Keating Aide Tells of Plan to Lie on Bonds : * Securities: A former executive testifies that moving American Continental issues was a priority.
Charles H. Keating Jr. placed a high priority on selling American Continental Corp. bonds and considered employees who sold them at the company’s Lincoln Savings & Loan unit to be “heroes,” a former thrift and company executive testified Thursday.
Robin S. Symes, who was a Lincoln chairman and chief executive, also said that Keating and a trader at Dexel Burnham Lambert Inc. concocted a plan to lie to large institutional investors who might call and ask if the company planned to repurchase their bonds.
His testimony in Keating’s state securities fraud trial in Los Angeles Superior Court shows that Keating told sophisticated, institutional investors that American Continental was troubled, yet portrayed his company as sound and secure to prospective small investors who bought the bonds at Lincoln.
Symes acknowledged under cross-examination, however, that employees picked to sell bonds to small investors at Lincoln branches were trained to disclose the risky nature of those bonds.
In meetings he helped to organize and lead, Symes said bond sellers were warned to tell buyers that the bonds were not insured, not secured, not issued by Lincoln and ranked below all other American Continental bonds.
Symes described how Keating decided to lie to large investors who owned bonds that were senior to the bonds sold at Lincoln branches. In case of default, senior bonds are paid in full before junior bonds are repaid.
The issue arose in an October, 1988, meeting of American Continental and Lincoln executives that was interrupted by a telephone call from James Dahl, a top trader for Drexel Burnham Lambert Inc. brokerage, which had underwritten the senior bond issue.
Talking over a speaker-phone so that Symes and others could hear, Dahl said he found a group of senior bondholders willing to sell their bonds at a substantial discount. Dahl said he had been telling major investors there was a 50-50 chance that the company’s main source of income--dividends from Lincoln--would be cut off by regulators, and that American Continental might have a difficult time paying interest on the bonds.
Dahl asked Keating if he wanted to buy the bonds, but warned him that the investors wouldn’t sell if they knew American Continental was the buyer. Keating, Symes said, assured him that investors who called would be referred to the company’s chief financial officer, who would say: “ACC has no current plan to buy back securities.”
Symes testified for the second day in the trial of Keating, who is accused in 20 criminal counts of defrauding small investors.