Keating Broke, Accountant Says at Bail Hearing : Thrifts: His debts are said to exceed his assets by $5.2 million, and he doesn’t have any income.
Charles H. Keating Jr., who built a fortune in the savings and loan business through the 1980s, has debts that exceed his assets by $5.2 million, his former personal accountant testified Thursday.
The Phoenix businessman also doesn’t have any income, the accountant said at a court hearing over the $5-million bail Keating faces in the criminal state securities fraud case filed against him earlier this week. The accountant, Marilyn A. Marszowski of Phoenix, quit on Sept. 7 because Keating could no longer pay her.
Her testimony was the first public disclosure regarding Keating’s current financial condition. His finances have been revealed to federal regulators, who are seeking $41 million in restitution from him and others, but that report has been confidential.
Regulators still question, though, whether Keating is as broke as he claims. They have a court order stopping him from transferring funds overseas, and although Keating claims to have no overseas assets, regulators question that as well.
The testimony about Keating’s finances was part of a daylong parade of witnesses who testified that the former chairman of American Continental Corp. and three co-defendants pose no risk of fleeing from prosecution and that they are so poor that their high bail amounted essentially to an improper imposition of no bail.
Superior Court Judge Gary Klausner continued the hearing until this morning, without making a decision on defense attorneys’ requests to release the defendants without bail. The co-defendants are being held on bail of $1 million each. All four defendants thus spent their third night in jail.
Defense attorney David Wiechert of Irvine called the bail amounts “totally out of line.”
Prosecutors, who at first had no objection to releasing the defendants without bail, now will seek a bond. Though they won’t discuss the issue publicly, they have discussed with defense attorneys bonds of $1 million for Keating and $50,000 on the others. Klausner, however, can do what he wants.
The four defendants are charged in a 42-count indictment with, among other things, making false and misleading statements about the American Continental debt securities sold through the 29 Southern California branch offices of the firm’s main subsidiary, Lincoln Savings & Loan in Irvine.
The narrowly focused indictment--the first criminal charges leveled since the collapse of Keating’s empire 17 months ago--covers alleged crimes victimizing 20 small investors who bought a total of $1,183,000 in bonds.
Lincoln was seized by regulators in April, 1989, a day after American Continental filed a bankruptcy petition to protect itself from creditors. Regulators estimate that Lincoln’s collapse will cost U.S. taxpayers more than $2 billion, making it one of the nation’s most expensive thrift failures.
Wearing a dark wrinkled suit, Keating, 66, appeared calm and even smiling at times in court Thursday. He was attentive to the proceedings as he sat in a partitioned block reserved for prisoners.
His three co-defendants--Judy J. Wischer, 42, former president of American Continental, and Ray C. Fidel, 32, and Robin S. Symes, 37, both former presidents of Lincoln--also were more relaxed than they were on Tuesday when the indictment was unsealed and Klausner stunned everybody by imposing the high bails.
Despite their calm appearance, however, a Keating family member described the four defendants as “fighting mad” over the bail.
Among the spectators who filled the courtroom were 17 former Lincoln and American Continental employees who came to support the defendants. Some pink “I Still Like Charles Keating” buttons were passed around, somewhat covertly, but no one wore them.
One spectator was no friend, though.
Evangeline Ivy of Glendale, an elderly woman who invested her life savings in American Continental bonds, was convinced Keating had money stashed away somewhere. Nearing tears, she said life without the income those bonds had provided has become “really tough.” She said she didn’t “eat as well” as she used to. She wanted to see Keating stay in jail.
“I think he needs to suffer,” Ivy said. “Others have suffered a lot.”
Keating and his family certainly have felt the twinges of pain. Two daughters and sons-in-law have sold their homes and moved to more modest quarters, Keating family members said following the hearing. A third daughter and son-in-law have their home for sale, but Arizona’s real estate market has given them slim hope, they said. His only son has filed a personal bankruptcy petition.
His six children and their spouses owe Keating about $6.5 million from promissory notes they signed when he transferred American Continental stock to them, according to testimony. Only one daughter and son-in-law can make payments on their $705,750 note, according to testimony.
Keating’s home is valued now at about $2.2 million but has liens of $6 million on it, according to previous reports. Friends helped him make a $500,000 payment to stop a foreclosure last month.
His net worth has plunged from a high of $39.8 million in 1987 to the negative $5.2 million mainly because the shares of American Continental stock he owns are now worth nothing, said Marszowski, the former Keating accountant.
The only reason he has not filed for bankruptcy protection is because a consortium of eight banks have agreed to change the terms of his loans and to hold off foreclosing on his Phoenix-area home, she said.
The statement she prepared remained confidential for now, but she revealed most of its contents during questioning about specific items in the statement.
Marszowski acknowledged under cross-examination by Los Angeles County Deputy Dist. Atty. Paul W. Tarley that she had not conducted an audit of Keating’s finances to determine such things as whether the money owed by his children was indeed uncollectable.
KEATING’S FINANCIAL SLIDE
July, 1987
Net worth: $39.8 million
Assets include:
homes in Phoenix and Bahamas
raw land in Arizona and Canada, owned outright
2.6 million shares of American Continental stock, then worth about $22 million
$6.5 million in loans to his children
August, 1990
Net worth: negative $5.2 million
Assets include:
home in Phoenix, worth $2.2 million but with $6 million in liens against it
raw law in Arizona and Canada, pledged to banks as collateral
2.6 million shares of American Continental stock, now worthless
$6.5 million in loans to his children, all but $700,000 uncollectible
