A lawyer for small investors in the parent of Lincoln Savings & Loan argued Monday in federal court in Los Angeles that the corporation was run for the benefit of Charles H. Keating Jr. and his family and that a federal judge therefore can order a worldwide freeze of Keating family assets.
Some 22,000 investors claim in a class-action lawsuit that the $200 million in debt securities they purchased at 29 Southern California branches of the Irvine thrift provided Keating with a lavish life style and bank accounts in Europe and the Caribbean.
But whether as Lincoln or as its parent firm, American Continental Corp. in Phoenix, the business is controlled by Keating, said Joseph W. Cotchett Jr. of Burlingame, one of the lawyers for the bondholders. That control gives investors the right to go after Keating's personal assets, he charged.
But a lawyer for the beleaguered Arizona businessman contended that Keating never held himself out as being personally responsible to the small investors and that they do not have a right to freeze his personal funds.
James Ham of Los Angeles also said Keating had no funds in foreign bank accounts, as the investors allege. And American Continental spokesman Bradley J. Boland, one of Keating's sons-in-law, said after the hearing that the company is fighting in various courts to revive itself and pay off bondholders and other creditors.
U.S. District Court Judge Stephen V. Wilson decided to continue the hearing to Dec. 21 to give himself time to read additional documents filed in the case. The hearing, Wilson said, could be canceled if he decides for Keating on the basis of the written arguments.
The bondholders sued Keating and others in a series of fraud and civil racketeering lawsuits in state and federal courts over the April collapse of Lincoln and American Continental. The holding company filed for bankruptcy protection on April 13, and regulators seized Lincoln the next day.
Lincoln's failure could be the costliest ever, with taxpayers picking up a $2-billion bill.
Plaintiffs in the latest suit claim that much of the money raised through the bond sales--some $34 million--went to salaries, stock purchases and other benefits for Keating and his family. More money was spent on such lavish items as three corporate jets even as the company was struggling financially, Cotchett claimed.
The suit seeks to freeze what investors say is more than $100 million in assets of Keating and his family in such places as Switzerland, Panama and the Bahamas. Keating, however, in a written court statement, said American Continental's connections with overseas banks and brokerage houses were strictly for foreign currency trading and for consulting fees on such trading.
"I do not have bank accounts at any of these banks," he said. "I do not have any overseas bank accounts. I am not aware, nor do I believe, that any of my family maintain (sic) bank accounts at any of these banks, or for that matter, at any overseas bank."