, in part at least, an anything that Xr. Black over said to you?

Q.

Was that suspicion grounded at least in part on anything that you over heard Mr. Black was supposed to have said to someone else?

THE WITNRIB: No.

Q.

A.

Q.

Same question with regard to Mr. Gray: Was it based at leas; in part on anything that Kr. Oray ever said to you?

Was it grounded at least in part on anything that you had heard
Mr. Gray was supposed to have said to someone else?

A.

Yoo.

Tell me about that, please,

It was based upon the information contained in Lincoln's motion to racuse Ed Gray, many of which attachments were purported yuubro of Ma. Bang. It's based upon information contained in the laveuit filed by Lincoln for the leske, which, again, contained information about things that Rd Gray had said er done. And it was based upon information described to me by Charlie Keating, who had heard secondhand about comments that LA Gray Bade.

And I lied believed Ku. Routing when he sold (oho] theo things. (TM 336 and 337)

Did you ever make any attempts to independently verify any of whatever it was Mr. Keating told you?

Q.

Did you ever make any attempts to independently verify any of the information that you had some across in (Lincoln's) recusal notion [against Kr. Gray]?

In his deposition, Mr. Keating described the purported comment by Mr. Gray that No. Stewart indicated was a basis for her suspicions regarding Chairman Gray. (TR 338-39) He stated that someone told him that Chairman Gray, in front of a group of people in Hawaii, called Kr. Keating a vulgar name and said he would "put him out of business,' (Keating TR 49-51) Bus Nr. Keating does not rensaber who told him this story, nor does he remember where or when he was told this story, nor has he ever found anyone who vas in this large group with Chairman Gray who heard any such comment or anything remotely like (Keating TR 51, 303-307) Indeed, Mr. Keating testified that he most likely did not include the alleged Hawaii incident in Lincoln's motion to recuse Chairman Gray because he lacked any support for the story, (Keating TR 307)

More broadly, Ms. Stewart's claim before the Banking Committee that the 407 Investigation was improperly used for criminal investigative purposas la inconsistent with her ovn testimony. The 407 investigation cannot have been Improperly motivated given Ka. Etavart's contimony to the Commitreo that Enforcement, the department she supervised, sought the 407 authority on its own initiative. (Testimony Part 5, p. 265) She also supervised the investigation. In an appendix to her Comittee testimony, Ma. Stewart saya:

Based on sy objection, Ks. Sobel was not placed in charge of the
Investigation, but she and twe Office of Enforcement attorneys were
supervised by me in the actual conduct of this investigation. All
three attorneys performed this investigation in a professional,
export manner.

(Appendix 10)

Koreover, Ms. Stewart testified that her sencera vas that the criminal referrals that resulted from the 407 investigation should have been filed aarliar. (TR 114) The 407 investigation was conducted for appropriate supervisory purposes. It found critical evidence of violations of the direct Investment ruls, awful underwriting and the creation of forged signatures of senior management. These findings vero important somponents of

San Francisco's May 1, 1987, recommendation to the Bank Board, Ma. Stewart's testimony in har deposition also shows that she supports the propriety of the criminal referrals:

And we did conclude that a criminal referral should be filed because of the possibility that (the file stuffing] had been done with the intent of deceiving the examiners in violation of Titla 18.

The backdating report is much more lengthy. That investigation involved a great deal more work. And we concluded that there was an intent to backdato documents, so that they would appear to have been grandfathered, and that that vas done so, inappropriately, wich

willful intant, and that a criminal referral should definitely be
filed about that matter.

(T 211 and 212)

Xa. Stewart's testimony before the Committee contained charges of "leaks" by Bank Board sources concerning Lincoln. In her deposition, Xs. Stewart acknowledged that: "I am not sure that every time I say 'lock' (in Congressional testimony] I meant unauthorized." (TR 326) the in fact was told by Bank Board Jeneral Counsel Harry Quillian that the release of information she wrote about in her memorandum regarding "leaks," vae authorised by the Chairman and therefore authorized under the Bank Board's regulation. 169-170 and Testimony, Part 5, p. 19)

(TR 168,

Q. I understand your testimony then that you simply asquned that
the sonfidential information was leaked by persons within the
agency?

She also said I have no personal knowledge as to the source of any illegal leaks." (TR 621) Xa. Stewart vont on to testify that she did not know whether any contacts I had with Congress or the media concerning Lincoln vero authorized. (ra 310)

No. Stewart testified before the Comittee that Chairman Gray and I appeared to have a "hidden agenda" against Lincoln and she implied that there VAI personal animosity on our part againse Lincoln. (Testimony. Part 3, p. 256) ACC's counsel put this slain to rest in Ko. Stovaxt's deposition:

Q.

from

I want to know about comments you have ever heard
anybody to the effect that there was personal aminosity on
behalf of anybody connected with the Bank Board in Washington
or San Francisco against Lincoln, ACC or Charlie Kosting.

THE WITNESS: The only comments I recall with respect to personal
animosity were from representatives of Lineola and
ACC.

(TR 328-330)

Ka. Browart's Congressional testimony also stated that I criticized her inaction in a series of non-Lincoln matters and that she believed I found her

"too schizal,' (Testizony, Part 3, p. 174) Her deposition testimony is
revealing in this arout

A. It vas clear to me that Mr. Block did believe I was coo
conservative in carrying out onforesnens vork . . . .

Q. Can you be specific about some arose or some instances?

A.

There were a couple of securities cason... in which ny office had reached certain conclusions about the way cases should be handled. And I attended a meeting in which Mr. Black vas very vocal about: We should have done sors; we should have sued the people. And there was a disagreement, a clear pollay disagryonent.

And Kr. Gray vas persuaded that Mr. Black vas right.

(TR. 347-368)

Thus, a "policy disagreement" in which the Chairman of the agency was persuaded that my view (and the view of the Bank Board's chief securities Lawyer, Mo. Williams) in favor of vigorouq enforcement of the securities lav vas right was sharacterized in Xa. Stavert's Congressional testimony as svidence of lax othies, (Testimony, Part 1, p. 274)

Nu. Stovert also testified in her deposition as to my sthies concerning
Lincoln:

Q. Do you have any information about Kr. Black over asking anybody in Vashington or fan Francisco to do anything which you fals wes 'mochleal which dealt with Lincola?

She was asked the same question as to Chairman Gray and gave the same anaver. (TR 349)

Ko. Stewart alno testified before Congrose that she failed to reach a mutual
nderstanding with Chairman Gray on the questionable disclosure of
confidential agency information about Linssin. (Testimony, Part 3,
p. 374-75) This was in the portion of her testimony where she impiiesely
attacked Chalman Gray's othies. In her deposition, however, she testified:

Q. When you say you failed to reach a mutual understanding, did
you over have a conversation with Gray about that event?