Buyers of Bonds Remain Bitter, Unsatisfied

Charles H. Keating Jr. may be behind bars, but the scores of people who bought bonds from his failed thrift said Friday that his 10-year prison sentence hardly makes up for the loss of their life savings.

Some of the victims have committed suicide; others are destitute. Most of those who bought bonds from Lincoln Savings & Loan and its parent company are still angry at the man who came to symbolize the greed behind the nation’s savings and loan crisis.

“He deserves every day” of the sentence, said Walter Kunkel, 65, of Hollywood, who lost $15,000. “He harmed so many people. But you cannot be vindicated. It doesn’t help to be vindicated. It doesn’t bring the money back and it doesn’t bring the security back.”

Bond salesmen at Lincoln branches allegedly targeted retired customers who had money in government-insured certificates of deposit. More than 17,000 people bought uninsured high-risk bonds issued by American Continental Corp., Lincoln’s parent company. Lincoln’s collapse was the nation’s costliest thrift failure, with a bailout cost of $2.6 billion.

Lawyers for those who bought American Continental stock and bonds have said that they expect to win back all the money in a series of civil lawsuits being tried in U. S. District Court in Tucson. Settlements in the massive case tentatively amount to $242 million. All investors, including the bondholders, lost $285 million.

Nonetheless, many victims of the Lincoln debacle said they wished that the $250,000 fine levied against Keating was higher.

“It is nothing for him,” said Gudrun Walker, 47, of Anaheim Hills, who lost the $25,000 she invested from her late husband’s life insurance policy. “It should be more like $6 million. I would be happier with a lesser jail time and a much larger fine. I want him to feel the same kind of pain.”

Howard Rosenberg, a Sherman Oaks lawyer, was incensed by Keating’s last-minute request that he stay out of prison in return for repaying what he could of investors’ money.

“He’s been out of jail three years and he hasn’t come up with $1.98,” Rosenberg said. “You don’t concern yourself with the victims two minutes before the judge is about to throw you in the slammer.”

Keating’s sentencing on 17 counts of state securities fraud came after more than 120 people--including the Vatican, Mother Theresa, former Texas Gov. John Connally and actress Loretta Young--wrote letters vouching for Keating’s integrity and pleading with the court to put him on probation.

Rosenberg said he was angered by the last-minute show of support. “The Pope didn’t lose any money,” he said.

About three dozen other letter writers, including William J. Crawford, former commissioner of the state Department of Savings and Loan, wanted Keating behind bars for the maximum sentence of 10 years.

Keating’s attorney, Stephen C. Neal, became involved in an extraordinary exchange with a group of bondholders after the sentencing. Neal attempted to persuade them that the government acted rashly in seizing Keating’s assets, and that even when American Continental filed for bankruptcy reorganization, Keating’s plan was to liquidate assets and pay off bondholders first.

Keating is awaiting trial in U. S. District Court in Los Angeles on two indictments charging him with racketeering and fraud, which carry a potential sentence of more than 500 years in prison.

“We definitely intend to proceed with the federal case,” said Terree A. Bowers, chief assistant U. S. attorney in Los Angeles.

In the civil trial in Tucson, bondholders are seeking restitution from Keating and several co-defendants. It would take more than $400 million to cover their losses.

The stockholders and bondholders allege that accountants, attorneys, appraisers, investment bankers and other consultants for American Continental were either negligent or conspired to keep a financially bankrupt company alive for several years after it should have been closed.

Several co-defendants in the civil case, mostly law and accounting firms, have settled out of court.

“I was surprised at the length of the sentence,” Joseph W. Cotchett Jr., one of the attorneys representing the bondholders, said from Tucson. “I’m delighted justice was done on behalf of 20,000 or more elderly victims.

“Charlie Keating finally found a system he couldn’t buy,” he added. “It’s called the American system of justice.”

“He got $250,000?” asked Youssef Davoudian, 68, an Anaheim Hills resident who lost $50,000, referring to Keating’s fine. “All the bondholders lost $250 million. That’s nothing.”

A bondholders group, Lincoln/ACC Bondholders Action Committee, or Victims of Keating, says that 17 Southern California investors have died, seven by suicide, since the revelations about the thrift’s failure in April, 1989.

“This man deserves to stay in prison all his life if justice is done,” said Jack Lower, a 77-year-old retiree who lost his $34,000 life savings in Lincoln junk bonds. “But he’ll probably live in a country club atmosphere, which makes all of us a little leery. He won’t suffer much.”

Associated Press contributed to this story.