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Many S and Ls in southern Ohio still adhere to the old-time philosophy of prudence and modest ambition held by the German immigrants who started the institutions a century ago. Home State was an exception. Largely through transactions with E.S.M., Home State's assets ballooned from $571 million in June 1983 to a precarious $1.4 billion at the end of 1984. Says John Zellars, chairman of the U.S. League of Savings Institutions: "Home State really made bad investments, and, basically, they were dealing with crooks. That is not the usual way S and Ls operate." The new Ohio legislation provides for a special prosecutor to probe the connection between Home State and E.S.M.
When the highflying Florida securities dealer collapsed, it left dozens of creditors with losses totaling as much as $315 million. E.S.M. had attracted investors by offering them high returns on short-term loans backed by Government securities. Many of those securities cannot now be found. Says Miami Attorney Thomas Tew, the court-appointed receiver for E.S.M.: "It's probably one of the most colossal, stupendous frauds I've ever seen." Tew and others have sued Alexander Grant & Co., the Chicago-based accounting firm that gave E.S.M. a clean bill of financial health for the past five years even though the company was rapidly losing money. The Securities and Exchange Commission charged last week that an Alexander Grant auditor, Jose Gomez, accepted $125,000 in bribes from E.S.M. to give the rosy reports.
Much of Ohio's investigation will focus on Financier Marvin Warner, Home State's owner and until recently a major investor in E.S.M. The probe will put additional heat on Celeste, since Warner was one of his biggest campaign contri butors. Warner, who stayed away from Ohio last week in his Miami apartment, blames Home State's collapse primarily on E.S.M.'s accountant. Says he: "It's not only a matter of terrible personal loss, it's a feeling of humiliation."
Because of its huge losses, Home State will be allowed to reopen only if it is merged with a much larger bank. Manhattan's Citicorp and Chemical New York are showing interest but have made no commitments. Home State's customers desperately hope for a buyer to come along because the new Ohio legislation does not require the failed bank to give them even the $750 a month. The depositors are not likely to suffer quietly. More than 50 marched last week into the Ohio statehouse, chanting "We want our money back!"
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