RTC Sues Bank It Says Cheated Lincoln Savings

A federal thrift agency has filed a civil racketeering lawsuit against Saudi European Bank and its owner and operators, alleging that they schemed to defraud the failed Lincoln Savings & Loan out of $18 million six years ago.

The lawsuit, filed by the Resolution Trust Corp. on behalf of Irvine-based Lincoln, also asserts that Charles H. Keating Jr., whose Phoenix company owned Lincoln at the time, found out about the alleged fraud a year later but agreed with some of the 10 defendants to keep the information secret.

Keating, who remains in Los Angeles County Jail on $5-million bail after his indictment last week on 42 counts of state securities fraud, was not named as a defendant in the lawsuit. He could not be reached for comment and Keating’s attorney, Stephen C. Neal of Chicago, said he had not seen the suit and could not comment.

The suit, filed in federal court in New York last week, seeks $18 million, which could be trebled under federal racketeering law to $54 million. It alleges that the Saudi European Investment Corp. (SEIC), a Netherlands Antilles company that owned the Paris-based bank, issued a fraudulent stock offering in 1984.

The suit contends that the operators of SEIC secretly issued the same amount of shares as in the offering for themselves, thereby diluting the stakes of new shareholders such as Lincoln. SEIC operators then invested excess funds from the offering for their own benefit and concealed the entire scheme, the suit charges. In effect, investors such as Lincoln did not get the stakes they thought they were buying.

Through a Lincoln subsidiary in the Netherlands Antilles, Keating allegedly approved the purchase of $18 million worth of SEIC stock for what he thought was a 15% stake in the company. In fact, Lincoln had only a 10% share, the suit states.

After Keating figured out what was going on, the suit asserts, the company’s operators offered Keating’s company a block of 80,000 to 130,000 shares to make up for the dilution in the company’s stake. In 1987, after Saudi European Bank officials met with Keating in his Phoenix office, Keating’s company and Lincoln began to receive favorable treatment from the bank.

Part of Lincoln’s investment was among at least $40 million that Saudi European Investment diverted from the oversubscribed stock offering, the suit contends. Some of that extra money, the suit alleges, was used by certain operators and favored shareholders of the company for investments in the United States, including the purchase of Gulf Oil Corp.’s trading division.

Keating, who was chairman of American Continental Corp. in Phoenix, became a bank director. His firm bought Lincoln in 1984.

Officials of Saudi European, which was sold to Maison Bouygues in December, 1989, and renamed Societe de Banque Privee S.A. of France, were not available for comment. RTC officials declined comment.

Regulators have long questioned Lincoln’s investment in SEIC. In two real estate deals with Saudi European Bank, for instance, Lincoln booked $9 million in phony profits, regulators charge in various reports.