Not "Fail" safe.

• Author: Skertic, Mark
• Position: Allusion to Lifeshares Group Inc.'s James M. Fail and his decision to acquire Mutual Security Life Insurance Co.

Not "Fail" Safe

When James M. Fail's company came to Fort Wayne in 1987 and bought Mutual Security Life Insurance Co., the move seemed to be a positive one for all involved. Fail acquired an established insurance company that was going through some tough times. Mutual Security was in debt, and the deal was a good way to solve cash-flow problems.

Less than three years later, however, Mutual Security had closed its Fort Wayne operations and its 140 employees were out of work. And in a small way, a company that had operated in Northeast Indiana for five decades wound up playing a role in the savings and loan crisis. Mutual Security provided some of the cash necessary for Fail to undertake what Sen. Howard M. Metzenbaum, D-Ohio, later called "an abandonment of public responsibility."

In 1987, when Fail's Lifeshares Group Inc. of Arizona pumped $15 million into Mutual Security in exchange for stock, the deal was looked on as good one for both sides. Mutual Security had lost almost $18 million over two years, and needed an infusion of cash.

Just a few months later, Fail's new company had the chance to do him a favor. In the late 1980s, he was one of many corporate leaders who acquired bankrupt savings and loans under the federally supported "Southwest Plan." In Fail's case, he took over 15 bankrupt Texas thrifts in 1988 and combined them into the Dallas-based Bluebonnet Savings Bank.

It was the way he financed the Bluebonnet deal that set off rumblings in Washington. Fail put up $1,000 of his own money, borrowed $70 million - half of it from Mutual Security - and he was promised $1.8 billion in federal subsidies. Indiana insurance officials never were notified that the loan was being made, and later it was reported that the move seriously depleted Mutual Security's cash reserves.

The U.S. Senate Judiciary Antitrust Subcommittee conducted hearings on the savings and loan crisis and its major players. In one hearing it was revealed that Fail had had legal problems in the past. In 1976, the state of Alabama had indicted him on charges of securities fraud. Charges later were dropped and Fail agreed not to do any more business in that state.

The firm he controlled there, the United Security Holding Co., pleaded guilty to securities fraud. The plea likely would have made Fail ineligible to buy the troubled thrifts, and a federal...