Former top officers of Community Savings & Loan sought to show in court today that they did not breach their duties as officers of the thrift in transferring more than $28 million from it to their real estate syndication group known as EPIC.
At a hearing before Baltimore City Circuit Court Judge Joseph H.H. Kaplan, lawyers for former EPIC Chairman Tom J. Billman and former president Clayton C. McCuistion tried to show that the two did not commit fraud or violate banking regulations in a complex series of transactions between Community and its parent company, EPIC Holdings Inc.
The state is suing Billman, McCuistion, three of their corporations and five other individuals, alleging that they used the Bethesda thrift as "their own personal preserve" to fund EPIC, "a faltering tax-shelter empire." The state alleges that the defendants drained$50 million to $100 million from Community and its depositors' accounts. Community is one of five financially troubled thrifts the state took control of last year.
The Maryland Deposit Insurance Fund, the state agency that is acting as conservator for Community, is asking Kaplan to impose an injunction that would prohibit the defendants from removing or transferring any their assets in Community, EPIC or any of their subsidiaries, beyond those funds needed for normal business and living expenses.
"Given the marked tendency of defendants Billman and McCuistion to manipulate assets," said court papers submitted by MDIF, "there is a distinct danger that they will attempt to secrete those assets, leaving nothing to satisfy any judgment which MDIF may eventually obtain [against them]."
The hearing is expected to continue for several days.
MDIF alleges that the defendants, primarily Billman and McCuistion, took $15 million in stock dividends from Community during 1984 and 1985, when the thrift's financial situation was becoming "precarious."
In addition, MDIF alleges that the defendants channeled $13 million from Community to its EPIC parent company during 1983 and 1984. The money was to be used to pay Community's taxes, but MDIF charges that $13 million was more than the thrift owed in taxes.
At today's hearing, lawyers for the defendants questioned W. Bruce McPherson, hired by MDIF to run Community's day-to-day operations. McPherson acknowledged that the defendants filed required monthly dividend reports with state regulatory agencies, but said he does not believe that the financial statements used to compute dividend payments were accurate.
William Cahill, Billman's attorney, told the court that the $13 million transferred from Community to its parent company for tax payments was more than what was needed in the years 1983 and 1984, but it also was meant to cover a tax liability that had been deferred. Transferring money years in advance of when it might be needed may or may not be a good business decision, Cahill said, but it is not an act of fraud.
"It's a question of timing," McPherson responded. "The deferred liability may someday come due and it may not." A tax transfer from Community, he said, should not be "a vehicle to accumulate money in the [parent] holding company."