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FBI Asked to Probe Officers of Lincoln’s Parent : Bank Board Turns Over Allegations That Keating, Others Profited Illegally

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Times Staff Writer

The FBI has been asked to investigate allegations that Charles H. Keating Jr. and other officers of American Continental Corp. profited illegally from their operation of the firm’s Irvine-based Lincoln Savings & Loan, a federal official confirmed Tuesday.

Those allegations were referred to FBI officials in Phoenix and Los Angeles by the Federal Home Loan Bank Board, which regulates the nation’s savings and loans. An FBI spokesman in Phoenix said the agency is reviewing the allegations and would decide this week whether to open a formal investigation.

The bank board asked the FBI to look into allegations that Keating and other corporate executives illegally profited from improper insider loans, defrauded shareholders and bondholders, manipulated stock prices, sold land fraudulently and falsified reports filed with regulators, according to a federal official with access to the documents.

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Spokesmen for Keating and American Continental denied the allegations. They claimed that regulators breached a written agreement by raising old issues for criminal investigation. In addition, they said the bank board already had looked into those issues and had said it could find no wrongdoing.

American Continental filed for reorganization under Chapter 11 of federal bankruptcy laws on April 13. The next day, regulators seized Lincoln and placed it in a conservatorship, claiming that American was dissipating Lincoln’s $5.3 billion in assets and operating the thrift in an “unsafe and unsound” manner.

Among the victims of the bankruptcy filing are some 22,000 bondholders, many of them elderly people, who purchased $200 million in junk bonds issued by American Continental and sold through Lincoln branch offices. Since the filing, American Continental has stopped making interest payments on the bonds, and the company has acknowledged that bondholders could lose all or part of their investment. Some bondholders have said they were unaware that the bonds were not protected by the government’s deposit insurance program.

The bankruptcy filing and the seizure of Lincoln brought to a head a bitter feud between Keating and regulators that has been building since American Continental bought the S&L; for $51 million in 1984.

A. Melvin McDonald, a former U.S. attorney in Phoenix who now represents American Continental, said at a Tuesday press conference that a quarterly report filed by regulators on April 21 showed that Lincoln was solvent, with $192 million in capital to protect it against potential losses.

But Mark Randall, a regulator assigned to manage Lincoln since the seizure, said that amendments to the report will be filed and that Lincoln will likely end up with a negative net worth.

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Among the issues that regulators want the FBI to investigate are stock sales, big salaries and deals involving American Continental insiders, according to the federal official who had access to the investigatory referrals. He declined, however, to disclose disclose specific information about the allegations.

But American Continental’s 1988 proxy statement shows that Keating, for instance, received nearly $2 million in total compensation in 1987, according to the proxy. He picked up an additional $3.3 million from the company when it bought back 300,000 shares of his stock at $8.67 per share.

Keating also was part of a group of officers and directors who had a 17% stake in a limited partnership that had obtained a $1.6-million loan from Lincoln to buy a shopping center from one of American Continental’s subsidiaries, according to proxy materials.

Other American Continental officers, their total 1987 compensation and their gains from sale of stock to the company, if any, were:

* Charles H. Keating III, executive vice president and Keating’s only son, $863,494 in compensation and $600,000 in gains on stock sales.

* Robert J. Kielty, senior vice president and general counsel, $873,952 in compensation.

* Judy J. Wischer, corporate president, $839,693 in compensation.

* Robert M. Wurzelbacher Jr., senior vice president and a Keating son-in-law, $647,129 in compensation and $625,000 in stock sales.

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Company spokesman Mark M. Connally said there was nothing improper about the salaries, the compensation or the loan transactions with affiliated companies. He said no directors or executives received any direct loans personally.

“This S&L; has been the most investigated S&L; in the United States,” McDonald said. He said regulators have been in the S&L; for three years and all their claims come as no surprise.

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