Charles Keating - Legal Consequences

Legal Consequences

Keating blamed government regulators for the failure of Lincoln Savings and filed suit in order to regain control over the bank. The suit was dismissed in August 1990, with the judge calling the seizure fully justified because of the looting of the institution by Keating and his associates. By then, Keating's legal fees were running at $1 million a month.

In September 1990, Keating and his associates were indicted by the State of California on 42 counts related to having duped Lincoln's customers into buying worthless junk bonds of American Continental Corporation; Keating went to jail when he could not post a $5 million bond. He was convicted in December 1991 of 17 counts of fraud, racketeering, and conspiracy. Mother Teresa asked the court to show leniency to Keating, in recognition of the considerable sums he had donated to her charitable operations. However, in April 1992, California Superior Court Judge Lance Ito gave Keating the maximum 10-year prison sentence, quoting Woody Guthrie's line that "More people have suffered from the point of a fountain pen than from a gun." Keating went to the medium-security Federal Correctional Institution, Tucson to serve his time.

In May 1992, Keating's son-in-law Robert M. Wurzelbacher Jr. (married to his daughter Elizabeth), a senior vice president of American Continental, and chief executive of an investment firm owned by Lincoln Savings, was also implicated, pleaded guilty to three federal fraud counts in connection with the collapse of the Lincoln Savings and Loan Association and agreed to testify against Keating. (In December 1993, Wurzelbacher was sentenced to a 40-month prison term.)

In January 1993, a federal conviction followed, on 73 counts of fraud, racketeering and conspiracy. In July 1993, Keating was given a 12½ year sentence. The judge also ordered Keating to pay restitution of $122 million to the government, but Keating said he was $10 million in debt and had no assets to sell.

One case filed by the U.S. Securities and Exchange Commission was settled in 1994: Keating claimed to be bankrupt but agreed to repay millions should any hidden assets be discovered. A third case filed by the Resolution Trust Corporation resulted in a summary judgment of $4.3 billion against Keating and his wife in 1994, the largest judgment ever against a private person. (The judgment was overturned on appeal in 1999, on grounds that Keating could not be held personally liable to the government without a specific criminal conviction or some other decision at trial.)

Throughout his imprisonment, Keating maintained his innocence, saying he was a "political prisoner" of the U.S. government and a scapegoat for the largest banking scandal in the nation's history.

In April 1996, the 9th U.S. Circuit Court of Appeals in San Francisco ruled that state trial judge Ito had mistakenly allowed the jury to convict Keating by giving them faulty instructions as the law as regarding fraud. Thus, the conviction was overturned. In December 1996, the same Court of Appeals ruled that some of the jurors in the federal case might have been influenced by their knowledge and discussion of the results of the state case, and threw out the federal conviction. Keating was now a free man after having spent 4½ years in prison; he later said that staying tough during his incarceration was the thing he was proudest of that he had done.

In April 1999, on the eve of the retrial of the federal case, Keating entered a plea agreement. He admitted to having committed four counts of wire and bankruptcy fraud by extracting nearly $1 million from American Continental Corp. while already anticipating the collapse that happened weeks later. In return, the federal prosecutors dropped all other charges against him and his son, Charles Keating III. He was sentenced to the over four years time he had already served.

In October 2000, the U.S. Supreme Court refused to hear the government's appeal of the overturning of the state conviction. This left Keating without any convictions on his record of the core charge that he had duped and defrauded investors by having them switch from insured accounts for junk bonds. State prosecutors declined to move for a retrial, saying it would bring no more than a six-month jail sentence and that many witnesses had died in the interim or were in bad health. In reaction, Keating said that if the government had left him alone, investors "would all be rich."