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RTC waives ethics rules for contractors

The Resolution Trust Corp., faced with a limited pool of outside talent to help clean up the savings and loan mess, has bent its ethics rules to do business with some companies. The RTC, the federal agency responsible for disposing of hundreds of collapsed S&Ls, is signing on about 1,000 new contractors a week and could soon rival the Defense Department as a lucrative source of government contracts.

At the same time, there is a limited number of outside companies, such as accounting firms, with the expertise the RTC needs. Because the $500-billion savings and loan scandal is so far-reaching, many of the companies with the know-how needed to resolve it have been touched by it in some way.

"All of a sudden you find yourself with very few horses in the corral that aren't lame in some way," said Caryl Austrian, a spokeswoman for the Federal Deposit Insurance Corp.

Another worry for the RTC is the potential for fraud by outside contractors. The agency said this summer that it planned to hire special employees to watch for possible corruption as it sells S&L assets. But the 20 to 30 "contractor cops" and their boss haven't been hired yet, said RTC spokeswoman Lezley Norris.

The RTC has bent its rules by granting conflict-of-interest waivers to 11 companies, from big accounting firms to mortgage companies and real estate brokerages, documents examined by the Associated Press show. Many of the companies are the objects of lawsuits that the RTC and the FDIC inherited from seized banks and S&Ls.

Seven more companies also have received waivers, but information on them is not yet publicly available, Kate Spears, another RTC spokeswoman, said Monday.

In granting the waivers, regulators decided that the lawsuits don't indicate a pattern of wrongdoing by the companies as a whole, only by some individuals. But the waivers also impose certain operating conditions on the companies designed to avoid future conflicts.

The waivers cleared the way for the RTC to award millions of dollars in

contracts to the companies, which are helping the agency evaluate and sell assets of the failed thrifts it has taken over.

The RTC's Contractors' Conflicts Committee has given waivers in all the cases of that type it has considered, Ms. Norris said.

Many of the companies receiving waivers are accounting firms. The accounting industry has been rocked by a merger wave in recent years that has reduced the number of big firms, which are often the most qualified to do complex S&L work.

Some accounting giants are targets of direct government suits alleging shoddy audit work for failed S&Ls and banks. These generally do not do contracting work for the RTC.

But other big accountants, named in suits filed by S&Ls and inherited by the government when it took over the thrifts, have been allowed to do business with the RTC through the waivers. Three _ Coopers & Lybrand, Grant Thornton and Laventhol & Horwath _ received waivers from the Contractors' Conflicts Committee in June and July.

In an effort to avoid future conflicts, the waivers require the companies to screen out employees involved in the litigation and prevent them from working on new RTC contracts.

Those conditions can be time-consuming and costly for the contractors, said Michael O'Neill, a partner in Coopers & Lybrand's Washington office.

"You have to know where everyone is and what they're doing," he said.

Other companies receiving waivers from the RTC are Cushman & Wakefield Inc., the nation's second-largest commercial real estate company; Kidder Peabody and Co., a major financial company; Verex Mortgage Corp.; and Flusche, Van Bevern & Kilgore.

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