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JONES DAY SETTLES OTS CASE INVOLVING LINCOLN SAVINGS

 WASHINGTON, April 19 /PRNewswire/ -- The Office of Thrift Supervision (OTS) announced today that it has settled enforcement charges against Cleveland-based Jones, Day, Reavis & Pogue, the nation's second largest law firm, and one of its attorneys, William J. Schilling. The case grew out of Jones Day's work for Lincoln Savings and Loan Association, Irvine, Calif.
 The settlement with OTS was part of a broader agreement between Jones Day and the government that includes payment of $51 million to the Resolution Trust Corporation (RTC) to conclude all possible RTC claims including a federal district court case brought against the firm by the RTC. Lincoln, owned by Charles Keating, failed in 1989 at an estimated cost to the taxpayer of at least $2 billion.
 OTS claimed that Jones Day committed a number of violations of law and regulations in its performance of a regulatory compliance audit of Lincoln in 1986 and other activities for Lincoln. In settling with OTS, Jones Day, without admitting or denying factual and legal allegations of OTS, agreed to conditions intended to ensure that the firm does not repeat activities that gave rise to the OTS charges in the first place.
 Schilling, former Federal Home Loan Bank Board director of the Office of Examinations and Supervision who joined Jones Day in January 1986, also consented to an order prohibiting him from holding any position in the banking industry and suspending him from practice before OTS. Schilling was in charge of Jones Day's compliance audit of Lincoln.
 Commenting on the settlement, OTS Acting Chief Counsel Carolyn Lieberman said: "Once again there is a lesson to be learned from a case involving Lincoln Savings. And that is those who serve an insured financial institution, whether they are management, directors or service providers such as lawyers and accountants, must not ignore their fiduciary responsibilities and professional principles. Otherwise, the result can be severe financial distress for the institution, the insurance fund and ultimately the taxpayer -- as occurred with the Lincoln failure."
 OTS charged that Jones Day failed to fulfill its fiduciary duties to Lincoln and engaged in unethical and improper professional conduct during its regulatory compliance audit of Lincoln in 1986. The regulator also said the law firm knowingly and recklessly aided and abetted Lincoln's management in its efforts to create inaccurate and misleading loan files and corporate records, knowingly omitted material facts in the proper classification of a major loan Lincoln made, aided and abetted a prohibited loan to an affiliate of Lincoln's, and knowingly advised Lincoln's directors to ratify regualtory violations.
 In making the $51 million restitution, following district court approval of the settlement, Jones Day will pay the RTC $31.5 million in cash. The balance of the $19.5 million will be paid in six annual installments under a promisory note.
 Other provisions of the OTS cease and desist order, which parallel Jones Day's present operating procedures, protect the public interest by ensuring appropriate oversight by Jones Day of its representation on


regulatory matters involving federally insured depository institutions. For example, before accepting a new client or new matter for an existing client, the chairman of the firm's financial institutions practice committee must review certain factors concerning the assignment, including the financial condition of the institution.
 Jones Day must refrain from assisting in the preparation of any documentation that would provide a materially inaccurate business record of the institution.
 Another provision of the order holds that if a Jones Day attorney finds, in a case involving OTS-regulated institutions, that a person affiliated with the client institution is acting in a manner that violates the individual's fiduciary responsibility, the matter is to be reported to the law firm's supervising partner for financial institutions. Based upon the American Bar Association's Model Rules of Professional Conduct, which many state bars have adopted as applying to attorneys practicing in such states, the partner is responsible for pursuing the matter up the client's corporate ladder, including the board of directors if necessary, until the matter is resolved. If it is not resolved, the law firm must consider resigning the account or seek other remedies.
 Finally, the order constitutes final disposition of financial claims and non-monetary administrative relief against Jones Day related to its activities on behalf of Lincoln and Western Savings and Loan Association, Phoenix, and non-monetary relief related to its work for Stockton Savings Association, Dallas; Franklin Savings Association, Austin, Texas; CreditBanc Savings Association, Austin, Texas; and Cypress Savings Association, Plantation, Fla.
 OTS does, however, reserve the right to see non-monetary administrative relief from present or former Jones Day partners or employees in conjunction with their participation in the firm's representation of those institutions. The order will remain in effect until Dec. 31, 1996.
 -0- 4/19/93
 /CONTACT: Thomas P. Mason of the Office of Thrift Supervision, 202-906-6688/


CO: Office of Thrift Supervision; Jones, Day, Reavis & Pogue; Lincoln
 Savings and Loan Association ST: District of Columbia, Ohio, California IN: FIN SU:


TW-DC -- DC020 -- 7505 04/19/93 14:54 EDT
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Publication:PR Newswire
Date:Apr 19, 1993
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