Keating, Charles (1924–)

THE SAVINGS and loan (S&L) scandals of the 1980s are considered to be one of the worst financial fiascoes in American history. Charles Keating, the head of Lincoln Savings and Loan, became the major villain of the S&L scandals. Keating has often been referred to as the “Hannibal Lecter of Finance,” a reference to a cannibalistic character in the novel and movie, Silence of the Lambs. Keating's background should have made him an American hero rather than a villain. He had been a fighter pilot during World War II and afterward appeared to be headed for a successful business career as the executive vice president of American Financial in Cincinnati, Ohio. However, in 1979, both Keating and his boss were charged with defrauding stockholders when they approved $14 million in loans to company insiders and to themselves. Keating proclaimed his innocence and was fined. He than attempted to redeem himself through his campaigns against drugs and pornography and with his generous donations to charity.

In 1980, Keating moved to Phoenix, Arizona, and established a holding company, which he called American Continental Corporation. In 1984, Keating acquired the Lincoln Savings and Loan in Irvine, California. Within four years, Keating ostensibly increased the assets of Lincoln Savings from $2 billion to more than $5 billion. In reality, the assets were due to deceptive accounting practices. Keating and his cohorts at Lincoln S&L engaged in the practice of trading empty lots with other companies and listing them as profit-producing sales.

Compounding the company's accounting frauds, Keating invested two-thirds of the company's federally insured deposits in junk bonds and other various high-risk investments. In April 1989, federal regulators took control of the Lincoln S&L. Ultimately, the collapse of Lincoln Savings and Loan cost the American taxpayers $2.6 billion, and the overall bailout of the S&L industry amounted to approximately $500 billion.

When Keating began receiving unwanted attention from the federal government, he decided to use his contacts in the U.S. Senate, Alan Cranston (D-CA), Dennis DeConcini (D-AZ), John Glenn (D-OH), John McCain (R-AZ), and Donald Riegle (D-MI), for protection from government investigators. Keating was apparently so sure that his influence would pay off that he boasted about his “bribes” to reporters. The Senators subsequently became known as the Keating Five, and the ensuing investigation and scandal derailed the Congressional careers of two of the five senators involved in the affair, and stained the reputation of the entire U.S. Senate.

[Page 476]Keating faced a series of trials in both state and federal courts. Altogether, he was convicted of 90 counts of fraud, racketeering, and conspiracy and was sentenced to 12 years in prison. Most of the charges stemmed from the sale of junk bonds that were illegally marketed to thousands of clients, many who were elderly and ill able to deal with substantial financial losses. Keating was also forced to pay $156 million in fines, and the government auctioned off his home. While Keating was serving his sentence, a federal jury in Tucson, Arizona, awarded $3 billion in damages against Keating and his associates for damages to the investors in the S&L swindle.

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