Charles H. Keating, Jr., whose illicit dealings led to the 1989 collapse of the California-based Lincoln Savings and Loan Association at a cost of $2.6 billion to taxpayers, was convicted in January on federal racketeering and fraud charges. His son, Charles Keating III, was convicted on similar counts. Prosecutors said the elder Keating used ‘straw’ buyers to purchase assets of Lincoln, which he headed, at inflated prices. The scheme, and the revelation that profits listed on the S&L’s balance sheets were phony, helped send Lincoln into bankruptcy. Some investors, including many elderly people, lost large sums of money. Keating, who was already serving a ten-year sentence on state charges, was sentenced in July to nearly 13 years in federal prison and was required to pay $122.4 million in restitution to the government.
Also in July, Joseph Mollicone, Jr., a former bank president whose fraudulent practices helped lead to the collapse of Rhode Island’s privately insured banking system, was sentenced to 30 years in prison. Mollicone, who had fled the state in 1990 after his Heritage Loan and Investment Company failed, surrendered in April 1992; he was subsequently convicted of embezzlement, bank fraud, and conspiracy to deceive state regulators. Mollicone’s illicit activities led to the fall of Rhode Island Share and Deposit Indemnity Corporation, on whose board Mollicone served, and to the temporary closing of 45 banks and credit unions in 1991, affecting a third of the state’s residents.
In other banking news, Charles W. Knapp, former head of the failed American Savings and Loan, was sentenced to 6½ years in prison for having fraudulently obtained an $11 million loan from another savings institution. And a federal judge gave Atlanta bank manager Christopher Dragoul a reduced sentence for granting more than $5 billion in illegal loans to Iraq, prior to the 1990 Iraqi invasion of Kuwait, saying that the U.S. government had then encouraged such aid.
The 1992 indictments of Clark Clifford, a prominent Washington lawyer and adviser to Democratic U.S. presidents, and his former law partner, Robert Altman, on federal and New York State fraud charges led to a series of political and legal maneuvers. The case was notable because of its links to a massive scandal involving the Bank of Credit and Commerce International (BCCI), an Arab-controlled bank implicated in offenses ranging from fraud and bribery to laundering of drug money. Clifford and Altman had been charged with taking bribes and with concealing the fact that a Washington, DC, bank they ran was secretly and illegally backed by BCCI, which had been banned from the U.S. banking industry in 1991. But charges against Clifford were eventually dropped from both the federal and the state case because he was deemed too ill to stand trial, and in August 1993, Altman was acquitted on state charges. Clifford said that he felt vindicated by Altman’s acquittal.