What types of sales tactics were used?
ACC bond representatives and Lincoln branch managers and
tellers engaged in a program of "cross-selling the bonds.
As part of the cross-selling program, the bond
representatives and Lincoln caployees publicized the bonds
within Lincoln branches. They placed brochures and posters
at various locations throughout the branches, including on
the teller lines or counters and in the branch windows. In
addition, on at least one occasion, they printed pronotional
information concerning the bonds on Lincoln monthly checking
account statements. The bond representatives and Lincoln
anployees solicited Lincoln customers to purchase the bonds
by making telephone and nail solicitations to Lincoln
customers who held caturing CDs and to new Lincoln
customers. Some Lincoln customers received letters
soliciting bond purchases on Lincoln stationery. To
encourage cross-selling. ACC and Lincoln operated a bonus
program whereby the bond representatives and Lincoln branch
employees received bonuses if the branch net a predetermined
sales quota.
Were the Bonds confused with CD8?
The practice of cross-selling risled some bond purchasers to
believe that the bonds were instruments of Lincoln or were
otherwise

insured by the FDIC. Bond representatives and
Lincoln anployees made false and sisleading representations
which coulā bave led bond purchasers to confuse the bonds
with CDs. Specifically, the bond representatives and
Lincoln employees falsely represented that the bonds vere
insured or were as safe as CDe; that the bonds were sate,
riskless or low risk; and that the bonds were secured or
otherwise backed by the assets of Lincoln and/or ACC.
Was ACC's payment of bonuses illegal?
Although the bonuses vere not per se illegal under the
securities laws, the prospectus specifically represented
that the bonds would be sold only by acc employees and that
they would not receive compensation based on sales.
addition, as a consequence of the bonus payments, ACC,
Lincoln and the employees involved in the sales were not
eligible for an exemption from the broker-dealer
registration requirement.
What were investors told about the risk involved with
purchasing bonds?
The bond representatives and Lincoln employees falsely told
custoners that the bonds were insured or were as safe as
CDs; that the bonds were sate, riskless or low risk; and
that the bonds were secured or otherwise backed by the
assets of Lincoln and/or ACC.

7.

8.

9.

Were other false or misleading statements made during the offer and sale of the notes?

ACC provided to investors and the public false and
nisleading financial statenents which materially overstated
its earnings by approximately $120 million over a three and
one-half year period. In addition, ACC made false and
inadequate disclosures in ACC's filings with the commission
about Acc's liquidity, cash flow, related party transactions
and due diligence procedures.
Did the prospectus disclose that the bonds were not insured
by the FDIC?

10.

Yes. The prospectus stated on the front cover that the
bonds were not insured by the FDIC.

11.

Against whom did the commission file suit in this matter?
On December 12, 1991, the connission filed a civil
injunctive action against:
Charles Keating Jbe, torner Chairman and President of Acc.
Charles Keating III, forner Executive Vice President of ACC
and chairman of the Board of Lincoln.
Judy Wischer. former President and Chief Operating officer
of ACC, and former Chairman of the Board, Chief Executive
officer, and President of Lincoln.
Andrew Ligget, former Chief Financial Officer of ACC and
director of Lincoln.

Robert kielty, former Senior Vice President, Secretary and
General Counsel of ACC and director of Lincoln.
Robert Wurzelbacher. Jr., forner Senior Vice President and
director of ACC.

Jack Atchison, former Senior Vice President of ACC.

James Upchurch, ACC employee.
Mark Sauter, former in-house attorney for ACC.
David Paul, former Chairman and Chief Executive officer of
Centrust savings Bank, a savings and loan institution that
was based in Miami, Florida.
Defendants wischer, Ligget, wurzelbacher, Sauter and Paul,
without adnitting or denying the allegations in the
complaint, have consented to the entry of permanent

injunctions against future violations of certain provisions of the federal securities laws.

In separate actions, the commission filed settled injunctive
actions against four other former officers of Lincoln and
ACC, Bruce Dickson, Ray Pidel, Robin Symes, and Dariush
Razavi, and a former business associate of Keating Jr.,
Ernest Garcia II.

12.

What are the lessons to be learned from the sale of ACC
debentures at Lincoln?

The first lesson to be learned is that the sale of uninsured securities to customers of financial institutions creates a situation that is fraught with risk. Despite the best of disclosures and the cleanest of salas practices, financial institution customers have a sense of safety and security that is inextricably linked to the institution, and may be extraely difficult to break. Therefore, if such sales are allowed to take place, they must be subject to the utmost care so that even the best-intentioned issuer or sales statt does not inadvertently reinforce this linkage or simply fail to disabuse the customer of his or her predisposition to believe that anything offered by or at the financial institution is safe.

The second lesson to be learned is that marketing plans that
look reasonable and fair on paper may not be so in
application. ACC represented to regulators that it had a
strong wall in place -- literally as well as figuratively,
in bone instances to isolate the debenture sales from the
operations of the savings and loan. In reality, the wall
barely existed, and was frequently breached. Any
involvement of the financial institution or its personnel,
even the placanent of marketing materials or the simple
referral of customers to the securities salesperson, can
easily lead to misunderstanding on the part of customers.
Lincoln may be the extreme example of lack of restraint, but
even lesser breaches of the wall can have unfortunate
effects.

The third lesson is that incentives to financial institution personnel to "cross-sell" securities multiplies the risk. This lesson is not limited to payment of commissions or financial compensation tied airectly to particular sales or sales goals. Any recognition of cross-selling or Barketing efforts on the part of tellers or other personnel, or even a generalized beliet on their part that their careers will be enhanced by helping to market securities can tempt the financial institution employees, who are not trained in the sale of securities or suitability requirements, to step over the line to the potential detriment of their customers.

Mr. DINGELL. The Chair announces that our third panel is Ms. Denise Voigt Crawford, Securities Commissioner for the State of Texas, and Chair of the Banks Securities Activities Committee of the North American Securities Administration Association from Arlington, Virginia, and Ms. Lena Archuleta, a member of the Board of Directors of the American Association of Retired Persons.

They will be accompanied by Ms. Diane Colasanto, and Mr. Chris Lewis. Ms. Colasanto is President, Princeton Survey Research Associates in Princeton, New Jersey, and Mr. Lewis, Director of Banking and Housing Policy, Consumer Federation of America, Washington, D.C.

Ladies and gentlemen, thank you for being with us today. We regret that we have kept you waiting here so long. But we know that you appreciate the fact that we have to go through a certain amount of time before we complete our business with any of the panels.

We certainly want you to know that we feel that your testimony is very important. We want to hear it with the same concern that we have listened to our witnesses this morning.

Having said that, ladies and gentlemen, you are aware of the fact that it is the practice of the committee that the committee testify under oath. Do any of you object to testifying under oath?

(Chorus of nos.]

Mr. DINGELL. The Chair advises that you are entitled that if you testify under oath, to be advised by counsel. Do any of you desire to be so adv

Chorus of nos.]

Mr. DINGELL. The Chair advises that copies of the rules of the committee, rules of the subcommittee, rules of the House are there to advise you on your rights as you appear here and also the limitations on the powers of the subcommittee.

If you then have no objection to testifying under oath, would you each please rise and raise your right hand.

[Witnesses sworn.]

Mr. DINGELL. You may each consider yourself under oath. We will hear from you commencing first with Ms. Crawford, then Ms. Archuleta, and then finally Ms. Colasanto and Mr. Lewis in that order.

You may proceed with the thanks and the appreciation of the committee. TESTIMONY OF DENISE VOIGT CRAWFORD, CHAIR, BANKS

SECURITIES ACTIVITIES COMMITTEE, NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION; LENA ARCHULETA, MEMBER, BOARD OF DIRECTORS, AMERICAN ASSOCIATION OF RETIRED PERSONS, ACCOMPANIED BY DIANE COLASANTO, PRESIDENT, PRINCETON SURVEY RESEARCH ASSOCIATION; AND CHRIS LEWIS, DIRECTOR OF BANKING AND HOUSING POLICY, CONSUMER FEDERATION OF AMERICA

Ms. CRAWFORD. Mr. Chairman, good afternoon. I am the Texas Securities Commissioner. My name is Denise Crawford.

I am here today on behalf of the North American Securities Administrators Association, which for short is known as NASAA. In the United States, NASAA is the National Association of the 50 States' securities regulatory agencies around the Nation.

I very much appreciate the opportunity to appear before the subcommittee to comment on the very serious consumer protection issues that arise from the sale of uninsured investment products on banks premises.

Today, State security regulators across the country are reporting mounting evidence of consumer confusion about the lack of insurance coverage and the risk and fees associated with the sale of uninsured products sold at banks.

An informal look by several States of what is actually going on in bank lobbies makes it very clear why consumers are so confused. The market place is sending them a bewildering array of mixed, garbled, and misleading messages.

Among the problems uncovered by States of the banks were a blurring of the distinction between traditional bank activities and the sale of uninsured products, inadequate or misleading disclosure about FDIC and SIPC insurance coverage, and finally a serious gap in the consumer protection available to those who purchase securities on bank premises.

A more comprehensive look at the ramifications of this issue on the individual level may be found in the National Opinion Survey released in January by NASAA and the AARP. What this survey revealed was that fewer than one in five bank customers knows that mutual funds and annuities are not insured by the FDIC.

That survey also found that a substantial number of Americans are unsure about the risks involved in such investments sold at banks. They are not questioned about the appropriateness of these investments for their needs, and they are unaware of where to turn for regulatory help in the event they have a problem with an uninsured investment product purchased at a bank.

We know what happened with the outpouring of consumer panic and distrust in the wake of 1987's Black Monday. At that time most of the backlash was focused against brokerage firms and investment companies.

Now banks have opened themselves up to the same reaction from the public. As a result, this is more than just a matter of concern for the consumer. This is something that has the potential to emerge down the road as a real test of the public's perception of the safety and soundness of banks.

NASAĂ has made available at no cost to the public a consumer tip sheet that is designed for bank customers contemplating the purchase of an investment product. This simple English document sets out the facts about the issues where the NASAAJAARP survey shows that bank customers are most confused. I have a copy of this tip sheet with me today and would ask that it be made a part of the hearing record.

Clearly the time has come for Federal legislation to comprehensively address the issues of securities activities conducted on bank premises and the safeguards that are needed to protect investors. It is abundantly clear that banks already are in the securities business in a major way.

The proposed Mellon-Dreyfus merger serves to underscore and bring into focus the concerns expressed by NASAA and its mem