A story in yesterday's Business section incorrectly stated that Frank E. Williams was among the officers and employes found liable for fraud in the failure of now defunct County Federal Savings and Loan Association and that he was ordered to pay compensatory and punitive damages. Williams, who was one of the savings institution's outside directors, had not been charged with fraud or self dealing. Rather, he and the other outside directors had been charged with negligence in the complaint. They agreed to a $1.32 million settlement, without any admission of liability or negligence, before the case went to the jury. Williams was no longer a defendant in the case at the time of the award last week.
The Federal Home Loan Bank Board stands to recover $11.8 million from former officers, directors and employes of a defunct Maryland savings and loan in the largest management fraud suit the board has ever pursued.
A Maryland jury Friday found several officers and employes of the thrift guilty of fraud in the failure of County Federal Savings and Loan Association. County, which lost $21 million, was absorbed by Metropolitan Federal in 1981 in a merger arranged by federal officials.
Former chairman Frank E. Williams Jr. of Rockville, former president Robert N. Reeves, former officer Leolla Fisher and others were ordered to pay $9.8 million in compensatory damages and $610,000 in punitive damages in the civil proceeding. Other employes agreed to pay $17,500 to the bank board in a court settlement.
The company's outside directors, including sports team and Capital Center owner Abe Pollin, originally had been included in the lawsuit. However, they settled the case against them by agreeing to pay $1.36 million. The civil suit had sought $21 million in compensatory damages plus $5 million in punitive damages from both groups.
This was the second settlement of several such actions by the bank board. The bank board has brought actions against persons it considers responsible for the savings and loan debacle in the early 1980s in an attempt to recoup some of the money spent by the Federal Savings and Loan Insurance Corp. in trying to keep the industry afloat. The FSLIC, which is part of the bank board, has suffered a serious drain on funds used to cover deposits because of failures in the industry.
It was also the first case to be decided by a jury. The jurors found the defendants had violated the law on all five counts, including breaching their fiduciary duty and wrongfully diverting corporate opportunity. In the complaint, the directors were charged with having permitted "excessive and risky concentration of assets in construction loans, unreasonably high bonuses to senior officers and filing reports to the bank board which grossly understated substandard assets."
When the suit was filed almost two years ago, Pollin told a reporter, "I was a relatively inactive director for a few years prior to the time I resigned in January 1979." The other principals could not be reached for comment.
According to the complaint, Reeves approved payments to builders for construction work that he knew had not been performed. Other officers either approved such payments or used deceptive record-keeping to conceal the payments from County's directors.
The bank board recommended to the directors in 1980 that Reeves be fired, but they declined to do so.
The regulators concluded that the "inaction of the directors was a principal cause of County's demise." After County's failure, Reeves became head of McLean Financial Corp., a mortgage banker.
Another defendant, former executive vice president Thomas J. O'Halloran Jr., was accused of "conspiring with his wife to acquire certain properties from borrowers of County at below market prices in exchange for preferential treatment of those borrowers." The bank board accused him of diverting business from County's service corporation to his own real estate appraisal firm. After County's demise, O'Halloran did appraisals for McLean Financial Corp.
The other directors who agreed to the $1.3 million settlement are: E. Fulton Brylawski, Seymour S. Abensohn, Robert K. Maddox, Glen J. Koepenick Jr., W. Evans Buchanan, John C. Kelly, and Harry H. Simmes Jr.