Circle of Greed

by Patrick Dillon

  Fischel was thunderstruck.

  “What do you want me to do?” Neal asked him.

  Without delay, Fischel answered: “I think Charlie needs you more than I do.”

  Now it was Neal’s turn to be astounded. In seventeen years as an attorney, he had acted as lead counsel in criminal and civil white-collar cases representing, among others, General Motors in its lawsuit to buy out Ross Perot. He had defended Navy Admiral Elmo Zumwalt against charges that he was responsible for the deaths and illnesses of thousands of victims of Agent Orange, the defoliant deployed during the Vietnam War. But defending Charlie Keating, the trenchant financier who was becoming the very personification of greed and corruption, represented the challenge of a career. It was that challenge, he would recall nearly twenty years later, while remaining Keating’s attorney, that compelled him to tell Fischel: “Okay Dan, I’ll help you get another attorney.”

  In California another pivotal telephone conversation was under way between two attorneys. “I’m not interested in trying this case; not interested in getting in the middle of the trial,” Bill Lerach was saying. “But I can furnish a great backup team—blockers, running backs, tight ends, wide receivers. With a good result, we’ll make a lot of money. I need a quarterback.”

  Joseph W. Cotchett listened intently. He liked the football analogy. At six feet four inches tall, with the physique and swagger of an offensive tackle, Cotchett had represented both the National Football League and several of its teams over the years. After graduating from Hastings School of Law in San Francisco in 1964, he joined the U.S. Army, serving first in an intelligence unit, then as a Special Forces paratrooper. He was still serving as a reserve colonel in the Judge Advocate Corps reserves when Lerach invited him to serve as the lead trial attorney in the Lincoln case. Cotchett was an imposing presence known for literally taking over a courtroom—and not only because of his size and bearing. His mother had been a Ziegfeld Follies showgirl, and while growing up in New York, young Joe had been impressed with the results performance art could produce. “Joe is magnificent, dominant, and a much better trial lawyer than I could ever be,” Lerach told his colleagues, reminding them that Cotchett had won the biggest jury trial in Silicon Valley—a $200 million verdict against Technical Equities.

  “We’ve got the government out front, and they’re getting documents within forty-eight hours, where it might take us a year,” Lerach continued in his pitch to Cotchett. “We’ve got the media in a feeding frenzy because they can tell this is a world-class fraud, and they’re feasting on every leak we send them. This is a showcase for legal theater.”

  Yes, but Keating had filed for bankruptcy, Cotchett pointed out. When it came to getting money, there’d be no one home. Not only that, because he was named in a RICO complaint, Keating would not be covered by D&O insurance. Short of hiring legions of private investigators to discover where offshore the tycoon had parked his ill-gotten gains, as they assumed he had, what was the recourse?

  “Nearly fifty deep-pockets defendants who aided in the scheme,” replied Lerach. In what he hoped was an added inducement, he told Cotchett that through slick legal maneuverings, the case had been transferred from a problematic federal judge in Los Angeles intent on a quick start to the trial—thus foreshortening the plaintiffs’ discovery, in a complicated, multidefendant case that Lerach had likened to a stew simmering slowly—to a court in Tucson, Arizona, that Lerach believed would prove much friendlier terrain.

  Federal District Judge Richard Mansfield Bilby of Tucson had been keenly following the massive fraud case being assembled by the government and lawyers for shareholders against the most prominent businessman in Arizona—and he let this interest be known. In the spring of 1990 the federal Judicial Review Commission did transfer the class action lawsuit against Charles Keating and his codefendants to Arizona. And after reaching out to receive it, Judge Bilby was assigned the case.

  When he received the news of the transfer, California’s most feared litigator let out a loud whoop, raced into the common area outside his office, and with staff and lawyers looking on, crouched and performed a lopsided somersault. As Bill Lerach splattered himself on the floor, he did it with such glee and such force that he threw out his back and had to be helped back into his chair, grinning and grimacing at once.

  POWERFUL WINDS WERE FAVORING the plaintiffs. Their attorneys, along with federal prosecutors, government ethics panels, and Resolution Trust lawyers, were amassing like a vast and well-organized posse against Charles Keating and his fellow defendants—and even against the U.S. senators and government regulators who had enabled Keating’s behavior. From his office tower in San Diego, Lerach watched events unfold in ways that he believed would not only produce a big payday but also firmly establish him as the unrivaled King of Torts.

  On October 8, 1989, The Arizona Republic broke the story that Arizona senator John McCain’s wife and her father had invested $359,000 in a Keating-owned shopping center in Phoenix; that the McCains had traveled on Keating’s corporate jet, including vacations to Keating’s plush vacation villa at exclusive Cat Cay in the Bahamas; and that McCain had quietly reimbursed Keating to the tune of $13,433 but had not recused himself from Lincoln Savings–related matters before Congress. Five days later Common Cause asked the Justice Department and the Senate Ethics Committee to look into the activities of the “Keating Five”—McCain and the four Democrats who’d tried to help him stave off federal regulators. And the Justice Department was boring in on Keating. Soon, in a packed hearing room on the House side of the Capitol, Danny Wall, who had succeeded Ed Gray at the FHLBB, and Charles Keating would make dramatic appearances before a subcommittee chaired by a Texas Democrat named Henry B. Gonzalez in hearings that would greatly assist Lerach’s case.

  Gonzalez had a reputation for being erratic, stubborn, bellicose—and highly principled. He had a hair-trigger temper and a propensity to grandstand. Many congressional Democrats considered Gonzalez an embarrassment, and even those who admired him were worried when he took over the chairmanship of the House Banking, Finance, and Urban Affairs Committee in December 1988. But what could anyone say? The previous chairman, Rhode Island Democratic representative Fernand J. St. Germain, had co authored the legislation that allowed operators such as Keating to get their claws on the nation’s thrifts in the first place. Gonzalez, who voted against deregulation, began holding hearings early that year, and reporters covering the burgeoning S&L crisis in general, and the “Keating Five” scandal in particular, had learned that the House Banking Committee was unearthing damning morsels of information—including the whopping amounts of money that Charlie Keating had funneled to the five senators.

  At Gonzalez’s fifth hearing, held on November 14, 1989, he called out of the audience some of the investors bilked by American Continental—whose testimony would put a human face on the Lincoln Savings debacle.

  “It gives a whole new meaning to bank robbery, don’t you think?” said Shirley Lampel, a near-blind fifty-eight-year-old widow from Tustin, California, who lost her nest egg of $30,000 when American Continental went belly-up. “Up against the likes of Charles Keating and the influence he was able to buy from elected officials, we didn’t have a chance—we had been targeted by Keating—with help from the Keating Five.”

  Ramona Miller Jacobs, another Lerach client, choked back tears as she told the committee that she had bought $11,000 worth of American Continental corporate debentures in hopes of earning enough return to buy a van to transport her paralyzed daughter Michelle. “Mr. Keating and his coconspirators had other plans for our money,” she testified. In words that were music to Bill Lerach’s ears—after all, he helped put them there—Jacobs added, “Mr. Keating did not do this by himself. There are a whole lot of people.”

  These heart-wrenching accounts left banking committee members of both parties itching to take their wrath out on someone. That opportunity came just a week later, on November 21, 1989, at a theatrical session in a packed hea
ring room. For six and a half hours Danny Wall and his top deputies tried to convince banking committee members that the Office of Thrift Supervision (as the FHLBB had been renamed earlier that year) had not been derelict in its duty.

  Then, at four thirty P.M., in a highly choreographed bit of theater that Chairman Gonzalez believed quite correctly would make good film for the six P.M. network news broadcasts, Charles Keating swept into the room flanked by five lawyers and flunkies. At six foot five, towering over his entourage, the former Olympic swimmer did not appear to be sixty-six years old. Red-faced and fidgety, Keating first requested through his attorneys that all television cameras in the hearing room be turned off. Keating had never been camera shy, but then again, he had never been so vulnerable.

  “Are you ready to answer questions?” asked Gonzalez.

  “No, sir,” replied Keating. “I have no testimony to give today.”

  “May I ask why?” Gonzalez said, raising his eyebrows in feigned surprise.

  “On the advice of counsel, I respectfully exercise my Constitutional prerogative and privilege and authority and decline to answer questions here today,” Keating replied. With that he made his way through the throng, out into the hall, and into his waiting black Cadillac. One of Keating’s subalterns left behind a three-page press release ostensibly issued by American Continental that blamed regulators, and not himself, for the demise of Lincoln Savings.

  By then the buccaneer act had gone stale. A reckoning was coming—and everyone knew it. The first head to roll was Wall’s. On December 4, 1989, Wall wrote a four-page letter of resignation, asserting his belief that he had been made a “scapegoat” for the savings and loan crisis. President Bush accepted it immediately.

  He was hardly the last person in Washington who would pay a price for the sins of Charles Keating. In April Keating had held a press conference—at which he took no actual questions from the media but still managed to make news. Near the conclusion Keating told reporters: “One question, among the many raised in recent weeks, had to do with whether my financial support in any way influenced several political figures to take up my cause. I want to say in the most forceful way I can: I certainly hope so.”

  It was a quote that Bill Lerach would put to good use.

  LERACH HAD WATCHED IN AWE as Gonzalez conducted the hearings. He’d given millions of dollars to Democratic officeholders, candidates, and causes during his career but never a nickel to the banking committee chairman from Texas. Actually, it was the other way around: Gonzalez had given Lerach something—an idea for a publicity stunt that would rattle his opponents and be an amusing caper at the same time.

  Lerach instructed John Stoia to round up his most compelling plaintiffs. Stoia knew that wouldn’t be difficult—he’d already done so for Gonzalez’s staffers. “We’re going to get them back on television,” Lerach said, grinning mischievously.

  L’affaire Keating was largely a scandal of Democrats, but a lawsuit was a lawsuit, and Lerach used his Democratic Party connections to help smooth the path for what he had in mind. Stoia and Len Simon were tasked with scheduling their most compelling clients to testify on Capitol Hill. Lerach himself put in a call to well-connected Washington lawyer Jonathan W. Cuneo. Under his instructions, Cuneo wrote letters to the administrative assistants of each of the Keating Five, asking for an audience with the California women who were scheduled to testify.

  Within two days Ramona Jacobs also received a call. John Stoia was on the line: “How would you like to go back to Washington?” She was game, but she had a severely handicapped daughter she was caring for. Stoia assured her that the firm would pay for assistance for her daughter, Michelle. As for Rea Luft, she couldn’t believe it. She was going to be picked up and flown to the capital of the United States of America. Important people in the government wanted to hear from her. She told Stoia she thought she must be dreaming, and upon hanging up the phone, she broke into tears.

  The four-hour-fifty-minute transcontinental plane trip from Los Angeles to Washington’s Dulles International Airport was made much more accommodating for Ramona Jacobs, Leah Kane, and Rea Luft in the first-class cabin, courtesy of Bill Lerach and John Stoia. Luft in particular was the most grateful. At ninety-two she was legally blind, nearly deaf, and mostly confined to a wheelchair. As the plane descended through the clouds into Dulles in the early evening of January 30, 1990, the Keating Five were preparing to attend President Bush’s State of the Union address. A van took the women to the Willard Hotel, near the White House on Pennsylvania Avenue, where they would be treated to $400-a-night rooms, accommodations only slightly less lavish than those that Charlie Keating enjoyed at this, his favorite hotel when he was in town.* Lerach loved the taste of irony, especially when he was the one arranging it.

  As they cruised east along the Dulles access road, Lerach laid out their itinerary. There would be some sightseeing. He hoped that they could testify Wednesday on Capitol Hill to the Senate Judiciary Committee, which was taking up legislation relating to Lincoln Savings. This was not assured: DeConcini was chairing the committee, and he was understandably cool to Lerach. Still, it would be like appearing in a movie, Lerach told his clients, recalling his instructions to his elderly witnesses nearly two decades earlier in the Pacific Homes case. Then, he explained, he had another Capitol Hill trip planned for them. They were going to visit four of the five Senate offices of the Keating senators. Cuneo had managed the arrangements. Only DeConcini refused. Lerach was undeterred. We’ll see about that, he thought to himself.

  Once in his room, Lerach called Cuneo to go over the next day’s agenda. Had he contacted the media? “Yes, they’re in play,” Cuneo said. Lerach, noting that he’d made sure the van was equipped with a large (comparatively crude) mobile phone, joked that it was shaping up as more of a guerrilla incursion than a visit.

  Then it was time for the trip to the Hill. After making certain Rea Luft was comfortable, they proceeded past the Capitol to the Russell Senate Office Building. There they were met by television camera crews and reporters, tipped off by the irrepressible Cuneo. Entourage in tow, Lerach cleared the security gate and headed for the elevator that would transport the group for their unannounced but hoped-for meeting with members of the Keating Five.

  The little band of women and attorneys charged through the hallways with the media following. Dennis DeConcini wouldn’t see them? Well, Lerach decided—that would be their first stop. They first headed down a short corridor to the sparkling new Hart Building, toward DeConcini’s office. As expected, the door to the office was shut and the senator was unavailable, reported a DeConcini aide who had been dispatched from an interior room. Lerach made certain the television lights illuminated the face of the embarrassed underling. Reporters also dutifully wrote down the reaction of the three Keating victims. “The man is a coward,” Ramona Jacobs said of DeConcini. “He doesn’t have the guts to stand up to three women.”

  Next in the line of fire was Alan Cranston, whose offices were two floors down. At seventy-five, Cranston was as old as some of Lerach’s victims. In November he had been publicly excoriated during the House Banking Committee hearings. Having taken his lumps that day, and sensing himself on the downward slide toward the end of a long and full political career, Cranston decided to play this differently from DeConcini. Cranston did not invite the Lincoln Savings survivors inside his inner sanctum, but he did acknowledge their grievances and said that if he could do anything for them while they were in Washington, to let his office know.

  Lerach’s expedition wound its way down the halls and into and out of elevators, more a demonstration than a finding of satisfaction. Finally they came to 241 Russell, the office of John McCain. The senator, dressed in dark blue suit and red tie, bade them join him inside his private office. Chairs had been set in a semicircle facing McCain’s desk. Through the window to the southwest, they could see the Lincoln Memorial.

  Instead of repairing to his desk, McCain stood in the middle of the semicircle
patiently listening while Lerach introduced each of his clients and informed the senator of their histories with Lincoln Savings and of their losses. McCain looked pained. Then dropping down—Lerach swears it was on bended knee—the senator from Arizona, the former navy aviator, the brave prisoner of war, the heroic American icon, bowed his head and said solemnly and so quietly that someone had to remind him that Rea Luft could barely hear: “I have betrayed my family. I have betrayed my constituency. I am very sorry that I have hurt you and your families.” Ramona Jacobs and Leah Kane would never forget that electric moment. It remained indelible twenty years later, even as McCain waged a spirited campaign to occupy the great white house down Pennsylvania Avenue. “He looked very embarrassed and very disturbed,” they both recalled, in nearly identical words.

  The scene would remain always with Lerach, too, as partisan as he was, even after his own career had suffered worse setbacks than any of the Keating Five’s (although not worse than Charlie Keating’s), and even after his conviction and disbarment, even after he’d been denied an opportunity to vote for Barack Obama.

  John McCain couldn’t undo anything in his past or in Charlie Keating’s—but on a January day in 1990 the senator validated the pain and feelings of three hurting women. As penance, McCain embraced campaign finance reform with a vengeance, bucking the powers that be in his own party along the way. Twelve years later Congress finally passed the legislation that the Arizona Republican and Senator Russell Feingold, a Wisconsin Democrat, had ardently championed. Its formal title was the Bipartisan Campaign Reform Act of 2002, but everyone knew it simply as “McCain-Feingold.” It was the most sweeping attempt at limiting the influence of fat-cat donors since the aftermath of Watergate.

  * At the Willard, Keating was known as “C-Note Charlie,” because he handed out $100 bills like candy to the staff, most of whom wore “We Love Charlie” buttons sent in advance by Keating’s staff.