Judge Orders Keating to Forfeit $265 Million

A federal judge, saying that Charles H. Keating Jr. had total control over what became a huge racketeering enterprise, ordered him Tuesday to forfeit $265 million in gains from his fraudulent operation of Lincoln Savings & Loan.

U.S. District Judge Mariana R. Pfaelzer issued the order despite her concerns that the Department of Justice might use any assets found to cover the costs of its investigation. She had said Monday that any money should go to swindled bondholders in Keating’s company.

Assistant U.S. Atty. Matthew Frank assured her that the government would not try to be reimbursed for the federal salaries in conducting the search for Keating’s assets.

“So the bottom line is, your honor, one way or another, the money is not going to sit at DOJ,” Frank said. “It will go back to the victims.”

Keating and his son, Charles H. Keating III, were convicted in January of racketeering, conspiracy and fraud in operating the Irvine thrift and its Phoenix parent company, American Continental Corp. The 1989 collapse of Keating’s empire is one of the nation’s worst, costing taxpayers $2.6 billion and small investors more than $250 million.

The forfeiture order represents what the federal jury decided was lost in fraudulent bond sales, six phony land sales and tax payments made to American Continental by Lincoln as a result of sham profits on those phony deals in a scheme in which Lincoln paid off a financial obligation of the parent company.

Keating’s lawyer, Scott Devereaux, said he will appeal the forfeiture order. Keating maintains that he is broke.

Among Keating’s known assets are nearly $6 million in IOUs from Keating’s family members and associates, said Joseph W. Cotchett Jr., the chief trial lawyer for small investors who sued Keating and a host of others. The investors, most of them Lincoln depositors, said they were duped into buying the company’s risky bonds at the Irvine-based S&L;’s branches.