Witness Critical of Accountants Keating Hired
Accountants hired by Charles H. Keating Jr. should have seen and exposed the “intentional distortions” that riddled Lincoln Savings & Loan and its parent company, an accounting expert testified under cross-examination Thursday.
In daylong quizzing, Raymond Todd Neilson of Salt Lake City said the professional accountants should have insisted that questionable transactions be corrected or recorded properly--or they should have quit.
Though acknowledging that the best of audits can contain errors, he said that so many of Keating’s deals were “seriously suspicious” that a “continued pattern . . . of misappropriation” was apparent.
Neilson is the first expert witness put on the stand by lawyers for thousands of small investors who lost $285 million in the 1989 collapse of the Irvine-based thrift and its parent company, American Continental Corp. in Phoenix.
Most of the investors were Lincoln customers who contend that they were duped into purchasing risky American Continental bonds at the S&L;’s Southern California branches. The bonds became worthless after Keating’s financial empire collapsed in April, 1989. The failure will cost taxpayers $2.6 billion, the most expensive thrift bailout ever.
A few of those bondholders will testify today.
Keating, American Continental’s former chairman, appeared on the opening day of testimony Wednesday and refused to answer questions, invoking his Fifth Amendment privilege against self-incrimination.
Neilson, a former FBI agent, conceded that auditors don’t set a client’s corporate salaries or dictate what a client classifies as a business expense. The level of expense is viewed by auditors to be “within the discretion of management, with review by the company’s board of directors,” he said.
Nevertheless, the abuse was so prevalent at American Continental, he said, that auditors should have dug deeper to uncover possible fraud.
The fact, for instance, that Gary Hall received $36,000 a year as American Continental’s medical director would seem like a bargain, Neilson said, until other facts show that this figure distorted reality.
Hall is an ophthalmologist and one of Keating’s sons-in-law. He was also a corporate director of American Continental who received $67,500 for attending board meetings during the five years the company owned Lincoln. Altogether, during that period, he earned $295,000 in cash compensation and $2.2 million from the sale of American Continental stock to the corporation’s employee stock ownership plan.
Such information should have raised red flags, Neilson said.
“The level of improprieties which riddled ACC and its related entities was so pervasive that it is difficult to believe that they could have gone undetected and unreported by all the professionals working for ACC,” he said.
