Investors’ Attorney Urges Freezing Keating Assets : Lawsuit: A federal judge hears arguments from attorneys for bondholders and Arizona businessman but makes no final decision.

An attorney for small investors in the parent of Lincoln Savings & Loan argued Monday in federal court in Los Angeles that the corporation was run for the benefit of Charles H. Keating Jr. and his family and that a federal judge could therefore order a worldwide freeze of Keating family assets.

About 22,000 investors claim in a class-action lawsuit that the $200 million in debt securities they purchased at 29 Southern California branches of the Irvine thrift provided Keating with a lavish life style that included bank accounts in Europe and the Caribbean.

Whether as Lincoln or as its parent firm, American Continental Corp. of Phoenix, the business is controlled by Keating, said Joseph W. Cotchett Jr. of Burlingame, one of the attorneys for the bondholders. That control, Cotchett charged, gives investors the right to go after Keating’s personal assets.

An attorney for the beleaguered Arizona businessman countered that Keating presented himself as being personally accountable to the small investors and that they do not have a right to freeze his personal funds.

The attorney, James Ham of Los Angeles, also said Keating had no funds in foreign bank accounts, as the investors allege.

American Continental spokesman Bradley J. Boland, one of Keating’s sons-in-law, said after the hearing that the company is pursuing various court fights to revive itself and pay off bondholders and other creditors.

U.S. District Judge Stephen V. Wilson decided to continue the hearing to Dec. 21 to give himself time to read the additional documents filed in the case. The hearing, Wilson said, could be canceled if he decides for Keating on the basis of the written arguments.

The bondholders have named Keating and others in a series of fraud and civil racketeering lawsuits filed in state and federal courts in connection with the collapse of American Continental and Lincoln. The holding company filed for bankruptcy protection last April 13, and regulators seized Lincoln the next day.

Lincoln’s failure could be the costliest ever for a thrift, with taxpayers picking up a cleanup bill of $2 billion.

Plaintiffs in the latest suit claim that much of the money raised through the bond sales--about $34 million--went for salaries, stock purchases and other benefits for Keating and his family. Cotchett argued further that money was spent for luxuries such as three corporate jets at a time when the company was struggling financially.

The suit seeks to freeze what investors say is more than $100 million in assets of Keating and his family in places such as Switzerland, Panama and the Bahamas. Keating, however, says in a written court statement that American Continental’s connections with overseas banks and brokerage houses were strictly for foreign currency trading and for consulting fees on such trading.

“I do not have bank accounts at any of these banks,” he says. “I do not have any overseas bank accounts. I am not aware, nor do I believe, that any of my family maintain bank accounts at any of these banks, or, for that matter, at any overseas bank.”

Although Wilson never ruled as to whether he even had the authority to issue the asset freeze, he did say that one part of the broad allegations in the case gave him the power he needed. Nevertheless, he struggled with the question of whether his court was the appropriate one for ordering a freeze.

He suggested that the small investors go to Orange County Superior Court or to the the U.S. Bankruptcy Court in Phoenix.

Cotchett, however, said, “I don’t believe the state court judge can give us the wide-ranging relief we seek.”

Wilson did, however, certify stockholders of American Continental as a class, and he tentatively certified bondholders as a class for the purpose of class-action suits. Wilson also said, though, that he may have to split bondholders into separate classes later because there are indications that some relied on different information in buying bonds.

In a related matter, federal regulators are expected to drop Keating’s brother, William J. Keating, as a defendant in a $1.1-billion civil lawsuit the government had filed against former American Continental officers and directors, according to a report appearing in the Detroit News. William Keating has convinced regulators that he served less time as a corporate director than public records indicate, the newspaper said.

William Keating, a former congressman from Cincinnati, is chairman of the Associated Press and president of the Detroit Newspaper Agency, which runs the joint business operations of the News and the Detroit Free Press.