Keating law firm settles suit Jones, Day to pay RTC $51 million

April 20, 1993|By New York Times News Service

WASHINGTON -- One of the nation's biggest law firms agreed yesterday to pay the government $51 million, settling charges that it had aided the financier Charles H. Keating Jr. in the fraud that brought on the costliest bankruptcy of a savings and loan association.

The settlement is the largest against a law firm in the savings and loan fiasco.

The firm, Jones, Day, Reavis & Pogue, settled the case just before opening arguments were to begin before a jury in Tucson, Ariz. The firm did not admit guilt, but the settlement protects it from future claims filed by regulators involving its work for any savings and loans that were taken over by the government.

The settlement also ends litigation between the government and William J. Schilling, who joined Jones, Day after serving as director of examinations and supervision for the federal agency in charge of savings and loans.

Mr. Schilling, the only partner named in the settlement, was in charge of Jones, Day's work for Lincoln Savings and Loan Association, which was run by Keating and was part of his American Continental Corp.

Under the order, Mr. Schilling is prohibited from holding any position in the banking industry, and is suspended from practicing before the Office of Thrift Supervision, the agency that now regulates the savings and loan industry.

When Lincoln Savings collapsed in 1989, it cost the government $2.5 billion to protect the institution's insured depositors. Had the jury ruled against Jones, Day, the firm might have been ordered to pay between $200 million and $500 million.

The government has won lawsuits or settlements against other law firms and accounting firms involved with savings and loan associations that ran into trouble, including some cases involving Keating's operations.

Keating, who was chairman of American Continental, has been convicted of fraud in an Arizona state court and is serving a prisonsentence. He has also been convicted, but not yet sentenced, on separate federal charges.

The charges against Jones, Day stem from its work for Lincoln Savings beginning in 1986, when the savings association was about to face a crucial examination by the Federal Home Loan Bank Board, which at the time regulated savings and loans.

Richard C. Aboussie, acting general counsel of the Resolution Trust Corp., the federal agency that is managing the assets of failed savings and loans, said Lincoln officials had told lawyers from Jones, Day before the examination "in very graphic and detailed terms" about improper activities at Lincoln.

"They were told before the exam began, and that's the key," Mr. Aboussie said in a telephone interview. "That '86 exam was a very early opportunity for examiners to stop Mr. Keating in his tracks."

A year ago, Jones, Day agreed to pay $24 million to settle claims by investors who said they had been defrauded by Keating.

Patrick McCartan, managing parter of Jones, Day, said in a statement that the work the firm did for Lincoln was done "competently and in accord with applicable standards of professional conduct."

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