Keating Testifies He Was Victim of Vendetta by Regulator, Lobbyist

Phoenix financier Charles H. Keating Jr. on Thursday portrayed himself as the victim of a vendetta by the thrift industry’s top lobbyist and the lobbyist’s son, a top federal S&L; regulator.

Keating said William B. O’Connell, then president of the U.S. League of Savings Institutions, and Federal Home Loan Bank Board Chairman Edwin Gray began waging a campaign against him after he bought Irvine-based Lincoln Savings & Loan in 1984.

Only years later, Keating testified in U.S. District Court, he learned that Kevin O’Connell, the regulator in charge of drafting the memorandum justifying Lincoln’s takeover, and William O’Connell were related.

“We found out in 1988 that this O’Connell is (William) O’Connell’s son,” Keating testified, pointing to the younger O’Connell, who several months before the takeover was made the chief regulatory official over Lincoln.

Keating has now spent six full days on the witness stand in 23 days of hearings on his lawsuit challenging the government’s takeover of Lincoln as illegal and seeking the return of the S&L; to him.

Keating pointed to a bank board memo dated April 7, 1989--seven days before the government seized control of Lincoln--from Kevin O’Connell to Alvin Smuzynski, deputy director of the board’s office of regulatory activities.

“Even our lawyers are finally getting the message,” the memo said. “Under every document is another scam, and they seem to finally understand what type of thieves we are dealing with and why we need to get them out.”

In an accompanying memo, O’Connell said that just one day earlier--April 6--$40 million was removed from Lincoln subsidiaries despite a December, 1988, directive from regulators not to engage in transactions above $10 million without notifying them.

Keating defended the April 6 transaction, saying the money was non-insured deposits that he ordered transferred to Lincoln accounts at Bankers Trust, a major money center bank in New York.