WASHINGTON — Bond sales that cost customers of Lincoln Savings and Loan Association more than $250 million ``flagrantly'' violated securities rules, the chairman of the House Banking Committee says. The bonds, issued by Lincoln's Phoenix, Ariz.-based parent company, American Continental Corp., are considered worthless. They were sold to 22,000 buyers, many of them elderly pensioners who invested their savings.
Rep. Henry Gonzalez, (D) of Texas, whose panel is investigating the collapse of Lincoln, headquartered in Irvine, Calif., said Monday that bond salespeople were paid bonuses of up to $300 a month.
``These bonuses appear to be a flagrant violation of [Securities and Exchange Commission] regulations, and they directly contradict a statement in the [American Continental] prospectus,'' Mr. Gonzalez said.
Regulators, who seized Lincoln in April, estimate the failure will cost taxpayers $2 billion, making it the costliest S&L collapse in the nation's history. Lincoln depositors were protected by federal insurance, but customers who bought American Continental subordinated debt from salespeople in Lincoln branch lobbies were not.
In a hearing before the banking committee earlier this month, bondholders testified they either were led to believe or were told the debt was similar to a federally insured certificate of deposit.
Gonzalez based his allegation that securities regulations were violated partly on a July 26 memo written by Dariush Razavi, a senior vice president at Lincoln, to Mark Randall, the government agent supervising the S&L. Razavi said bond salespeople received ``incentive'' payments up to $300 a month ``for achieving sales goals.''