Keating Denies Charge of Lincoln Sham Deals

Charles H. Keating Jr. today denied allegations that Lincoln Savings & Loan was involved in sham transactions and said federal regulators did not understand the complex land syndications in which the thrift participated.

Keating’s testimony came during the sixth day of a hearing on government motions to dismiss a lawsuit Keating filed in May seeking to regain control of the Irvine, Calif., thrift, which was seized by regulators last April.

The rescue of the thrift is expected to cost taxpayers as much as $2.5 billion, making it the nation’s most costly thrift bailout.

The government said Lincoln was not being operated in compliance with federal regulations and found the thrift unsafe and unsound, even though Keating said he hired accountants and lawyers to make sure the activities of his American Continental Corp. and Lincoln were in compliance with federal regulations.

Keating discounted many findings thrift examiners made in a report that led the Federal Home Loan Bank Board to order Lincoln placed into conservatorship. The executive told the court Lincoln was harassed by federal regulators and subjected to the longest examination in history.

“Their requests were horrendous and not in keeping with a normal audit,” Keating said. “The sledding became very difficult.”

Thrift regulators hounded Lincoln, Keating said, because of his opposition to a 1985 rule limiting the direct investments that could be made by thrifts. “I ran into headlong opposition and antagonism from regulators,” he said.

The executive also denied government contentions that a tax-sharing agreement between Lincoln and the now-bankrupt American Continental was designed to siphon more than $94 million from the thrift.

“With all my heart and soul I categorically deny that. I had no concept remotely related to that,” Keating said.

The government has based its case largely on four transactions including the tax plan, an $11.3-million profit on a stock sale and two real estate deals involving property in the Arizona desert that thrift examiners contend were set up solely to dissipate assets from Lincoln to American Continental.