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RTC Files Suit Against Nine Ex-Officials of Gibraltar Savings

October 2, 1992

LOS ANGELES (AP) _ The federal government has filed a $100 million damage suit against nine former directors and officials of the failed Gibraltar Savings, accusing them of steering the Simi Valley thrift into collapse.

The Resolution Trust Corp. lawsuit, filed Thursday in U.S. District Court here, accuses former Gibraltar Chief Executive Herbert J. Young, former President Jerome Nussbaum and other defendants of negligence in managing the thrift’s growth.

Also named in the suit is unsuccessful gubernatorial candidate Houston I. Flournoy.

The lawsuit says Gibraltar, part of Gibraltar Financial Corp., failed in 1989 because of aggressive investment in risky securities and ″cherry picking,″ in which operating losses were concealed on financial statements by listing high-yield assets but deferring unrealized losses.

The thrift had heavy losses in mortgage-backed securities, real estate investments and junk bonds.

The RTC, charged with mopping up the nation’s thrift disaster, said in the lawsuit that Gibraltar grew 22 percent a year between 1983 and 1987 but did not have ″appropriate internal procedures and controls.″

Gibraltar’s failure is expected to cost $988.6 million, making it one of the most expensive thrift failures.

Officers sued include Young, Nussbaum, Flournoy, James N. Thayer (who served as chief executive after Young), and former Chief Financial Officer John R. Williamson.

Also sued were former directors Robert R. Sprauge, Rafael E. Vega, Melvin P. Spitz and Bernice H. Hutter.

Martin Washton, a Los Angeles attorney representing Flournoy and the other former outside directors, said his clients said they were not liable for the collapse. Nussbaum’s lawyer had no comment and other defendants’ attorneys could not be reached for comment.

Flournoy was the Republican candidate for governor in 1974. He lost a close race to former Gov. Jerry Brown. From 1967 to 1974, he served as the state’s controller.

The savings and loan bailout is expected to cost the taxpayers $160 billion, according to a June estimate by Treasury Secretary Nicholas F. Brady.

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