THE KEATING INDICTMENT : Targets of Bond Sellers: The ‘Weak, Meek, Ignorant’

American Continental sold its bonds to depositors of Lincoln Savings & Loan as part of a high-priority, high-pressure sales effort that marketed risky financial investments to unsuspecting buyers, often with devastating consequences, civil court documents show.

The bonds were sold largely through the branch offices of Irvine-based Lincoln Savings & Loan, an American Continental subsidiary, by a sales force with no special training in explaining these uninsured bonds, also known as subordinated debentures.

The sales force was advised to target the “weak, meek and ignorant,” according to documents filed in March as part of a civil suit against American Continental and Keating by the California Department of Corporations.

The bonds were rendered virtually worthless in April, 1989, after American Continental filed for Chapter 11 bankruptcy protection and Lincoln Savings, its principal subsidiary, was seized by federal banking regulators.

An estimated 15,000 people, many elderly and some of whom had their life savings at risk, had invested more than $200 million in the debt securities. The program was begun in 1987 by Charles H. Keating Jr., American Continental’s controversial chairman, who was indicted Tuesday on state charges of securities fraud.

An inside look at American Continental’s bond-sales effort has emerged from affidavits from Lincoln Savings employees who took part in the sales effort. The sworn statements were compiled as part of the state probe of American Continental’s sales methods.

According to Mark Johnson, a former clothing salesman who went to work for Lincoln Savings in 1986, even the tellers eventually got into the sales act as the program progressed. Johnson worked as a teller--also known as a financial representative--in a Lincoln branch office in the San Fernando Valley.

“As a teller, I was limited to what I could tell prospective clients about the bond program,” Johnson said in his statement. “As time went on, however, the sales policies became more lax. Eventually, the only thing I could not do as a teller was to sign the purchase agreement.”

Johnson also said he would call Lincoln Savings depositors on the phone when their government-insured certificates of deposit, known as CDs, were about to mature. “I would tell them . . . that Lincoln and ACC were offering a new bond program that paid higher interest than CDs,” he said.

Even though the bonds had no government backing, Johnson was told to get “around the negative aspects of buying the bonds” by telling investors that they were “backed by over $5 billion in assets” of American Continental, a real estate development firm based in Phoenix.

Johnson said he later became a bond salesman because it was a well-paying, high-prestige job that put employees on a fast track for career advancement. “Everybody in top management at Lincoln’s head office in Irvine knew who you were,” he said.

A tip sheet advised the sales force in concise ways how to persuade buyers to put their insured deposits in the debentures. “People are blown away at how much more interest they earn in a bond,” the tip sheet said.

It was at the end of this three-page document--called “Various and Sundry Reminders”--that the sales force was told to “always remember the weak, meek and ignorant are always good targets.”

Bond saleswoman Crystal D’Amico, a longtime Lincoln employee, said she was offended when she read the remarks at a sales meeting. “I felt this line to be in very poor taste,” she said in her statement, adding: “I did not interpret this statement to be indicative of how we were to conduct our bond sales.”

The tip sheet also advised the sales force to quote from surveys by Forbes magazine that portrayed American Continental as robust and Lincoln Savings as highly profitable. Ironically, Forbes raised serious questions about the bond-sales program six months before American Continental sought bankruptcy protection.

It “takes more sophistication than the average consumer usually possesses to evaluate the risk behind Keating’s latest debentures,” the magazine warned.

Milton Fowler, 79, bought $14,000 in bonds without being given a prospectus and without being told the money was uninsured, he said in his affidavit. A resident of Bellflower, Fowler said he needed the money to care for his 40-year-old daughter, who has Down’s Syndrome.

“Although my and wife and myself are able to care for her needs at this time, there will come a point when we will not be able to do so,” he said. Since giving the affidavit in February, Fowler has become ill and is now staying in a convalescent hospital, his wife said Tuesday.