How to win friends and influence regulators; the delayed closing of Lincoln Savings cost the taxpayers $1 billion

National Review, March 19, 1990 by James Ring Adams

Dochow gave overall control of the examination to J. Stephen Scott, a protege from the Seattle District. Three other examiners in charge (EICs) from other districts handled specific parts of the project. Of these, three drew heavy criticism for their performance. The EIC for "asset classification," judging whether loans were good or not, questioned only $15 million in a portfolio that later was found to contain $900 million in problem assets. Two of Dochow's assistants eventually had to fly to Phoenix to tell him to shape up.

But the heaviest opprobrium fell on Mr. Scott. The most dramatic session in last fall's Gonzalez hearings on Lincoln came when a panel of rank-and-file examiners rose to accuse their superiors of misconduct. Mr. Scott was a primary target. In the course of the exam, said one witness, he seemed to be a "cheerleader" for Lincoln. Scott came to Washington for the hearings but wasn't subpoenaed and declined to talk voluntarily on the advice of his lawyer.

Scott is talking to a lot of lawyers. He is being sued in an unrelated case, along with others from the Seattle District, by an examiner for allegedly trying to cover up her findings. Lisa Walleri of Beaverton, Oregon, says she was wrongfully dismissed as an EIC after resisting an attempt by Scott and his superiors to delete sections of her report; her findings, the case implies, were embarrassing for an experimental thrift bailout organized by the Seattle Home Loan Bank.

FROM THE BEGINNING, an atmosphere close to paranoia engulfed the rank and file of the ORA exam team, now called, none too happily, the "13th District." The fears of a "whitewash" began in the pre-exam orientation sessions in Phoenix, when Scott warned the staff not to discuss Lincoln with people in their home districts. The examiners took precautions. "We found that examiners were keeping personal logs," reports a horrified Kevin T. O'Connell, project supervisor under Dochow, "that's what they do when they think something's wrong." In at least one case, an examiner was trying to forward work papers to a trusted official at the Bank Board through another district office. Dochow himself acknowledges the oppressive atmosphere, saying it came from failures in communication among staff drawn from nine different districts.

A turning point finally occurred by all accounts when California Commissioner of Savings and Loans William Crawford told the Feds in August that he sensed something fishy in Lincoln's "tax-sharing" arrangement with its holding company, American Continental Corporation. Dochow's assistants, O'Connell and Alvin Smuzynski, who emerged as the strong men of the exam, in late August flew in for a meeting with the four EICs and a handful of staff. Dochow himself says this put the examination "back on the right course"--two months into it--by stressing that they "must provide an accurate and defensible report on the current condition of Lincoln--be it good, bad, or ugly." O'Connell says the dinner meeting helped end rank-and-file complaints, although at breakfast the following morning two examiners approached him privately. "Some examiners were very anxious to talk to someone from Washington," he recalls.