Government lawyers Thursday attacked claims by Charles H. Keating Jr. that regulators were responsible for his Lincoln Savings and Loan Co. losing a $9 million profit from a stock deal.
The transaction in the week after the Oct. 19, 1987, ``Black Monday' stock market crash is a centerpiece of the government's allegation that Keating illegally used the $5.5 billion thrift's federally insured deposits to make risky investments in junk bonds and finance his Arizona real estate empire.Regulators say taxpayers could have to pay up to $2 billion to cover Lincoln's losses, making it the costliest of more than 500 thrift failures the past two years.
In the 12th day of a hearing on Keating's lawsuit to undo the federal takeover of Lincoln in April, his top aide testified that Lincoln could not have bought back 79,275 shares of Memorex it sold four months earlier without violating a promise to regulators to buy no more stock.
Judith Wischer, president of Lincoln's holding company, American Continental Corp., said the pledge was made at an Oct. 21, 1987, meeting with regulators.
Because of that, she told U.S. District Court Judge Stanley Sporkin, she and other top executives of Lincoln and American Continental decided Oct. 23 to have the parent company buy the stock rather than have Lincoln repurchase it from Tuscon stockbroker and developer Ernest C. Garcia.
Regulators in the Treasury Department's Office of Thrift Supervision and former Federal Home Loan Bank Board have denied that any such pledge was made at the Oct. 21 meeting.
Government lawyers Thursday presented a deed of transfer of the Memorex stock from Garcia to American Continental signed by Lincoln's president, Bruce Dickson, and dated Oct. 21 - two days before Wischer said the decision was made.
``The date is not the correct date,' Wischer said. ``I don't know why the dates differ. The transaction was agreed to late Friday night or Monday morning (Oct. 23 or Oct. 26).'
Dickson, who also was a senior vice president of American Continental, has refused to testify on Keating's suit, claiming a Fifth Amendment constitutional protection against self-incrimination.
Possible criminal charges against officials of Lincoln and American Continental are being considered by a federal grand jury in Los Angeles.
Government attorneys contend the Oct. 21 deed is evidence that Keating never intended for Lincoln to reap all the profits from the Memorex stock and that the purchase through American Continental was an illegal ``usurpation of corporate opportunity.'
They also cited Lincoln's purchases of $19 million in stock in November and another $17 million in December as evidence that Lincoln was continuing to invest in equities despite claims by its officials they had promised regulators they would not.