”It`s been said the best way to rob a bank is to own one.”
– Rep. Stan Parris, (R., Va.).
DATELINE: PHOENIX Charlie Keating just might be the greediest man in America.
Greedy to the tune of 2 1/2 billion dollars.
He`s been accused of using his Lincoln Savings and Loan like a personal cash machine. In three and half years, he and his family took $34 million out of it in salaries, bonuses and dividends. He`s also been accused of pushing $250 million of worthless junk bonds onto hapless retirees. All that money bought him a lifestyle that included far-flung homes, a fleet of aircraft, influence that spread from California to Washington; and friendships with senators, congressmen, even Mother Theresa.
His greed ultimately will come out of your pocket. American Continental Corp., his main company, declared bankruptcy on April 13, 1989. The federal government took over Lincoln the next day. So kiss a crisp new $10 bill goodbye and think of Charlie, because that`s what the failure of Lincoln S&L is expected to cost every man, woman and child in America.
At 66, Charles Keating, a former champion swimmer and a lanky 6 foot 5, is still an imposing man. He walks with a swagger. But his long, lined face is grim, with wispy Grecian gold hair, store-bought teeth, and pale blue eyes behind gold-rimmed bifocals. Stick a pitchfork in his hand and he could step right into ”American Gothic.”
He has that same dour expression, and for good reason. He faces a $1.1 billion civil racketeering suit that charges him with fraud, illegal insider transactions and diverting depositors` money to his own use; several class action suits filed by American Continental Corp. bondholders and stockholders; and investigations by a California grand jury, the Securities and Exchange Commission, the FBI, the IRS and the Justice Department. His legal fees are a million dollars a month.
Five senators, who intervened on his behalf with federal regulators, are being investigated by the Senate Ethics Committee and the FBI. The senators, Democrats John Glenn of Ohio, Alan Cranston of California, Don Riegle of Michigan and Dennis DeConcini of Arizona and Republican John McCain of Arizona accepted a total of $1.4 million in contributions and gifts. Several of the law and accounting firms that worked for Keating are being sued in class action suits.
Adversity has not brought humility. Keating-flanked by his attorneys-stands tall and declares his innocence with ”all my heart and soul.” He was, he says, the victim of a vendetta by overzealous regulators: They, not he, wrecked Lincoln. They, not he, squandered depositers` funds. Meeting their constant demands has drained his energy and resources. ”These guys have taken everything I and my family have,” he said last summer. ”The only thing they are worried about is running me out of business.” He`s trying to prove his case in a Washington, D.C., courthouse, where he is suing the government over its takeover of Lincoln.
The failure of hundreds of savings and loan institutions across the country is the the nation`s greatest financial disaster since the Depression. Some industry analysts expect the final cost to taxpayers to be $300 billion, twice the price of the Vietnam war. Somehow it seems fitting that the biggest single bailout sits directly on the broad shoulders of Charles Keating Jr. Everything he has done in his lifetime has been to an extreme.
He`s always run on the fastest track, putting himself through college and law school in just two and a half years. He`s always worked harder than anyone else, often pulling his big, black Mercedes into his parking stall at 3 a.m. Even when he plays golf, he takes two telephones with him.
And he`s always been an enormous success. In Cincinnati, where he was born, he was right-hand man to billionaire financier Carl Lindner. When he moved to Phoenix in 1976 he took a failing real estate company and turned it into a major home builder. His projects were always first-class. Estrella, a 20,000-acre development outside of Phoenix, the last project he worked on, was to be a model 21st Century city. Now it`s just cactus, desert, and dust.
Through it all, he has remained devoted to his religion, his conservative morals and his family. He attends mass daily and fights pornography relentlessly. Every Sunday, he and his wife, Mary Elaine, have their five daughters and son, Charles III, known as C-3, and their 22 grandchildren, to dinner. Charles III and four sons-in-law work for him. Keating recently built an estate in Paradise Valley, a suburb of Phoenix, and there`s room in the walled-in compound for homes for all his children.
”If you want to know him, you have to see him in the swimming pool with his grandkids,” says his son-in-law, ACC executive Brad Boland.
To say that Charles Keating is a complex man seems a gross understatement. Some see him as an aggressive man who got desperate when the real estate market bottomed out, and crossed the line between ”business as usual” and fraud. Others see him as a con artist who finally got caught, a hyprocrite who masked his greed with phony piety.
He isn`t giving many interviews these days; neither is most of his family. This profile was put together from dozens of interviews with friends from high school to the present, employees, business associates, federal regulators, the former head of the Federal Home Loan Bank Board, Keating`s brother, a son-in-law, and from the transcripts of the House Banking Committee`s hearings on Lincoln which took place last October and November.
`Office would come alive`
People have always looked up to Charlie Keating, and not just because of his size. He`s a natural leader. Roy Lagaly was co-captain of the University of Cincinnati swim team with Keating, but it was Keating who ran the show.
”You could tell even then he was going to be very successful,” says Lagaly, who has stayed in touch. ”He was very ambitious. Whatever he did, he did all the way.”
His personality is as imposing as his height. ”It`s almost magnetic,”
says an employee of ACC. ”When he moves, things happen. The office would come alive when he walked in.”
”Charlie`s just your all-around, great American person,” says Terry Wilson, an Irish balladeer whom Keating met on a trip to Dublin and hired as an ACC executive.
Keating always had a lot of self-confidence, but at some point it became a runaway arrogance that showed itself in a thousand ways. Trivial things like naming a bar in one of his hotels ”Charlie Charlie`s.” And far more substantial things. He didn`t play down his political clout, he flaunted it. Had his political contributions bought him influence? At a press conference he defiantly said, ”I certainly hope so.” He declared war on Lincoln`s federal regulators and intended to win. He almost did.
He knew what was best, not just for him but for everyone. ACC once wrote rules forbidding homeowners in one of its housing developments from
”intentionally terminating a human pregnancy” and allowing the board of directors to go into private homes and remove ”adult material.” Keating backed down when informed that such clauses were unconstitutional.
”He was extremely egotistical,” says a Phoenix businessman who had several run-ins with him. ”Everything had to be his way or no way. He ran everything like a dictatorship. His style was to get so involved he wouldn`t let anyone do anything.”
(Yet he recently told a federal judge he didn`t know what his salary was. His bookkeeper handled his finances.)
That old cliche-”money is no object”-takes on a whole new meaning when it comes to Keating. For jaunts down to his home in Cat Cay in the Bahamas, he`d have one of his planes stocked with $1,000 worth of shrimp and lobster. He didn`t like the $150,000 fountain in the lobby of his Crescent Hotel, in Phoenix, so it was ripped out. His decisions were fast and unforgiving.
Nowhere did the spending get so out of hand as at the Phoenician, a 600-room year-round luxury resort he built at the foot of the Camelback Mountain. It eventually cost more than $300 million, half a million dollars a room. One of its seven swimming pools is lined with mother-of-pearl.
”It was a monument to a monumental ego,” says William Black, counselor for the Federal Home Loan Bank of San Francisco, which has jurisdiction over Lincoln. ”The guy builds a luxury hotel to attract the richest people in the world to Phoenix. But who comes to Phoenix in the summer?”
Keating ordered 80 glass doors at $2,500 apiece for the Phoenician. When his wife, who was the decorator, decided she didn`t like the color of the glass, they were replaced with 80 different $2,500 doors. Wallpaper went up and was stripped off. Keating didn`t like the golf course, so he replaced it. And he didn`t even play golf then.
The Phoenician was seized by the FBI and the Phoenix police in November and is now being run by federal agents. It`s known these days as Club Fed.
$1 million to Mother Teresa
One of the first things Keating did when he moved to Phoenix was to start passing money around, fistfuls of it. The Catholic Church was one of his favorite charities: $100,000 a year to the St. Vincent de Paul Society. Over a million dollars to Covenant House, a New York shelter for teenagers. Over a million dollars to Mother Teresa.
”We`re good friends with that lady,” Keating once boasted. He lent her his helicopter when she was in Phoenix. She gave him a crucifix. In May, he told the Arizona Republic that if he loses everything, he and wife may devote the rest of their lives to working with her.
Another favorite charity was Citizens for Decency through Law, an anti-pornogrphy group he founded in Cincinnati in 1956 and moved west with him. His brother, Bill Keating, president and CEO of the Detroit Newspaper Agency, says Keating has been a crusader since attending a Catholic retreat as a boy. He was Richard Nixon`s sole appointee to the Commission on Obscenity in 1969 and later vowed to be part of ”a holy war” against ”merchants of obscenity.” There are no X-rated movies in his hotels or Playboys on the newsstands.
Of all the names he`s been called of late, ”economic pornographer,” by Rep. Jim Leach (R., Iowa), must hurt the worst.
Another favorite Keating charity was politicians. He passed out money nationally and to the members of the Phoenix city council, the same ones who would vote on zoning laws that would affect his housing projects and shopping centers.
”We didn`t have large contributions prior to Charlie,” says Edward Korrick, a former Phoenix city councilman. ”Contributions were relatively small and council people didn`t spend very much on elections. He raised the ante. It was a way of making himself important. But the contributions had a kicker to them.”
”Did Charlie just pass out money?” asks ACC executive Terry Wilson.
”No, they asked for it. Every one of them.”
The other thing Keating did after he moved to Phoenix was build ACC from a failing real estate company into the leading home builder in Arizona, with $6 billion in assets and a maze of subsidiaries. It was a publicly held company, and he was the chairman and controlling shareholder.
”This was a complicated organization,” William Crawford, the commissioner for the California State Department of Savings and Loans, testified before the House Banking Committee. ”Complicated on purpose, to conceal the true nature of the transactions.”
”Charlie`s web,” Rep. Nancy Pelosi (D., Calif.) calls it.
Clothing allowances
American Continental Corp. occupies a complex of buildings on swanky Camelback Road in Phoenix. In its heyday, 2,500 people worked for ACC and its subsidiaries. Occasionally, some would wear bright yellow ”I like Charlie Keating” buttons. The ACC staff was encouraged to work through lunch, and $500 worth of free sandwiches were brought in every day. Now there are fewer than 75 people left, and the executive/legal building, with its rows of empty desks, looks like a ghost town at noon. There`s not a secretary or a receptionist in sight. Not a coffee cup, either. Lore has it that Keating didn`t allow employees to drink coffee at their desks.
”That`s not true,” says Wilson. ”Of course, he didn`t like when the cups would sit a day or two.”
He also didn`t like chit-chatting, meandering or anything that smacked of idleness. One frequent visitor to the offices described the personnel as
”crisp.” Another calls ACC ”the Stepford corporation.”
”We are not brainwashed,” an employee says to a reporter. ”I wish someone would write that.” When the reporter asks her name, she says, ”I haven`t been given permission to tell you that.”
The employees were uniformly young, good-looking and white. One Hispanic woman resigned, telling a friend she was well-treated and well-paid but felt out of place among all those white faces and all that blond hair.
Clothing allowances kept the women-they were called Charlie`s Angels-stylish. A company plane once flew them to Rodeo Drive in Beverly Hills for a shopping spree. One woman received $5,000 to replace a pair of shoes she had ruined on the job.
Charlie was a hands-on boss who knew most employees, down to the clean-up crews, personally. ”I`ve seen him yell, `How ya doing?` across five desks,” says his friend Hank Sauro. ”He had a marvelous rapport with his employees.” When a reporter leaves Estrella, the project manager, Tyler Williams, tells her to ”print something decent. He`s a good man.”
Keating paid his people handsomely. One secretary made $70,000. Her duties included being on call 24 hours a day, ready for middle-of-the-night flights. On one trip to the Bahamas, her assignment was babysitting for the Keating grandchildren. At one point, 8 of the 17 highest-paid executives in Arizona worked for ACC. And 4 of the 8, including Charles III, were family members.
”Look at the career path of this kid,” says federal regulator Black.
”The guy doesn`t graduate from college, then he goes to work for a country club his dad owns; two years later he`s the president of the country club, and at the ripe old age of 26, he becomes the president of Lincoln Savings. Two years later he`s making over $2 million a year. Keating was very generous with money he got from depositors and the retirees he ripped off.”
”I don`t think we were paid enough,” says son-in-law Brad Boland.
”People don`t realize the hours we put in. This was not an 8-to-5 job.”
In their turn, the employees were expected to be generous with their salaries and contribute to Keating`s causes. Politicians would ”visit,” and the next day a stack of checks would be forwarded. The Los Angeles Times found that Arizona senator John McCain received 51 donations from Keating family members and employees all on the same day.
Ticket to friendly audits
At times, Keating`s generosity could reach astronomical levels. In 1988, he hired Jack Atchison, the Arthur Young partner who had headed ACC`s 1986 and 1987 audits and had given them a clean bill of health. The accountant`s salary jumped overnight from $225,000 a year to $930,000. Atchison also had written a letter on Lincoln`s behalf in 1987, saying it was a ”strong and viable entity.” That was the same year that federal regulators called it ”a ticking time bomb” and first tried to seize it. He recently took the Fifth in front of the House Banking Committee. So did Keating, after he was finally subpoenaed; the first time the servers tried to find him, he was vacationing in Europe.
Atchison was only one of many accountants on the staff. At one time, Keating bragged that he hired 50 away from his auditors. Regulators have noted that that was one way to ensure a friendly audit. And there were even more attorneys around than accountants. Lincoln was the 65th largest S&L in the country, but it was third in terms of legal expenses.
All those lawyers came in handy. A Phoenix businessman says Keating broke his contract with him, then refused to pay the $50,000 he owed him. He wanted to sue him, but his own lawyer advised against it.
”He told me it was useless. He had teams of attorneys and it would cost us more than we were losing.”
”Lincoln kept on threatening suits because it found out that threats worked,” says regulator Black.
The money and the perks Keating passed out breed a strange kind of loyalty. Recently an employee stopped a reporter in the ACC parking lot and asked her what she was doing on the premises. When the reporter said she`d leave, the woman, who refused to give her name, stationed herself behind the reporter`s car and said, ”You`ll have to run me over first.”
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Monday: ”Victory,” then the crash.
