Maryland Gov. Harry Hughes and State House leaders agreed late yesterday on new legislation that would launch a broad investigation into the savings and loan industry crisis, including appointment of a special counsel to study regulatory matters and new powers to enhance the attorney general's probe into possible criminal misconduct at Old Court Savings and Loan Association in Baltimore.
The agreement among Hughes, Senate President Melvin A. Steinberg and House Speaker Benjamin L. Cardin came as legislators prepared to reconvene their emergency session and on the same day a three-judge panel of the Maryland Court of Special Appeals upheld the strict withdrawal limits imposed on Old Court depositors.
In a unanimous 44-word order, the judges reversed a Friday ruling by Baltimore Circuit Court Judge Joseph H.H. Kaplan that would have lifted the $1,000-a-month restrictions and granted owners of the Baltimore Blast indoor soccer team access to $600,000 to meet their June payroll, operating expenses and an installment purchase payment to former owners.
The three-bill legislative package to be introduced in the General Assembly today includes a measure giving Hughes power to name a special counsel by July 1 to conduct what would essentially be a civil examination of what caused a massive run on S&L deposits that began nearly three weeks ago and how similar crises might be prevented. The special counsel, who would be instructed to complete the fact-finding mission by March, would be given a $500,000 appropriation to fund the study.
Although Hughes has apparently made no decision on who should fill the role of special counsel, several well-respected lawyers and jurists are being mentioned. Among them are former U.S. attorney general Benjamin Civiletti, former federal judge Edward Northrop and Washington attorney Clark Clifford.
The legislature also will be asked to give Attorney General Stephen H. Sachs the power to grant immunity from prosecution to witnesses whose testimony is needed in the criminal probe of Old Court that Hughes authorized Sachs to begin earlier this month.
The legislation package was crafted by House and Senate leaders during the weekend and is designed to extricate them from a growing political problem stemming from Sachs' gubernatorial ambitions. Many legislators were reluctant to grant Sachs additional prosecutorial powers for what is expected to be a highly publicized investigation that might enhance his election prospects. But they were also under pressure from a public clamoring for prosecution of those responsible for the troubles at Old Court.
State Sen. Thomas V. Mike Miller Jr. (D-Prince George's), chairman of the Judicial Proceedings Committee who had strenuously opposed the granting of new powers to Sachs, praised the compromise package of legislation as "a carrot and stick."
The appointment of a special counsel, Miller said, "would have a real good effect with regard to giving people answers they haven't gotten so far. We've done well in solving the crisis, but we haven't gotten to first base in finding out its causes. We've been through two scandals in 20 years in the savings and loan industry and we have to be about the business of assuring the next generation of Marylanders it won't face the same kind of crisis."
Sachs said he was "100 percent supportive" of an investigation by a special counsel that would probe any failure by state regulators to anticipate the crisis, which prompted Hughes to limit withdrawals to $1,000 per month per account at the 102 state-chartered S&Ls.
"There's plenty of room for this kind of inquiry," Sachs said. "It's an inquiry that by all means should be undertaken."
The attorney general also said he sees no conflict with his own continuing criminal investigation of allegations of insider trading at Old Court and said he was "very pleased" at the consensus among legislative leaders to grant him the immunity power he sought. "That's a very useful tool and I'm pleased they are recommending it," he said.
Senate President Steinberg (D-Baltimore County) said the naming of a special counsel would "address the concerns raised by the general public and the General Assembly without doing any violence whatsoever on the current investigation by the attorney general."
The legislation would empower the special counsel to conduct a broad examination of how the actions or inaction of officials in state government and the private sector contributed to the crisis. That probe would undoubtedly include the state's savings and loan division within the Department of Licensing and Regulation and the Maryland Savings-Share Insurance Corporation, the now-defunct private company that insured the state-chartered thrifts.
"This is exactly what we need," said House Speaker Cardin (D-Baltimore). "We need an investigation of all aspects -- state agencies, MSSIC, the savings and loan people. This allows a broad, independent review of what happened and will answer the questions the people of Maryland have been asking."
The special counsel would be granted subpoena power, and would be able to call on the resources of the state police, the attorney general and other agencies.
The legislation also authorizes the special counsel to report to the governor any findings of criminal or civil wrongdoing. The governor would then be authorized to relay those findings to the appropriate prosecutor.
Cardin said last night the prospects for the legislation are "excellent, even though the bills are somewhat controversial."
Today's meeting of the legislature should be the third, and last, of the emergency session called by Hughes to cope with the savings and loan crisis. The assembly has already enacted legislation giving Hughes broad emergency powers over the industry and bills forcing all of the state-chartered thrifts into federal or state insurance programs.
On the Special Appeals Court order yesterday upholding strict withdrawal limits at Old Court Savings and Loan, the judges issued no opinion, but their action satisfied lawyers from the state attorney general's office who earlier had obtained a stay of Judge Kaplan's ruling and who argued in court that lifting the withdrawal limit for the Blast would be unfair to thousands of other Old Court depositors.
"The principle here is equal treatment," said Assistant Attorney General John K. Anderson, who said Blast owners had proven no hardship "serious and severe" enough to warrant a lifting of the limit.
Andrew Radding, attorney for Nathan Scherr, the controlling owner of the Blast, argued that Scherr -- like all other Old Court depositors -- was entitled to recover his money from the bank promptly.
"It is their property," said Radding. "Our withdrawal hurts no one. Old Court is not insolvent." Radding vowed to appeal the ruling to the Court of Appeals, the state's highest tribunal.
Old Court's 72,000 account holders have been limited to withdrawing $1,000 per account every 30 days since allegations of mismanagement and insider deals triggered a run on the institution earlier this month. Old Court, the state's second largest privately insured S&L, and Merritt Commercial Savings and Loan Association, also of Baltimore, are governed by court-ordered conservators, who imposed the limits.
Scherr had sought to recover $520,000 from Old Court accounts and Blast Soccer Associates wanted permission to withdraw $80,000 for its June 1 payroll, Radding said.
Anderson said last week that Scherr, a 52.5 percent owner of the team, maintained about a dozen accounts with a total of more than $500,000 for various operating expenses. A portion of that was expected to be used to meet a $228,000 installment payment to previous Blast owners.
During the Friday hearing before Kaplan, it was disclosed that Jeffrey A. Levitt, a principal owner of Old Court, also is a minority owner of the Blast soccer team, which is currently playing in the Major Indoor Soccer League championship series. Attorneys for the Blast would not specify Levitt's ownership interest, but state sources said Levitt has a 10 percent interest in Blast Soccer Associates, the partnership that owns the team.
An underlying theme of the judges' questions was the possible danger to Old Court's already frail financial condition if Scherr and other large depositors were able to withdraw their money immediately.
Anderson made the same point, saying, "It's a very important difference whether they get it the deposits now or get it later." Massive withdrawals from Old Court -- which Anderson said was "virtually out of cash" and $50 million in debt to the Federal Reserve earlier this month -- would destroy the savings and loan association, he argued.