Suspicions, a letter help end scheme

Crime: A Harford County woman's queries uncovered a nationwide plot that defrauded more than 600 investors.

April 25, 2004|By Lisa Goldberg | Lisa Goldberg,SUN STAFF

Louise Bateman had no idea how many dominoes her complaint about her investment adviser would topple.

All she knew as she sat down to draft a letter to Maryland securities officials in late 1996 was that Michael P. Keating had bought stock without her approval - leaving her account overdrawn by more than $8,000.

And he had the nerve to tell her that she had ticked him off.

"All I wanted to do was straighten everything out and maybe get some of my money back," the 78-year-old Harford County retiree said recently.

That letter led federal and state securities officials to audit Keating's Ellicott City office, where they stumbled onto a nationwide scheme that defrauded more than 600 investors of $43 million and has resulted in more than a dozen indictments. Keating pleaded guilty in February to conspiracy and securities fraud and is scheduled to be sentenced in a federal court in Ohio on Friday.

More than seven years after Bateman's complaint, Keating's investors are still feeling the repercussions: marital chaos, depression or financial ruin. Some avoided telling their families, choosing instead to re-mortgage their homes or re-enter the work force quietly.

Terry Mullen, 53, an Annapolis home furnishings salesman, said he long ago gave up recovering the $200,000 he lost. The least he can do, he said, is attend Keating's sentencing.

"Then, I'm going to close the book on it," he said.

In the hierarchy of this Ponzi scheme - a set-up where new investor money pays off old investors - Keating's name does not appear at the top. That distinction goes to Andrew Bodnar, an Akron, Ohio, broker and lawyer who, according to authorities, enjoyed a lavish lifestyle with investor money. Bodnar is serving more than 11 years in federal prison.

The salesman

But Keating, whom authorities blame for more than $5 million in lost money, appears to have been the man who drew Marylanders in. He was the religious guy, the man with a photo of his brother the priest prominently displayed in his office, the consummate salesman.

Keating, 45, a Howard County resident who earned an accounting degree from Mount St. Mary's College in Emmitsburg in 1981 and became a licensed broker in 1983, not only managed his clients' money. He did their taxes. And when they said they wanted their money to last through their retirement years - "Safe investments, Michael," they stressed - he seemed to understand.

Friends recommended friends. Retirees, from firms such as Baltimore Aircoil, Bethlehem Steel and Lever Brothers, traipsed through his office.

"He was a real smooth talker. You couldn't help but like him," said James Beatty, 67, of Glen Burnie, who retired from Baltimore Aircoil in 1995 after 38 years. He said he lost about $90,000.

Many of Keating's clients said they were novices at investing, but he earned their trust with investments that appeared to be aboveboard and made them money.

Those initial successes in what turned out to be risky investments that paid off in high commissions may have made him greedy, his father said.

"I don't know. I guess it was just the lure of the money and the adulation ... the adulation when he did succeed," said Edward "Joe" Keating, who, with his wife, Annmarie, raised Michael and his six siblings in Lancaster, Pa.

Michael Keating's Ohio lawyer, John S. Pyle, said his client is remorseful, but went into the investments with the best intentions - to make investors money. He trusted Bodnar's assurances that the investments were good ones, but made a series of mistakes when they went bad: Instead of owning up to failure, he got them involved in even riskier ventures to try to recoup the losses, Pyle said.

"To keep the first phase of investors ... at least staying with him, lies were told and misrepresentations were made," Pyle said. "It snowballed."

Empty promises

Unraveling Keating's investment activities reveals a maze of speculation, misrepresentations and empty promises, according to documents filed in the securities case and in 17 investor lawsuits filed against him in Baltimore County Circuit Court.

It also shows a pattern that started with inappropriate, high-risk investments and then moved toward out-and-out fraud: promissory notes and bonds purportedly backed by gold that promised high short-term interest yields but instead left investors broke.

It was the latter that became the subject of the federal indictments, although investors note failed high-risk investments, which they said they never wanted, when calculating losses. In a statement signed as part of a plea agreement that lawyers said will net him at least five years in federal prison, Keating admitted his role: "I knowingly and falsely represented to investors ... that their investments were safe, secure and guaranteed, when, in fact, I knew that each of these investments were sham investments."

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