Charles Keating

Charles Humphrey Keating Jr. was an American lawyer, homebuilder and financier whose company, American Continental Corporation of Phoenix, bought Lincoln Savings and Loan of Irvine, California, in 1984. The Federal Deposit Insurance Corporation put the cost of Lincoln's failure to taxpayers at 3.14 billion dollars; The New York Times, as cited by NBC News, at 3.4 billion. Five senators who intervened with regulators on its behalf became known as the Keating Five.¹²³

Early Life and Cincinnati

Keating was born in Cincinnati on December 4, 1923, the first of two sons of Charles and Adele Keating. He started college at the University of Cincinnati, served as a Navy fighter pilot in the Second World War, won a national collegiate swimming title, and graduated from the University of Cincinnati College of Law in 1948.¹

With his brother William he practiced at the Cincinnati firm of Keating Muething & Keating. In 1959 he helped the businessman Carl Lindner create American Financial Corporation, serving as its outside counsel and, from 1972, as executive vice president. A Securities and Exchange Commission lawsuit accused the two men of self-dealing; without admitting guilt, they signed consent orders promising not to violate securities laws. Keating founded the Cincinnati anti-pornography group later called Citizens for Community Values, with Lindner as a principal backer, and served on a federal commission on pornography as an appointee of President Richard Nixon.¹² His brother William served in the House of Representatives from 1971 to 1974 and became chairman and publisher of The Cincinnati Enquirer.¹

American Continental and Lincoln

In 1978 Keating bought a Phoenix homebuilding affiliate of American Financial, American Continental, and became its chairman. By 1983 it was the seventh-largest homebuilder in the country, with annual revenue of about 300 million dollars, and it paid 51 million dollars for Lincoln Savings and Loan. "We felt that it was time to diversify," Keating told American Banker. He grew Lincoln tenfold by soliciting brokered deposits from Wall Street firms and put the money into high-yield bonds and real estate development, among them The Phoenician resort in Scottsdale.¹ The economist Alan Greenspan, later chairman of the Federal Reserve, wrote a report stating that Lincoln was sound and had "seasoned and expert" managers.²

The San Francisco office of the Federal Home Loan Bank Board opened an investigation of Lincoln's growth in March 1986. Five senators, Alan Cranston, Dennis DeConcini, John Glenn, Donald Riegle and John McCain, met officials of the bank board on Lincoln's behalf; they had received a combined 1.3 million dollars in donations and gifts from Keating, his family and his companies. Asked whether his giving had caused politicians to take up his cause, Keating answered, "I certainly hope so." In May 1987 the San Francisco regulators recommended seizing Lincoln; the pursuit ended under the successor of the bank board's chairman Edwin Gray, M. Danny Wall, who said the proof was insufficient to justify a seizure. Lincoln was taken over in April 1989, after Keating put American Continental into bankruptcy. The Senate Ethics Committee investigated the five, and Cranston alone was formally reprimanded.¹

Prosecution

Keating was indicted in California on state charges of misleading investors into buying high-risk bonds that were not federally insured; some investors lost their life savings when the bonds defaulted. He was convicted on 17 of 18 counts and sentenced by Judge Lance Ito to ten years, the maximum. A federal grand jury indicted him, his son Charles III and three others on 77 counts of fraud, racketeering and conspiracy, and he was sentenced to twelve and a half years, concurrent with the state term. He was freed in October 1996 after an appeals court overturned the state conviction for faulty jury instructions; the federal conviction was later thrown out because jurors had discussed the state verdict. In 1999 he pleaded guilty to four counts of fraud and was sentenced to the time he had served, four years and nine months, and the charges against his son were dropped.¹²

BCCI

The Senate report of Senators John Kerry and Hank Brown on the Bank of Credit and Commerce International (BCCI) listed among matters requiring further investigation "The financial dealings of BCCI directors with Charles Keating and several Keating affiliates and front-companies, including the possibility that BCCI related entities may have laundered funds for Keating to move them outside the United States. The Subcommittee found numerous connections among Keating and BCCI-related persons and entities, such as BCCI director Alfred Hartman; CenTrust chief David Paul and CenTrust itself; Capcom front-man Lawrence Romrell; BCCI shipping affiliate, the Gokal group and the Gokal family; and possibly Ghaith Pharaon. The ties between BCCI and Keating's financial empire require further investigation."⁴

The persons and entities named were Alfred Hartman, David L. Paul and CenTrust Savings Bank, Larry Romrell of BCCI's commodities affiliate Capcom, the Gulf Group of the Gokal brothers, and Ghaith R. Pharaon. The report's appendix, under BCCI's collusion in savings and loan fraud, cited CenTrust, Caprock Savings and Loan of Texas, and "the involvement of BCCI figures with Charles Keating and his business empire. In each case, BCCI's involvement cost the U. S. taxpayers money."⁴ The executive summary of the report listed the same dealings among the matters left for further investigation.⁵

Death

Keating died in a Phoenix hospital on March 31, 2014, at 90, after an illness of a few weeks. His lawyer, Stephen C. Neal, chairman of Cooley LLP, said that he had "faced adversity with great dignity, wit and courage."¹³