Keating Lawyers Ask Dismissal of Fraud Counts : Courts: The defense claims that the charges against Keating and three other ex-officials of Lincoln Savings & Loan are too vague and unconstitutional.
Lawyers for former thrift owner Charles H. Keating Jr. and three co-defendants said Monday that fraud charges against their clients should be dismissed because the allegations are vague and were brought under an “unconstitutional” state statute.
The statements came in a pretrial hearing before Los Angeles County Superior Court Judge Lance A. Ito and provided a glimpse into the early defense strategy in the first criminal trial arising from the April, 1989, collapse of Lincoln Savings & Loan in Irvine.
Ito set an Oct. 26 hearing for arguments on the defense challenges. He also set Dec. 5 as the trial date, one the judge said was likely “overly optimistic.” Keating’s lawyer, Stephen C. Neal of Chicago, said a trial in early March is more probable.
Keating, former chairman of Lincoln’s parent firm, American Continental Corp. in Phoenix, and the co-defendants are charged in a 42-count indictment with securities fraud and other violations. The defendants, who face possible sentences of 10 years in prison if convicted, have all pleaded not guilty.
The indictment accuses Keating of defrauding investors who bought nearly $200 million in American Continental junk bonds through Lincoln’s 29 Southern California branches. Bondholders claim they were led to believe that the bonds were safe and federally insured.
Those bonds have become worthless since the company filed for bankruptcy protection in April, 1989, after whick regulators seized Lincoln. Both the company and the S&L; are headed for liquidation, and regulators estimate that Lincoln will become one of the nation’s most expensive failures, costing U.S. taxpayers more than $2 billion.
Keating, 66, has been held in the Los Angeles County Jail on $5-million bail since Sept. 18, though a U.S. District Court judge is reviewing the bail figure. The other defendants--Judy J. Wischer, 42, former president of American Continental, and Robin S. Symes, 38, and Ray C. Fidel, 32, both former Lincoln presidents--have been released on substantially reduced bail.
Keating appeared pale and thinner but was smiling as he walked into the courtroom and greeted his family. After the hearing, Ito closed the courtroom for 10 minutes so that Keating could meet with his wife, six children, four of five sons-in-law and five of 23 grandchildren.
Held in check by his lawyers since entering jail, the usually talkative Keating finally spoke briefly to reporters as he arrived at the courthouse, saying, “It’s dangerous to be right when the government is wrong.”
In court Monday, defense lawyers said they will argue that the case be dismissed because the indictment fails to state specifically that what the defendants did was illegal. The indictment alleges that the defendants violated two laws with respect to 20 individuals, that the defendants lied to the state Department of Corporations, which approved the bond sales, and that they failed to clear bond-sale advertising with the state agency.
But the indictment doesn’t state specifically what the defendants told state officials or what was false or misleading in the bond sales. Thus, the defense lawyers contend, the indictment fails to give Keating and the others sufficient notice of what they did wrong.
The Los Angeles County district attorney’s office has said that the 45 volumes of grand jury testimony from 94 witnesses, as well as 600 exhibits and the indictment itself, provide the defense with all the specific allegations it needs.
Defense lawyers also contend that the state securities law on which the indictment is based is unconstitutional because it imposes criminal penalties based on what is called “vicarious liability,” which permits defendants to be found guilty for the actions of employees even though the defendants might not know what the employees had done.
Defense attorneys argue that their clients can’t be convicted unless it can be shown that they had some knowledge of false or misleading statements or intended to defraud investors. Prosecutors, however, said appellate court cases have upheld convictions based on vicarious liability.
“If a person either caused the misrepresentation or was in a position of authority and control and could have prevented it, and failed to, he could be held criminally liable,” said Lynn Miller, who was hired as a special prosecutor by Dist. Atty. Ira Reiner to present evidence to the grand jury.
