State S&L; Official Calls Lincoln’s Owner a ‘Con Man’


Lincoln Savings & Loan owner Charles H. Keating Jr. was a “con man” who relied on lies and political influence--"juice"--to fool and bully regulators in charge of his ill-fated Irvine-based thrift, California Savings and Loan Commissioner William J. Crawford told an Assembly committee on Wednesday.

The committee also heard Gov. George Deukmejian’s top campaign fund-raiser, Los Angeles attorney Karl M. Samuelian, defend his actions as one of Keating’s attorneys, hired to represent the Arizona businessman’s interests before state regulators. Samuelian said he recommended the appointment of two successive state corporations commissioners--both of whom subsequently approved the sales of high-risk junk bonds by Lincoln’s parent corporation.

Samuelian, Deukmejian’s campaign finance chairman since 1982, also said he represented Keating at several meetings with state regulators. After the hearing, Samuelian told reporters that he helped set up meetings between Keating and the regulators’ boss, Business, Transportation and Housing Secretary John K. Geoghegan.


But it was Crawford’s blunt remarks about Keating’s tactics and demeanor that provided the most provocative testimony Wednesday before the Assembly’s Finance and Insurance Committee.

Asked for a simple explanation of why Lincoln Savings failed, prompting a federal takeover in April that could cost taxpayers more than $2 billion, Crawford said: “If I had to pick one reason, I would have to say that probably the owner was a con man.

“He was a dominant person who believed that he was above the law and regulations, that he was powerful and he had the juice and he could win. He could fight the regulators and he did a very good job of it.”

When Keating first took over Lincoln in February, 1984, he told state regulators one thing, but all along planned to do another, Crawford said.

“They said they were going to run a traditional savings and loan. They lied to us,” Crawford said.

Instead, Crawford said, Keating used Lincoln’s citizen deposits and sales of high-risk bonds as sources of cash for marginal land acquisitions in Arizona, Colorado, Texas and Louisiana. Crawford said that when he took over the department in 1985, he found that his predecessor had allowed Keating to keep the original records of Lincoln Savings in Phoenix, leaving only incomplete copies of documents for California regulators in the Lincoln offices in Irvine.

Crawford said he ordered Lincoln’s files to be brought back to California after he discovered that Keating had contributed $50,000 to Arizona’s attorney general in an uncontested race--a move that persuaded him that any action by California regulators would be resisted by their counterparts in Arizona. He also said regulators needed the centralized files to help keep up with Keating’s financial empire, which expanded from 32 corporations in 1984 to 54 entities by the end of 1987.

“That was 54 places to hide the smoking gun,” said Crawford, adding: “We were never on top of the problems of Lincoln Savings. . . . They could write up (the value of) their assets faster than you could write them down.”

He said the task was made even more difficult by the phalanx of Keating employees and attorneys, who overwhelmed understaffed regulators. Crawford said he tried to keep tabs on Lincoln with only one experienced examiner and two trainees.

“They (Lincoln and American Continental) had a battery of people. They had 48 CPAs, they had 15 attorneys on staff. I just lately learned they employed 77 outside law firms,” Crawford said.

Referring to a Home Loan Bank Board memo that said Keating had attempted to have him fired, Crawford said he didn’t know of any such effort but added that he, like federal regulators, felt “beat up” by the Arizona businessman.

But he insisted that no one from Deukmejian’s office tried to influence his handling of Lincoln. “He had the juice (but) he didn’t have it on a direct line from the governor to me. I’m still here and that’s proof of the pudding, I think,” Crawford said.

The committee’s chairman, Assemblyman Patrick Johnston (D-Stockton), expressed concern about allegations that Keating and his associates used political connections to influence state regulators.

Keating was invited to attend the committee hearing but did not respond, Johnston said.

Deukmejian fund-raiser Samuelian, however, said he has never contacted the governor on behalf of any client. “As far as the governor is concerned, I have religiously for 10 years separated my business matters from my (campaign) assistance to the governor,” he said.

Samuelian outlined 1986 and 1987 contributions to Deukmejian’s campaign committee from Keating’s companies, relatives and business associates totaling $150,000, plus an additional $100,000 to Republican fund-raising efforts in California that Samuelian collected.

However, he denied ever “lobbying” for Keating or his companies. “We were representing a client as a lawyer, not doing any lobbying work,” Samuelian said.

After the hearing, Samuelian said he helped set up Keating’s meetings in February and March of 1988 with Transportation and Housing Secretary Geoghegan, a Deukmejian appointee whose agency oversees the state’s S&L; and corporations regulators.

Samuelian also revealed to the committee Wednesday that he had recommended that Deukmejian appoint two former law associates, Franklin Tom and Christine W. Bender, as corporation commissioners. The governor named Tom first, and then Bender succeeded him.

Both Tom and Bender approved the sale of controversial high-risk bonds issued by American Continental and sold through Lincoln’s branches.

After Tom left his post as commissioner, he rejoined Samuelian’s law firm and represented Keating’s position in meetings with Bender, his successor and former deputy.

Also during the hearing, state S&L; examiner Richard Newsom said the state attorney general’s office deleted wording in a December, 1988, cease-and-desist order against American Continental that could have warned investors not to buy the company’s high-risk junk bonds.

Newsom said the wording would have been the “atomic bomb” to end the junk bond sales, which continued through early 1989. But, he added, the attorney general balked at including the language because his office lacked the expertise to defend the state on a court challenge over securities matters.

However, Newsom’s testimony was immediately refuted by both Atty. Gen. John K. Van de Kamp and an attorney for the savings and loan department. The attorney, Shirley Thayer, said she and others in the department made the decision to drop the language, not Van de Kamp.