The 11 directors of a New Orleans thrift - all of whom had resigned from the board - were slapped with cease-and-desist orders along with a former senior manager. And one of the 11, a former president of the institution, was banned from the industry.
The Office of Thrift Supervision, which made the orders public last week, said the board members allowed unauthorized trading that resulted in large losses, and subsequent concealment of those losses.
The regulators meted out the punishments last year to the 11 former directors of Eureka Homestead Society and its former chief financial officer, Stephen S. Sovinsky.
Joe S. Dickson Jr. was banned from the industry and ordered to pay $29,300. He had been president of the thrift before the trading occurred. The former board chairman, Oscar M. Gwin Jr., was ordered to pay $54,900.
Paul D. Clayton, Eureka's president and chief executive at the time, was not named in the OTS orders - likely because the regulators have yet to complete investigating his role in the matter.
Most of the other directors of the 112-year-old thrift were also ordered to pay penalties and reimbursements to the bank for the losses suffered. The directors began resigning voluntarily in October 1993, when the trading was first discovered. The last director from that period resigned about a year ago.
As part of the consent orders, the individuals neither admitted nor denied guilt.
"We've lost a lot of S&Ls down here, so people are kind of immune to something like this, but this is sort of a unique case," said Dan Digby, president of the Louisiana League of Savings Institutions.
The case shows that even the most traditional community institutions are vulnerable to the charms of high-risk trading. It is believed that some of the trades were in derivatives, the instruments whose misuse has plagued numerous financial institutions this past year.
The orders also underscore the responsibilities boards of directors have in such matters.
The OTS found that from June 1990 through October 1993 the board failed in its fiduciary duties by allowing the trading to continue despite regulatory requests for corrective actions, and later by approving records that did not accurately reflect Eureka's performance. According to Sheshunoff Information Services, the $113 million-asset thrift lost $4 million in 1993.
Current Eureka officials said they could not divulge the extent of the trading or of the losses because of ongoing litigation against a handful of securities firms that did the actual trading for the thrift, they said.
"We are seeking to recover the losses from every avenue we can," said Stephen S. Johnson, who was named chief executive in the spring of 1994. "But the institution is still sound."