When she was a little girl in the 1930s, Leah Kane watched helplessly as a bank collapse wiped out her father’s savings. “My parents lost everything they had,” she recalls. “It was humiliating for them. My father never really recovered. He had been running a building-supplies store, but he never was able to go back to work. He got very ill and eventually died. I vowed that if something like that ever happened to me, I wasn’t going to just stand still and take it. I was going to fight it any way I could.”
In 1989, her moment arrived.
By that time, Kane was a retired secretary, with $15,000 invested in American Continental bonds. She had bought those bonds at her local savings-and-loan association, not fully realizing that both the S&L and the bond issuer were controlled by financier Charles Keating Jr. She thought the bonds were safe. Then, just six months after she bought them, American Continental went bust.
For the next 10 years, Kane led a tireless crusade to get her money back — and to bring Keating to justice. What began as a simple quest turned into an epic — and eerie — journey through the courts, the political system, and the whims of the media. It wasn’t always fun, and she still seethes about various outrages that she suffered. Yet as she retells the story of her fight, there are moments that she really treasures.
These days, thousands of other people feel victimized by a fresh crop of financial scandals, led by the collapse of Enron and Global Crossing. Some are sullen and depressed. Others are fatalistic and eager to forget about the whole mess so they can make a fresh start. And some want to fight back as hard as they can. For all such people, Kane’s odyssey is full of intriguing and unexpected lessons.
When trouble hit in April 1989, Kane’s first reaction was stunned disbelief. “I remember coming home,” she says, “and someone asked me, ‘Did you see the news on the TV? American Continental has gone bankrupt.’ ” She couldn’t believe it at first. And then she realized that a major chunk of her savings was in trouble.
To Kane’s horror, dozens of her friends and neighbors were stuck with big holdings of similar bonds. American Continental had preyed on the elderly, frequently pushing bonds through its main S&L, Lincoln Savings, whose branches were set up just across the street from retirement communities.
Kane recalls, “People would call me, saying, ‘Please help us. My husband has Alzheimer’s. Our money is running out, and our savings are lost. I don’t know how we’re going to survive.’ When you hear something like that from other seniors, you feel that you’ve got to do something.”
So Kane found a lawyer who specialized in class-action suits against companies accused of defrauding investors. By June 1989, she had rallied more than 150 people in her southern-California retirement community — all of whom had financial losses related to the Keating bonds. It was unclear how much money Keating himself had left. So her lawyer advised her to sue American Continental’s auditors, Arthur Young & Co, instead. When court papers were filed in Orange County Superior Court later that year, she became the lead plaintiff in Kane v. Arthur Young.
Before long, Kane began reading every scrap of news relating to the Keating investigation. She got angry at the auditors. She got angry at Keating himself. And she got angry at five U.S. senators who had accepted Keating campaign contributions. The senators “must be made to resign and to pay back some of this money from their own pockets,” she told the Los Angeles Times in February 1991. It irked her to no end that the senators were only reprimanded.
When other legislators took steps in November 1991 that she thought might delay a Keating trial, she rallied 26 of her retirement-community friends and brought them all by bus to a legislator’s office. They stood outside and picketed, holding signs that declared, “Justice now, not after we’re dead.”
One of her brightest moments came in December 1991, when Keating was convicted in Los Angeles Superior Court on 17 counts of securities fraud. “I’m happy, I’m happy,” Kane told a newspaper reporter. “I want a shot of whiskey right now, and I don’t even drink.”
Keating subsequently was sentenced to 10 years in prison on state charges and 12 and a half years in prison on federal charges. Both convictions were overturned on appeal, though, and a new trial was ordered in the federal case. In 1999, the cases were largely resolved when Keating pled guilty to three federal counts of wire fraud and one count of bankruptcy fraud. It was decided that he wouldn’t serve any further time in prison; he had already been incarcerated for about four years, from 1992 to 1996.
While the Keating prosecutions were playing out, Kane and various lawyers were making steady — but maddeningly slow — progress in recovering some of the money that she and other retirees had lost from owning American Continental bonds. When Keating professed to be nearly broke, Kane and her lawyers pursued multimillion-dollar cases against Keating’s lawyers, accountants, and other advisers.
Most of the legal action moved to Arizona in the mid-1990s, where American Continental had been incorporated. A wide variety of bondholder suits were consolidated there, including Kane’s case. Defendants fought the suits for a while and then generally settled. Every year or two, another flurry of checks would arrive, giving bondholders a little bit more of their money. The first settlement was approved in 1990; others came as late as the mid-1990s.
All told, bondholders such as Kane got about 70 cents on the dollar in recoveries. That was a much better outcome than Kane had feared at first. But it wasn’t nearly the full recovery that she had hoped for. And as she has grown older, she has grown suspicious that somehow the system cheated her out of more money that was rightfully hers. “I’m sure there’s still millions of dollars left over somewhere,” she says. “I’m very disturbed and upset about it too.”
Sometimes, Kane enjoyed her crusade, telling her story again and again in court filings and media interviews. She went to legislative hearings in Sacramento, California and Washington, DC, pressing for justice, or at least for severe punishment of Keating and his allies.
But after a while, the nonstop battle against Keating became painful and draining as well. Instead of being able to enjoy her retirement, Kane found herself trapped in a legal quagmire that never seemed to end. There were always new court depositions to give, new hearings to attend, and exasperating new delays related to legal maneuvers. Talking to lawyers wasn’t cathartic anymore — it became its own source of frustration as the court cases dragged on. After Keating finally was released from prison in 1996, Kane fumed that the punishment wasn’t harsh enough.
What’s more, Kane came to realize that justice delayed can be justice denied. When settlement checks finally arrived, some of her friends were too ill to take the cruises or exotic vacations that they had once dreamed of. Some bondholders had died, including several suicides. Her own health stayed reasonably strong. But she was a widow, and unrelated tragedies hit other members of her family, leaving fewer and fewer people to share her triumphs.
Today, Kane is still living in the same Orange County retirement community where she bought the Keating bonds. She follows the Enron scandal on TV and in the newspapers, with the knowing smile of someone who has seen it all play out before.
“There’s nothing but fraud in this Enron situation,” she declares. “There’s a lot of it that I don’t understand. Basically, though, I think it’s just a matter of human nature. When you see things going really well in the stock market and you think you see a chance to make some extra money, some people will take huge risks and get involved in something they shouldn’t. It’s like a gambler with an addiction.”
George Anders (firstname.lastname@example.org) runs Fast Company’s West Coast bureau from San Francisco.