Offering by Parent of Lincoln S&L; in Irvine : Governor Denies Politics in OK of Debt Securities Sale

Gov. George Deukmejian said Wednesday that politics played no role in his administration’s decision to approve the sale of high-risk debt securities to the public by the parent company of troubled Lincoln Savings & Loan in Irvine.

Responding to questions at a press conference in Sacramento, the governor said “there was nothing done that I have been informed about, that I am aware of, that was irregular or improper” about the Department of Corporations approval of the securities sales.

Deukmejian said news stories have created a “false impression” that Charles H. Keating Jr., chairman of the Phoenix firm that owns Lincoln, wielded political influence through his contributions to Deukmejian’s reelection campaign and his connections to administration officials.

Keating’s firm, American Continental Corp., filed for protection from creditors under Chapter 11 of the federal bankruptcy laws on April 13. Regulators seized Lincoln the next day.

Among those affected by the bankruptcy filing are 22,000 people who bought $200 million in unsecured subordinated debentures at Lincoln’s 29 branches in Southern California.

Many of the bondholders contend that they were falsely led to believe that the bonds were federally insured. They recently filed a $250-million claim against the Department of Corporations, alleging that the agency improperly approved the securities sales. The bondholders claim that the agency was swayed because Keating had contributed heavily to Deukmejian’s campaign and had retained a law firm with ties to Deukmejian.

Echoing earlier comments by Department of Corporations Commissioner Christine Bender, the governor said the agency had no choice but to approve the securities sales once they were cleared by the U.S. Securities and Exchange Commission.

To reject the sales, the state would have had to prove that they would not be “just, fair and equitable,” Deukmejian said. But Bender has said her agency could not find that proof last year.

Even though the Los Angeles law firm used by American Continental to seek approval of the bond sales had ties to his administration, Deukmejian said that those connections did not affect the state agency’s decision.

A senior partner at the firm--Parker, Milliken, Clark, O’Hara & Samuelian--is Karl Samuelian, who was the chief fund-raiser for the governor’s 1986 reelection campaign. Another partner, Franklin Tom, was commissioner of the Corporations Department before quitting in February, 1987, to return to the firm. His replacement at the agency, Bender, had been an associate at Parker, Milliken.

In addition, campaign contribution reports show that Keating and a number of family members and company executives funneled at least $41,000 into Deukmejian’s 1986 campaign. The governor said he has met Keating only once.

“What is important is what the facts are,” Deukmejian said. “And the truth is that there was no decision made because of any campaign contributions that were made, nor, for that matter, because of any law firm that represented this particular savings and loan.”

Meantime, American Continental has filed a draft of a reorganization plan that promises to pay off shareholders, bondholders and other creditors in full but offers the repayment over time and at reduced interest.

The 31-page document, filed Tuesday in U.S. Bankruptcy Court in Phoenix, includes the proposed purchase by American Continental of a Lincoln subsidiary called Amcor Funding Corp., which holds more than $855 million in assets. The subsidiary’s major asset is a 20% interest in General Oriental Investments Ltd., an international trading company operated by British financier Sir James Goldsmith.

Amcor Funding, which is one of 11 Lincoln subsidiaries also put into bankruptcy, is under the control of federal regulators who are running Lincoln. The proposed purchase of Amcor would provide American Continental with the cash flow it needs to pay off its debtors.

Keating plans to use $25 million in cash from an outside investor and promissory notes to pay for Amcor, according to previously released statements from American Continental.

Keating is negotiating with several investors about joining the plan, according to James J. Feder, the company’s bankruptcy lawyer.

Under the reorganization plan, the debenture holders would get 11-year notes bearing 5% interest. A special $20-million fund would be created immediately to pay those holders who could show hardship to an independent administrator of the fund.

Other creditors holding secured and senior unsecured debts would be paid in two years at the same 5% rate. Those holding preferred stock and common stock, other than corporate insiders, would get new American Continental preferred stock that pays the 5% rate and would have to be redeemed in 12 to 14 years. Once all debts are repaid, corporate insiders would be paid off.

Times staff writer Douglas Shuit in Sacramento contributed to this report.