Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, July 22, 1990                   TAG: 9007220026
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A-2   EDITION: METRO 
SOURCE: The New York Times
DATELINE: WASHINGTON                                LENGTH: Medium

DUPING CLAIMED IN BAD S&L DEAL

The businessman, James M. Fail of Phoenix, is under investigation by a Senate subcommittee that is studying how he acquired 15 insolvent Texas savings and loans, using $70 million in borrowed money and a personal investment of $1,000.

Sen. Howard M. Metzenbaum, D-Ohio, who is leading the Senate inquiry, has called that deal with the defunct Federal Home Loan Bank Board an "abomination, the worst case" to emerge from the savings-and-loan scandal.

Previously undisclosed details on the sale of the Oklahoma bank, obtained from records and in interviews with participants in the deal, show that Fail and his lobbyist, Robert J. Thompson, received unusually swift and favorable treatment from another regulatory agency, Federal Deposit Insurance Corp.

Senior FDIC officials acknowledged that the agency had erred in approving Fail so quickly. The FDIC's chairman, L. William Seidman, said in an interview that the agency should have deferred action or chosen a second bidder.

"We didn't stick strictly to the rules; he slipped through," Seidman said. "He duped us."

Seidman also said that he did not know why the agency's screening process broke down and that his dealings with Thompson, including a few phone calls and a meeting with the lobbyist and his potential investors, were routine.

Fail and Thompson declined to be interviewed. A spokesman for both men, Lance Morgan, said Thompson arranged an introductory meeting in January 1987 between Fail and Seidman, at which there was a general discussion of acquiring troubled banks.

The disclosure of Fail's deal with the FDIC is one of the first to link the agency, which oversees commercial banking, to irregularities in its application process and the involvement of a politically connected lobbyist.

Critics of the Federal Home Loan Bank Board, which supervised the savings industry, have said political manipulation was commonplace there. In contrast, the FDIC and Seidman, its chairman since 1985, have a reputation for probity and sound financial judgment.

Last year, Congress established Resolution Trust Corp. to clean up the savings-and-loan disaster and Seidman was given the additional title of chairman of the trust corporation.

In both deals involving Fail, officials in Washington were unaware of or ignored the objections of local regulators who thought Fail's legal problems should disqualify him as a suitable buyer.

Fail, 64, was indicted in 1976 in Alabama on charges of securities fraud. The charges were dropped and Fail agreed not to conduct new business in the state. In the same case, his insurance company pleaded guilty to securities fraud, a felony.

One day after Fail submitted background and financial information that did not disclose his indictment but did mention the guilty plea by his company, the FDIC approved the sale, agency officials said.

The agency's background form, which officials tried unsuccessfully to get Fail to submit, asks specifically if the applicant has ever been indicted.

In seeking to explain why Seidman and the other FDIC board members approved Fail even though he had not filed the required form, Alan J. Whitney, the FDIC's spokesman, said Fail had filed other documents as a substitute, adding, "It is less likely in the future we'll accept alternate forms."