WASHINGTON — Federal regulators filed a record-breaking $40.9-million claim for restitution against Charles H. Keating Jr. and five associates Thursday, charging them with using phony tax shelters and dubious land deals to divert money from the failed Lincoln Savings & Loan Assn.
The action was the biggest restitution order filed by federal thrift regulators. The next largest was a recent $24-million claim against Thomas Spiegel, former chief executive of Beverly Hills-based Columbia Savings & Loan.
The complaint demands that Keating, who has said he is virtually penniless, provide a list of his assets within five days. It forbids him from sending money out of the country and requires that he give the government two days' notice before moving any assets of more than $5,000.
"We do not believe Mr. Keating's statement that he is broke," T. Timothy Ryan, director of the Office of Thrift Supervision, told a news conference. "It's up to him to prove to us that he is broke."
Keating and his family members and associates "profited from the improper use of depositors' funds, and we want that money returned to Lincoln," Ryan said.
The complaint also proposes to remove Keating and five others as officers and directors of American Continental Corp., the parent firm of the defunct Lincoln S&L, and bar them from future connections with any federally insured financial institution.
The OTS complaint is "harassment," said Bradley J. Boland, a spokesman for American Continental and a son-in-law of Keating. "When they can't get what they want in a court of competent jurisdiction, they resort to harassments."
"The government knows exactly what Charlie is worth," he added. "They are trying to get blood out of a turnip. He is not worth 40 cents, let alone $40 million."
Boland said neither Keating nor members of his family had any foreign bank accounts.
Thursday's action was prepared in a cooperative effort by the OTS and the civil division of the Justice Department, which are working closely on actions against officers involved in 100 major S&L collapses.
Irvine-based Lincoln was the 11th-largest S&L seized by the federal government. Taxpayers will eventually foot a bill of at least $2 billion to repay the depositors of the failed thrifts, whose accounts are insured up to $100,000.
Federal officials want to "disassemble the magic pyramid, brick by brick, to provide an accounting of where the money has gone," Assistant Atty. Gen. Stuart M. Gerson told the news conference.
"We explicitly endorse this action because of the speed" associated with recovering the money," he added.
The federal government last year filed a $1.1-billion civil fraud and racketeering case against Keating, chairman of Phoenix-based American Continental. The lawsuit is a complex case that may stretch out for years in trial and appeals.
By contrast, the OTS civil complaint filed Thursday could reach a much speedier conclusion, Ryan said. A federal administrative law judge will conduct a hearing on the issue in October, with Ryan making the final ruling later. His decisions can be appealed in court.
Lincoln was seized by the federal government in April, 1989. American Continental has filed for bankruptcy protection. Keating and other Lincoln and American Continental officials have not been charged with criminal wrongdoing.
In addition to presiding over a financial empire that included one of the biggest S&L failures to date, Keating has become a controversial political symbol of the entire thrift crisis. He donated generously to the campaigns of the Keating Five, a group of U.S. senators who intervened with federal S&L regulators on his behalf.
The Senate Ethics Committee is conducting an inquiry into the activities of those senators: Alan Cranston (D-Calif.), John Glenn (D-Ohio), Donald W. Riegle Jr. (D-Mich.), Dennis DeConcini (D-Ariz.) and John McCain (R-Ariz.).
Thursday's complaint seeks the return of money allegedly lost through improper deals arranged by Keating and the others.
The total losses of $40.9 million would be repaid with the assets of Keating and the others if the OTS wins its cases.
In addition to Keating, the complaint names his son, Charles H. Keating III, executive vice president; Judy J. Wischer, president and chief executive; Robert J. Kielty, senior vice president and general counsel; Robert J. Hubbard, a son-in-law of Keating and vice president, and Robert M. Wurzelbacher Jr., another Keating son-in-law and vice president. All serve as American Continental directors. The action by OTS may jeopardize the negotiations between another government agency, the Resolution Trust Corp., and the owners of American Continental bonds, who hold $275 million in worthless corporate debt securities. The bondholders, the biggest group of unsecured creditors in American Continental's bankruptcy, have been negotiating with the RTC over a corporate reorganization plan that would give all creditors $21 million and oust Keating from control of the company.