The federal government has filed a $1.2 billion fraud and racketeering lawsuit against a failed thrift, the brothers who ran it and nearly 50 other officers and associates of the business.
The Resolution Trust Corp. filed the action in federal court on Saturday, one day before the three-year statute of limitations for suing Western Savings and Loan Association ran out.The government seized Western Savings on June 14, 1989, at an estimated $1.7 billion cost to taxpayers.
The lawsuit alleges Western officials arranged sham sales of real estate held by the thrift to create the appearance of profits, hide losses and get around regulations that limit how much real estate an S&L could hold directly.
The lawsuit seeks $200 million in damages and asks that amount be tripled, as allowed under federal racketeering law. It also seeks $200 million for negligence.
The federal agency, responsible for disposing of the assets of failed S&Ls, also seeks $245 million in damages from some past and present partners of a law firm that represented Western.
Defendants include the thrift's president, Gary Driggs, and his brother, John Driggs, the thrift's chairman.
Western was founded in 1929 by Gary and John Driggs' father and grandfather. The brothers controlled the thrift for two decades and built it into the state's second-largest before they were forced out by federal regulators in 1988.
The lawsuit accuses Gary and John Driggs of acceptingd unreasonable salaries of more than $300,000 each in 1988, a year when Western lost more than $200 million.
Mike Hawkins, an attorney for the brothers, denied they did anything wrong. He said Western Savings "was not a high-flying S&L that arose after deregulation. It was run by two or three generations of one family that always got along with federal regulators."