Columbia S&L;’s Spiegel Might Be Forced to Put $21 Million in Escrow

Former Columbia Savings Chief Executive Thomas Spiegel may have to place $21 million in escrow while awaiting a hearing on charges that he wasted the thrift’s assets, according to a federal appeals court ruling Tuesday.

But the two-paragraph ruling by the U.S. 9th Circuit Court of Appeals--striking down a lower court ruling--left unclear whether Spiegel must post the entire amount. His lawyers said they will file a motion today seeking a clarification.

Separately, Columbia disclosed that it lost $136.5 million in the second quarter, plunging the Beverly Hills-based thrift deeper into insolvency. Columbia now has a negative net worth of $352.2 million, and most industry experts believe that it will eventually be seized by regulators.

The appeals case stems from a civil complaint filed by the federal Office of Thrift Supervision that accuses Spiegel of squandering $19 million of Columbia’s assets on numerous items, including corporate jets, condominiums and concert tickets.

The agency, which regulates savings and loans, wants to force Spiegel to reimburse Columbia for the $19 million and is also seeking to levy a $5-million fine. It also wants Spiegel to put the $19 million in an escrow account now, along with an additional $2.3 million to cover potential losses on condominiums Columbia is selling.

U.S. District Judge Stephen V. Wilson in Los Angeles ruled Aug. 3 that Spiegel does not have to place the money into the escrow account, saying that to do so before his case is heard would violate his constitutional rights.

OTS lawyers said on Tuesday that they believe Spiegel will now have to post the money because of the appeals court ruling. But Dan Marmalefsky, one of Spiegel’s lawyers, said the ruling is open to several interpretations.

He said the ruling could mean either that Spiegel will be forced to post the entire amount, a $1-million bond required by a temporary order issued earlier by Judge Wilson, or nothing at all.

Whether Spiegel has $21 million is open to debate. OTS officials contend that he does. But his lawyers suggest that he doesn’t, and that he may seek bankruptcy protection if ordered to put the money into escrow.

Columbia’s latest quarterly deficit brings its losses to more than $1 billion over the past year and $429.9 million in the first half of this year.

The only good news was that the quarterly loss was narrower than previous ones. In addition, Columbia said the steep slide in the market value for its risky, high-yield junk bonds stopped in the quarter. The junk bonds have been the main cause of Columbia’s losses.

Columbia said its latest loss was caused by four factors: $88.5 million set aside to cover further losses in its junk bond holdings; an additional $65 million in losses on its troubled Orange County office and hotel properties; a $29.2-million loss on its new headquarters building in Beverly Hills, and $21 million in losses related to mortgage-backed securities.

Columbia officials could not be reached for clarification.

As previously reported, Columbia has agreed to sell its junk bond portfolio for $3 billion to a partnership led by Gordon Investment Corp. in Toronto. The sale of the junk bonds, along with the sale of some other rare, potentially valuable securities, could help bring Columbia back close to solvency. But not far enough, most experts agree, to save it.

But the deal must be approved by regulators, and withstand possible criticism from members of Congress. Critics have noted that Columbia still carries risk in the transaction because the Gordon group has made only a 10% down payment, with Columbia receiving a note for the rest. Critics argue that the Gorden group could default and walk away from the deal, forcing the bonds back into Columbia’s hands.