Lincoln Savings bilked the elderly — and five US senators fought to protect it

In 1984, Charles Keating bought Lincoln Savings and Loan Association, a conservative California thrift, for $51 million. Keating then used the newly deregulated S&L environment to turn Lincoln into a high-risk investment vehicle. He fired the existing management and directed Lincoln's deposits into speculative real estate, junk bonds, and direct equity investments — all prohibited under the old rules that had kept S&Ls safe for 50 years.

Keating's strategy grew Lincoln's assets from $1.1 billion to $5.4 billion in five years. But the growth was built on risk. American Continental, the parent company, sold uninsured securities to customers through Lincoln's branches — many elderly depositors thought they were buying FDIC-insured accounts. When the risky investments failed, 21,000 investors lost $285 million. At seizure, Lincoln had only $20 million in capital against a $325 million requirement.

As regulators moved to shut Lincoln down, Keating contacted five U.S. senators — Alan Cranston, Dennis DeConcini, John Glenn, John McCain, and Donald Riegle — who met with banking regulators on his behalf. The senators collectively received $1.3 million in campaign contributions from Keating. Their intervention delayed the seizure by two years. All five were investigated by the Senate Ethics Committee for improper conduct.

Federal regulators seized Lincoln in April 1989, one day after American Continental filed for Chapter 11 bankruptcy. The Resolution Trust Corporation spent two years liquidating Lincoln's assets, often at pennies on the dollar. The total cost to the federal government was nearly $3 billion. Charles Keating was convicted of fraud and served four and a half years. The Keating Five scandal became a defining example of regulatory capture and the dangers of campaign finance.