Senator Asked to Stay Out of RICO Debate : DeConcini’s Ties to American Continental Chairman Questioned

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 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, known as RICO.

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A lawyer representing the bondholders said 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 investors.

DeConcini, along with 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 some 22,000 people will ever see the $200 million they invested in American Continental debt securities sold through Lincoln’s 29 Southland 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 wave 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 suit allow.

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

One would remove securities fraud as a basis 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.

DeConcini, who has said he had done nothing wrong in meeting regulators over a complaint from a constituent, was out of the country Thursday.