RICO Reform Role Questioned : Ties to Lincoln’s Keating Called Conflict for Senator

Bondholders of bankrupt American Continental Corp. are questioning the role of Sen. Dennis DeConcini (D-Ariz.) in shepherding a federal racketeering reform bill through Congress because of his relationship to the company’s chairman, Charles H. Keating Jr.

The bondholders, who invested millions in the American Continental, the parent company of Lincoln Savings & Loan in Irvine, say it will be tougher to recoup their losses through pending lawsuits if DeConcini’s bill is adopted in Congress.

Their cause is being taken up by two Washington public interest groups trying to halt drastic and much-debated changes in the civil provisions of the Racketeer Influenced and Corrupt Organizations Act.

A lawyer representing the bondholders said that DeConcini should remove himself from the RICO debate because of his links to American Continental and Keating, who is accused of fraud and racketeering in suits filed by the investors.

DeConcini, along with Sen. Alan Cranston (D-Calif.) and three other senators, received a total of at least $300,000 in campaign contributions from Keating and his business associates over the past five years. The senators have also come to Keating’s aid several times in the businessman’s battles with federal regulators over Lincoln, his company’s primary asset.

DeConcini’s press secretary, Bob Maynes, said Thursday that there is no reason for the senator to remove himself from the RICO debate or withdraw his longstanding support for RICO reform.

Phoenix-based American Continental filed for bankruptcy on April 13 after failing to win government approval for the sale of Lincoln. Federal regulators seized the S&L; the following day and recently put it in receivership.

Those actions make it doubtful that about 22,000 people will ever see the $200 million they invested in American Continental debt securities sold through Lincoln’s 29 Southern California branches. About two-thirds of the bondholders were elderly depositors who thought their investments were insured, according to lawsuits filed against Keating and his business associates, accountants and lawyers.

“The alleged victims of Lincoln are precisely the sort of people who need RICO,” said Michael Waldbaum, legislative director of Public Citizen’s Congress Watch, a Ralph Nader consumer group. “This case is a paradigm of why this kind of powerful weapon is needed.”

RICO was passed primarily to combat organized crime, but the provisions for civil lawsuits opened the door to a horde of RICO litigation involving simple business disputes. Defense lawyers argue that the law has been abused to brand an adversary as a racketeer and to recover larger damages than other types of civil suits allow.

Two key provisions in DeConcini’s RICO reform bill could adversely effect American Continental bondholders in pending litigation, attorneys said.

One would remove securities fraud as one of the wrongs for which private plaintiffs could seek triple damages, though they could still recover general damages. The other would make that provision apply to pending cases, the so-called retroactivity provision.

“It just guts our RICO lawsuit,” said William S. Lerach of San Diego, a lawyer for bondholders.

The lawsuits he and other lawyers are pursuing allege other wrongdoing, but the important aspect about RICO, he said, is the provision for triple-damage awards.

“If our people were to get back their entire loss, they would need the treble damages that RICO affords,” Lerach said.

No one quarrels with DeConcini’s longstanding support for RICO reform.

“But that doesn’t make it any less unseemly for a man like Keating to get retroactive immunity from people to whom he has made very substantial contributions,” Lerach said. “DeConcini shouldn’t sponsor the bill. He shouldn’t shepherd it through the Senate. I’m not sure if he should even vote on the bill.”

DeConcini, who received $55,000 in campaign contributions from Keating and Keating’s business associates, led two meetings with regulators in April, 1987. He and three other senators gathered in his office to quiz Edwin J. Gray, then chairman of the Federal Home Loan Bank Board, about Lincoln and led four other senators in a meeting about the S&L; a week later with bank board employees.

Lerach and other opponents of DeConcini’s bill also claim that DeConcini should have had more than one day of hearings to allow comments from victims who could be helped by RICO’s current provisions.

DeConcini, who has said he had done nothing wrong in meeting regulators over a complaint from a constituent, was out of the country Thursday and unavailable for comment on Lerach’s claim.

But Maynes called the lawyer’s comments “unprofessional, unethical” and accused Lerach of taking “a cheap shot at easy publicity.”

He said DeConcini has been supporting RICO reform since 1984 and co-sponsored the previous two bills in the Senate. Those bills were eventually voted down. He also said that DeConcini agreed to a one-day hearing in a situation in which it would have been appropriate not to hold a public hearing because the bill was thoroughly aired last year.

For Public Citizen’s Congress Watch and U.S. Public Interest Research Group, another Nader consumer organization, the plight of the American Continental bondholders is one more example of why RICO should not be weakened.

“It’s a big deal to weaken a bill to fight white-collar crime in the middle of all the white-collar scandals we’ve had,” Public Citizen’s Waldman said, citing well-publicized fraud scandals in the S&L; industry and the securities and commodities markets.

The retroactivity provision has been a major stumbling block to the RICO reform legislation in the past two sessions of Congress, said Pamela Gilbert, consumer program director for PIRG. The House is looking at changes that won’t gut the force of RICO, she said.

“Our concern is that civil RICO is such a good tool for those who are victims of large, widespread fraud, and it is being used more and more to compensate the victims of S&L; frauds,” Gilbert said.

But DeConcini believes RICO has been abused by private litigants, his press secretary said. Maynes cited examples of RICO being used in a divorce case and in a dispute between a pastor and his parishioners.

“Dennis feels very strongly that civil RICO is being abused, mostly in simple business disputes, where people allege RICO claims as a weapon,” Maynes said. “This reform bill has to do with a racketeering law being used as a weapon by one business against a competitor and literally driving the competitor out of business just by making the allegation.”

He pointed out that private plaintiffs would still be able to seek treble damages if defendants are first convicted of RICO acts criminally. But Lerach and others say that is little help for most civil cases.