French Bank Off the Hook in Keating Suit : Courts: Federal judge says S&L; investors’ lawyers failed to prove Bretenneau shared blame in failure that cost taxpayers $2.6 billion.
A federal judge on Tuesday dismissed a French bank from the $1.2-billion civil fraud and racketeering suit against former Lincoln Savings & Loan owner Charles H. Keating Jr. and those who helped him allegedly bilk investors.
U.S. District Judge Richard M. Bilby in Tucson determined that lawyers for investors in Keating’s American Continental Corp. had not proved that Societe d’Analyses et d’Etudes Bretenneau shared any blame in the nation’s worst S&L; failure.
American Continental was a Phoenix real estate company that owned the Irvine thrift until both collapsed in April, 1989. Lincoln’s losses are expected to cost U.S. taxpayers $2.6 billion.
Bretenneau had said that it bought Saudi European Bank, based in Paris, in a transaction managed by the French government. The procedure was much like the steps that U.S. regulators take to force the sales of failing financial institutions here.
About 23,000 small investors, most of them elderly Lincoln customers who bought American Continental bonds at the S&L;’s branches, contend that they were defrauded of $285 million in a sophisticated scheme that was aided by Keating’s hired lawyers, accountants, appraisers and investment bankers.
Lawyers for investors have settled with most of the defendants, recouping an estimated $242 million. The dismissal of Bretenneau in mid-trial came after the investors rested their case against the remaining six defendants. Among the five remaining defendants is the national accounting firm of Touche, Ross & Co., now known as Deloitte & Touche.
The troubled Saudi European Bank was owned by Saudi European Investment Corp., of which Irvine-based Lincoln owned about a 10% stake. The bank and its parent company allegedly acted as sham financiers and buyers in Keating’s effort to book profits at Lincoln.
The bank provided down payments on a number of real estate transactions, including one in Riverside County that is a subject in a 77-count federal indictment against Keating and others. The down payments allegedly hid the fact that Lincoln was providing 100% of the financing for the land sales, which would have prohibited it from declaring profits on the deals.
The holding company also assisted Keating allegedly by acquiring an interest in a limited partnership from Lincoln and holding it for a few months before returning it to the thrift. The interest became part of General Oriental Investment Ltd., a company run by British financier Sir James Goldsmith.
It was Keating’s attempt to post a gain on the GOIL transaction that drew widespread public attention to the failing financial health of his company in 1988. Regulators refused to allow the gain, forcing American Continental to post a $32-million loss for the third quarter that year.
