WASHINGTON - Thrift regulators are dismissing the American Bar Association's complaints about rough treatment of savings and loan lawyers.
The Office of Thrift Supervision suggested that the lawyers' group is the one that should be doing the soul searching. It was the agency's first formal response to the ABA.
The lawyers "should be doing some self-regulation, not complaining that the banking agencies were trying to enforce banking laws," the OTS' acting chief counsel, Carolyn B. Lieberman, said in an interview Monday.
In a recent speech at the ABA's 115th annual meeting, held in New York, she said the lawyers' group should consider "the extent to which lawyers representing thrift institutions failed to adhere to professional standards and what the profession's response to those failures should be."
Improper Assistance
"While the great majority of banking and thrift lawyers have represented their clients responsibly and professionally, much of the serious wrongdoing that occurred in the savings and loan industry could not have happened without the improper assistance of lawyers," Ms. Lieberman said in the speech.
In January, an ABA working group drafted a report called, "Laborers in Different Vineyards? The Banking Regulators and the Legal Profession." The report criticized enforcement powers that regulators applied against law firms representing depository institutions.
The ABA report was triggered by the OTS' action against the New York law firm of Kaye, Scholer, Fierman, Hays and Handler, which agreed to pay $41 million to settle charges involving its work for Charles Keating's Lincoln Savings and Loan Association.
The ABA paper argued that legislation is needed to prevent regulators from issuing asset preservation orders without a judicial proceeding and to force banking agencies to use the court system instead of cease-and-desist orders to secure monetary damages.
But the OTS disagreed: "Congress quite clearly intended that the banking agencies have the power to preserve respondents' assets," Ms. Lieberman told the ABA. Monetary recoveries by the OTS "are available only in the event of the commission of unsafe or unsound practices or of violations of a law, rule, or regulation" or other enforcement actions.
For that reason, "remedying such acts is inextricably related to the government's regulation of banks and thrifts," she said.
The OTS addressed other points brought up in the ABA paper, such as the responsibility of law firms to disclose information about their clients to regulators, and what responsibilities attorneys have to notify an institution's top officers of problems.
"Institutions have a number of disclosure obligations to federal banking regulators," Ms. Lieberman said. "These disclosure obligations are not reduced because the institution is represented by counsel."
"It should be understood that breaches of fiduciary duty have long been considered unsafe and unsound practices and can cause significant harm to a thrift institution and its shareholders and depositors," Ms. Lieberman said. "We seriously doubt whether failure to seek correction of what a lawyer knows to be a fiduciary breach could ever be in the best interests of the organizations."
