The Federal Home Loan Bank Board has filed suit against 10 former New York savings and loan officers and directors in an effort to recover some of the $137 million the government used to prop up their insolvent institution for 16 months. During that time, the executives sought to avoid legal action against themelves in exchange for agreeing to a merger.
This is the second such case brought by federal authorities against a management team the bank board believes to be directly responsible for the problems its S&L encountered. The first involved First Savings and Loan of Suffolk, Va. The board's chief counsel, Thomas Vartanian, said eight or more similar civil actions will be taken.
"It shows we intend to raise questions about insolvent institutions handing out golden parachutes," he said.
The complaint, filed Monday in U.S. District Court in New York, alleged that Edgar Cini, chairman of New York and Suburban Federal Savings and Loan Association, President Dorothy Whitford and the board members refused to agree to a merger, after they had suffered substantial losses trading in Government National Mortgage Association securities, unless the government agreed not to pursue any civil actions against them and agreed to keep Cini and Whitford employed at the successor institution.
For 16 months, the bank board tried in vain to negotiate voluntary mergers. During that time, the association had operating losses of $35 million. On May 29, 1981, having declared the S&L insolvent, the Federal Savings and Loan Insurance Corp. arranged a supervisory merger with Anchor Savings Bank. Since then, the FSLIC has had to advance $137 million to keep it afloat.
Vartanian said the S&L's officers had six-figure incomes. And the S&L violated its own policies by voting Cini and Whitford more than $124,000 in accrued vacation pay shortly before the FSLIC merger.