Suit Accuses Saudi European Bank of Racketeering : Thrifts: The Resolution Trust Corp. action accuses bank owners and operators of scheming to defraud Lincoln Savings out of $18 million.
A federal thrift agency has filed a civil racketeering lawsuit against Saudi European Bank, its owner and operators, alleging that they schemed to defraud Lincoln Savings & Loan out of $18 million six years ago.
The lawsuit filed by the Resolution Trust Corp. on behalf of the failed Irvine-based thrift 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, is not named as a defendant in the lawsuit. He could not be reached for comment. 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, but the amount 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 claims 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. The 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, the suit says, Lincoln had only a 10% share.
After Keating figured out what was going on, the suit asserts, the company’s operators offered him a block of 80,000 to 130,000 shares to make up for the dilution in his 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 included in 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, among them the purchase of Gulf Oil Corp.’s trading division.
Keating, who was chairman of American Continental Corp. in Phoenix, also became a bank director. His company 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 a $1.1-billion racketeering suit against Keating and other associates, , the RTC contends that the profits generated by deals with Saudi European Bank were among nearly $95 million of earnings that Lincoln wrongly paid to American Continental as part of its share of corporate taxes. That suit, filed in Phoenix, alleges that Lincoln made the payments even though it owed no taxes.
Regulators seized Lincoln in April, 1989, a day after American Continental filed for bankruptcy court protection. Regulators estimate that Lincoln’s failure will cost U.S. taxpayers more than $2 billion. making it one of the most expensive thrift failures ever.
