The Los Angeles Times from Los Angeles, California • 60

2 Part IV lluirstlay. March 2J. 1989 GoaAnflclcggimea i 1 I I I I 1 -f t-W I I. in II I BRIEFLY White-Collar Crime to Blame for Crisis, GAO Tells House Panel 300 THE ESCROW SH0PPE From Associated Press WASHINGTON-White-collar crimes, not poor economic conditions or deregulation, are the root cause of the savings and loan crisis, congressional auditors said Wednesday. The General Accounting Office told the House Judiciary Committee's criminal justice subcommittee that it had examined 26 insolvent thrift institutions in eight states and found evidence of fraud or abusive insider dealing in each.

While the survey was skewed to with the worst problems the 26 represented 60 of total losses sustained by the government's insurance fund from 1985 through 1987 the pattern of fraud and abuse among all failed thrifts "clearly is pervasive," GAO officials said. "The huge losses, which will ultimately be passed to the nation's taxpayers," estimated at $100 billion to $150 billion, "did not come about primarily because of economic conditions or deregulation," Assistant GAO Comptroller General Frederick Wolf told the subcommittee. "The bulk of the losses are directly attributable to the failure by management of a minority of the industry to follow basic, prudent business practices, including the establishment of effective systems of internal control," Wolf said. Asked if that is a crime, Wolf said violation of fiduciary responsibilities to operate in a sound manner is clearly a criminal issue. Few Convictions The GAO said it found inadequate records and controls at all 26 of the failed thrifts it examined in detail, excessive loans to one borrower at 23, conflicts of interest among officers or directors at 20 and excessive salaries and benefits at 17.

The subcommittee's chairman, Rep. Charles E. Schumer complained that of the 11,000 cases the Federal Home Loan Bank Board has referred to the Justice Department in the past two years for criminal prosecution, fewer than 200 have resulted in convictions. "Ten billion dollars would go a long way to housing the homeless, feeding the poor, educating the public, caring for the sick," Schumer said. "Instead, it has been wasted on lavish parties, jets, real estate, travel and meals at the expense of taxpayers." Atty.

Gen. Dick Thornburgh last month blamed fraud and insider abuses for 25 to 30 of the failures. Industry regulators said they have found the crimes a "factor" in at least 70 of insolvent institutions. Of the 26 failed thrifts examined by the GAO, the bank board had referred 19 and allegations against 182 people to the Justice Department for suspected violations of criminal conspiracy, theft, fraud and embezzlement statutes. Rarely Go to Prison As of this month.

Wolf said, 23 of those people had been convicted at least 11 after pleading guilty and 19 more were under indictment Two people were acquitted in trials. Of those convicted, 15 were sentenced to prison, but the sentences "generally were suspended with probation," Wolfe said. The GAO did not name the 26 it examined, saying some are still open, or the individuals whose names had been referred to the Justice Department for criminal investigation. "We are prohibited by law from disclosing the names of open banks we review and, as a matter of longstanding policy, we treat thrifts in the same manner," Wolf said. He said the GAO also is "sensitive to the effect such disclosures could have on the government's effort to seek recoveries in civil suits or to prosecute alleged criminal acts." DAVID BOHRER La Anftlc Time A notice of closure from the state Department of Corporations adorns the front door of the Escrow Shoppe in Encino.

Officials contend the firm made $3 million in unauthorized payments. Escrow Firm Seized for Alleged Misuse of Cash Maxicara to Sell Tucson Plan: Maxicarc Health Plans which has filed for protection from creditors under federal bankruptcy laws, has reached a definitive agreement to sell its Tucson plan to a unit of Tucson Medical Center. The deal would transfer Maxicare-Health America Health Plans, a health maintenance organization, to Healthways of Arizona, which operates the HMO known as Partners. Healthways is jointly owned by the medical center and Partners National Health Plans. Completion of the deal requires approval of the companies' boards, government regulators and the bankruptcy court.

Thorn EMI to Buy Chrysalis Stake: consumer electronics giant Thorn EMI has agreed to pay up to $104.1 million for a half-interest in the British-owned record maker Chrysalis Record the companies said. If the deal is completed. Thorn EMI would manufacture and distribute records for Chrysalis, the label for Billy Idol. Huey Lewis the News, Pat Benatar and others. Thorn EMI artists include Paul McCartney.

Pink Floyd, Tina Turner, David Bowie and others, and the company also has a large classical music catalogue. Chrysalis would continue to operate independently in Britain and the United States, the companies said, and Chrysalis Chairman Chris Wright, who owns 43 of Chrysalis Group stock, would remain at the helm. Emhart Will Consider New Bid: officials of Black Decker which has agreed to buy Emhart Corp. in a takeover, said they were not worried about Emhart's indication that it still would consider a higher bid from a rival suitor. In an SEC filing, Emhart said it offered New York -based investment partnership Topper L.P.

the chance to review internal company documents if the information would help Topper formulate a higher bid. Emhart has rejected as inadequate Topper's unsolicited $2.4 -billion buyout offer. Topper investors include oil heir Gordon P. Getty. More Layoffs at Law Firm: Pillsbury.

Madison Sutro said it is initiating a second round of layoffs among its secretarial and support staff. The San Francisco law firm, which last week said 35 secretaries had been terminated, said up to an additional 24 clerks, possibly including several in the Los Angeles branch office, will be let go as part of its new cost control program. Last week, the firm acknowledged that its 170 partners would skip their regular March profit sharing check because of soaring expenses, in part caused by a costly computer conversion and the opening of new Los Angeles and San Jose branch offices. Swiss Want Guarantee: a Swiss civil court has ordered RJR Nabisco Inc. to guarantee a $120-million bond issue in Switzerland before it sells any assets so that Swiss bondholders' rights are protected.

The firm was bought last month by Kohlberg Kravis Roberts Co. for $25 billion. To pay off its debts, KKR plans to sell off billions of dollars in Nabisco assets when the buyout is completed after March 30. In the Swiss suit, bondholders claim the asset sales would damage them. While the stock of RJR Nabisco was bought, there are still bonds outstanding.

Popeyes-Church's Merger Proceeds: Popeyes Famous Fried Chicken owner Al Copeland has accepted the latest offer of enough of Church's Fried Chicken Inc. stock to allow completion of his takeover of the company, a spokesman said. "Biscuit Investments Inc. now owns a sufficient number of shares to approve the previously announced merger of Biscuit Investments into Church's," said Mark McKinnon, spokesman for Copeland's investment company. Out of about 36 million shares outstanding, Copeland was offered 33,475,514 common shares and accepted 30,100,000 at a cash price of $11 a share.

The total purchase price will be $392 million. America West Pilots Reject Union: Pilots for America West Airlines have rejected representation by the Airline Pilots the Phoenix-based company announced. America West said of 719 pilots eligible to vote, ALPA received 206 votes, or 29. A clear majority was required for the union to win. Last month, flight attendants rejected union representation and on Feb.

28, the Transport Workers Union withdrew its application for an election to unionize America West fleet service employees. Agreement for SelecTV Service: SelecTV, the beleaguered Los Angeles pay-television service that failed to air Monday night because it couldn't pay KWHY, said it has reached an agreement with the station's owner to provide service on Channel 22 until the end of the month. The service's parent company, SelecTV of California filed a Chapter 11 bankruptcy petition last week in federal court, listing total assets of $13.5 million and liabilities of $14.3 million. The company currently has about 17,000 subscribers. Minorco Loses Round: a federal appeals court upheld a lower court's injunction barring Minorco S.A.

and two other South African entities from proceeding with a hostile takeover bid for Consolidated Gold Fields PLC, the second-largest gold producer in the Western world. The same three-judge panel of the 2nd U.S. Circuit Court of Appeals, sitting in Manhattan, also reversed the district court's ruling that it lacked jurisdiction in Consolidated Gold's claim of securities fraud by the South African -controlled Minorco. Only 1.5 of the stockholders involved are in the United States. Minorco is seeking the 70.4 stake in Consolidated Gold Fields that it does not already own.

Greenspan: Full Effect of Rate Hikes Yet to Be Felt By JAMES F. PELTZ, Times Staff State officials said they seized an Encino escrow company, the Escrow Shoppe, on Wednesday after alleging that the company made $3 million in unauthorized payments and was missing $87,000 it was supposed to be holding in a customer's trust account. Thomas H. Warden, a lawyer for the company and its owner, Sandra Bianco, denied the allegations by the state Department of Corporations and said no money was missing. The lawyer acknowledged that there were some "unauthorized uses of escrow checks" but said that in most cases the checks were never cashed and money was never lost.

He blamed the problem on some former employees and said the Escrow Shoppe is cooperating with state officials. Escrow companies are used by buyers and sellers of real estate to help ensure that certain conditions are met, such as a property's title search, before a sale is finalized. The escrow firms also hold any payments between the parties until then. Handled Thousands a Year The Escrow Shoppe was one of the biggest escrow firms in the San Fernando Valley and had operated since 1974, Warden said, and Judy L. Hartley, a lawyer with the Department of Corporations, said the firm handled thousands of escrows each year.

The department froze the Escrow Shoppe's assets Monday and took possession of the firm Wednesday, Hartley said. The department also appointed a conservator to manage and eventually liquidate the firm, she said. The actions came after a department audit of the Escrow Shoppe's books revealed the alleged unauthorized payments and the missing cash, she said. Jones said the committee "will act as the fiduciary body for all the unsecured creditors and will also negotiate for all creditors." He said he sought to include the airline's largest creditors as well as a variety of others. Duties of the creditors committee include coming up with its own plan of reorganization for Eastern and negotiating with the airline on one that it will propose.

The bankruptcy judge will administer the steps taken toward reorganization and must approve any sale of assets "outside of the ordinary." Sale of a landing slot, a gate or an airplane would not require his approval. Besides the unsecured creditors, which range from ticket holders and food vendors to aircraft engine manufacturers, there is a large group of creditors whose loans are secured by collateral. Of Eastern's $1.2 billion in debt, 25 is held by secured creditors. Harvey Miller, the airline's bankruptcy lawyer, told the assembled creditors that Eastern has $1 billion in assets "over and above" its $4.5 billion in liabilities. The airline had said earlier that it filed under Chapter 11 because the strike was rapidly draining it of Writer "We received some complaints into our office that prompted us to go out there and conduct a special examination of their books and records," Hartley said.

She noted that the company had "stripped their premises. We don't know where the accounting records are now. They even took the phones out of the walls. Our first task is to try and find everything." Sold Accounts Warden, however, said Bianco had voluntarily closed the firm Friday and surrendered her operating license Tuesday, before the state took action. "The state technically does not have jurisdiction to appoint a conservator," he said.

He also said the Escrow Shoppe had already sold its remaining escrow accounts and trust funds to the Santa Monica branch of another firm, Townsgate Escrow, which is based in Westlake Village. He declined to reveal the terms of the sale. Warden said the Escrow Shoppe last week "had shown evidence" to auditors "that all monies in fact were in trust accounts for the benefit of buyers and sellers." But Bianco "elected to go out of business" after discovering the alleged misuse of some escrow checks by former employees, he said. Bianco knew "that she would ultimately have to bear the blame for any wrongdoing of her employees." Warden said. Warden alleged that some former employees used escrow company checks "to make misrepresentations for their own personal gain," but no money was ever lost from customer accounts.

In most cases, he said, "the checks were never cashed and the money was never spent" He declined to provide additional details but said the former employees allegedly involved were fired. cash. Eastern is flying 9 to 10 of the 1,040 daily trips it flew before the machinists' strike began March 4, Miller said. Most of the unionized pilots and flight attendants have observed the machinists' picket lines. The committee of creditors includes Airbus Industrie, which is owed $95.9 million by Eastern; General Electric, $75.5 million; Boeing, $54 million; United States Trust of New York.

$58.7 million; UT Credit $22.3 million; IBJ Schroder Bank Trust, $19.6 million; American National Bank Trust of Chicago. $12.8 million; Rolls-Royce Credit $5.9 million; Marriott $1.1 million, and Communications, $300,000. The other five members are Citicorp and Rohr Aero Services, which are creditors but were not on the list of Eastern's 20 largest creditors that was filed with the bankruptcy statement; the International Assn. of Machinists; the Air Line Pilots and Mary Grace Shore, an Eastern ticket agent in Richmond. who represents the company's non-striking employees.

prime lending rates to 13.5, the Eastern Machinists to Stop Harassment From Reuters WASHINGTON Federal Reserve Board Chairman Alan Greenspan said Wednesday that the full impact of higher interest rates has yet to be felt, and he defended the central bank's gradual credit-tightening by saying the policy will allow the economy to continue growing at a modest pace. In congressional testimony, he answered critics who say either that the Fed has been too stringent for the beleaguered thrift industry or too lax to snuff out inflation. "The best way to stabilize the economy is to make sure disruptive inflationary pressures don't take over," Greenspan told the House banking financial institutions subcommittee. He said there is a "significant lag" between the time the Fed raises interest rates and the impact that action has on the economy. He was answering a question on why the economy has shown signs of inflating despite tighter Fed policy.

The comment was taken by some dealers as a sign that the Fed will wait before raising interest rates further, causing the dollar and credit market interest rates to ease in afternoon trading. The central bank has been gradually pushing up interest rates since last March in an effort to cool inflationary pressures that Greenspan said were building in the economy. But recent economic data suggests that higher rates have had little impact to date on cooling inflation. Holding Rates Down Interest rates would be even higher now had the central bank done nothing. Greenspan said in defense of the central bank's tight policy, since the Fed's yearlong tightening has kept inflation from getting out of hand and kept market rates from rising even more.

"Because of the actions we have taken so far, rates at the long end are significantly lower than they otherwise would have been," Greenspan said. "The Fed is trying to minimize the rise in real interest rates," Greenspan added. He said the rise in short-term interest rates engineered by the Fed. from 6.5 last March to nearly 10 today, was aimed at extending the current economic expansion, now in its seventh year, into 1990 and beyond. "Our job is to suppress inflationary forces that would destabilize the economy," Greenspan said.

"To the extent that we can do that, we can prolong the recovery through this year and well beyond," he said. It was the Fed chairman's first Associated Press Alan Greenspan public comments on inflation since Friday's one percentage point jump in wholesale prices for February and the more moderate 0.4 rise in consumer prices announced Tuesday. Greenspan said the Fed was aware that an unchecked rise in interest rates would increase the cost of resolving the savins and loan crisis, estimated by ine Bush Administration at $157 billion over the next 10 years. But he said the Fed was concerned that the ultimate cost to the thrift industry and to the taxpayer would mount if it allowed inflation to get out of control. Times Writer Wins Honor for Energy Series Los Angeles Times staff writer Donald Woutat has won Panncll Kerr Forster's 1989 Financial Writing Achievement Award for his December, 1988, series on the risk that the United States may be headed for another energy crisis.

The series, titled "Energy Gamble: The High Price of Cheap Oil." won first prize in the print category of the business writing contest. The contest is sponsored by Pannell Kerr Forster. the nation's 13th-largest accounting and consulting firm, and entries are judged by an independent panel. The awards program is in its fifth year. Canadian banks pushed up their highest in nearly five years.

Judge Orders By ROBERT E. DALLOS, Times Staff NEW YORK A federal bankruptcy judge Wednesday ordered Eastern Airlines' striking machinists to stop harassing customers and employees who cross picket lines at New York's LaGuardia Airport. The airline accused the strikers of spitting at employees and passengers, of throwing nails in front of cars in attempts to puncture tires, of damaging cars in a variety of ways and of making threats and assaults. Eastern lawyers appeared Wednesday morning before Judge Burton R. Lifland with videotapes that they said supported their claims.

The judge, who issued a temporary restraining order, set next Wednesday for a hearing on Eastern's request for a preliminary injunction. Lifland ordered the leadership of the International Assn. of Machinists and Aerospace Workers to notify rank and file members that they must "refrain from engaging in any violence, threats, mass picketing, assaults, nuisance, trespass, verbal abuse, disorderly conduct, defamation, disturbing the peace andor other tortious acts directed at Eastern, its officers, agents. Writer representatives, employees, customers or others having business dealings with Eastern." In a letter to all members, the IAM said they must "strictly comply with the requirements of the order. A violation of the restraining order will have far-reaching consequences." The court action came a few hours before a U.S.

trustee appointed a 15-member committee composed of creditors, two unions and one individual to help oversee the airline's reorganization under provisions of Chapter 11 of the U.S. Bankruptcy Code. Eastern filed March 9 for protection from creditors while it reorganizes. About 400 creditors appeared in a hotel ballroom for the meeting to hear from Eastern's lawyers what the airline's present financial condition is and to get an idea of how its reorganization will take place. Harold Jones, U.S.

trustee for the Judicial Districts of New York. Connecticut and Vermont, had predicted to reporters that the session, which began about 2 p.m., would last until late in the evening. However, only four questions were asked and the session was completed in about 15 minutes..