Charles H. Keating, whose leadership of a California savings and loan made him the face of a banking crisis and a millstone around the politicians who tried to help him, has died. He was 90.
His son-in-law, Gary Hall, confirmed his death, according to The New York Times. His longtime lawyer, Stephen C. Neal, said Keating had become ill a few weeks ago and died in a Phoenix hospital on March 31, the Arizona Republic reported.
U.S. prosecutors who dogged Keating for years said he and his associates looted Lincoln Savings & Loan Association into bankruptcy in the 1980s. The cost to taxpayers, according to the Federal Deposit Insurance Corp., was $3.14 billion. He served four years, nine months in prison.
A Phoenix-based land developer, Keating took control of Lincoln in 1984 and proceeded to invest its federally insured deposits in other ventures while battling federal regulators who were trying to crack down on such practices.
Rather than write mortgages, the central business of most savings and loans, Keating grew Lincoln 10-fold by soliciting Wall Street's top brokerages to send large deposits its way, in exchange for generous fees. Keating used the new money to buy high-yield junk bonds and develop more real estate.
"Charles Keating's S&L was the example of how the industry had spun out of control," L. William Seidman, the U.S. regulator who led the government's cleanup of the savings and loan industry, wrote in his 1993 memoir. Under Keating, Lincoln "simply exchanged interest-rate risks for much greater asset quality risks—that is, the old-fashioned, hair-curling risk of speculative real estate investments."
As regulators closed in, Keating made campaign donations to cultivate political allies in Washington.
Five senators—the so-called Keating Five—were investigated by the Senate Ethics Committee for meeting with regulators on Keating's behalf. One of the five was Arizona Republican John McCain, whose involvement with Keating, though minimal in the judgment of the ethics panel, provided fodder for his opponents all the way through his unsuccessful 2008 presidential campaign.
Asked whether his giving caused politicians to take up his cause, Keating famously answered, "I certainly hope so."
The Cincinnati Enquirer reported in 2006 that Keating, then 82, was again developing real estate in Phoenix and insisting he was a responsible businessman who had been scapegoated by the government.
"I knew I was making big money, and I knew I wasn't doing anything wrong," he told the newspaper.
Neal, chairman of Palo Alto, Calif.-based Cooley LLP, said today in an email that Keating "faced adversity with great dignity, wit and courage," and that history "ultimately vindicated so many of his actions."
Charles Humphrey Keating Jr. was born Dec. 4, 1923, in Cincinnati, the first of two sons of Charles and Adele Keating. He competed in swimming and track at St. Xavier High School, started college at the University of Cincinnati, then joined the Navy as a fighter pilot in World War II. He returned to college and won a National Collegiate Athletic Association swimming title before graduating from the University of Cincinnati's College of Law in 1948.
As a partner with his brother, William, at the Cincinnati law firm Keating Muething & Keating (now Keating Muething & Klekamp), Keating in 1959 helped businessman Carl Lindner create American Financial Corp.
The company would make Lindner a billionaire. Keating served as its outside counsel, then joined the company in 1972 as executive vice president.
A Securities and Exchange Commission lawsuit accused the two men of engaging in self-dealing. Without admitting guilt, they signed consent orders promising not to violate securities laws.
Keating and Lindner also shared a concern about social issues. Keating founded a Cincinnati group, eventually called Citizens for Community Values, that fought pornography and counted Lindner as a major financial backer. Keating would go on to serve on a federal commission on pornography as an appointee of President Richard Nixon.
Keating struck out on his own in 1978, buying a Phoenix-based affiliate of American Financial, homebuilder American Continental, and becoming its chairman. By 1983, it was the seventh-largest builder in the U.S., active in Colorado and Phoenix with annual revenue of about $300 million.
It was then that American Continental spent $51 million for Irvine, Calif.-based Lincoln Savings & Loan. "We felt that it was time to diversify," Keating told American Banker magazine.
That meant investing deposits in high-risk, high-yield junk bonds and raising money for more land development by American Continental.
Among his largest ventures was The Phoenician, a luxury resort in Scottsdale, Ariz., that Seidman called "a monument to Keating's ego" and "an extraordinary display of what fun you can have spending other people's money."
A majority interest in the hotel was among the long list of assets that the Resolution Trust Corp., which Seidman chaired, sold off after Lincoln went under. The Phoenician is now a successful resort, and Keating said in 2006 that its viability proves the government was wrong to denigrate his investments.
While running Lincoln, Keating became an outspoken critic of regulators, especially the Federal Home Loan Bank Board and its chairman, Edwin Gray, for their efforts to tighten curbs on risky lending and investments by S&Ls.
The bank board's San Francisco office opened an investigation into Lincoln's rapid growth in March 1986. That's when Keating asserted his political influence.
Five senators—McCain, plus Democrats Alan Cranston of California, Dennis DeConcini of Arizona, John Glenn of Ohio and Donald Riegle of Michigan—met with officials of the bank board on Lincoln's behalf. The five had received a combined $1.3 million in donations and gifts from Keating, his family and his companies. (Cranston would be the only senator officially reprimanded by the Senate Ethics Committee.)
In May 1987, the San Francisco-based regulators recommended that the U.S. seize Lincoln on the grounds of unsound lending. But the pursuit of Lincoln ended under Gray's successor, M. Danny Wall, who said there was insufficient proof to justify a seizure.
Lincoln was finally taken over in April 1989, after Keating placed American Continental into bankruptcy. Keating resigned in August 1990, shortly before he was indicted in California on state charges of fraud.