By Susan Lahey
It is late at night in the desert. Mike Manning drives to a bar at a wide spot in the road outside Phoenix. He is meeting someone who has valuable information about Charles Keating Jr. and the alleged siphoning of more than $1 billion in deposits from Lincoln Savings and Loan Association.
Manning’s no cop. He’s a Kansas City lawyer with Morrison Hecker Curtis Kuder & Parrish. And he’s wearing lawyer’s garb, which he regrets the minute he steps into the bar. The place is full of rough characters, and Manning sticks out like a ballerina at a sumo wrestlers’ convention. He turns around, sheds his offending tie, coat, and briefcase, and goes in to wait for the informant. When the person finally arrives, they drink and talk. When Manning can, he stealthily dumps some of his drink into a cup on the floor.
What Manning is tracking is the costliest S&L failure and fifth-largest bankruptcy in the nation’s history. The case has ensnared five U.S. senators and toppled M. Danny Wall from his post as chairman of the Federal Home Loan Bank Board.
Manning, hired as the Federal Deposit Insurance Corp.’s lead outside attorney on the case, has spent more than six years investigating bank and thrift fraud. He was one of the first to comprehend that deregulation had opened the savings and loan industry to fast money and wheeling and dealing.
Deregulation lifted the ceiling on the rate that thrifts could pay for deposits and allowed them to invest the deposits in securities and speculative real estate developments as well as traditional residential mortgages. With their newfound power to compete, some S&Ls paid top rates to attract brokered deposits — large pension funds and other blocks of money that were “sold” by a broker to the S&L with the highest interest rate.|
Suddenly there emerged a new breed of S&L owner who used deposits, brokered and otherwise, to make risky investments, hoping to make huge returns. And if the investments went bad, taxpayers would suffer the consequences because thrift deposits are insured up to $100,000.
It was, as one attorney for the government’s Organized Crime Strike Force calls it, “the financial equivalent of crack.”
Manning is 40, a big man whose face is spared from boyishness by his full mustache. In the office he speaks in low tones and often falls into legalese. His right hand gives the only clue to his intensity, as he balances a pencil, flips it, and lets it slide deftly into his hand. Balance, flip, catch. Over and over.
When his workday ends, somewhere between 7 and 11 each night, he turns into a storyteller and a heckler, a Scotch drinker, an Irish rowdy fond of goofy bets. One evening he bet another lawyer $100 that lettuce is a protein food. She bet him $100 that “in the doghouse” is a nautical term, which became fodder for a dozen wisecracks.
Manning is confident, bordering sometimes on cocky. Finally, he says, he knows he’s good at what he does. And since 1984, when Manning, working for the FDIC, faced down Mario Renda — a New York money broker who collapsed financial institutions like milk cartons — his life has held an element of danger. His job forces him to meet with deep throats, travel under an assumed name, and have his office swept for listening devices.
Renda presented a physical threat. The man responsible for the failure of Indian Springs State Bank of Kansas City, Kansas, had organized-crime connections. Many of the people who had worked for Renda and testified against him feared for their lives.
Keating, a Phoenix real estate magnate, also is threatening, but his weapons are lawsuits. So Manning is cautious to protect his witnesses, who say Keating may try to ruin them financially for crossing him. Already Keating has sued three government employees personally for $200 million each for allegedly leaking information that would be harmful to his parent company, American Continental Corporation (ACC), which is based in Phoenix. ACC acquired Lincoln Savings & Loan, based in Irvine, California, for $52 million in 1984.
Keating considers himself a visionary entrepreneur who is being misunderstood and used by the federal government. He touts his antipornography crusades, his Catholicism, and his charitable contributions. But people who have worked for him give a picture of Keating that rivals Leona Helmsley for megalomania.
Employees have said Keating was a tyrant in the office who demanded absolute loyalty. At the end of the day, employees who didn’t leave their desks spotless risked dismissal. They also could be fired for parking in the wrong spot.
Some say, too, that Keating’s philanthropic moralism is a sham. And his ravings against sexual deviance seem only to extend to the doors of his own parties.
During a party to celebrate a shortlived victory against the bank board, he bound Robert Kielty, an ACC executive and co-defendant, to a sexy secretary with tape, the Arizona Republic has reported. When Kielty poured a bottle of champagne down the front of another secretary’s blouse, Keating called for someone to chill the champagne more.
But Manning is less concerned with Keating’s personal idiosyncrasies than with the $1.1 billion civil suit the FDIC is bringing against Keating through its affiliate, the Resolution Trust Corp., which was established to resolve the nation’s S&L crisis.
A 160-page complaint drafted by Manning’s team contends Keating got control of Lincoln by submitting false business plans to the bank board; ignored regulations to limit direct investments; and created several fraudulent business deals involving real estate, tax plans, and employee-stock-ownership plans to divert money from Lincoln into his own pockets.
Keating’s lawyers have yet to formally respond to the charges. But James Ham, an attorney with Quinn, Kully and Morrow of Los Angeles, says it’s ludicrous to sue the Keatings for more than a billion dollars when they are worth at most a million “on a good day.”
Though Keating raised millions in deals with junk bond king Michael Milken, Ham contends his wealth has been eaten up by the losses at ACC.
Ham also says Keating is just a scapegoat for a government that is trying to cover its tracks. Bad legislation and weak regulators, he says, are going to cost the nation $300 billion in thrift bailouts, Lincoln being but one case in hundreds, and the government is blaming people like Keating.
“The suit being pursued by the government is politically motivated,” Ham says. “This makes Watergate look small, and the government knows it. They’re trying to divert attention from the true wrongdoers.”
He’s not entirely alone in this assessment, Paul Schatt, a Phoenix Gazette editor, wrote in November that although he considered Keating a “perfect villain,” he thinks members of Congress should take the cost of the S&L debacle out of their own paychecks.
“As for Congress,” Schatt wrote, “we shouldn’t be suprised that it again proves itself unable to watch over anything except its own pay-raise legislation.”
In either case, the result, Manning says, is a wake of economic devastation. Hundreds of people laid off from ACC have been unable to find jobs because of their association with the company; construction firms and other companies that relied on money owed them by Keating are threatened because he has filed for Chapter 11 bankruptcy; and 23,000 people have lost their savings because they bought uninsured securities that Keating employees allegedly said were covered by Lincoln’s government-insured accounts.
“Ultimately,” Manning says, “you will find the same thing as in the Renda case: divorces, bankruptcies, careers ruined of people who are only mildly culpable.”
In addition to trying to recoup upwards of $1.1 billion in federally insured deposits, Manning’s FDIC team is charging that Keating and the other defendants violated the Racketeering Influenced and Corrupt Organizations Act (RICO) in the looting of Lincoln. If found liable for racketeering, Keating would have to pay three times the amount of the racketeering damages assessed in the suit: more than $2 billion.
Racketeering may also be a charge in the criminal investigation now underway against Keating.
But before Manning’s part of the case, the civil proceedings, ever come to trial, his team will spend years ferreting out witnesses and documents to determine how Lincoln’s funds were taken.
Charles Keating, in the meantime, is paying about $1 million a month from the ACC estate for legal fees to some of the biggest names in the law business to prevent them from succeeding.
It was April 10, 1989, and Manning was getting ready to dissappear. For five years he’d investigated and litigated a bank fraud case against Mario Renda and his accomplices. He’d worked nights and weekends, traveled almost constantly, taken more than a hundred depositions, and waded through millions of pages of documents while dodging Renda’s associates who tailed and threatened him.
He also had waged a battle convincing regulators and federal agents of the importance of the case. When he took on Renda, many Washington bureaucrats still believed failing thrifts were just suffering from high interest rates and the after shock of deregulation. They also believed that Renda was a reputable money broker.
But finally, on April 10, Renda was sentenced to a prison in California on charges of racketeering, wire fraud, bank fraud, and conspiracy, among other things.
Manning flew home with plans for a two-month sabbatical. At most, he’d pick up a few light cases that wouldn’t take too much out of him.
But he had barely walked in his front door when he got a call from Christopher “Kip” Byrne, lead attorney for the FDIC. Byrne is a politician, as well as a lawyer, who had helped Manning convince reluctant FDIC officials to move against Renda. Byrne doesn’t mind laying down an ultimatum if it serves the cause, and he had just laid one down to the FDIC: he would only take on a monumental new case against Charles Keating if he could have Manning and Morrison Hecker on the FDIC team.
Over dinner the next night, Byrne told Manning about the case. Looking back, he doesn’t think the full impact of his news hit Manning or the other lawyers at first. “I didn’t tell them they were going to spend the next few years of their lives (in Phoenix),” he says. “Nobody had time to think. I said, ‘Mike, I want this. This is a very big thing. This is what we’re going to do.’ And he said, ‘OK.'”
That’s the way the FDIC works, Byrne says. One day the boss comes in and says an institution is going under, and it’s time for you to pack your bags and go.
Manning knew something about Keating from news reports. Keating had tried for years to oust Edwin Gray, former chairman of the Federal Home Loan Bank Board. Gray’s tough stance on S&L management threatened Keating’s freedom in how he used Lincoln’s deposits. Keating also had come under scrutiny from the bank board’s San Francisco Office of Thrift Supervision, which oversees California S&Ls.
Though S&Ls were established to handle home mortgages, Lincoln funded only eleven last year. Four of the recipients were on Keating’s payroll. The rest of Lincoln’s assets went into junk bonds and securities, speculative real estate, or into ACC and subsequently to Keating and his associates, the RTC lawsuit alleges.
In 1985, Gray had changed the rules on direct investments by S&Ls. The Garn-St. Germain Act, which installed deregulation, had allowed thrifts to invest up to 40 percent of their assets into non-residential real estate. Three years later, faced by catastrophic losses in the industry, Gray reduced that to 10 percent. Lincoln had nearly three-fourths of its assets in direct investments.
Keating allegedly ignored the San Francisco office’s warnings about these practices as well as their orders to clean up his tax plan. Federal law permits a parent company to collect the tax money owed by its subsidiaries to the IRS and pay in one lump sum. So Keating had ACC collect the money Lincoln supposedly owed the government.
But, according to the FDIC, Lincoln didn’t owe any taxes because it was losing money. The government’s lawsuit says Keating, through a series of fraudulent real estate deals, inflated Lincoln’s book value and collected tax money based on that amount. But he never paid the IRS.
Keating’s attorneys say that under the tax-plan proposal, which regulators had approved, ACC was entitled to take money from Lincoln to pay not only current taxes but future taxes, as a hedge against future costs. The money that ACC kept, Ham says, was held to pay taxes in the future.
When the San Francisco office brought its complaints against Keating to Washington, five U.S. senators who had received hefty campaign contributions from Keating tried to intervene, saying that the bank board had been vindictive in its treatment of Lincoln and should exempt the thrift from the direct investment limit.
The senators — Democrats Alan Cranston of California, Dennis DeConcini of Arizona, John Glenn of Ohio, Donald W. Riegle Jr. of Michigan, and Republican John McCain of Arizona — had received a total of $1.4 million in campaign and other contributions from Keating, his associates, and their spouses and now are the subject of a Senate Ethics Committee probe.
News reports now indicate that they were not alone. Senate Banking Committee chairman Jake Garn and former House Banking Committee Chairman Fernand St. Germain, who sponsored the deregulation act, both have received contributions from Keating and his associates.
In the midst of this political fray, Gray was replaced by M. Danny Wall on the bank board. Wall later came under scrutiny because his mentor, Sen. Garn of Utah, had received up to $250,000 in contributions from Keating for the Garn Institute of Finance. According to House Banking Chairman Henry Gonzalez, Wall was the point man for that donation.
After becoming bank board chairman, Wall took away the San Francisco’s office’s authority over Lincoln and took control of the investigation. That was when Keating threw the wild bash, taping the secretary to the executive. At one point during the evening, a computer was tossed out the window of ACC’s headquarters, where the party was held. And Keating opened his shirt to reveal a skull and crossbones with initials of the Federal Home Loan Bank Board below it.
But Keating’s victory lasted less than a year. Wall, at the end of his investigation and amid considerable political pressure, conceded that the San Francisco examiners had been right. That’s when Mike Manning was called in.
The day after Byrne called him, Manning culled a team of his firm’s top lawyers, each chosen for their areas of expertise: Ben Hobert, tax and securities; Steve White, thrift law, directors-and-officers law, and liabilities as pertains to real estate transactions; John Owen, sophisticated real estate transactions, syndications, loan participations, and securities transactions; Chris Farnen, bankruptcy, fraud, and real estate transactions; Doug Behm, formerly of the Organized Crime Strike Force; Randy Kehrli, also formerly of the strike force and a fraud expert; and Brian Gardner, banking law, thrift law, and Manning’s co-counsel on the Renda case.
Some of the attorneys were in Kansas City, some were in Washington. He called them that night and told them to be in Phoenix by the next morning, April 14.
The job called for them to spend ninety days watching Lincoln’s operations and looking through its records for insider abuse or bank fraud. While he stayed in Washington to collect documents on Lincoln, the team of lawyers — including FDIC attorneys — swooped down on the thrift, taking it into conservatorship. But they got there too late.
Somebody had tipped Keating off. When the takeover crew arrived April 14, there were hundreds of records missing; some loan officers had quit their jobs the previous day or left on extended vacations and cleaned out their offices.
In addition, Charles Keating had the previous day filed a Chapter 11 bankruptcy petition for ACC and eleven Lincoln subsidiaries. Keating’s lawyers have admitted in court that this was a way of throwing Lincoln’s assets into the court and out of reach of federal authorities.
Despite the apparent house cleaning, enough records were left at Lincoln to give Manning’s team plenty of questionable transactions to focus on. They also began looking for witnesses to fill in the blanks.
Manning figured they had a maximum of four days to find records and get to the witnesses before they cemented a story. Finding employees to talk against Keating would be tough. Keating had a policy of hiring attractive, intelligent people and buying their loyalty.
One woman, Patricia Johnson, who handled public relations for Keating for a year before he fired her last April, quipped that she was his token brunette. She told a reporter for the Phoenix Business Journal that most of the women in the office were blonde and very attractive. She also said her $50,000-a-year job — there are reports of some secretaries making $100,000 — included an office more luxuriously furnished than her home.
The FDIC team worked fifteen-hour days, trying to eliminate as many false trails as they could.
“There is no more difficult job for a lawyer than detecting and investigating a white-collar crime,” Manning says. “These guys aren’t thugs. They’re not fifth-grade dropouts. They’re always glib. They’re excellent at providing a paper trail” to divert investigators from the real issues.
“You have to know what to expect to find in a file,” he says. “What does the other side want to hide?”
On April 16, a Sunday, Manning arrived in Phoenix. So did two lawyers who had been digging for clues in Los Angeles. They gathered around a table to piece together what they knew.
“By then,” Manning says, “we knew the scope of the assignment because of the number of transactions that begged for scrutiny.”
They set up what they called the war room, tiny offices at the back of the thrift with a glass wall that faced a courtyard. They blacked out the glass with paper and installed special security devices. They filled the room’s walls with diagrams of complex transactions. By Tuesday, less than a week after Byrne’s call to Manning, they had bought computers and fax machines. The phones were perpetually ringing, and support staff and lawyers were constantly coming and going. Even if Keating had planted an employee as a spy, Manning says, he would have to have been a genius to figure out what he was seeing.
The lawyers’ families were sending boxes, too. Most had come with only an overnight bag.
Now they knew they were in for the long haul.
Sitting in the Plaza Club in Phoenix, across the street from his firm’s new offices, Manning seems stunned at being a star in this high-profile case.
He used to be an unknown who primarily handled international business deals in Asia and Europe. Now, waiters in white-starched uniforms call him by name as they serve him gourmet foods in this exclusive restaurant overlooking the city. He gets job offers from large law firms. Some twenty reporters call him from all over the country every week.
The attention is a little overwhelming to him. He even has someone who straightens his desk for him, though when asked about that he looks embarrassed and mumbles, “I should clean my own desk.”
Ron Lowen, an old college friend, says Manning started out as a long-haired Kennedy liberal. And he’s still idealistic about serving the public good. In college, Lowen says, Manning was a “casual” student with a streak of irresponsibility. He drove around in a white boat of a convertible always equipped with a six-pack and a set of golf clubs. “He was a party waiting to happen,” Lowen says.
Both Manning and Lowen planned political careers. Lowen, who was a few years older, started out as the teacher. “But Mike was always the natural at making people like him,” Lowen says. “He was so darned charming, I ended up being the student.”
At age 22, Manning ran for Kansas Secretary of State against an incumbent. He lost by a slim margin. Then, while serving under former Kansas Governor Robert Docking, he decided to bolster his political ambitions by getting a law degree.
In law school, Lowen says, Manning grew up. His friends didn’t exactly understand what had happened, but Manning had found what he was looking for. The law was something he could get serious about, dedicate himself to, and he lost interest in a political career.
Now Manning knows it was the right decision. “I’ve known Congressmen who have told me, ‘When there’s a hundred of us, it’s so hard to feel like you’re making a difference,'” Manning says. “I know with what I’m doing here I’m making a difference.”
Mario Renda was his ticket to Phoenix and notoriety. The deposit broker had the biggest operation in the country, placing union pension funds and other large sums in banks that had favorable interest rates. Renda was considered a pillar of his community –even by the FDIC. He managed to keep hidden his sideline of handling money for several New York crime families. Renda had always wanted the life of a sheik, and deregulation of the savings and loan industry in 1982 gave him his chance.
He set up an operation, with several co-conspirators, that allowed him to slip deposits in and out of banks and into his own pocket. He would place large deposits in struggling banks and S&Ls in return for “courtesy loans” to his straw borrowers. The straw borrowers — people he paid to take out the loans — took a few thousand dollars and passed the rest to Renda’s partners; Renda’s name was rarely linked with the transaction. The partners promised to cover the debt for the borrower. But the debt was never paid.
His pilot bank was one dinky Kansas City, Kansas, institution in a suburban shopping center: Indian Springs State Bank.
When Indian Springs faded in January 1984 because of bad loans, the FDIC called Morrison Hecker do the mop-up. One of the lawyers on the case was Mike Manning, who was in charge of parceling out the loan documents to lawyers according to their specialties. Each lawyer sorted through his or her stack of loans to determine which seemed collectible and which did not. For himself, Manning took several large boxes of out-of-state loans.
Manning had learned that there were some strange elements to the case: The president of the bank had died under mysterious circumstances months before, and there were organized crime connections. But otherwise, he treated it as a routine bank closing.
He quickly discovered it wasn’t. In the piles of loans he was looking at, there were several from Hawaii. He echoed the sentiments of a bank examiner who had demanded, “What in the world is a fly-shit bank in . . . a shopping center in Kansas City, Kansas, doing making these kinds of loans?”
“One night,” Manning says, “I went into the firm’s conference room, shut the door, closed the blinds, made a pot of coffee and started taking notes. By the time I concluded around morning of the next day I had a legal pad full of notes that caused me to believe a great deal more in the linkage of the loans.”
Some of the borrowers worked for the same real estate company, others used the same references or had similar addresses for the properties they were “buying” with the loans. Some of the applications obviously were filled out on the same typewriter.
Manning decided to check out the deposit side. There he discovered that, a day before the loans were funded, an amount equal to twice the sum of the loans was deposited in the bank from pension funds and the like in cities all over the country. He was onto a scheme of linked financing.
“I was developing in my mind a scent of the belief as to a potential conspiracy,” Manning says. “If I had had to testify the next day, I would have sounded like an idiot. It was just a . . . gut instinct.” As his investigation continued, he vacillated between feeling brilliant and feeling melodramatic at his discoveries.
“You feel like you’re on top of the world. At the same time, I didn’t sleep. I felt like, ‘Oh, I’m Joe McCarthy seeing a communist behind every bush.'”
Through February, March, and April, Manning tried to fit the puzzle together. By Easter, he was sure there was a conspiracy on the loan side.
A conspiracy, Manning says, is by nature fragile. If you can find the right pressure points, it will begin to collapse.
Manning flew to Hawaii to meet with the borrowers and find that pressure point. He took thirty depositions in half as many days. One of the borrowers, who took the Fifth Amendment more than fifty-two times during his deposition, unwittingly gave Manning a road map on the case. Where Manning was hitting too close to the mark, the borrower plead the Fifth. On the false trails, he answered willingly.
“By the time I got on the plane to come back, I knew where I would wind up in two or three years,” Manning says. Personally, it was daunting to think of investing so much time on this case. Professionally, he could barely contain his excitement.
His enthusiasm was dampened, though, when after grasping the criminal implications of the case, he could not find a prosecutor to take it on. After being turned down by the U.S. Attorney’s office in Kansas City, he went to the Organized Crime Strike Force and hooked up with Bruce Maffeo.
When Manning first met Maffeo and tried to explain the Renda case to him, Maffeo figured Manning was just some small-time, Midwestern lawyer trying to put his civil documents under lock and key. Part of the reason was that Maffeo was used to handling traditional organized crime cases. This stuff about brokered deposits and linked financing was foreign to him.
“Then after the fog lifted from my brain,” Maffeo says, “there were still times I thought Mike overemphasized the problem.” Later, he realized that if Manning hadn’t come to the Organized Crime Strike Force with the case, it would have meant the demise of even more banks. Of the 150 banks in which Renda placed his brokered deposits, more than 103 failed or fell under supervisory control. Because of Renda’s prosecution, Maffeo says, a lot of the impetus for brokered deposits dried up.
Manning is possessive and obsessive about his cases and becomes impatient when other don’t meet the frenetic pace he sets. He had to accept that in the Renda case.
In bringing the case to the strike force, Manning laid himself open to attack by both sides. He took lumps from his allies because once the strike force took the case, he was obliged to share any information he had with them, but information was not allowed to flow back the other way.
“Once the government undertook inquiry, Michael was not in charge any more,” Maffeo says. “He was in a position where he had to go on his faith in the government prosecutors . . . He told me, ‘I know once I lay this out I’m not going to have any say in where you go with it. But my civil suit is not going to have the strength to close this down without it.'”
And Renda, Maffeo says, made Manning the focal point of his defense, having him tailed and trying to find some way to discredit him. He didn’t find anything. That’s because, Maffeo jokes, “Manning’s just a lot more discrete than the rest of us . . . but he can drink me under the table.”
Sam Daily, however, found plenty of things wrong with Manning. Daily was one of Renda’s partners who was convicted of conspiracy. He continues to send letters to Manning and his associates threatening to “ruin” Manning.
Daily has filed motions to set aside his conviction, saying that he was convicted on evidence obtained by an illegal search of Renda’s offices. The search was illegal, he says, because Manning lied fourteen times to the magistrate who issued the search warrant. So far, two judges who have heard the allegations have dismissed his motion. Daily is now out on bail pending appeal. The court does not consider Manning an issue in the appeal.
Threats and challenges don’t deter Manning. As Byrne says, he is “the kind of guy who would lead a charge over a hill with the enemy shooting at you.” Which is why he was the kind of guy needed to face Charles Keating.
True to Keating’s reputation, no sooner had the FDIC begun to investigate him than he went on the offensive. In the midst of its frantic pace, Manning’s crew had to shore up its resources when Keating filed what came to be known as the “adversary proceeding.”
Part of his allegations were that the FDIC and FSLIC were incompetent to handle the business of Lincoln. He also contended that, beacuse he had filed for Chapter 11 reorganization, the government should not be allowed to interfere with the reorganization. It was the first big battle the FDIC team faced. Depositions had to be taken in Houston, Phoenix, and Dallas. Briefs were written overnight.
The answer to the incompetency allegation came in casual dinner conversation between Manning and Dennis Cross, another partner in the firm who came to battle Keating’s offensive. Upon learning who was representing Keating, Cross told Manning that the same Texas firm recently had agreed to help him represent the “incompetent” FDIC on another matter. In fact, that firm often had represented the FDIC in bank closings.
On May 19, a judge threw out the adversary proceeding, and ruled the Texas firm disqualified. Manning and crew celebrated with an East Indian dinner and plenty of Indian beer.
After that, the fraud investigation heated up and a grand jury started work on the case. A lot of the work the FDIC team faced was grunt bank work such as working out loans with Lincoln borrowers. In July, they began to outline a 160-page complaint explaining their suspicions of how Lincoln came to be insolvent and what role Keating, his family, and his associates played.
Meanwhile, Keating kept the bullets flying from his end. He challenged the Federal Home Loan Bank Board’s right to take Lincoln into conservatorship. On the books, he claims, Lincoln is a robust thrift. His suit said it was illegal for the bank board to take a healthy institution into conservatorship. He claimed it had done so because of a vendetta against him. The FDIC team fired back that Lincoln had “cooked the books” and in fact the S&L was more than $78 million insolvent.
Keating next sued the government for taking control of several properties that were financed by Lincoln –including a number of posh resort hotels.
He later filed what the FDIC calls “the leaks case,” in which he accused the FDIC and the Office of Thrift Supervision of leaking information harmful to ACC. A federal judge has dismissed charges against both agencies on that count, but four government employees are still under the gun.
“They’re litigating on every conceivable issue,” Manning says of Keating’s lawyers. “We’ve anticipated most of what they have filed. We have even anticipated some actions they haven’t brought . . . yet. The bankruptcy judge has referred to ACC’s tactics as ‘a death dance with regulators.'”
In the meantime, the FDIC team is working on several other fronts. John Owen, Morrison Hecker’s senior partner in the Phoenix office, bounces from one task to the next. One week he is plotting strategy. Where are Lincoln Savings and Loan, now under government control, and the RTC open to attack? And how can they be protected? Another week he works on matters relating to the bankruptcy proceedings of ACC.
Manning says Owen is probably the smartest lawyer he knows and a wizard at complex transactions. Owen’s ability to untangle the bogus transactions from the real ones they’re supposed to camouflage is a great help, especially with an investigation so buried in documentation.
The FDIC found a cache of Lincoln documents at The Phoenician, a magnificent but unprofitable resort developed by Keating and financed by Lincoln Savings & Loan. Now, Manning says, they have a stockpile of revealing documents that have to be authenticated. A federal judge has ordered the establishment of a document depository — a 30,000-square-foot warehouse — where both sides must put all documents pertinent to the case. It is filling up rapidly.
And now that other government agencies have joined the fray, Manning coordinates his group’s efforts with those of the FBI, the IRS, the SEC, the California Attorney General’s office, and the Federal Election Commission, which is investigating the legality of Keating’s political contributions and their role in the recipients’ actions.
Manning also is working with the Office of Thrift Supervision in San Francisco, which originally blew the whistle on Keating.
Manning continues to meet with deep throats like the one in the bar outside Phoenix. Often the meetings take place in hotel rooms outside the city, because informants are too scared of being spotted with him.
Usually, Manning says, it takes the informants a day of talking before they let down their guard and get to the real facts, even with their lawyers present. Most end up weeping and protesting that they couldn’t help their part in a scam because they were afraid to leave, or they desperately needed the money.
“They all have a story,” Manning says. “Nobody’s going to come in there and say, ‘I’m greedy, I’m stupid, and I care not for my fellow man.'”
Manning, Owen, and lawyer Chris Farnen are being blasted out by a cover band at Charlie Charlie’s, Keating’s namesake bar at The Phoenician. Manning is on his second Scotch after a mouth-scorching Thai dinner he ate voraciously, watching with some small smugness while his companions grabbed for icewater.
He’s thinking that this reminds him of his drinking nights with Bruce Maffeo during the Renda case. One night Maffeo, who averages three expletives per sentence, left him stranded in a very nasty part of New York City to find his way home. Manning thinks it’s funny. He didn’t at the time.
Owen hails a skinny waitress who has a bushel of blonde hair and asks her innocently, “Who owns this place, Hyatt?”
The waitress explains that it used to be owned by a man named Charles Keating but now the government has taken it over. Things have gotten better since then, she says. A lot of questions have been answered.
Manning is surprised and pleased. He has now spent six years trying to help the government clean up the savings and loan mess. He is looking at another ten years of this kind of work, and he couldn’t be happier about it. In fact, he thinks he knows what the next case will be after the Keating case is closed in about three years. It involves an institution somewhere west of the Kansas-Missouri border, but that’s all he’ll say. What drives him, he says, is the incredible public importance of the cases, the chance to serve the public good. His old pal Lowen says that’s not bull.
“We all had passion in the sixties,” Lowen says. “Mike had passion for politics, passion for his friends, passion for the women he was involved with. I’ve pretty much lost my passion. But Mike has never lost his.”
RIGHT PLACE, RIGHT TIME
These days, law firms are scrambling for the federal dollars flying in the wake of shipwrecked S&Ls. But the Kansas City firm of Morrison Hocker Curtis Kuder & Parrish jumped in early, and now it’s No. 2 on the list of firms working for the Federal Deposit Insurance Corp., netting more than $2 million in 1988.
Ten years ago, the firm, one of the five largest in Kansas City, represented no major banks or S&Ls, which appeared to be a weakness at the time. But it turned out to be a strong point in the firm’s favor.
In 1980, former Morrison Hecker partner Martin Purcell got a call from an old buddy, Frank Skillern, general counsel for the Federal Deposit Insurance Corp. The FDIC was getting ready to take Mission State Bank into conservatorship, and Skillern needed a law firm in Kansas City.
Morrison Hecker handled the job, and three years later, on the recommendation of the FDIC, the Federal Savings and Loan Insurance Corp. also called Morrison Hecker on a job. The FSLIC had a requirement that law firms representing it could not have any S&Ls on their client list. Morrison Hecker fit the bill.
In 1984, when the seriousness of the savings and loan crisis was beginning to emerge, the FDIC called Morrison Hecker about another bank case: Indian Springs State Bank in Kansas City, Kansas. The firm and attorney Michael Manning, were hired to work out loan arrangements with Indian Springs borrowers, but in the process they discovered that Indian Springs was the pilot bank for a linked-financing scheme involving more than 100 banks and S&Ls nationwide.
Manning’s work on that case was chronicled in a recently published book on the S&L debacle, Inside Job.
With Indian Springs case, Morrison Hecker was launched into the enviable position of being one of a handful of firms nationwide that was competent to handle both bank and thrift cases for the government — before most law firms even recognized the value of this expertise.
The current general counsel for the FDIC, Christopher Byrne, insisted that Morrison Hecker be the firm to handle the case against Charles Keating for Lincoln Savings and Loan of Irvine, California. That was a big coup for Morrison Hecker. Lincoln, which looks to be a $2 billion bailout, is the first thrift failure to make the nation as a whole sit up and take notice of the S&L crisis.
Morrison Hecker attorneys aren’t the only ones glad they’re on the case. Bill Black, litigation director for the San Francisco Office of Thrift Supervision, has worked nearly a year with Morrison Hecker attorneys on the Lincoln Savings case. He says the firm makes a great partner in litigation.
“They have a sense of humor. They also tend to be creative, and that’s important for a law firm,” Black says. “They have an interesting combination of aggressiveness with thoroughness. You run into lawyers who are paralyzed by the fear of losing. They’re not . . . And they’re down to earth. You don’t have to spend a lot of time trying to prove how tough you are by talking and acting tough with them. It gets in the way of reaching settlements.
“(Lincoln Savings) is really the biggest thing going, and it’s like the saying: ‘When you care enough to send the very best . . .'”
©2010 Susan Lahey, All Rights Reserved.