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April 2, 2014

Host: Ted Simons

Charles Keating

  • Charles Keating was a man who exemplified how money could influence politics. Keating has died in Phoenix at age 90. His association and political contributions to the so-called “Keating Five,” a group of lawmakers that included then Arizona Congressmen John McCain and Dennis DeConcini, helped him get favorable treatment from regulators. Keating’s Lincoln Savings and Loans collapsed, leaving many with worthless investments and costing taxpayers billions of dollars. Michael Manning was the lead counsel for the FDIC in prosecuting Keating, and will look back on his role.
  • Michael Manning - Lead Counsel, FDIC
Category: Politics   |   Keywords: political, fdic, role, charles keating, phoenix, taxpayers,

View Transcript
Ted Simons: Charles Keating Jr. exemplified how money could influence politics. Keating admittedly hoped his campaign contributions would result in favorable treatment from elected officials. Keating built a financial empire that eventually collapsed, leaving many retirees with worthless investments and costing taxpayers billions of dollars. Michael Manning was the lead counsel for the FDIC in prosecuting Keating for wire and bankruptcy fraud. Goodness knows what else. Manning joins us to look back on the life of Charles Keating. Good to have you here.

Michael Manning: Good to be here.

Ted Simons: Who was Charles Keating?

Michael Manning: He was an interesting and complex guy. He was a lawyer from Ohio who moved out here, bought American Continental and Lincoln Savings. Lincoln savings only operated in southern California, but the headquarters was here in Phoenix. So he bought it in about '84, and shortly thereafter Congress deregulated S&Ls so they could make investments, risky investments and Charlie took that as a license to really go crazy. And he did.

Ted Simons: We should mention American Continental became a major home builder in the area.

Michael Manning: It was.

Ted Simons: And Dobson Ranch and other developments, these were Keating developments.

Michael Manning: The guy was a brilliant and charismatic man. No one could ever take that away from him. And had he stayed straight, and just played by the rules that everybody else played with, even bent them a little bit, but not broken them, he would have been one of our state's leading and most well-respected businessman.

Ted Simons: Before we go further, I want to go on that line. Why, then, did he decide to make the decisions he did?

Michael Manning: Well, he was unfortunately he was really affected by the Michael Milken era of excess. He went to the Predators’ Ball, he wanted to be like Mike. So the conspicuous consumption of Lincoln Continental and Charlie Keating really drove him to do deals that he shouldn't be doing.

Ted Simons: So back to the original formula here, how did the success with Continental and the initial success with Lincoln, how did that lead to this vast empire with Lincoln?

Michael Manning: Well, he moved away from his successful home building development enterprise and started doing these risky investments, and then he started doing them illegally. Back dating documents, providing loans to people without appropriate credit checks. So he took the money -- And it wasn't just investor money, it was also our money, it was tax dollars -- And really spewed that around in very high-risk investments.

Ted Simons: What were the first signs that Lincoln wasn't on the up and up?

Michael Manning: Well, the first sign were not evident to the regulators until about '88, because Charlie hired the best lawyers he could find and the best accountants, paid them by return mail premium fees, and they helped him cover up what was going on. So it wasn't evident to the regulators until 1988.

Ted Simons: And what made it evident?

Michael Manning: Well, they started finding irregularities in documents that just didn't make sense. That's when ultimately it closed 25 years ago this month. And the investigation ensued, and more and more was discovered. That's when we were brought in.

Ted Simons: How did Lincoln eventually fail?

Michael Manning: Well, Lincoln ultimately was -- The investors came in – I’m sorry, the bank examiners came in in 1988 and discovered that Lincoln had created a black hole of about $3.4 billion in losses. So once that was discovered, the litigation ensued.

Ted Simons: And so we got -- Costing taxpayers $3.4 -- Many of these investors, retirees. That's the heartbreaking aspect of this story.

Michael Manning: It is. And here's what would happen. Most of them were in southern California, most of them had federally insured C.D.s, and they would trundle up to the window and say, I'd like to renew my C.D. It's federally insured, what's -- What percentage are you paying? We're paying 3.8%. But we'll pay you 4.5% if you buy a Lincoln savings bond, and it's safer than federally insured. And those tellers and people selling knew better, knew they were junk bonds, and people lost their entire savings, mostly retirees.

Ted Simons: And yet we hear that Charlie Keating never had any regrets, never made any apologies. How? Explain that to me.

Michael Manning: Well, as I said at the opening of the interview, he was a very complex man. Not complex in all positive ways. He had a view of himself and of Lincoln Savings that he had a right to do this. He was the head -- He wasn't legally the head of Lincoln Savings, he was -- On purpose he didn't take an official role, but he puppet-stringed everybody else. He felt he had a right to raise this money in this way, right to make these investments, and that the regulators were wrong in criticizing what he was doing.

Ted Simons: Did he say the regulators were wrong in the sense they were criticizing, or that they were wrong in the sense they were emphasizing rules and laws that he thought just shouldn't exist?

Michael Manning: He completely disagreed with that. There was what was known as the direct investment rule, he wanted promulgated and pass so they could make more direct investments. He just took the position that the regulators' view of safety and soundness in banking was wrong. He knew what was best for Lincoln Savings, and he ought to be allowed to pursue all of the investments and loans he wanted to pursue.

Ted Simons: And at one point he managed to get some members of Congress to go to these regulators and intervene on his behalf. Tell us about the Keating Five.

Michael Manning: We became very much involved in the Keating Five issues early on in the investigation and the litigation we did. And Senator Cranston probably was the most culpable of the group. He was from California. Glenn, Ohio; Riegel, Michigan; and of course DeConcini and McCain, here. You know, McCain was probably the least culpable of that entire group. I don't think he knew what was going on, and there's an important story about that. That is, when the regulators came to him and said, okay, we think we've discovered some potential fraud back dated documents, he said, I'm out. And he got out and really upset Keating. But the money that Keating managed to contribute to politicians was again money from public coffers. It wasn't Keating money. It was money from public coffers.

Ted Simons: I remember during the time when the Phoenician was up and big there were stories that secretaries answering the phone were getting $100,000 a year, and everyone was like how wonderful until we realized that's our money.

Michael Manning: It was our money. Here's what would happen. You know the story about mother Teresa.

Ted Simons: Quickly.

Michael Manning: Okay very quickly, Charlie would loan -- Someone would come and say I won to borrow $30 million to build a project in Tucson. He said I'm going to lend you $30 million, I’m going to lend you $32 million, but you need to contribute $2 million back to me for politicians and causes that I favor.

Ted Simons: You obviously had a chance to deal with him on a variety of levels. To you, who was Charlie? We ask who Charlie Keating was, but who was he to you? How did he shape how you see people, how you do your job?

Michael Manning: Well, it was very tough piece of litigation. He always hired the most expensive, very qualified lawyers and accountants, and as I said, paid them by return mail. It was a good client for some of these people to have until things turned ugly. So to me, he was -- He really was emblematic of the culture of that period of time, of the fast run and gun savings and loan entrepreneurs.

Ted Simons: And with that in mind, would he be a character of this time as well, or is he just another face in the crowd considering the current climate?

Michael Manning: He would be a character in this era as well. He would be a Wall Street character for sure.

Ted Simons: Well, Michael, we thought of you immediately when we heard the story of Charlie Keating passing. Thank you so much for the information.

Michael Manning: It's good to be here.