Keating Put Lots of Stock in Bond Sellers, Jury Told

Charles H. Keating Jr. placed a high priority on selling American Continental Corp. bonds and considered employees who sold them at the company’s Lincoln Savings & Loan unit to be “heroes,” a former associate testified Thursday.

Robin S. Symes, who was a Lincoln chairman and chief executive, also said that Keating and a trader at Drexel Burnham Lambert Inc. concocted a plan to lie to large institutional investors who might call to ask if the company planned to repurchase their bonds.

His testimony in Keating’s state securities fraud trial in Los Angeles Superior Court alleges that Keating told sophisticated, institutional investors that American Continental was troubled yet portrayed his company to prospective small investors who bought the bonds at Lincoln as healthy and secure.

Symes acknowledged under cross-examination, however, that employees picked to sell bonds to small investors at Lincoln branches were trained to disclose the risky nature of those bonds.

In meetings he helped to organize and lead, Symes said bond sellers were warned to tell buyers that the bonds were not insured, not secured, not issued by Lincoln and ranked below all other American Continental bonds. They also were told that the bonds were not recommended for people who couldn’t afford to lose money.

And he said he told sellers “on more than one occasion” that the bonds were risky securities and should not be sold to “little old ladies.” One bond seller was fired for being too aggressive, he testified.

Symes described how Keating decided to lie to large investors who owned bonds that were senior to the bonds sold at Lincoln branches. In case of default, senior bonds are paid in full before junior bonds are repaid.

The issue arose in an October, 1988, meeting of American Continental and Lincoln executives that was interrupted by a telephone call from James Dahl, a top trader for Drexel Burnham Lambert Inc. brokerage, which had underwritten the senior bond issue.

Talking over a speaker-phone so that Symes and others could hear, Dahl said he found a group of senior bondholders willing to sell their bonds at a substantial discount. Dahl said he had been telling major investors that there was a 50-50 chance that the company’s main source of income--dividends from Lincoln--would be cut off by regulators and that American Continental might have a difficult time paying interest on the bonds.

Dahl asked Keating if he wanted to buy the bonds but warned him that the investors wouldn’t sell if they knew American Continental was the buyer. Keating, Symes said, assured him that investors who called would be routed to the company’s chief financial officer, who would say: “ACC has no current plan to buy back securities.”

Symes testified for the second day in the trial of Keating, who is accused in 20 criminal counts of defrauding small investors. They are part of thousands who lost more than $250 million after the company and the thrift collapsed in April, 1989.

Symes, who has pleaded guilty to six counts of state securities fraud, testified for the prosecution that Keating held tight control over nearly all aspects of Lincoln operations even though Keating never held a position at the S&L.;

He also testified that Keating knew that thrift regulators, who were conducting a lengthy audit, were suspicious of the S&L;’s operations long before the company began selling bonds at Lincoln’s Southern California branches just after Thanksgiving, 1986.

Symes said he never sold a bond personally and never met a bondholder. But when asked by Deputy Dist. Atty. William Hodgman why he pleaded guilty, Symes said: “I wanted to be in a position where I was accepting responsibility for what I’ve done and to tell the truth here.”

Under cross-examination by Keating’s lawyer, Stephen C. Neal, Symes admitted he also hoped that his testimony would help him get a lighter sentence. Like Keating, Symes faces a maximum of 10 years in prison and a $250,000 fine.

Symes will continue his testimony today.