Keating Gets 12 Years in Federal Fraud Case
Charles H. Keating Jr. was sentenced in Los Angeles on Thursday to 12 years and 7 months in prison for looting Lincoln Savings & Loan and defrauding investors in its parent company of more than $250 million.
U.S. District Judge Mariana R. Pfaelzer, calling Keating’s fraudulent scheme “staggering in its proportion,” ruled that the sentence will be served concurrently with the 10-year prison term he is serving for a previous conviction on state securities fraud charges, also stemming from Lincoln Savings’ 1989 collapse.
The sentence ends a four-year melodrama that has made the one-time Arizona land developer a national symbol of the greed and arrogance in the thrift debacle of the 1980s--an industry disaster that may eventually cost U.S. taxpayers $500 billion.
Keating headed American Continental, a Phoenix development firm that owned Irvine-based Lincoln Savings. American Continental eventually went bankrupt and Lincoln Savings failed because of Keating’s high-risk and fraudulent investments in land and junk bonds.
Keating has always maintained that his problems were caused by overzealous government regulators who did not understand his business operations. He said his investments had been allowed by thrift industry deregulation laws passed by Congress in the early 1980s.
Federal prosecutors had urged Pfaelzer to impose a sentence of 25 to 30 years, charging that he “did more than any other person to weaken confidence in the entire savings and loan industry.”
But they acknowledged that that her decision was effectively a life term. Keating, 69, will be 79 by the time he is eligible for release. Under sentencing guidelines, he will be behind bars for at least 10 years and 8 months, and will receive credit for 9 months already in federal custody.
Keating’s lawyer, Stephen C. Neal, said he plans to appeal January’s federal conviction on 73 counts of racketeering, conspiracy and fraud as well as Thursday’s sentence. “Obviously, this is a very long sentence for someone nearly 70 years old,” Neal said.
Pfaelzer also ordered that Keating be put on parole for three years after he is released and pay restitution of $122.4 million. But, she conceded, “The losses are so extraordinarily large that restitution is very, very remote.”
Pfaelzer decided not to rule on whether Keating would be returned to state custody, as local prosecutors insist, or go to a federal prison. The issue apparently will be decided by state and federal corrections agencies.
Small investors in American Continental were angry with what they thought was a short sentence. “He should have gotten much more,” said Sam Epstein of North Hollywood, who with his wife, Lillian, lost $65,000 in American Continental bonds.
The bondholders, as well as federal prosecutors, say they have been amazed that Keating has shown no remorse for his actions. Lincoln Savings’ failure is expected to cost taxpayers $2.6 billion, with $962 million of that attributed to Keating’s wrongdoing.
One of the lawyers for the bondholders, Ronald Rus in Orange, said he was dumbfounded because he had expected a sentence of up to 20 years.
Keating’s daughter, Elaine, also was angry, saying she believes no sentence is warranted “if you’re innocent.” She said Keating’s family stands behind him and “is firmly proud of him.”
Smiling broadly when he entered the courtroom and often acknowledging the presence of his daughter and his longtime private secretary, Carol D. Kassick, Keating appeared fresh and fit. He had been exercising at the federal prison in Tucson, where he has been held while defending civil lawsuits there.
In the less hospitable state prison in San Luis Obispo, Keating had suffered from exhaustion and anemia, his lawyer said. But neither Neal nor assistant U.S. attorneys Alice C. Hill and David Sklansky were sure whether he will be returned to the state system.
William Hodgman, the deputy Los Angeles County district attorney who led the state prosecution of Keating, said he will seek to return Keating to prison in San Luis Obispo. Despite overcrowding and the early release of prisoners to ease conditions, Keating is one prisoner the state wants to keep for “practical and symbolic value,” Hodgman said.
Keating has become one of the most vilified figures associated with thrift industry and Wall Street excesses of the 1980s. His sentence came one day after another former savings and loan executive, Charles W. Knapp, was convicted on three counts of loan fraud in federal court in Los Angeles.
While the thrift industry scandal was often difficult to follow, Keating became a ready target because of his brazen influence-peddling in Congress and his scheme to sell American Continental’s risky bonds to unwitting investors who banked at Lincoln.
His campaign contributions and requests for political action to help Lincoln evade regulators sullied the careers of five U.S. senators, including former Sen. Alan Cranston (D-Calif.).
Keating hobnobbed with financial barons worldwide--from junk bond trader Michael R. Milken to British financier Sir James Goldsmith. Two of them--Milken and Ivan Boesky--were convicted of charges stemming from various insider trading scandals.
Milken raised $51 million to help Keating buy Lincoln Savings in 1984 and then sold the financial institution for more than $600 million in junk bonds. Boesky led attempts to take over various companies with Lincoln’s help.
Small investors, mainly elderly Southern California customers of Lincoln, did not know about the risky investments Lincoln was making and its shaky financial condition. They also did not know that Lincoln was propped up by sham profits from land deals.
Chronology of Crime
The sentencing of Charles H. Keating Jr. in U.S. District Court in Los Angeles on Thursday is the latest chapter in a seven-year saga of fraud, racketeering and conspiracy. Some case highlights: * March 12, 1986: Examiners at the Federal Home Loan Bank in San Francisco begin routine audit of Keating’s Lincoln Savings & Loan. * May 1, 1987: Federal agents in San Francisco recommend that Lincoln be seized or be subject to stiff regulatory orders. * April 14, 1989: Regulators seize Lincoln. It becomes nation’s biggest thrift failure, costing taxpayers an estimated $2.6 billion. * Sept. 15, 1989: Resolution Trust Corp., the federal agency managing Lincoln, files fraud and racketeering charges against Keating and others. Action is later amended to seek $2.6 billion in damages. * Sept. 18, 1990: California grand jury charges Keating and three others with violating state securities laws. Keating spends 33 days in jail, unable to post bail until it is reduced from $5 million to $300,000. * Aug. 2, 1991: State trial on fraud charges begins. * Dec. 4, 1991: Keating is convicted on 17 of 18 charges. * Dec. 12, 1991: Keating and four associates are indicted on 77 federal criminal counts of racketeering, fraud and conspiracy. Securities and Exchange Commission also files a civil suit against Keating and nine others, alleging securities fraud and insider trading. * April 10, 1992: California judge sentences Keating to 10 years in prison, $250,000 in fines. * Nov. 3, 1992: Federal trial begins in U.S. District Court in Los Angeles. * Jan. 6, 1993: Keating convicted on 73 counts of racketeering, conspiracy and fraud. * July 8, 1993: Keating sentenced to 12 1/2 years in federal prison. Source: Los Angeles Times reports
