The Perils Of Paul

On Sept. 28, the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison agreed to pay $45 million to settle charges that its work for David Paul, former chairman of CenTrust Savings Bank, led to one of the costliest savings and loan failures in history. Next, it's Paul's turn: On Oct. 4, the government will begin the first of two criminal trials against him.

Prosecutors plan to keep their case simple, relying on Paul's alleged greed, not CenTrust's byzantine financial deals, to land a conviction. Their case likely will be centered on $3.2 million in bank funds Paul paid to interior decorators, electricians, and plumbers who worked on his two residences and 95-foot yacht. In his defense, Paul likely will argue that CenTrust's failure was the fault of overzealous regulators, a contradictory Congress, and the 1989 financial reform law.

Paul's second trial is scheduled for 1994. Then, prosecutors will outline complex junk-bond deals carried out by CenTrust. They won't try to prove that the deals were illegal. Rather, they hope to show that Paul and two other defendants altered records and lied about transactions. Neither of Paul's trials will answer two big questions: Why did Centrust fail? And how come taxpayers got stuck with the $1.7 billion tab?

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