The Weekly Quill — Knowing It When You See It — Moral Hazard in Corporate America

Print Friendly, PDF & Email

“To keep people like me out of positions like that because of yellow journalism, I don’t know what good it does.”

Charles Keating on being denied the Ambassadorship
to the Bahamas, 1980


There’s a distinct culpability in neither admitting nor denying guilt. In the mid-1970s, Charles Humphrey Keating, Jr. was at the epicenter of shareholder lawsuits filed against American Financial Corporation. Dubious stock warrants, unsecured loans, and the handling of the sale of The Cincinnati Enquirer prompted the Securities and Exchange Commission (SEC) to launch a massive investigation into the company. Among the panoply of targets of fraud investigations was $14 million extended directly to Keating, Carl H. Lindner, Jr., the firm’s leader, and other officers on extraordinarily favorable terms. Rather than stick around, Keating resigned taking with him Phoenix-based American Continental Homes, a multimillion-dollar, money-losing homebuilding spinoff given to Keating for $300,000 as part of his severance package.

Renamed American Continental Corporation, Keating parlayed this entity into the biggest single-family homebuilder in Phoenix and Denver. By then, he had settled with the SEC, signing consent agreement in which he neither admitted nor denied his guilt alongside a quaint agreement to not violate federal fraud and securities laws henceforth. Never questioned, however, was Keating’s work ethic and that which he induced among his most fervent loyalists led by his son and four of his sons-in-law. At its peak, the corporation employed 2,500 and boasted $6 billion in assets. Shaking his old ways would prove impossible, which led to his undoing starting with the 1984 acquisition of Lincoln Savings & Loan, based in Irvine, California. On paper, Keating grew the bank’s assets to $5 billion from $1 billion inside four years. In fact, deceptive accounting practices were once again in play.