Regulators Asking Judge to Oust Keating as Chief of Lincoln S&L; Parent Company
Contending that the bankrupt former parent company of Lincoln Savings & Loan is spending its remaining cash to defend the “personal interest” of its executives, regulators have asked a federal judge in Phoenix to strip control of the company from Arizona businessman Charles H. Keating Jr. and appoint a trustee to oversee the business.
Keating reacted angrily Saturday to the effort to oust him as chairman of the S&L;’s former parent company, American Continental. He charged regulators with using tactics that obscure the facts, frustrate the legal process and “threaten to keep the truth from going to trial in a courtroom.”
The Resolution Trust Corp., the federal agency running Lincoln now, contends in the request it filed Friday that corporate executives are spending American Continental’s money to “vindicate and protect their personal interest” in lawsuits and investigations connected to Keating’s business dealings. The company, the agency said, is in “real danger” of running out of cash by April.
The agency alleges that American Continental spent $753,000 in September and $1.07 million in October on lawyers to defend itself or pursue “questionable litigation, which will only benefit the insiders.”
Keating and regulators have been battling ever since his firm bought Irvine-based Lincoln in 1984. But the battles turned into a fight to the finish when his Phoenix company filed for bankruptcy April 13 and regulators seized Lincoln the next day. The S&L;’s collapse may be the biggest ever, costing taxpayers up to $2 billion.
Keating has been trying to reorganize American Continental under Chapter 11 of federal bankruptcy laws, but the plan he filed calls for the purchase of a major Lincoln subsidiary.
The bankruptcy of American Continental left shareholders and investors with nearly worthless stocks and bonds. Among the bondholders are some 22,000 small investors who purchased nearly $200 million in corporate bonds at Lincoln’s 29 Southern California branches. About two-thirds were elderly Lincoln depositors, and many thought the bonds were federally insured.
In its motion to strip Keating of control of American Continental, the agency said: “According to projections prepared by (the accounting firm) Price Waterhouse, there is a very real danger that the estate’s cash assets will be completely depleted by April, 1990.” In asking U.S. District Judge Richard Bilby to expedite a hearing on the motion, the agency wrote: “If the bleeding is to stop, and the patient is to survive, immediate action is required.”
Keating late Friday and Saturday broke months of silence with the press to call the motions “a transparent and desperate attempt to sidetrack” three civil suits he has filed against the government regulators and their agencies.
“They’re just plain scared of the litigation,” he said. “They’re scared. They’re frightened. They’re scared of the truth. They’re afraid of us in the courtroom.”
In one of those cases, Keating is challenging the government’s grounds for seizing Lincoln. U.S. District Court Judge Stanley Sporkin in Washington is taking evidence on the merits of four deals that regulators claim were unsound and gave them grounds to take over Lincoln.
Testimony earlier this month on the first deal, however, turned out to be favorable to American Continental management, and legal observers in the courtroom wondered why the government put on such a weak case if it had stronger examples of wrongdoing in its laundry list of alleged unsafe and unsound practices by the company.
“For the first time ever we are finally getting to the position where we have a completely unbiased and fair tribunal,” Keating said.
Keating said that to preserve the corporation’s assets, he intends to take a $1-a-year salary beginning Jan. 1. He was earning about $3 million a year in salaries and bonuses until the bankruptcy filing, when his salary was reduced to $400,000 a year. Regulatory records show that Keating and his family earned $34 million in salaries, stocks and other benefits over the five years he operated Lincoln.
Keating said he now wanted to take the nominal salary “in order to provide an example and to do what is the best thing in the interests of the company.” He said the company has asked a Chicago consulting firm to search for a general manager to oversee American Continental’s operations.
