Judge rules: pay up or jail

Ex-financial adviser has Oct. 12 deadline to return investor money

89-day term is alternative

Keating told to offer `reasonable' plan for paying $538,000 debt

October 05, 2001|By Lisa Goldberg | Lisa Goldberg,SUN STAFF

A former Howard County investment adviser who continued to sell securities after state and federal regulators ordered him to stop will have to report to jail next week if he can't come up with a "reasonable" plan to pay off a $500,000 judgment.

Howard County Circuit Judge Lenore R. Gelfman gave Michael P. Keating of Woodstock until Oct. 12 to pay $538,000 owed to investors as part of a civil contempt ruling or show her how he can pay the debt. If he fails to do either, she ruled yesterday, he must report to the Howard County Detention Center by 9 a.m. that day to begin serving an 89-day sentence.

Contending that Keating's testimony that he is impoverished and earning $100 a day as a laborer is "smoke and mirrors," Gelfman said she is "not convinced" that Keating can't pay the money.

"I find that his testimony strains credibility, to put it lightly," she said.

After the hearing, Keating's lawyer, Andrew Graham, said his client will try to come up with a payment plan, but "I don't see where the money's coming from."

"I'm not sure there's anything we can show [Gelfman] that the court will deem satisfactory ... but we will try," he said.

Keating declined to comment after his court appearance.

Gelfman's ruling yesterday became the latest in a series of judgments, fines and sentences imposed against Keating, who also faces numerous lawsuits from investors who say he defrauded them by placing their money in high-risk investments - against their wishes - that cost them thousands of dollars.

In addition to the Howard County case, judgments totaling more than $500,000 in three separate cases have been entered against Keating in federal and state courts. A fifth case - one of about a dozen pending against the former adviser - is scheduled to go to trial Tuesday in Baltimore County Circuit Court.

"He's done a lot of damage to a lot of innocent people," said Thomas C. Costello, who has represented clients in 16 cases against Keating.

Yesterday's proceeding was initiated by Maryland Securities Commissioner Melanie Senter Lubin, who alleged in court papers last year that Keating, who was licensed as an investment adviser in 1991, sold more than $1 million in investments even after he agreed to an order barring him from doing business in January 1999.

That order was signed after an investigation alleged that he sold unregistered securities in what Attorney General J. Joseph Curran called a "Ponzi scheme," in which money from investors is used to pay back other investors.

Through a series of hearings this year, Assistant Attorney General Lucy Cardwell offered testimony from clients who said they invested thousands of dollars on the advice of Keating after the date of the order - some putting their money in bearer bonds that have, so far, seen no return.

In August, Gelfman found Keating in contempt of the order to stop selling securities and offering investment advice and set yesterday's hearing to give him a chance to demonstrate his ability to repay the investors with whom he did business in the past 2 1/2 years.

Yesterday, Keating, who has an accounting degree, detailed mounting debts he said he cannot pay. He said he has worked as a laborer for the past two months because "I don't know what profession I'm allowed into at this time."

His in-laws own his house in the 1800 block of Woodstock Road, and he owes more than $50,000 in legal fees and $25,000 on one credit card, he said. His credit rating is "abominable," he said, and his family helps out by giving his wife and him gift certificates for groceries.

He's living daily and supporting his three children "just by the grace of God. Just sneaking by ... deferring bills," he said. "I owe people so much money."

But Cardwell said that Keating has advised clients in the past how to "shelter" their money. One of Keating's former clients, James Beatty of Glen Burnie, also testified yesterday that about two years ago, Keating told him "he had $3 million right in his hand. ... He had all kinds of stories."

Later, Beatty, a 64-year-old retired mechanical engineer, said that although he had invested more than $200,000 through Keating, his investments are now worth little more than $50,000. He's more fortunate than other retirees who have done business with Keating, he said, because his wife still works.

"There's a bunch of people out there that want to tear his face off," Beatty said.

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