Keating Balking at Court Order, House Panel Told

Nearly a year after the government seized Lincoln Savings & Loan, Charles H. Keating Jr., the owner of Lincoln’s parent firm, is refusing to honor a federal court order giving federal investigators access to documents they need to probe the $2-billion thrift collapse, a House committee was told Tuesday.

Members of the House Banking and Urban Affairs Committee reacted in anger and frustration when they learned that the government has not yet moved to have Keating held in contempt of court for failing to provide the investigators with records of the holding company, American Continental Corp.

“We know this fellow is a crook . . . a crooked son of a gun,” shrieked Rep. Joe Kennedy (D-Mass.). “I can’t believe we can’t come up with a way to investigate the guy and put him in the can.”

In Phoenix, Bradley J. Boland, spokesman for American Continental, strongly denied that his firm has failed to comply with the judge’s order.

“It’s the typical government propaganda,” he said. “I have no idea what they are talking about.”

William Fulweider, spokesman for the Office of Thrift Supervision, which is investigating Lincoln, said he was not aware that OTS investigators were having trouble obtaining documents from American Continental, except for some evidence currently in FBI possession.

Investigators also told the committee that Keating appears to be bleeding the bankrupt holding company of its remaining assets in order to finance the expensive legal and public relations battle that he is waging on many fronts.

Christopher P. Seefer, an OTS examiner, said Keating is spending millions of dollars that otherwise might be available to satisfy the claims of Lincoln’s creditors and the 22,000 people who purchased about $200 million in now-worthless junk bonds at branches of the Irvine thrift.

Boland declined to comment on that charge.

Also during the hearing, Ernest C. Garcia II, a Keating business associate from Phoenix, refused to testify, citing his 5th Amendment right against self-incrimination. Keating’s son, Charles H. Keating III, also failed to appear for the hearing in response to a summons from the committee. The senior Keating himself took the 5th Amendment before the committee last November.

Until Tuesday, House committee hearings into the Keating case have focused exclusively on why the now-defunct Federal Home Loan Bank Board failed to seize Lincoln prior to last April, even though the regulatory agency had evidence the thrift was being mismanaged by Keating. This was the first time committee members had questioned the effectiveness of FHLBB’s successor agency, the Office of Thrift Supervision, in investigating the Keating affair.

Kevin T. O’Connell, deputy OTS director, told the committee that even though the agency obtained a court order six months ago seeking to compel Keating to provide the government with documents relevant to the case, the Phoenix businessman has refused to do so on grounds he has not yet seen the order.

“Is American Continental using every legal trick in the book? Yes,” he added. “They are splitting every legal hair they can.”

Under questioning from the committee, OTS officials said the agency had made no effort to persuade the court to hold Keating in contempt for failing to comply with the court order and were unable to explain why.

“All I can say is that you today are not carrying out your job,” said Rep. Jim Leach (R-Iowa). “Where is the government?”

Leach said he feared agency officials would back down on their request for documents, much as they did in 1987 when they canceled a scheduled visit by field examiners to Lincoln when Keating threatened to sue the government.

Boland said American Continental has complied fully with a court order to place “millions upon millions” of documents in a Phoenix warehouse--a “document depository”--where they are available to all investigators and lawyers involved in the Keating case. But OTS officials insisted that the documents placed in that warehouse were not sufficient to investigate the case.

“It’s impossible to conduct an examination through attorneys and document depositories,” said Seefer, the OTS examiner.

Keating and other top officials of his financial empire currently are under investigation by the Justice Department, the Office of Thrift Supervision and the Securities and Exchange Commission. In addition, Keating is involved in litigation on several fronts, including bankruptcy proceedings, a suit he filed challenging the government’s seizure of Lincoln and suits filed against him by citizens who invested in the worthless bonds.

OTS officials said they had been told that the SEC was also having trouble getting documents from American Continental. An SEC spokeswoman, Mary McCue, declined to comment when asked whether SEC investigators were encountering similar difficulties.

This latest flap over Keating and Lincoln came during ongoing hearings by the House panel on the savings and loan crisis. Rep. Henry B. Gonzalez (D-Tex.), chairman of the committee, said Tuesday that subsequent hearings will focus on other failures, as well as the government’s 1988 bailout sale of American Savings & Loan of Stockton to Texas financier Robert M. Bass.

The committee also will look at Drexel Burnham Lambert and what Gonzalez called a “daisy chain” operation in which high-risk junk bonds were shuffled around the country among thrift institutions.