Judge Told of Lincoln S&L;’s Advance to Its Holding Co.
Aides to millionaire Charles H. Keating Jr. ordered Lincoln Savings & Loan Assn. to advance its holding company $14.2 million for taxes a month before it was due in 1986, a federal judge was told Monday.
However, the government alleges that the money never was paid to the Internal Revenue Service.
The contention came in the 13th day of a hearing in U.S. District Court on Keating’s lawsuit, which alleges that the government takeover of the Irvine, Calif., S&L; was capricious and arbitrary. He wants the thrift returned to him.
A June 30, 1986, memo containing the instructions was introduced to support government allegations that Keating was illegally siphoning federally insured deposits from the thrift.
Regulators say the subsequent collapse of the $5.5-billion thrift could cost taxpayers as much as $2 billion, making it the most expensive S&L; failure in history.
In the memo, Lincoln’s chief financial officer was instructed by her counterpart at the thrift’s holding company--Keating’s American Continental Corp. of Phoenix--to make the $14,186,000 payment a month earlier than it was due.
Government lawyer James Murphy said the memo bolsters regulators’ contention that Lincoln was using complicated real estate, stock and junk bond transactions to book phony profits to bolster Keating’s faltering real estate empire.
In its April takeover of the thrift, the government contended that American Continental looted Lincoln of $94 million through the tax-sharing arrangement. Under the agreement, the holding company collected taxes due on the phony profits but never paid them to the IRS, the government contends.
Although an outline of the tax-sharing arrangement had been approved by regulators on the West Coast, government attorneys contend it was illegal.
Meanwhile, Andre Niebling, Lincoln’s chairman from mid-1985 through mid-1987, has refused to testify, citing a Fifth Amendment protection against self-incrimination.
In an affidavit, Niebling cited a federal grand jury in Los Angeles that is weighing possible criminal charges against Keating and other American Continental and Lincoln officials.
