Keating Defends His Dealings : Thrifts: The former operator of Lincoln Savings & Loan takes the stand. ‘I don’t engage in sham transactions,’ he declares.
Charles H. Keating Jr., who has become the symbol of scandal in the savings and loan industry, took the witness stand Tuesday to deny that he engaged in sham transactions while operating Lincoln Savings & Loan.
Testifying for the first time in his own defense, Keating insisted that the deals he negotiated on behalf of Lincoln were no different from the many unquestioned transactions he completed before his company bought the Irvine thrift in 1984.
“I don’t engage in sham transactions,” he said emphatically.
Keating, who turned 69 on Friday, is accused of conspiracy, fraud and racketeering in a federal criminal trial stemming from the 1989 collapse of Lincoln and its parent company, American Continental Corp. The thrift’s failure was the nation’s costliest, sticking taxpayers with an estimated $2.6-billion cleanup bill.
For his conviction last year on state securities fraud charges, Keating already is serving 10 years in a California prison. He faces a maximum of 525 years in prison if convicted on all 73 federal counts in two indictments.
Also on trial is his son, Charles H. Keating III. The 37-year-old faces up to 475 years in prison if convicted on 64 counts of conspiracy, fraud and racketeering.
The senior Keating’s testimony, which is scheduled to continue today, is his only sworn defense to more than three years of allegations that he inflated Lincoln’s profits so he could loot the thrift’s federally insured deposits.
The money was used to support a high-flying lifestyle with homes and apartments around the world and a jet fleet to carry Keating and his family to their vacation spots, according to charges in the indictments and in other cases.
Keating refused to defend his actions at a number of civil trials, citing his Fifth Amendment privilege against self-incrimination. Nor did Keating and his lawyer, Stephen C. Neal, put on a defense at the state’s criminal fraud trial last year. Neal has maintained that the state simply didn’t prove its case and is now appealing the verdict.
Keating did testify about four deals in a 1989 court effort he brought challenging the government’s takeover of Lincoln.
But the federal trial probably is Keating’s last opportunity to tell his side of a story that has come to be an emblem of the fraud and arrogance that permeated the thrift industry in the fast-paced 1980s.
Prosecutors called 27 witnesses over 11 days in an effort to prove that Keating used straw buyers of raw land and securities to book phony profits, fooled his outside auditors about the deals, misled buyers of corporate bonds and reaped millions of dollars in salaries and other benefits for himself and his family.
The typical phony transaction, according to the testimony of former American Continental President Judy J. Wischer, involved a series of deals with the same borrower that all closed at about the same time. While Lincoln and its subsidiaries were selling a property and recording a profit, they also were buying real estate or securities from the buyer.
Wischer maintained that loan documents didn’t disclose that the deals in each transaction were linked, a situation that she said misled auditors.
Keating, however, denied that such transactions were linked. Speaking in confident but subdued tones, Keating told jurors Tuesday that he always tried to negotiate as many deals as possible with the same party at one time.
“That was a policy of the company even before we bought Lincoln,” he testified.
Keating also said that he never tried to conceal any aspects of the transactions from auditors. On the contrary, he said, “I told (employees) to be open at all times with auditors.”
Never, insisted Keating, did he make secret promises to buyers or give them any undocumented assurances. He acknowledged hyping the deals, though--telling buyers they probably could resell properties at a profit within a year.
Keating explained to jurors his version of some of the 14 transactions that the prosecution asserted were sham arrangements.
“Each deal was good, independent of the other,” he said matter-of-factly.
In one case, Keating is accused of using Lincoln to make two loans totaling $5 million to Arizona home builder R. A. Homes as reimbursement for R. A.’s down payment on a 1,300-acre parcel that Lincoln was selling near Tucson.
The prosecution contends that R. A. Homes would not have purchased the land without Lincoln’s fraudulent help.
But Keating testified that he had agreed to make one $2-million loan to R. A. eight months before the deals occurred in September, 1986, and that a $3-million loan was an entirely separate transaction. The smaller loan was used by R. A. to buy out a disgruntled partner, he said, the second for working capital.
Keating said he told the principals of R. A. Homes to use their own capital for the down payment on the Tucson parcel, knowing that accounting procedures required it in order for Lincoln to record a profit on the transaction.
