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Feds Seek $40.9 Million from Keating, Associates

August 9, 1990

WASHINGTON (AP) _ Federal regulators moved Thursday to recover $40.9 million from Charles H. Keating Jr. and five associates for losses the regulators claim the failed Lincoln Savings and Loan suffered from sour business deals.

The Office of Thrift Supervision also demanded a complete accounting within five days of Keating’s personal assets as it seeks restitution from the Arizona businessman and his associates.

OTS Director Timothy Ryan said regulators do not believe Keating’s repeated claim that he went broke when his American Continental Corp., the Phoenix- based holding company that owned Lincoln, filed for bankruptcy protection.

″There was just too much money available to him and to short a time for it to disappear,″ Ryan told reporters at a news conference. ″We believe Mr. Keating and his associates profited from the improper use of depositors’ funds and we want that money returned to Lincoln.″

The $40.9 million is sought from Keating and the five executives either individually or as a group, Ryan said. It is the largest amount sought in a thrift restitution proceeding.

The administrative charges also seek to permanently bar Keating and the five executives of American Continental from the thrift industry and to remove them from the Phoenix-based company.

The restitution is being sought to cover losses to the savings and loan from three business deals that OTS attorney Richard Delliveneri said were ″evidence of blatant disregard for the safety and soundness of Lincoln Savings.″

These include the $24.2 million Lincoln lost when a subsidiary invested in a money-losing Detroit hotel and $4.4 million it lost from the purchase and resale of Arizona desert land that regulators say falsely inflated the thrift’s profits.

OTS also seeks to recover $12.3 million Lincoln lost to finance the purchase of American Continental stock from Keating and others by an employee stock-ownership plan.

The business deals allowed Keating and his associates to take tax deductions and enjoy other personal financial benefits, regulators charges. Ryan said OTS was investigating other transactions involving Lincoln and may file charges to seek more restitution from Keating.

The Irvine, Calif., thrift made heavy investments in the junk bond market, losing $2 billion before it was taken over by federal regulators on April 14, 1989. American Continental, which Keating chairs, filed for bankruptcy protection a day before Lincoln’s seizure.

Keating could immediately challenge in federal court the temporary cease- and-desist order, which directs him to account for his assets and bars him from transferring anything worth $5,000 without first informing OTS.

The OTS charges will be heard by an administrative law judge in late October, Ryan said. A final OTS decision can be appealed to federal circuit courts.

Besides Keating, the OTS charges were also filed against Judy J. Wischer, president and chief executive officer of American Continental; Robert J. Kielty, a director, senior vice president and general counsel of the company; Keating’s son, Charles H. Keating III, an executive vice president and director; and two of Keating’s sons-in-law who are vice presidents, Robert J. Hubbard and Robert M. Wurzelbacher Jr.

OTS also seeks their removal as American Continental officers.

Bradley Boland, Keating’s son-in-law and a spokesman for American Continental, said Thursday that the six executives will ″take every legal opportunity that is available″ to fight the charges.

Boland scoffed at the allegations, calling them ″the same old wine from the same old bottle″ and accusing OTS of political grandstanding.

A $1.1 billion racketeering and fraud suit filed in September against Keating and his associates by the Federal Deposit Insurance Corp. and the Resolution Trust Corp. charges they fraudulently diverted depositors’ money for business dealings.

Separately, a federal grand jury in Los Angeles is investigating Keating’s dealings at Lincoln.

The Justice Department is also examining whether Keating improperly donated $1.3 million to five senators who met on his behalf with federal regulators in 1987, law enforcement sources say.

The Senate Ethics Committee is reviewing allegations of improper intervention with regulators by the five senators: Dennis DeConcini, D-Ariz., John McCain, R-Ariz.; Alan Cranston, D-Calif., Donald W. Riegle Jr., D-Mich., and John Glenn, D-Ohio,

An American Continental suit challenging Lincoln’s seizure is pending before a federal judge here.

The second-largest restitution case is a $24 million suit filed this year against Thomas Spiegel, former owner of the financially troubled Columbia Savings and Loan Association of Beverly Hills, Calif.

DT

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