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FORMER S&L OFFICIALS AND LAW FIRM SETTLE OTS ACTION; TO PAY $11.2 MILLION

 FORMER S&L OFFICIALS AND LAW FIRM SETTLE OTS ACTION;
 TO PAY $11.2 MILLION
 WASHINGTON, Oct. 5 /PRNewswire/ -- Enforcement action against two former officials of American Savings of Florida, FSB, Miami, the law firm of Kirkpatrick & Lockhart and a partner in the firm has been settled with the Office of Thrift Supervision (OTS). The settlement includes agreement to pay restitution to the S&L totaling $11.2 million.
 The enforcement case grew out of a conflict of interest in a 1990 collateral substitution scheme at American Savings that caused an estimated $23 million loss to the thrift. The settlement incorporates the following specifics:
 -- Richard Grassgreen, former chairman and chief executive officer of Enstar, the 50 percent owner of American, of which he is a former director, consented to be banned permanently from the banking industry and to pay restitution of $1.5 million in five equal annual installments of $300,000.
 -- Harris Friedman, former chairman and chief executive of American Savings and former director of Enstar, agreed to a permanent ban from the banking industry and to pay restitution of $700,000.
 -- Kirkpatrick & Lockhart, a Pittsburgh law firm, agreed to pay $9 million and consented to a cease and desist order, while the partner, Alan J. Berkeley, of the firm's Washington office, agreed not to serve any federally insured depository institution in any capacity for three years.
 Kirkpatrick & Lockhart also agreed to adopt and maintain enhanced procedures for identifying and resolving actual or potential conflicts of interest in any future representation of a savings association. These steps are in addition to procedures already in effect at the firm.
 Neither the law firm nor any of the three individuals admitted or denied the factual or legal conclusions reached by OTS, but agreed to cooperate with OTS to avoid the time and expense of administrative litigation.
 The law firm represented Enstar from 1987 to 1990 and during much of this period also provided legal services to American Savings, formerly known as American Savings & Loan Association of Florida. Berkeley was the partner with overall responsibility for representing these clients.
 In December 1989 in compliance with a new federal law and with OTS approval, American transferred its junk bond securities to an affiliate of Enstar in exchange for a promissory note for approximately $209 million. The note was secured by collateral worth at least 120 percent of the note balance, which was one of the conditions for OTS approval.
 About mid-1990 certain senior officers and directors of American and Enstar, including Friedman and Grassgreen, devised and implemented a plan to substitute collateral of uncertain value -- namely stock of a retail subsidiary of Enstar -- for cash held in the collateral pool. This substitution was intended to provide up to $45 million of capital to the Enstar subsidiary, and a total of $38 million was channeled to the subsidiary from American Savings through the plan.
 At an Enstar board meeting, conducted by Grassgreen on June 8, 1990, with Friedman and Berkeley participating, the collateral substitution plan was approved. Berkeley subsequently reviewed draft minutes of the meeting written by Enstar's general counsel, but deleted the description of the collateral substitution plan, OTS said. Berkeley's version also did not disclose any intention by Enstar to pledge the retail subsidiary's stock to enable Enstar to withdraw "excess collateral" from American's collateral pool to finance the retail subsidiary, OTS said. Both Grassgreen and Friedman agreed to the changes made by Berkeley.
 Berkeley advised Friedman that OTS approval of the plan was required, but a letter drafted by Friedman and reviewed by Berkeley, did not disclose the true nature of the collateral plan, OTS said, nor did Friedman or Berkeley take any subsequent steps to fully inform OTS. None of the them advised the full American board of directors of the collateral plan despite the material nature of the plan and the risk it posed to American, OTS said.
 On the date -- June 22, 1990 -- the request letter was sent to OTS, Enstar, with Grassgreen and Friedman's approval, withdrew $29 million in cash from the thrift's collateral account.
 In August 1990, OTS informed American that the stock of the retail subsidiary was not acceptable as collateral. In August and September, additional cash was withdrawn from the collateral account until the total of withdrawals reached $38 million, OTS said. Of this amount, $23 million was lost.
 OTS concluded from these facts that it was appropriate to bar Friedman and Grassgreen from the banking industry, to order the firm to identify and resolve conflicts of interest when representing savings associations and to prohibit Berkeley from representing insured depository institutions and to direct him to ensure the accuracy and completeness of any statement to bank regulators.
 /delval/
 -0- 10/5/92 R
 /CONTACT: Thomas P. Mason, 202-906-6677, or William Fulwider, 202-906-6913, of the Office of Thrift Supervision/ CO: Office of Thrift Supervision; American Savings of Florida, FSB;
 Kirkpatrick & Lockhart ST: District of Columbia IN: FIN SU:


DC -- DC006 -- 6538 10/05/92 11:31 EDT
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Publication:PR Newswire
Date:Oct 5, 1992
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