Charles Keating Trials: 1991-99

Defendant: Charles F. Keating, Jr.
Crimes Charged: First trial: Securities fraud; Second trial: fraud, conspiracy, racketeering
Chief Defense Lawyers: Stephen C. Neal; several other attorneys have represented him over the course of his many civil and criminal trials
Chief Prosecutor: William Hodgman; several others have prosecuted him at the state and federal level
Judge: Lance A. Ito
Place: Los Angeles, California
Dates of Trial: First criminal trial: November 18-December 4, 1991; second trial: January 3, 1993
Verdict: First trial: Guilty on 17 of 18 counts; second trial: guilty on 73 counts
Sentence: Second trial: 151 months in prison, overturned after Keating had served 50 months of the sentence; over the years, fines of several hundred thousand dollars

SIGNIFICANCE: Charles Keating was convicted for securities fraud in connection with the largest savings and loan collapse in history, which cost the American taxpayers $2.6 billion. The repercussions reached the U.S. Senate, where five senators (Cranston, DeConcini, Glenn, McCain, and Riegle), known as the "Keating Five" were investigated for ethics violations in connection with their helping Keating avoid federal regulators in return for large campaign contributions.

The problems experienced by the savings and loan industry did not begin with the spectacular wave of collapses in the late 1980s. In fact, there have been financial problems with savings and loan (S&Ls) institutions for nearly 20 years before then. In the 1970s, S&Ls chafed under federal restrictions that limited the amount of interest they could pay to depositors, the types of investments S&Ls could make and when they could borrow money. Many of these restrictions made the S&Ls uncompetitive with traditional banking and finance companies.

Congress bowed to S&L lobbying, abolished the interest rate limitations on deposits, and lifted restrictions that previously only permitted S&Ls to invest in single-family home mortgages. Congress believed that deregulation would bring private-sector money into S&Ls and revitalize the industry without federal involvement. In many respects, Congress deregulated the S&Ls rather than spend federal money to bail them out, with disastrous consequences.

Charles F. Keating, Jr., was one of many people who would treat S&L deregulation as a license to steal. Keating was a close associate of Carl Lindner, a wealthy businessman from Cincinnati, Ohio who owned the American Financial Corporation (AFC). In 1976, Keating bought a subsidiary of AFC called American Continental Homes from Lindner, which Keating later renamed American Continental Corporation (ACC). ACC embarked on several ambitious real estate development projects, mostly in Arizona and Colorado. To finance its activities, ACC set up its own in-house mortgage company and was a pioneer in creating the type of financial package and instrument known as the "mortgage-backed security." Keating, however, had his sights much higher.