- In full:
- Charles Humphrey Keating
- Born:
- December 4, 1923
- Died:
- March 31, 2014 (aged 90)
Charles H. Keating
-
Who was Charles H. Keating?
Charles H. Keating (1923–2014) was an American businessman who became a central figure in the savings and loan crisis of the 1980s and 1990s. As head of Lincoln Savings and Loan, his fraudulent activities led to the company's collapse in 1989. Keating enlisted in the U.S. Naval Air Corps during World War II and later earned a law degree. In 1979, while at American Financial Corporation, he faced charges from the SEC for defrauding stockholders. In 1980, he established American Continental Corporation and acquired Lincoln Savings and Loan in 1984. His actions resulted in significant financial losses, a government bailout, and multiple fraud charges.
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What kind of businesses was Charles H. Keating involved in?
Charles H. Keating was involved in several businesses. He founded his own legal firm in Cincinnati in 1952 and later became the executive vice president of the American Financial Corporation, an insurance company. In 1980, Keating established a real-estate development company called American Continental Corporation in Phoenix, Arizona. In 1984, he acquired Lincoln Savings and Loan, based in Irvine, California, which eventually collapsed due to fraudulent activities, leading to the savings and loan crisis.
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What was the Lincoln Savings and Loan Association?
Lincoln Savings and Loan was acquired by Charles H. Keating in 1984. Keating increased the bank's assets from $1 billion to over $5 billion in four years; however, these assets were largely fictional due to deceptive accounting practices.
Keating invested two-thirds of Lincoln's federally insured deposits in junk bonds and high-risk ventures. When federal regulators began scrutinizing Lincoln, Keating appealed to five U.S. senators to whom he had made large campaign contributions, known as the Keating Five.
Federal regulators seized control of Lincoln in 1989, when it was insolvent. Lincoln's collapse led to a $3 billion loss covered by the Federal Savings and Loan Insurance Corporation (FSLIC).
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How was Charles H. Keating connected to the savings and loan crisis?
Charles H. Keating was a central figure in the savings and loan crisis of the 1980s and 90s. As head of Lincoln Savings and Loan, his fraudulent accounting practices inflated the bank's assets, while he invested heavily in risky ventures using federally insured deposits. When regulators scrutinized Lincoln, Keating enlisted the help of five U.S. senators, dubbed the Keating Five, by leveraging large campaign contributions. The collapse of Lincoln Savings and Loan in 1989 led to a massive bailout and contributed significantly to the savings and loan crisis, costing American taxpayers an estimated $124 billion. Keating faced multiple fraud, racketeering, and conspiracy charges, resulting in convictions and prison time.
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What legal troubles did Charles H. Keating face?
Charles H. Keating faced multiple counts of fraud, racketeering, and conspiracy, leading to trials in state and federal courts. In 1979, the SEC charged Keating with defrauding stockholders, resulting in a fine. In 1991, he was convicted and sentenced to 10 years in prison, followed by a 12-year concurrent sentence in 1993. He also had to pay $156 million in fines, and the government auctioned his home. Although his state convictions were set aside in 1996 due to jury prejudice and incorrect instructions, and his federal convictions were overturned on technical grounds, Keating pleaded guilty to wire and bankruptcy fraud in 1999. His criminal activity as the head of Lincoln Savings and Loan led to its collapse in 1989.
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How did Charles H. Keating’s actions impact banking rules in the United States?
Charles H. Keating's fraudulent activities as head of Lincoln Savings and Loan during the 1980s savings and loan crisis led to significant regulatory reforms in the U.S. banking system. His actions, which included deceptive accounting practices and high-risk investments, resulted in the collapse of Lincoln Savings and Loan, costing taxpayers billions of dollars.
In response to the crisis, the U.S. government enacted the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act in 1990, which increased penalties for bank fraud and broadened banking law enforcement. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) was also amended to better prosecute bank crimes. These measures aimed to prevent financial misconduct and restore lost assets to victims of bank crimes.
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Charles H. Keating (born December 4, 1923—died March 31, 2014) was an American businessman best known for his role in the savings and loan crisis of the 1980s and ’90s, which resulted in the closure of about half of all savings and loan associations in the United States and the bankruptcy of the Federal Savings and Loan Insurance Corporation (FSLIC). Until the subprime mortgage crisis of 2007–08, the savings and loan crisis was considered to be the worst financial disaster in the United States since the Great Depression. Keating, whose criminal activity as the head of Lincoln Savings and Loan led to its spectacular collapse in 1989, became the face of the crisis.
While studying business at the University of Cincinnati, Keating enlisted in the U.S. Naval Air Corps and trained as a fighter pilot during World War II, though he never served in combat. After his discharge in 1945 he returned to the University of Cincinnati, where he won a national collegiate swimming championship. He attended law school and established a successful legal practice, founding his own firm in Cincinnati in 1952. In the 1950s Keating gained a national reputation for organizing citizens’ groups to campaign against pornography and what he considered indecent literature.
In 1972 he left his law firm to become executive vice president of the American Financial Corporation, an insurance company. However, in 1979, both Keating and Carl H. Lindner, Jr., the head of the company, were charged by the Securities and Exchange Commission (SEC) with defrauding stockholders for having approved $14 million in loans to themselves and other officers of the company. Keating maintained his innocence but was fined.
In 1980 Keating moved to Phoenix, Arizona, and established a real-estate development company, which he called American Continental Corporation. In 1984 he acquired Lincoln Savings and Loan, based in Irvine, California. Within four years, Keating ostensibly increased the assets of the bank from about $1 billion to more than $5 billion. In reality, much of Lincoln’s assets were fictional, having been created through deceptive accounting practices. In one such practice, Keating and his partners at Lincoln traded empty lots with other companies and listed the trades as profit-producing sales.
Compounding the damage caused by his accounting fraud, Keating invested two-thirds of Lincoln’s federally insured deposits in junk bonds and other high-risk ventures. In the mid-1980s, when Lincoln began receiving unwanted attention from federal regulators, Keating appealed to a group of five U.S. senators to whom he had given large sums of money in campaign contributions. In 1987 the so-called Keating Five—Alan Cranston, Dennis DeConcini, John Glenn, John McCain, and Donald Riegle—duly intervened on Keating’s behalf with the director of the federal agency that oversaw the operation of the country’s savings and loans. Keating was apparently so sure that he would benefit from his influence with the senators that he boasted to reporters about his “bribes.” The Keating Five were subsequently investigated by the Senate in a scandal that ultimately derailed the political careers of two of the senators involved.
In 1989, federal regulators finally took control of Lincoln, which by then was insolvent. Its collapse, which required the Federal Savings and Loan Insurance Corporation (FSLIC) to cover more than $3 billion in losses, was the largest of more than 1,000 failures in the savings and loan industry. The savings and loan crisis ultimately bankrupted the FSLIC and cost American taxpayers an estimated $124 billion.
Charged with multiple counts of fraud, racketeering, and conspiracy, Keating faced a series of trials in both state and federal courts. In 1991 he was convicted and sentenced to 10 years in prison, and two years later he was convicted on separate charges and sentenced to a prison term of 12 years, to run concurrently with his previous sentence. He was also forced to pay $156 million in fines, and the government auctioned off his home.
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In 1996 a judge set aside Keating’s state convictions, finding that the jury had been prejudiced by prior knowledge of Keating’s affairs and that the trial judge had given the jury incorrect instructions. Later that year Keating’s federal convictions were also overturned on technical grounds. In 1999 Keating pleaded guilty to wire and bankruptcy fraud but was not returned to prison.