A U.S. bankruptcy judge yesterday sealed court information disclosing the names of creditors of the failed real estate partnerships established by the Equity Programs Investment Corporation (EPIC).
Judge Martin V. B. Bostetter's action followed a request by lawyers involved with the case, who said they fear the disclosure could set off runs at banks or savings and loans that own substantial amounts of EPIC mortgage debt.
"What we don't want to create is an illusory type of situation that's going to lead to a run on banks," said Michael V. Blumenthal, a lawyer for the National Bank of Washington, which is the trustee for about 50 institutions holding EPIC securities.
Blumenthal said he did not know details of the finances of those institutions, but that he and other lawyers requested that the information be sealed to dispel any "unwarranted concerns" about their health. "The mere fact that someone owns EPIC paper doesn't mean the institution is going under tomorrow," he said.
A source at the hearing said the Federal Home Loan Bank Board, which regulates savings and loan institutions, also had a representative at the meeting. The representative supported the request for keeping the creditors names under wraps.
The National Bank of Washington and the First National Bank of Maryland combined are the trustees for institutions holding about $1 billion in mortgage-backed securities issued by EPIC. As trustee, the banks help pass through monthly interest payments to the actual owners of the securities -- whose identities they are trying to keep secret. The trustees don't actually own the securities themselves.
The sale of the securities helped finance the purchase of some 20,000 houses by tax-sheltered investment partnerships established by EPIC. In August, EPIC declared that the partnerships were delinquent on monthly payments on the securities, as well as about $400 million in additional mortgage debt.
The disclosure set off a run on deposits at EPIC's parent, Community Savings & Loan of Bethesda, and at the beginning of last month, the state of Maryland moved to take control of both the thrift and its real estate investment arm. In addition, more than 350 EPIC partnerships filed for bankruptcy.
On Tuesday, the bankrupt partnerships, as is their legal duty, filed information concerning their financial affairs, assets and liabilities, according to Norman Oliver, a lawyer for the U.S. Trustee's office in Virginia. In closed meetings in Bostetter's chambers yesterday, lawyers for the banks and other parties involved with the case made a "joint request" for this information to be sealed, Blumenthal said.
Blumenthal and the attorneys said a formal motion would be served by this morning, and that the judge was expected to approve it by tomorrow. They said, however, that the judge's order would lift the seal on most of the financial information contained in this week's filings. The major undisclosed information would be the names of the institutions holding the EPIC securities.
The lawyers also said the judge would review the order in November and would entertain individual requests by interested parties to examine the information in the meantime.
A number of major institutions holding EPIC debt have made themselves known, including the Wall Street brokerage house of Salomon Bros., the Philadelphia-based financial concern PSFS, and the Federal National Mortage Association. Ten of these large investors have put together a plan for bailing out EPIC and are currently negotiating with Maryland officials over the details of that plan.
There are also dozens of smaller thrifts and banks that own EPIC paper, although most of these have not made their names known.