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Pension system settles for $54.7 million Dispute with RTC over bonds purchased from a thrift that folded; Litigation


The State Retirement and Pension System of Maryland said yesterday that it agreed to receive a $54.7 million payment to settle a dispute with the Resolution Trust Corp. over bonds that the state agency bought from a thrift that later failed.

"We have done well by our participants," said Peter Vaughn, director of the pension system, which manages $20.1 billion in retirement and pension funds for state teachers, police and other government employees. "We think this vindicates our position. We are not risk-takers."

The pension system's net gain from the deal is $35.2 million, which works out to an annualized return of 21.8 percent. The money was wired to the pension system Feb. 6, Mr. Vaughn said.

The pension system bought triple-A rated zero-coupon bonds in 1987 for $19.6 million from Centrust Savings Bank, a Miami-based thrift that was seized by the federal government in 1990. Zero-coupon bonds are issued by companies and municipalities, and pay interest upon maturity, instead of annually.

After the government takeover of Centrust, the pension system and other investors demanded the collateral backing the bonds, but Resolution Trust Corp. blocked the move. The investors sued in 1990 for full payment of the bonds, which had a maturity date of 2010.

In settlement negotiations, Resolution Trust offered the pension system $24 million.

"We would have had a gain of $5 million, but the return would have not been very much," Mr. Vaughn said. "We thought that is not treating us fair."

So negotiations continued, and on Jan. 11 the pension system's board of trustees agreed to the $54.7 million settlement.

The pension system and other investors sued IBJ Schroder Bank & Trust Co. in November, alleging gross negligence and breach of fiduciary duty by the bank as trustee for the $1.2 billion in bonds issued by Centrust. Mr. Vaughn said that litigation will be dropped as a result of the settlement.

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