[Congressional Record Volume 140, Number 87 (Friday, July 1, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 1, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                           REGARDING THE RTC

  Mr. KERRY. Mr. President, I have come to the floor on a number of 
different occasions over the past few years to express my deep concerns 
about the operations of the Resolution Trust Corporation in handling 
various aspects of the savings and loan bailout that has cost us 
literally billions of dollars.
  While there are many aspects of the RTC's operations that clearly 
have major deficiencies, I continue to believe that one of the biggest 
stories that has not been focused on, either by the media or by the 
Congress, lies in the RTC's handling of lawsuits against savings and 
loan wrongdoers in Texas.
  Under two administrations, beginning in the last administration and 
continuing now, sadly, the RTC has failed to properly investigate and 
recover hundreds of billions of dollars lost by Texas savings and 
loans. Last year the General Accounting Office found that Texas savings 
and loans accounted for 41 percent of the Nation's entire savings and 
loan bailout cost. The GAO found that more than 57 percent of the 
estimated national losses from insider criminal fraud in to S&L's, or 
about $2.1 billion, occurred in Texas.
  Yet, with $2.1 billion in outright fraud in Texas, the RTC has 
recovered less than $12 million from savings and loan officers, 
insiders and attorneys to reimburse the taxpayers. And the total 
reimbursement is about $90 million in all.
  On the face of it those numbers sound like somebody is either 
negligent, taking a dive, avoiding responsibility, or dumb.
  The GAO found in June of 1992 that staffing shortages and 
reorganizations at the RTC had disrupted the RTC's program for 
recovering money from S&L wrongdoers. But beyond the GAO's findings, 
people inside the RTC have continued to come forward to the Senate to 
warn us that the agency was wasting billions of dollars and not 
properly investigating cases--cases against people whose actions caused 
massive savings and loan losses.
  In September, at a time when the national press seemed to have 
forgotten about the savings and loan debacle, in the days before 
Whitewater--which somehow made it interesting again for people to write 
about it--the Senate Banking Committee took testimony for about 5 hours 
from RTC whistle-blowers. During that hearing the whistleblowers 
charged that the RTC was responsible for billions of dollars in 
negligence losses, waste fraud and abuse.
  Several specifically alleged that the RTC's efforts to reclaim funds 
for taxpayers from the S&L insiders were woefully inadequate and even 
fraudulent.
  The witnesses testified under oath that a series of reorganizations 
at the RTC had brought a collapse of the Government's ability to 
investigate major savings and loan wrongdoers. They testified that in 
case after case where collectively billions of dollars in losses were 
at stake, the Government never issued a single subpoena for records to 
enable them to determine whether someone had done something wrong.
  I have been told by numerous RTC investigators in the months since 
that hearing that the results of this lack of subpoena were 
catastrophic. According to the RTC's own investigators, no attorney who 
recommended a professional liability case in Texas before 1993 is still 
handling a case. Every attorney who once handled such cases has been 
transferred, fired or has quit. They say that not one RTC professional 
liability case in Texas reached a jury in 5 years. They report that in 
86 of the 137 RTC probes of failed Texas thrifts, no subpoenas were 
issued.
  This apparent neglect took place despite Congress explicitly giving 
the RTC the power in FIRREA to issue those very subpoenas for the 
purpose of following the money trail. As Gannett News Service Reporter 
John Hanchette recently noted, by comparison, Whitewater Special 
Prosecutor Robert Fiske has issued more than 160 subpoenas for his 
probe of the tiny Madison Guaranty S&L in Arkansas which lost taxpayers 
about $60 million--less than some individual loans in the Texas cases.
  Now, $60 million is obviously a lot of money, but, unfortunately, in 
terms of the savings and loan losses, it does not even rank up there 
with the smallest of the big ones. And as I previously noted, there are 
193 savings and loans that have been resolved by the Resolution Trust 
Corporation that were larger in terms of taxpayers' loss, and in some 
cases the losses were at the level of billions of dollars.
  My concern, Mr. President, is not with the issue of whether or not we 
ought to investigate Whitewater. We already know that we ought to. We 
voted to do it, and we are going to do it. But I am still concerned 
that while the Senate is spending extraordinary resources and energy to 
duplicate a portion of an investigation already being conducted by 
Robert Fiske, we are failing to properly investigate something that is 
far more important to the Nation and to the taxpayers, which is the 
RTC's handling of lawsuits against S&L wrongdoers in Texas.
  Now, last fall in response to these kinds of allegations, then RTC 
Acting Chief Roger Altman asked a team of Treasury, RTC, and Secret 
Service officials to go down to Texas and meet with the RTC 
investigators firsthand and find out what went wrong.
  This April, the RTC released a report based on these interviews, 
which found that there had not been a failure to pursue these cases by 
the RTC. But within days of the release of the report my office began 
to hear from the very people who had been interviewed by the team from 
Washington. They said that the report released by the RTC did not 
reflect what they had told the team from Washington, and they alleged 
that the report was a whitewash and warned that materials provided to 
the Senate by the RTC constituted a coverup. They alleged that the 
problems were continuing and that the failures to investigate savings 
and loan wrongdoers in Texas were costing the taxpayers a fortune.
  The most senior and experienced of these contacting my office was a 
fellow named Bill De Pugh, the manager of the Dallas investigations 
office from mid-1992 to the end of 1993, a man with 37 years experience 
investigating white collar crime. De Pugh is a former chief of IRS 
Criminal Investigations in Manhattan. He was the IRS liaison to 
Interpol and Associate Director of Operations of the Department of 
Defense Criminal Investigations Service investigating defense 
contractor fraud.
  De Pugh is a career Government investigator with no political ax to 
grind, who came out of retirement to work for the RTC as a matter of 
serving his country. Last month, De Pugh wrote to the Senate to report 
that having reviewed the RTC report, he believes the mission could only 
have been to cover up the situation. He begged the Senate to look into 
the Texas situation, contending that ``it is far more important than 
Whitewater.''
  Since writing this letter to the Senate, De Pugh has been effectively 
relieved of his responsibilities by the RTC, transferred to another 
office, and told that his services are no longer needed by the agency. 
It is a pattern, Mr. President, that we have seen before, and it is one 
that other whistleblowers reported to us at our hearing. Once an RTC 
whistleblower has gone public with criticism of the RTC, the agency's 
next move seems to be to transfer them to another office, and put them 
in a warehouse doing menial work or otherwise punishing them for having 
dared to suggest that the RTC is not doing its job.
  Beyond Mr. De Pugh, another dozen or so of the 50 people interviewed 
in Dallas--amounting to 25 percent of the total--have contacted my 
office by letter and telephone to warn that De Pugh, like those who 
testified before the Banking Committee, is telling the truth.
  They have informed me that ``the information presented to you in the 
administration's report on Texas recoveries is inaccurate and a major 
misstatement of the facts presented.''
  These RTC investigators claim that they identified claims where the 
RTC should have pursued cases against S&L wrongdoers, and they say that 
they were prevented from properly investigating cases. They say that 
lawsuits were not properly filed. They listed some 20 institutions 
where such claims could have been made and were not, in cases involving 
at a minimum hundreds of millions of dollars in potential recoveries 
for the taxpayers.
  According to the Texas investigators, even in cases where initial 
investigations were adequate, cases were sometimes not brought because 
the statute of limitations expired before a case had been made 
properly.
  For example, Mr. President, there is the case of San Antonio Savings 
Association, the 14th largest savings and loan failure in the Nation, 
which lost over $1 billion, according to the RTC. At San Antonio, RTC 
investigators wanted subpoenas to document the most important aspects 
of the case that they wanted to bring. And according to the 
investigators, the RTC's lawyers never responded to the requests of the 
investigators for the subpoenas and they wound up closing the case on 
San Antonio Savings, no subpoenas were issued, no funds were recovered.
  To give the Senate and the public a better idea of the stakes 
involved, Mr. President, and of the kinds of losses involved, I wish to 
just mention a couple of these savings and loans involved.
  The whistleblowers identified to us one institution, Meridian Savings 
& Loan of Arlington, TX. Meridian was an S&L smaller than Madison 
Guaranty in Little Rock, AR. Meridian actually managed to lose $455 
million on a base of $51 million. In other words, Mr. President, 
Meridian lost 892 percent of its assets--892 percent of its assets. It 
lost almost nine times its assets--a staggering statistic--which 
suggests at least a minimum question of whether or not someone involved 
with the management or oversight was at least negligent. Yet the 
Government issued just three subpoenas in conjunction with Meridian, 
compared with 160 issued with respect to Whitewater. And those 
subpoenas that were issued, the three were in a subsidiary 
investigation of attorney malpractice, not against any of the officers 
or the directors. Not a penny was recovered from one of the officers or 
directors.
  According to RTC investigators in Texas, the failure was not the RTC 
investigators' fault. The RTC investigators recommended issuing 
subpoenas. They say they wanted subpoenas. But they say their superiors 
in Washington did not want subpoenas, and so the subpoenas were not 
issued and the investigations were not adequately made.
  Then there is the Gill Savings & Loan of San Antonio, the 10th 
largest savings and loan failure in the United States. It had almost $1 
billion in assets, but according to the RTC it lost over $1.4 billion, 
or $400 million more than it had in assets.
  How much money does that represent? Well, the equivalent of the 
annual budget of the entire Federal Bureau of Investigation was lost. 
That is a lot of money. But despite losing the entire budget of the 
Federal Bureau of Investigation, the RTC has not filed suit to recover 
one penny from an insider, an officer or a director.
  Now, some might assert that that is because there was no claim that 
could be made against anyone connected to Gill. Well, maybe that is 
true. Maybe there was no claim. But Gill was the subject of a criminal 
case which the Government lost, after it was thrown out by a judge who 
said the Government had not come close to proving its criminal case. 
And it is true that a lot of information was certainly developed by the 
Government about Gill from a warehouse of files that were subpoenaed in 
the criminal case.
  Maybe--just maybe--there was no civil case to be made, Mr. President, 
but that is not the point. The point is that the investigators of the 
RTC themselves are saying that there are serious questions about how 
the case was handled and about why there was not an initial 
investigation into the matter.
  According to them, an internal audit of the investigations regarding 
Gill showed that case reviews were written supporting negligence claims 
by the RTC, which were delivered to the public liabilities counsel in 
Washington. But despite the fact they argued in favor of bringing the 
case, no case was brought.
  The RTC investigators say that the documents advocating the bringing 
of the lawsuit in the Gill case were then lost by the Washington staff, 
lost and did not resurface. They say that the RTC in Washington took 
the position that the case files were never sent to Washington at all, 
since the RTC in Washington had no record of them. They then say that 
the copies of the cases were not maintained by the investigative staff 
in Texas either.
  So what is the end result? There are no records at all about one of 
the largest of the losses in the savings and loan industry.
  I cannot personally verify this charge. I do not have the ability to 
do that personally. But I do know that these are the kinds of 
allegations that raise enormous doubts about the capacity of the RTC to 
turn to the American people and say that they have done this in a 
responsible and accountable manner.
  I ask my colleagues where the RTC's policy of withholding documents 
regarding closed cases leaves this institution in terms of its ability 
to conduct oversight? What does it say about the state of 
accountability of this enormous agency that we specifically charged 
with accounting to the American people for the money trail?
  Mr. President, the scandal regarding the RTC's handling of cases in 
Texas alleged by the RTC's own investigators is really worse than 
anything that I think we have heard with regard to any of the other 
public discussions of S&L's thus far. The problem began an 
administration ago but they continue today. I believe that even today 
far too little is being done to change the direction of the problem. 
Instead many of the very people who conducted the policies or made the 
policies that led to this catastrophe in the first place are still in 
place. Unfortunately, they continue to engage in what the investigators 
themselves say is an inadequate process of accountability.
  I would turn my colleagues' attention to University Savings of 
Houston. This was the second largest savings and loan failure in the 
United States. Its failure cost the taxpayers $2.4 billion, or 93 
percent of the assets of this savings and loan. How many subpoenas did 
the RTC issue to determine whether bad acts by officers or directors 
contributed to University Savings' $2.4 billion in losses? According to 
all available information that we have been able to accrue, not one 
subpoena, Mr. President, not one subpoena to find out what happened to 
93 percent of the assets of a $2.4 billion savings and loan. How much 
money was recovered by the RTC to date from the insiders, officers, and 
directors who handled University Savings and permitted it to lose $2.4 
billion? So far, Mr. President, not 1 penny, $2.4 billion lost, not one 
subpoena, not 1 penny recovered.
  It is possible truly to go on and on. The Security Federal Savings of 
Texarkana lost nearly $500 million, more than 200 percent of its 
assets; no subpoena issued; not a penny recovered from officers or 
directors;
  Universal Savings of Houston; this thrift lost more than $250 
million, more than 200 percent of its assets; no subpoena issued; not a 
penny in recovery from the officers or directors;
  First South Savings of Port Neches, TX; $.5 billion in taxpayer 
losses; some 167 percent of its assets; not one subpoena and no 
recoveries.
  A member of the Dallas RTC legal department wrote to me this week to 
report the following. Let me quote. This is from an investigator in the 
Dallas RTC legal office:

       The laxness in pursuing cases borders on criminal 
     negligence; the obfuscation when asked to produce records or 
     respond to inquiries, [and] the attempts to quiet criticism 
     by issuing gag orders * * * all are incidents which I have 
     witnessed.
       Many statutes of limitations have run on cases that should 
     have been better handled * * * One of the attorney's 
     caseloads is so light that he spends the day reading a novel 
     hidden behind a legal journal * * *. Three attorneys and five 
     paralegals have left the RTC in recent months because of 
     their absolute disgust * * * the degree of intimidation to 
     which employees are subjected should never be tolerated, yet 
     management seemingly operates with impunity accountable to no 
     one.

  Mr. President, that is really an extraordinary statement coming from 
one of the legal investigators.
  This whistleblower advised me that the American taxpayers had 
sustained what is in the whistleblower's words ``staggering losses'' 
because of the ``shoddy'' methods used in the operation of the PLS 
program in Dallas. The whistleblower concludes:

       Just as tragic is the loss of the integrity and dedication 
     of the many honest, hard-working employees who have fallen 
     victim to the petty, abusive tactics of a management now 
     caught in its shortcomings and which exerts all its time and 
     energy in trying to bury the evidence and punish employees 
     who have dared to voice concern when they witness such 
     obvious wrong-doing.
       It is obvious that local [RTC] management, as well as their 
     superiors on the highest levels, have a great deal to lose if 
     you continue to investigate the real basis for the Texas S&L 
     scandal.

  These kinds of allegations from current Government employees suggest 
that we have a very grave situation in Texas in connection with the S&L 
cleanup.
  They raise the question as to whether the RTC took a dive in these 
cases in 1992 because important people in Texas did not want to be 
sued, or did not want their friends to be sued, and they had the 
political clout with the RTC to make sure that outcome was achieved. 
They raise the question that if this took place then, others may still 
be trying to hide what happened in 1994.
  Still other investigators say that some cases that were brought by 
the RTC which the Agency lost were lost because the cases were brought 
despite the fact that the RTC hadn't permitted its staff to properly 
investigate them first. So while real wrongdoers are escaping 
liability, some of those who have been sued have had to spend fortunes 
defending themselves against cases that weren't properly investigated 
and therefore should not have been brought. And when this happens, not 
only is injustice created to the individuals involved, but the 
Government spends a lot of money and recovers nothing.
  Proper investigations are key to making decent cases. So when the 
investigators say they are being prevented from conducting proper 
investigations, this suggests a failing at the RTC which is 
fundamental.
  I do not know that Presidential politics lead to what took place in 
1992. I hope it didn't. It is possible that the failure to recover 
taxpayer funds in Texas is a result of incompetence at the RTC, and not 
outright wrongdoing. But I do know that the U.S. Treasury is taking a 
bath As a result of the outcome, and I know that I can't get to the 
bottom of it so long as the RTC continues to prevent me from obtaining 
the necessary documents to determine what happened.

  The record will show that we have been trying for months to obtain 
from RTC the underlying documents, including the witness interviews, 
that would enable the Senate to reach an independent judgment about 
what went wrong in Texas. So far, the RTC has stonewalled us, claiming 
the Congress has no right to see the information we have requested.
  The RTC has also refused to provide us information on closed cases. 
We sought to find out why the Government had not recovered a penny from 
insiders on some savings and loans with staggering losses, often 
amounting to many times the thrift's entire assets.
  The RTC's response was that if it provided the information, it would 
be unfair to people who they didn't sue, by raising the question of 
whether they should have been sued. Accordingly, they told the Senate 
in effect to ``go take a hike'' with our questions.
  Putting it all together, the RTC's handling of cases against S&L 
insiders over two administrations, one Republican, one Democratic, 
appears to constitute a far broader scandal than anything we have seen 
to date in connection with Whitewater.
  If one looks only at the worst 50 savings and loans in Texas, those 
with a high loss ratio, low recoveries, and few subpoenas, we see 
institutions with total assets at closing of over $12 billion and total 
losses to the taxpayers of more than $11.7 billion.
  The $11.7 billion in losses is an astonishing figure. It exceeds the 
combined 1992 earnings of 19 of the 30 Dow Jones Industrial companies, 
including Boeing, J.P. Morgan, Texaco, Eastman Kodak, Dupont, 
McDonalds, Disney, Allied Signal, American Express, Goodyear, 
Westinghouse, Woolworth, Caterpillar, Bethlemhem Steel, ALCOA, 
International Paper, Union Carbide, United Technologies, and Minnesota 
Mining and Manufacturing, plus Ford Motor and Chrysler.
  The loss ratio on these fifty S&Ls is 95 percent. The RTC will only 
net a nickel for every dollar on the sale of the assets of these 
thrifts, with the taxpayers paying the remaining 95 cents.
  The RTC issued a total of 27 subpoenas over a 5-year period 
investigating the forgotten 50. That is less than one-fifth the 
subpoenas Robert Fiske has issued in 4 months in connection with the 
failure of just 1 S&L, Madison, whose losses amount to less than \1/2\ 
of 1 percent of the 50 S&Ls involved here.
  As of March 15, 1994, the RTC had recovered $42,000 from the S&L 
insiders who ran these 50 Texas savings and loans into the ground. That 
amounts to about 30 minutes interest on the cost of these 50 failed 
thrifts--interest the taxpayers will likely pay forever.
  As President Bush's Commission on Financial Institution Reform, 
Recovery and Enforcement found in its report on the origins and causes 
of the S&L debacle:

       The situation was most out of control in Texas, which 
     became the breeding ground for imprudent and abusive 
     practices. The S&L's it chartered where allowed to engage in 
     high-risk activities virtually without limit, and supervision 
     and examination were essentially nonexistent for several 
     years. It was no accident that over 40 percent of all 
     taxpayer losses came from Texas S&Ls.

  That is why Texas was responsible for more than 57 percent of the 
losses connected to criminal referrals made in connection with RTC 
losses--losses amounting to more than $2 billion lost to pure fraud and 
looting.
  Yet despite having 57 percent of all the S&L insider criminal fraud 
amounting to over $2 billion, the RTC has only recovered $11 million 
from Texas insiders as of the end of March.
  In conclusion, Mr. President, if you believe the RTC's own 
investigators, the handling of S&L recovering in Texas by the RTC has 
constituted a second looting of the Treasury, following the initial 
looting which took place in the S&L debacle itself.
  The RTC's own investigators have written me and called my office to 
tell us that the real S&L scandal is not in Arkansas, but in Texas. I 
have struggled to get the RTC and the administration to recognize this 
and to respond appropriately. I regret that to date, my efforts appear 
to have failed, and too many of the people who have shared information 
with me and my office have suffered retaliation at the hands of RTC's 
management.
  The biggest mistake this institution has made in a long time was in 
agreeing to fund the RTC's continued operations last year without 
insisting on comprehensive changes in its management and management 
structure first. What we received instead were promises of change, and 
legislative changes that mandated solutions, without guaranteeing that 
the RTC would actually implement the mandates.
  In the case of Texas' liability recoveries at least, the promises of 
reform were not fulfilled. It is the taxpayers, as well as those at the 
RTC who want to do the job they were hired for, who have taken it on 
the chin.
  In the days to come I would hope others in this institution would 
join with me in attempting to get answers on the billions in lost 
dollars at the RTC in Texas from those whose wrongdoing contributed to 
the S&L debacle, despite the continued frustrations we face in dealing 
with the RTC, we must continue to try to force the RTC to do a better 
job in recovering money for the taxpayers in its remaining months of 
existence.
  Mr. President, I thank the distinguished chairman for letting me use 
this quorum call. I would simply say to my colleagues that there is an 
extraordinary story of lack of accountability and a major issue that we 
ought to consider if we are going to spend the kind of time that we 
have been spending with respect to other savings and loans.
  Mr. BOND. Would the Senator yield for a question?
  Mr. KERRY. I am happy to yield for a question.
  Mr. BOND. Mr. President, I commend my colleague from Massachusetts. I 
had left with him yesterday a letter suggesting we jointly request the 
Banking Committee to hold hearings on what went on in Texas. I would 
just ask if my colleague agrees with me that we should have hearings in 
the Banking Committee on this matter which he has laid out so fully and 
eloquently today.
  Mr. KERRY. Let me say to my friend that I have joined in signing a 
letter. I talked to the chairman previously. We have very few 
resources, as he well knows. But my hope is we would be able to pursue 
this. The American people deserve to have answers.
  Mr. BOND. I agree with my colleague. I thank him.

                          ____________________