One Year Later, So Many Are Caught Up in the Seizure of Lincoln S&L; : Thrifts: Employees and bondholders are among those still entangled in the drama of a financial collapse.

“Trish,” a dapper Charles H. Keating Jr. shouted out to a former employee he recognized recently at Phoenix Sky Harbor International Airport.

A startled Patricia Johnson, the one-time aide whom he had unceremoniously fired a year earlier, looked up and saw her former boss. She shook hands with him, but not a word was spoken, not a smile flashed on either face.

With the greeting made, she turned and walked away.

The chance meeting nearly a year after the collapse of Keating’s American Continental Corp. and its Lincoln Savings & Loan unit brought a rush of memories to Johnson. She liked Keating, she said, but the thrift’s seizure last April 14 has made her life hell.

It is a hell shared by other former employees, by Keating himself and his remaining aides, by thrift regulators and former regulators and, perhaps most strikingly, by thousands of small investors who lost more than $200 million related to the collapse.

Irvine-based Lincoln, which lost $1 billion last year, is expected to become one of the most expensive thrift failures in history, costing taxpayers more than $2 billion.

Keating, chairman of American Continental, used his Phoenix home-building company to buy Lincoln in early 1984 for $51 million. The S&L; grew to a $5.4-billion enterprise, with much of its deposits invested in real estate developments and in high-yield, high-risk junk bonds.

The collapse of Keating’s empire has hurt a wide range of people.

Nearly 22,000 small investors, who bought what many believed were federally insured American Continental bonds sold in Lincoln branches, have filed 17 lawsuits in state and federal courts against Keating, his aides and the lawyers and accountants who advised him. The investors now hold worthless paper.

The political careers of five U.S. senators, including Alan Cranston (D-Calif.), are in jeopardy because they helped Lincoln while they were getting more than $1.3 million in campaign contributions and donations to pet projects from Keating and some 75 family members, associates and employees. The bulk of the money, nearly $900,000, went to Cranston and three nonpartisan voter registration groups he supported.

While former American Continental and Lincoln employees have found it tough getting work, some of those who sold bonds at Lincoln branches are still working there and must face the anguish of the elderly bondholders who come in daily. Some Lincoln borrowers also were dragged down, forced into bankruptcy from a combination of debt, canceled deals with Lincoln and Arizona’s depressed real estate market.

Keating himself has become the lightning rod for criticism of all the ills in the thrift industry. Last fall, regulators filed a $1.1-billion civil racketeering action against him and his top aides. He also could eventually face criminal charges from pending state and federal probes.

The stories of some people whose lives were touched by the Lincoln scandal give a glimpse of the past year in turmoil.

The Publicist

Patricia Johnson was Arizona’s “Outstanding Young Democrat” in 1985 and, she thought, her liberal bent was the antithesis of Keating and his politics. She surprised herself in accepting Keating’s offer of a job to handle American Continental’s public relations.

“Charlie was personable, charming, passionate about his company,” she said, in explaining why she joined his firm. She said he was “well-centered politically,” even though he often is mischaracterized as a conservative.

Last April, a few days before American Continental’s bankruptcy, Keating told her he had to let her go--no vacation or severance pay, though others had received generous parachutes. Her dismissal, she thought then, was dictated by regulators. It wasn’t, she learned later.

“A little panic set in,” Johnson said. “How was I going to pay for groceries? I had just spent $400 over the weekend on flowers, plants, grass seed, fertilizer for the repossessed house I had bought. I wondered if I could take the flowers and grass back.”

Carrying a letter of recommendation that she wrote and Keating signed, she started an immediate job hunt. A well-known figure locally, Johnson found that doors normally open to her were now closed.

When she did get in, she didn’t get far. One banker ripped up the Keating letter in front of her and advised her not to show it to other prospective employers, she said.

“I don’t mind being rejected for professional reasons, but not to have an opportunity to interview because of my association with American Continental, that hurt,” she said.

She started her own business as a consultant, but the accounts she could get were infrequent ones. “I felt like I had so much knowledge to offer and no work to use it on,” she said.

Eventually, Johnson went on unemployment. She borrowed money on her credit card and from her family. Her parents bought her groceries often. But mini-disasters hit regularly: She broke arm and leg bones in a bike accident, the roof on her home caved in after a rainstorm and her car broke down on the way to a job interview.

All the while, her stint at American Continental haunted her. Last fall, Securities and Exchange Commission documents revealed that Keating and his aides blamed her for an erroneous press release in March, 1989, about the pending sale of Lincoln. But she had proof of her innocence--Keating’s own handwritten instructions on a draft of the press release.

Two weeks ago, shortly after her bank account hit zero, Johnson, 36, started a new job with the Arizona Center for Law in the Public Interest. Still, she said, it will take “quite a while” to pay off her debts.

The Developer

Ernest C. Garcia finds it hard to keep quiet. He usually is open and glib. The Phoenix real estate developer likes to tell reporters what’s on his mind.

But the whiz-kid entrepreneur--he became a multimillionaire before he was 30--has largely avoided discussing his entanglements with Lincoln. He invoked his 5th Amendment privilege against self-incrimination last month when subpoenaed to testify about those dealings before the House Banking Committee.

“In my wildest imagination, I never dreamed I would plead the 5th to anything,” Garcia, 32, said last week. “When is this nightmare going to end?”

It appears no time soon. The Midas-touch businessman, who could seemingly do no wrong, is now fighting off creditors. He put his firm, E. C. Garcia & Co., into a Chapter 11 bankruptcy reorganization last week.

Starting out as a stockbroker, Garcia founded his own firm in 1982. But he switched to the booming Arizona real estate market and quickly made a fortune.

He sold 80% of his firm in 1986 to an Arizona utility but a year later decided he wanted it back. He turned to Keating to get a $20-million loan to buy the stock. The deal came with strings attached.

Regulators contend that those strings--purchases of raw land and securities owned by Lincoln--made Garcia a puppet of Keating. In essence, Garcia was a straw borrower and a straw purchaser used by Keating to pump up Lincoln earnings, they claim in a pending federal lawsuit.

Garcia, who has cooperated with the alphabet soup of federal investigators, including the FBI and the SEC, said he was nobody’s dupe.

“Everything we did made perfect business sense,” he said. “Nobody tried to hide any deal from anybody.”

Still, two weeks ago bondholders added his company to their pending lawsuits against Keating and others. Garcia said the unknown liability from that litigation, along with heavy debts incurred in his deals with Lincoln, forced him to turn to bankruptcy proceedings.

“In spite of all this, I’m as enthusiastic as ever and extremely confident in our abilities to succeed again,” Garcia said. “But I won’t look back at any time in the future and laugh about this. It’s been brutal.”

The Loyalist

Danby Housel, 29, has worked for American Continental and Lincoln in Phoenix for 4 1/2 years. She has no plans to work anywhere else. The secretary said she will stick with Keating and American Continental through the coming battles with lawyers and regulators.

Starting out in the company’s tax department, she fit the Keating employee look and demeanor--young, well-scrubbed, good-looking, willing to work long hours. She liked the “very positive, very fast-paced” operation. “We always felt like a major part of the community in Phoenix,” she said. “And there was such a camaraderie here.”

Though working mainly for Lincoln last year, she was handling a job for American Continental when the company filed for bankruptcy and regulators seized the S&L.;

“It was a big shock. Everybody was totally bewildered,” Housel said. “American Continental was big, then everything was wiped away. It took months to sink in.”

Though regulators offered her a job at Lincoln, she quit to work at a law firm. Two months later, she rejoined American Continental because she liked the company and was familiar with the work. She also returned, she said, because “I wanted to put my two cents in with the fight.”

She remains fervently loyal to Keating.

“Some of my friends thought Keating was the biggest crook of all time. Others thought he was getting the short end of the stick,” Housel said. “There have been a few battles (with friends). So we either call a truce or decide to stop seeing each other.”

The Lawyer

Michael Manning does not consider himself an easy mark. But when federal regulators went looking for someone to investigate wrongdoing at Lincoln and American Continental, they said the choice of who could pursue such a complex case was easy.

Last April 10, Manning, a Kansas City lawyer based in Washington, had just completed five years of work on the massive brokered deposit fraud perpetrated on 153 financial institutions by Mario Renda of New York. Manning was planning a vacation when an FDIC lawyer called to ask him to take charge of the Lincoln investigation after the planned seizure later that week.

Figuring he would go to Phoenix for a few days and then oversee the case from his Washington office where he was managing partner, Manning agreed. He hasn’t left Phoenix yet, and he no longer plans to.

His firm has opened an office in Phoenix, and he has moved his family into town. The change has been a tough adjustment on his wife and three children. His second child, a 4-year-old daughter, complains that she “wants to go back to her own country,” Manning said. His wife was not thrilled with the notion of moving to Phoenix but now likes it, he said.

“In Washington, I would come home at 10:30 at night and be asked to go to the store, and I’d be standing in a long line at the check-out counter,” he said. “Here, I could come home at 8, go out to pick up some groceries and have the store to myself.”

In poring through Lincoln records, Manning, 40, said he saw many of the same kinds of transactions--such as loans to straw borrowers who had no intention of repaying the debts--that he saw in the Renda and other fraud cases.

He and other lawyers in his firm worked nonstop through most of the summer to put together a 167-page, $1.1-billion civil lawsuit accusing Keating and others of racketeering, bank fraud and other wrongdoing. The case was filed in September in U.S. District Court in Phoenix.

“Certainly, this is a large and complex case,” he said. “And the allegations don’t center on a single bank fraud technique, as they usually do in other cases.”

Manning will likely amend the suit soon to add more defendants and more allegations. Trial is tentatively set for the summer of 1991.

The Bondholder

Clifford H. Hammer became one of California’s suddenly wealthy when he and his wife, Thelma, sold their Palos Verdes Estates home a little over two years ago and put a down payment on a smaller residence in Carlsbad.

A retiree from Southern California Edison Co., Hammer figured they could live comfortably on his pension and the $260,000 equity from the sale of their home. They even began to travel around the country, something they had always promised themselves they would do.

Now, at 73 and recovering from a recent back operation, Hammer has gone back to work. And it’s not by choice.

Like thousands of other Lincoln depositors who had been persuaded by thrift tellers and American Continental salespeople, Hammer put all of his savings into the parent company’s debt securities.

He received $2,600 a month, and retirement was grand. At least until last April, when the company filed for bankruptcy. Now the Hammers hold worthless paper.

“My wife came down with shingles last May,” he said. “It was caused by nerves, worrying about our loss. She was in the hospital about three days, and she still has it to some extent.”

Hammer said his back hurt, but he “had to go back into real estate” last May, something he had dabbled in part time before he retired 11 years ago.

“There was no other way to get out of it,” he said. “We’ve got a house payment and an insurance payment, and we were going into the red.”

But his back grew worse and he could hardly walk. So he underwent surgery three weeks ago to remove calcium deposits on his spine. Though he hasn’t made a sale this year, he plans to return to work in four weeks. The alternative, he said, is to sell his retirement house.

The Kingfish

Charles H. Keating Jr. publicly has been painted as the villain, the man in the black hat who allegedly masterminded a scam that led to the collapse of Lincoln. Thousands of bondholders believe it; government regulators believe it; some former employees believe it.

But Keating, the 67-year-old chairman of American Continental, sees himself as a victim, not a villain.

“History is replete with good people ruined by governments,” he said with characteristic defiance.

And Keating puts on an upbeat face. He refuses to let his long battles with regulators get him down. He believes completely that he will be vindicated. And he expects to get some Lincoln assets back so he can rebuild his company and pay off bondholders.

“I’m not despondent or despairing,” Keating said. “It’s a challenge, like the rest of life, that we intend to meet. It’s not easy, but I’m not going to let it get me down.”

Keating anticipated the takeover of Lincoln last April 14. He braced for it, saying he already had “spent four years in living hell with regulators” in constant battle over Lincoln’s operations.

Always quick with rhetoric to blast regulators, Keating said his wife and children are strong people who are coping well because they know what regulators have done. “They understand vermin when they see it,” he said.

Keating said his net worth is zero. His Paradise Valley, Ariz., home is “mortgaged for way more than it’s worth,” but his creditors have given him until this summer to start making payments.

A practicing lawyer before he got involved in finance and real estate in Ohio in the early 1970s, Keating said he is going back to the law. He plans to open an office in Phoenix next month with some of his family members and longtime American Continental associates.

“I expect to practice in federal courts around the nation,” he said. “I’ve got an office set up to practice business law, particularly for cases related to government affairs. I’ll represent those who are similarly harassed by the government. I think it will do quite well.”