Regulator Rules Neil Bush Acted Improperly at S&L; : Thrifts: He says President’s son engaged in serious conflicts of interest and restricts future activities.

WASHINGTON —  In a stinging rebuke, the nation’s top thrift regulator said Thursday that Neil Bush engaged in serious conflicts of interest as a director of a defunct Colorado savings and loan and failed badly in his duty to demonstrate “candor and loyalty.”

The President’s son was ordered to cease and desist from engaging in conflicts of interest and to follow strict rules of conduct if he ever joins another S&L; as a manager or director.

T. Timothy Ryan Jr., director of the Office of Thrift Supervision, upheld an administrative law judge’s ruling that Bush behaved improperly as a director by keeping hidden his business dealings with major borrowers of Silverado Banking, Savings & Loan Assn. in Denver.

The ruling could provide major political ammunition if Democrats choose to aggressively attack the Administration over the S&L; bailout issue. Ryan, who issued the decision, served in the President’s election campaign in 1988 and was hand-picked for the regulatory job by Treasury Secretary Nicholas F. Brady, a close friend of the President.

Ryan said that Neil Bush “engaged in unsafe and unsound practices and breaches of his fiduciary duties involving multiple conflicts of interest.”

The President’s son can appeal Ryan’s ruling to the U.S. Court of Appeals.

“We’re going to make that decision in the next 30 days,” said James E. Nesland, Bush’s attorney in Denver. “It is not surprising that Ryan found in favor of his agency’s law judge. I believe if we appeal we will be successful.”

The White House said that it would have no comment on the decision.

Thursday’s action represented a major loss after a calculated gamble by the President’s son. In January, 1990, regulators offered Bush a chance to accept a settlement that would have amounted to a slap on the wrist--a simple promise to adhere to federal regulations on conflicts of interest.

But Bush’s insistence that he was blameless forced regulators to pursue the case, including four days of highly publicized hearings in Denver last September before OTS administrative law judge Daniel Davidson. The House Banking, Finance and Urban Affairs Committee also conducted hearings and Bush’s activities as a Silverado director became a high-profile national issue.

The ruling is not as threatening to Bush as a pending $200-million lawsuit filed against him and other Silverado directors by the Federal Deposit Insurance Corp. Unless the ruling is overturned by the courts, however, the President’s 35-year-old son will be inextricably linked in the public mind with the nation’s S&L; debacle.

Bush already has been “economically exhausted” by legal fees from the two cases, Nesland said.

The OTS, which supervises the nation’s thrifts, said that its action against the President’s son can provide a guidebook for proper behavior by thrift directors. The decision “sets a clear standard by which directors of federally insured depository institutions can determine appropriate conduct in potential conflict-of-interest cases,” the OTS said.

Bush was faulted for failing to tell the other Silverado directors of his intricate business ties with Kenneth M. Good and Bill Walters, two developers who were major borrowers at the S&L.; They defaulted on a total of $106 million in loans from the thrift.

Walters supplied $150,000 in start-up funds for Bush’s oil drilling firm, JNB Exploration, in 1983. Cherry Creek National Bank, where Walters was a major shareholder, furnished a $1.2-million line of credit to JNB Exploration.

Bush, who served on the Silverado board from August, 1985, to August, 1988, joined other Silverado directors in approving loans to Walters. But he “failed to disclose to the other directors his business relationships with Walters or his personal and business indebtedness” to Cherry Creek National Bank, controlled by Walters, according to the ruling.

He violated his obligation to demonstrate candor by keeping the connection to Walters secret and he owed a “duty of loyalty” not to vote on Silverado transactions with Walters, said OTS director Ryan.

Bush also kept confidential his relationship with Good, who provided him with a $100,000 loan in 1984. Good invested the money for Bush in a commodity futures speculation and the loan was to be repaid only if it generated profits. But the speculation lost money and Good canceled the debt. Bush conceded to a congressional committee that the transaction “sounds a little fishy.”

Bush’s failure to disclose “the full nature and extent of his relationship with Good” was a “significant conflict of interest,” Ryan said in his ruling.

While serving on the Silverado board, Bush helped arrange a $900,000 line of credit from Silverado for a drilling venture in Argentina in which he and Good were partners. But he did not fully reveal his interest in the drilling venture. Bush abstained from voting on the credit line and said that there was no conflict of interest because it was never used.

But Ryan said that Bush breached his responsibility as a director “by failing to make adequate disclosure of the nature of the proposed transaction and his interest in it.”

In 1986, the Silverado board, believing that Good was “a troubled borrower” who could not meet his obligations to the S&L;, agreed to release personal loan guarantees and collateral totaling $28 million in return for a $3-million cash payment. Bush abstained from voting on the debt relief for Good.

But the President’s son failed to tell the board that Good had agreed to provide a promissory note of as much as $5 million to Bush’s firm, JNB Exploration. Bush did not reveal that he would be more likely to get money for his business from Good if Silverado agreed to reduce Good’s debt obligations, Ryan said in his ruling.

Silverado, driven into insolvency by a large portfolio of failed real estate loans, was seized by federal regulators in December, 1988. Its clean-up will cost taxpayers an estimated $1.6 billion as the government makes good on deposits guaranteed up to $100,000.

Ryan’s order said that Bush must “cease and desist from any acts, omissions or practices involving any conflicts of interest, unsafe or unsound practices or breaches of fiduciary duties.”

If Bush ever again becomes connected with an S&L;, he must make annual disclosures of any personal business ties with borrowers at the S&L; and must abstain from voting on any proposals involving his business partners, the order said. He must also seek legal advice on his duties as a director.

The success and safety of a financial institution depends on its officers and directors, Ryan said in his decision.

“By their efforts, the institution operates; only through their diligence, loyalty, care and candor may it prosper,” he said. A “director’s adherence to his fiduciary duties must be an obligation keenly appreciated. . . . This is a case where a director failed to meet these standards.”