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Re: WaS post# 52951

Monday, 01/19/2009 11:43:28 PM

Monday, January 19, 2009 11:43:28 PM

Post# of 729765
U.S. Is Told To Return Big S.& L.

This is a better comparison

http://query.nytimes.com/gst/fullpage.html?res=9C0CE1D81138F935A3575AC0A966958260

LEAD: In a stinging rebuke to the management of the savings and loan bailout, a Federal judge in Topeka, Kan., today ordered Federal regulators to return a $9 billion savings institution to its owners by Thursday morning.

Biggest Setback So Far

The decision today, the first in which a judge has ordered the return of such an institution, is the most significant courtroom defeat for regulators since the savings and loan bailout legislation was adopted last year.

Recognizing that the ruling could set a difficult precedent, the Office of Thrift Supervision said in a statement late this afternoon that it would seek an immediate stay of Judge Saffels's order as well as a review by an appeals court.

Unless the ruling is overturned by an appeals court, it will provide significant legal ammunition to scores of institutions that either have or are at risk of being taken over. In many situations, the Government has found no evidence of criminal misconduct or insider dealing, but nonetheless seized institutions out of concern that they were near insolvency. Cases contesting seizures are being brought with increasing frequency as the Government steps up its program of taking over ailing savings institutions.

''We firmly believe the Government acted in a timely and proper manner in taking over Franklin, an institution that was being operated with insufficient capital and in an unsafe and unsound manner,'' said the Government's statement, which was signed by Harris Weinstein, the Office of Thrift Supervision's chief counsel. The statement called Franklin's accounting procedures ''improper'' and said they had enabled the savings association to recognize gains and defer losses ''while distributing more than $45 million of the institution's funds in dividends to the shareholders.''

'It's a Relief'

Officials at Franklin hailed the ruling.

''It's a relief that we've come this far and achieved this milestone,'' said John Scowcroft, the president of the Franklin Savings Corporation, the holding company for the savings and loan. ''Now we have to see what's left of the company. People have left and people have pulled deposits.''

Regulators at the Office of Thrift Supervision had said both at the time of the seizure and during the court proceedings that the institution had failed to recognize losses totaling $470.4 million on its financial statement, while the institution's accountants said that those loses need not be recognized. Judge Saffels sided with Franklin and said the Government had acted ''arbitrarily and capriciously'' in deciding to take over Franklin, adding that the thrift office had committed many errors in administrative proceedings.

''It is the court's conclusion of law that the O.T.S. acted inappropriately in placing Franklin in conservatorship and that the O.T.S. lacked any basis which would justify its appointment of a conservator,'' Judge Saffels said. The judge, a former chairman of the Federal Home Loan Bank in Topeka, also said that the Topeka branch of the Office of Thrift Supervision had made ''fundamental factual errors as well as material errors'' in analyzing publicly filed financial statements of Franklin.

Even before today's decision, the legal proceedings involving Franklin had been particularly difficult for the Government. Last month, the Office of Thrift Supervision and an outside lawyer it hired to defend the case were censured for filing a motion without a proper factual basis. And M. Danny Wall, the former head of the Federal Home Loan Bank Board, was cited for contempt earlier this year for refusing to testify in the case. The contempt ruling is being appealed.

'Unsafe and Unsound'

Federal regulators had asserted that the basis for the seizure was that Franklin failed to comply with generally accepted accounting practices, putting it in an ''unsafe and unsound'' position and at risk of collapsing. During a monthlong trial that ended in mid-July, those contentions were disputed by accountants from Deloitte & Touche, who maintained that Franklin management had employed proper practices.

Today's defeat for the Government comes less than a month after a Federal judge in Washington affirmed the regulators' decision to seize the Lincoln Savings and Loan Association.

"One must be just, before one is generous."

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