Home Builder Settles Suit Over Inflated Value of Keating Thrift

TUCSON, Ariz. â€”  A home-building firm formerly based in Phoenix has agreed to pay the federal government $10 million to settle a civil lawsuit that accused it of helping Charles H. Keating Jr. inflate the value of his faltering Irvine thrift, Lincoln Savings & Loan.

The settlement with Emerald Homes L.P., now based in Houston, increases the total amount of money recovered by the government to $230 million and nearly winds up the lawsuit. Only Keating and two other individuals remain in the case.

Additional funds coming from tentative settlements with two other defendants--bankrupt Drexel Burnham Lambert Inc. brokerage and its star junk bond trader, Michael R. Milken--will bring total recovery to about $280 million, said Michael C. Manning, a Phoenix lawyer for the Resolution Trust Corp., the federal agency liquidating Lincoln.

The thrift’s 1989 collapse is one of the nation’s costliest failures, leaving taxpayers with a $2.6-billion cleanup tab.

“From a cost-effectiveness standpoint, this is the most historically successful bank fraud and embezzlement litigation ever undertaken by any agency against a bank or thrift,� Manning said. His law firm, Morrison & Hecker, billed the RTC $15.9 million in fees over the four years it pursued Keating and the other defendants.

Emerald Homes agreed to make quarterly payments over the next three years from profits on its operations in California, Arizona and Texas.

But it denied any wrongdoing. The settlement was approved Monday by U.S. District Judge Richard M. Bilby in Tucson.

The RTC had accused Emerald of racketeering and fraud for taking part in sham land deals that inflated the value of Lincoln’s desert land southwest of Phoenix.

Keating is serving a 10-year prison term for his 1991 conviction of state securities fraud and faces sentencing July 8 on his federal court conviction in January.