"I never said that to him," Ober now says. Rather than being the ultimatum described by Cole, Ober says he told Cole that it was important "to consider what the ramifications might be any time you turn down a lender" who is seeking to do a project.
The meeting was held in a second-story conference room, adjacent to Keating's private office. It was Cole's first meeting with Keating and Keating dominated discussion during the brief encounter. Keating knew his company was in trouble and he needed to act quickly.
Judy Wischer, American Continental president who kept a close tab on the bottom line, had told Keating earlier in the month that American Continental was about to show its first quarterly loss, an event that would surely anger already nervous shareholders who were worried about the high salaries Keating paid himself and his family members running the company.
Bank regulators also were poring through the books of Lincoln Savings, escalating fears regulators would criticize the thrift for its large slate of raw land investments. A quarterly loss and a negative bank audit could prove deadly to the cash-strapped corporation that desperately needed access to bank loans to keep afloat.
To solve both problems, Keating needed to immediately unload some of Lincoln's real estate at a profit. All summer the thrift had tried to sell a 1,400-acre parcel along the Santa Cruz River, north of Tucson, called Continental Ranch. But buyers were nowhere.
With the third quarter drawing to a close, Keating already had held one meeting with Ober to see if R.A. Homes would buy Continental Ranch. R.A. Homes earlier had turned down a previous offer to purchase land in Continental Ranch. The company was hesitant to get involved in the rural property that was bisected by the flood-prone Santa Cruz River.
But this time, Keating offered an added inducement, Judy Wischer would later testify, and R.A. Homes was ready to deal.
The Saturday-morning meeting between Keating and Ober ended with a tentative agreement for R.A. Homes to buy Continental Ranch on Keating's terms. Minutes later, Ober was on the telephone to Cole in Hawaii, outlining the proposal and telling him to immediately return.
Cole's okay was essential for the deal to go forward. The University of Arizona law school graduate, who also received an accounting and engineering undergraduate degree from UofA, was a founder and president of the homebuilding company. After practicing law for 15 years in Tucson, Cole and a partner started R.A. Homes in 1977. Ron Ober's father, Hal Ober, joined the company in 1980, setting up a Las Vegas homebuilding division. Three years later, the company decided to expand into the Phoenix market and Ron Ober was brought in to handle that operation.
Cole, Ron Ober and their attorney arrived at the American Continental headquarters around 10 a.m. They cut through the campuslike compound to a building in the rear and entered Keating's conference room. After a brief round of introductions, Keating laid the deal on the table:
R.A. Homes would purchase 1,400 acres of Continental Ranch for $25 million, including a $5 million down payment, but R.A. Homes would not take over its newest purchase. A Lincoln Savings' subsidiary, AMCOR, would continue to control development of the project; R.A. Homes wouldn't have to make any payments on the $20 million balance because AMCOR intended to sell the land within a year; the $20 million loan would be a nonrecourse loan, meaning there were neither corporate nor personal guarantees of repayment. In other words, Ober, Cole and R.A. Homes wouldn't have to repay the $20 million if things got tough.
And then Keating added the sweetener: R.A. Homes would receive the first $2.5 million in profit from the future land sale, plus 50 percent of any additional profit. All R.A. Homes had to do was hold title to the property.
The deal sounded too good to be true, but Cole said there were a few problems. The biggest one was that R.A. Homes didn't have $5 million available to make a down payment. The company had already committed that amount to purchasing land in Las Vegas and paying off a partner, who was getting out of the business.
Keating came up with a solution, a plan that would eventually lead to Keating's conviction on federal counts of bank fraud and racketeering. Lincoln Savings would extend a $5 million operating line of credit to R.A. Homes, allowing R.A. Homes to free up cash to make the down payment. This proposal set off warning bells with Wischer.
"I cautioned Charlie that you can't make the down payment out of borrowed funds from the seller," Wischer testified last November in Keating's federal criminal trial in Los Angeles. "The down payment must be--under accounting rules--must be independent of the seller's funds."
Keating, Wischer testified, then told Ober and Cole that Lincoln would provide the $5 million line of credit and that it wouldn't have to be repaid until after the Continental Ranch property was sold. But Keating added a caveat: "Don't use any of our money to make the down payment. You must have your funds independent of ours."