Former Aide Says Keating Tightly Controlled Lincoln
LOS ANGELES (AP) _ A former official of Lincoln Savings & Loan said Charles Keating Jr. made junk bond sales a top priority for the financially troubled thrift by personally setting interest rates and getting daily updates on the sales.
Robin S. Symes was the top-ranking Lincoln executive based at the company’s Irvine, Calif., headquarters in November 1986, when the bond sales began. He said, though, that Keating and other officials at Keating’s American Continental Corp. in Phoenix directed the bond program for Lincoln.
″The bond sales were always a very high priority, in fact, the highest priority for the branches,″ Symes testified Thursday at Keating’s trial on charges of fraudulently claiming the bonds were safe.
They became worthless when American Continental filed for bankruptcy protection and Lincoln was seized by regulators in April 1989.
Thousands of bondholders lost $250 million. Keating is charged in 20 bond purchases by investors who previously had purchased insured certificates of deposit at Lincoln.
Symes told how Keating and American Continental’s chief financial officer decided to lie to some bondholders in October 1988.
Those investors are not the ones named as victims of Keating’s alleged fraud. They owned bonds that were senior to the junk bonds sold at Lincoln branches.
Symes said that in the early stages of the Lincoln sales, Keating decided not only the interest rates but the maturity dates for each issue of bonds after the initial one.
Under cross-examination by Keating attorney Stephen C. Neal, Symes acknowledged that when the sales began, the bond sellers were told clearly that the bonds were risky.
Symes said he personally was unaware of any times when bond sellers discussed anything with prospective buyers that wasn’t covered in the prospectuses describing the risks of the bonds.
His testimony about lying was the first direct evidence that Keating was willing to deceive investors in his now-crumbled financial empire.
Symes said the mention of lying arose during a conference at ACC’s headquarters. Keating took a call from James Dahl, a trader at Drexel Burnham Lambert Inc., the now-collapsed leader of the junk bond market.
Dahl, his voice amplified so Symes and others in the room could hear, said he had located investors willing to sell their senior ACC bonds at a large reduction from the face value, Symes said.
Dahl wanted to know if Keating wanted to buy back the bonds, and Keating said he did, Symes testified.
He said Dahl explained he was telling the potential sellers there was only a 50-50 chance that ACC could meet interest payments on the bonds, because worried banking regulators were trying to cut off a big income source: dividends from ACC’s main subsidiary, Lincoln Savings.
However, Dahl said the bondholders wouldn’t sell if they knew that the buyer was ACC, Symes testified.
He said Keating put his chief financial officer, Andy Liggett, on the line to assure Dahl that any bondholders who asked would be told ACC had no plan to buy back its bonds.
Keating then told Dahl to go ahead with the purchases, Symes testified.
Outside the court, bondholders said it was clear evidence of Keating’s deceptions.
″It’s the first time the jury has seen how he misrepresented things. Hopefully, it’s the first nail in his coffin,″ said Mike Lappin of Sherman Oaks, who said he lost $35,000 on Keating’s bonds.
Prosecutors also hope it will convince jurors that Keating knew regulators thought his companies were in trouble, but continued to allow bond sellers at Lincoln branches to portray them as healthy.
Keating, 67, faces up to 10 years in prison. He blames power-hungry regulators for hounding his businesses into insolvency and causing the losses to bondholders. He says the bond sales were set up by the best lawyers and accountants in the country and he was unaware of any deceptive sales pitches.