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Show Thrift owner blames state for failure ! By JUDY JENSEN a Association of ThHf, Ow- ers and Managers (ATOM) committee com-mittee has sent a letter to 3 1 legislators legisla-tors charging the State of Utah with fraud. "The securities fraud and common law fraud perpetuated by the Department of Financial Institutions Insti-tutions in the issuance of the worthless securities and the confiscation confis-cation of assets of the thrift companies com-panies for the benefit of other institutions," insti-tutions," is just one of five charges leveled against the state in the letter. ATOM members say the state had only two options in 1986 when the thrifts were seized. The Commissioner Com-missioner of Financial Institutions, Elaine Weis, could assess the members mem-bers who had pulled out of the Industrial In-dustrial Loan Guaranty Fund for past obligations, or she could seize the thrifts. That was the action she chose. But, according to ATOM members, the federal law says they have to go back and assess former members. Mr. Harris backed up his charge of fraud by the state with several documents indicating the state knew of the thrift crisis as early as June 1982, yet the institutions were allowed to continue to accept deposits de-posits until the day the thrifts were seized, July 31, 1986. This action caused many more depositors to lose their money when the thrifts failed. The fraud was allegedly perpetuated by the fact that the institutions continued to assure depositors that their money was safe, and it was guaranteed by the Industrial Loan Guaranty Corporation. The ILGC was a private insurance fund set up in 1975 under the mandate of the State Legislature to back deposits in Utah Thrift and Loans. Recently released documents which include notes captioned "Commissioner Elaine B. Weis' remarks at ILGC meeting June 18, 1985," indicate the state had full knowledge of the crisis. The document docu-ment quotes Mrs. Weis as stating: "You know I think we've been pretty successful in putting out a good story as to why our depositors shouldn't be concerned. I don't know why anybody believes it, but we've been successful in doing it and we haven't had a run." According to the document, she expressed the opinion that the state's private deposit insurance fund was doomed and that the state has a 100 percent liability for the ILGC. At the first meeting of the thrift depositors after the closure in September Sep-tember 1986, Commissioner Weis, responding to charges that the state should have known the thrifts were in trouble said, "Of course we knew. Do you as a public have a right to know? No! You're barred by law from the information." Further accusations of wrong doing by the state have been made by another investigator. He claims that the state's December 31, 1985 ' audit of Charter Thrift showed assets of $12,756,442. An independent indepen-dent certified audit by the firm of Schmitt, Griffiths, Anderson, Smith & Co. for the same period of time showed assets of only $9,711,308. "They wanted to mislead mis-lead depositors into thinking the firm was in better financial condition condi-tion than it really was," he charged. Jim Hansen, one of the former owners of Murray First Thrift, claims that before members of the ILGC were allowed to withdraw, it was backed by literally millions of dollars. According to the "White Paper on the State of Utah's Response to the Right of the Thrift and Loan Industry." The extent of actual protection which the Guaranty Corporation has been able to provide pro-vide at any given time has depended de-pended on the amount in the fund and the number, size, and condition condi-tion of the member companies." From 1975 to 1981 all thrift institutions insti-tutions were required to be members mem-bers of the Guaranty Corporation. In 1981, the legislature amended the statutes to give thrift institutions institu-tions the option to secure FDIC backing. Between December 1983 and July 1986, 18 thrifts with deposits totaling $463,274,356 withdrew from the ILGC, leaving seven members with deposits totaling $108,839,492 guaranteed by $2,564,700 in the Guaranty Fund. The ATOM committee is charging that the Utah Dept. of Financial Institutions failed to collect from the total ILGC membership at adequate ade-quate levels to prevent the collapse of the ILGC. According to Mr. Hansen the key to the entire "scam" is the "net worth certificates" issued by the ILGC. Essentially substitutes for cash, they were recognized by the state regulators as capital. The certificates were purchased by the Guaranty Corp. with promissory notes. In this way, these certificates certifi-cates provided a means for the O CONTINUED ON PAGE 2 Thrift issue voiced Continued from Page 1 Guaranty Corp. to give IOU's instead in-stead of paying cash, in order to rehabilitate a failing institution. The institution could benefit because be-cause the IOU was treated as paid-in paid-in capital, which enabled the institutions insti-tutions to make loans. The issuance of the net worth certificates certifi-cates was based on the assumption that the Guaranty Corporation would continue for the life of the net worth certificates. That was the fatal flaw. From 1983 to 1986 the ILGC issued $13.4 million in net worth certificates to the five so-called failed Utah Thrifts. The certificates certifi-cates were issued in lieu of cash when the five companies agreed to take over other failing thrifts. , According to Harris, one of the five, "they gave us worthless assets, backed by a worthless fund. Then they allowed the strong companies com-panies to withdraw and left us holding hold-ing the bag." ATOM members say the state knew that net worth certificates certi-ficates would not be considered an asset by FDIC insurers. That being true, the five institutions were unable un-able to obtain FDIC backing. According to Mr. Hansen, the Federal Reserve Act, regulations H and Y, specifically prohibit capital based upon net worth certificates. certi-ficates. "She (Elaine Weis) didn't know it existed. The irony is that the so-called banK regulators pass regulations without investigating the ramifications of their actions," said Hansen. "I'd like to state unequivocally if the financial commissioner had agreed to follow the law and enforce en-force the controls and guarantees in 1986, the depositors would not have lost 10 cents in interest because be-cause the thrifts were two to five times as strong in net worth requirements re-quirements than any other class of financial institutions in the state," said Mr. Hansen. He added that he and his committee com-mittee plan to "educate the legislators." legisla-tors." "Our committee will serve as a clearing house of information . to provide facts and documents tq all interested parties. "We want them to enact legislation legisla-tion which will direct the attorney general to pursue all transactions of all parties on behalf of the depositors, de-positors, creditors, owners and all other parties who relied on contractual con-tractual assurances from the state of Utah," said Hansen. He claims if the former members of the ILGC are made to pay their legal obligations, obliga-tions, "It won't cost the state or the tax payers one cent." |