Taggart Ties to Failed Texas S&L; Questioned by House Committee

WASHINGTON —  Former California Savings and Loan Commissioner Lawrence W. Taggart had loans outstanding from scandal-plagued Vernon Savings of Texas that may have been backdated to avoid a regulatory order, a California congressman alleged Tuesday.

The loans also may have been part of an attempt by Vernon to try to invest in a California thrift, possibly without regulatory approval, according to other information obtained by The Times.

The 1986 loans came up during questioning of Taggart by Rep. Richard Lehman (D-Sanger) at a House Banking Committee hearing on the problems at Irvine-based Lincoln Savings & Loan.

Public records show that in mid-1986, Taggart had two separate Vernon Savings loans--one for $600,000 and another for about $26,000. Taggart, who was the state’s top savings and loan regulator in 1983 and 1984, was working at the time as a $10,000-a-month lobbyist and consultant for Vernon. The loans were eventually paid back, Taggart said.

The Texas thrift was closed two years ago this month by regulators, who found that more than 90% of its loans were delinquent. Losses totaled $1.3 billion. Last Thursday, former Vernon President Patrick G. King was sentenced to five years in prison for using Vernon money for female escorts and illegal campaign contributions. Other Vernon officials are under indictment or are the subject of ongoing criminal investigations.

Taggart said that he did not borrow from Vernon directly but rather that Vernon bought an earlier loan provided to him by San Diego National Bank. He said he was unaware that Vernon had bought the loan until he started receiving Vernon statements. He said the loan with San Diego National Bank had been arranged through a mortgage broker.

In a brief interview after his hearing, Taggart declined to discuss the loan in detail but confirmed that the bulk of the money was originally borrowed to invest in a fledging San Diego thrift, Shelter Island Savings Bank. After leaving his job as commissioner, Taggart proposed to regulators that he be allowed to buy a one-third share in the thrift and become its first chief executive. Shelter Island never opened for business because it was unable to obtain federal deposit insurance.

Vernon’s purchase of the loan raises questions as to whether it was effectively trying to invest in another thrift without going through proper regulatory channels. Thrifts are not allowed to buy large stakes in other thrifts without approvals.

Lehman challenged Taggart’s explanation that he did not know Vernon was buying out the loan. And after Taggart testified and left the room, Lehman made public a letter from a Vernon loan officer dated Sept. 12, 1986, suggesting that Taggart sign a “re-created financial statement.”

In the letter, loan officer Lisa A. Barandt noted that the August date on his original financial statement came after Vernon agreed to a restrictive regulatory order limiting its lending ability and other operations.

In the letter, she said the new statement would be dated May 31, which would have been before the regulatory order went into effect in July. Signing the letter, the letter said, “prevents our audit department from requesting additional asset verification documents.” It is unknown whether Taggart ever went along with the suggestion to backdate the loan, but Lehman said he has evidence that backdating did occur although he wouldn’t reveal it.

Also, in a memo dated July 9, 1986, Barandt wrote that the $600,000 loan from Vernon was earmarked to make thrift investments on Vernon’s behalf. She confirmed the contents of the memo in an earlier interview with The Times but could not be reached Tuesday night to confirm the September letter.

Taggart also could not be reached to comment on the letter.

Separately, Lehman also quizzed Taggart about his role in joining California Assemblyman Pat Nolan (R-Glendale) and lobbyists to pressure state regulators into abandoning a proposed rule that would have limited Lincoln’s direct investments, which were ownership stakes mainly in risky real estate projects and securities.

But Taggart seemed a little bewildered, apparently with reason. A news report that Lehman was relying on to raise the issue of pressure was incorrect, said William J. Crawford, commissioner of the California Department of Savings and Loan.

“There was never any pressure,” Crawford said Tuesday night. He said the only reason he didn’t go through with the proposed rule was because the only backer, the California League of Savings Institutions, withdrew its support.

Besides, he pointed out, there was a good chance that his regulation would have been blocked by the Legislature because it changed a state law provision, something only the lawmakers can do.

Taggart also admitted that he approved a Lincoln request in 1984 knowing that it would help the institution get around an expected federal law. On Dec. 7, 1984, Taggart approved the S&L;’s request to move $800 million into direct investments, beating by three days the deadline by which such investments would be “grandfathered” under an eventual federal rule limiting risky assets.

The commissioner’s act in the last month of his job helped Lincoln soon dump 40% of its assets into direct investments. A month later, after he started working for a San Diego firm, Taggart was hired by Lincoln owner Charles H. Keating Jr. as a consultant. Also, in January, 1985, Lincoln bought 20% of the company for which Taggart worked.