Keating Plea Deal Reawakens Pain in Victims of Fraud

She calls herself one of the “losers,” one of the trusting, unsophisticated people who plowed their life savings into junk bonds sold at Charles H. Keating Jr.’s savings and loan.

A widow with a ninth-grade education, who grew up poor in Arkansas and still sews her own clothes, Wanda Bean lost almost every nickel her husband left her to Keating’s infamous junk bond deal.

On Wednesday, a place deep inside her that hasn’t hurt for a while began to sting again. Bean learned that Keating had agreed to a federal plea bargain and was off the hook. Keating had beaten the system, Bean said. It made her feel like dirt.

“It’s terrible,” she said. “That man should be so far back in jail he could never get out again. I can only hope that sometime, somehow, he will hurt as much as I have.”

Keating, 75, accepted a deal Tuesday in which he pleaded guilty to federal bankruptcy fraud charges and was spared serving more prison time.

Other charges of fraud, conspiracy and racketeering were dropped. His conviction in state court on those charges had been overturned by a federal judge.

Under the plea agreement reached Tuesday, Keating also was not required to pay restitution. Prosecutors say he has no money to pay victims.

Bean, 72 and living in a Sylmar trailer park, was among the thousands of Southern California investors who thought they were buying safe, insured investments from Lincoln Savings & Loan, the thrift Keating ran in the mid-1980s. But they were actually buying junk bonds in the S&L;’s parent company, American Continental Corp. In the end, they became the human wreckage, as one defrauded investor put it, of one of the most notorious financial failures of recent times.

When Lincoln Savings and American Continental went belly up in 1989, many of these investors, who called themselves “The Losers,” banded together and held monthly meetings in Sherman Oaks. They worked as one to try to get their money back and consoled each other about their financial ruin. Now, many are scattered and alone. Most are elderly and some have died.

Some of the victims feel wronged, shortchanged, forgotten. Others are mystified at how such a well-documented scandal of enormous scale--with 23,000 investors and $285 million gone--ended with the culprit serving less than five years and cleared of any fraud regarding investors.

Keating’s guilty pleas Tuesday to four counts related only to bankruptcy fraud charges in Phoenix, where he and American Continental were based. Charges of racketeering, bank fraud, securities fraud and other wrongdoing were all dismissed as part of the plea agreement, which also limited his punishment to time served.

“This was one of the clearest-cut cases of bank fraud in the annals of banking history,” said Tom Shelley, who saw his $17,000 investment evaporate. “I feel tremendous disgust and let down by our justice system. Bondholders should have gotten full restitution and Keating should not have been allowed to go free because of technicalities.”

Shelley is convinced that Keating has assets abroad and is furious that federal authorities weren’t more aggressive in searching for them.

Shelley said it is part of the cycle of broken promises that began with the syrupy bond salesman he met in Woodland Hills. It continued through the private attorneys who he said promised victims that they would recoup everything in a class-action suit, and ended with U.S. authorities who Shelley feels were so eager to close the Keating file that they went back on their word.

The plea bargain looks like it may be the finale to a decade-long court battle. In 1991, Keating was convicted of securities fraud in state court. He argued, unsuccessfully, that investors eager for big returns were at fault.

The next year he was sent to prison. In 1993 he was convicted of fraud and racketeering in federal court. Both convictions were overturned on appeal, and Keating was released in 1996 after serving four years and eight months behind bars.

State prosecutors are appealing the reversal of the state conviction, but it is unlikely that Keating will go back to prison for those charges, because he had almost served out his sentence when the case was overturned.

Some of the scandal’s victims are upset that Keating never apologized, even at his plea bargain hearing.

“That’s what was missing,” said Leah Kane, an elderly woman in Laguna Woods who invested $20,000 in Keating’s junk bonds.