12 More Counts Against Keating Are Dismissed

A judge on Friday dismissed 12 of 46 criminal counts against former savings and loan owner Charles H. Keating Jr. and three others, and indicated that much of the remaining portion of the securities fraud indictment is in jeopardy.

The ruling by Los Angeles Superior Court Judge Lance A. Ito--the second time he has dismissed counts in the California state indictment--elated the Arizona businessman and defense attorneys, and sent prosecutors back to their offices to consider a possible appeal.

Ito’s ruling and his doubts about some of the remaining counts severly hamper the prosecution’s effort and raise the possibility that the state’s entire case against Keating may be scuttled.

That could leave federal authorities primarily responsible for bringing criminal charges against Keating and others involved in the $2-billion collapse of Lincoln Savings & Loan in Irvine and its parent company, American Continental Corp. in Phoenix.

Sources involved in a wide-ranging federal grand jury investigation said authorities are close to preparing federal indictments against Keating and others. The federal grand jury, based in Los Angeles, has been investigating the failure of Lincoln for more than a year.

In Friday’s hearing, Ito found that six counts alleging that the defendants sold American Continental securities at Lincoln branches without proper authority were “internally inconsistent.” Each of those counts, he said, alleged a crime in one paragraph while indicating in the next that no crime was committed.

Ito also dismissed six other counts that alleged that the defendants lied to state officials about the securities and failed to file advertisements with the state Department of Corporations. Ito dismissed those counts on grounds that prosecutors, in rewriting the original grand jury indictment after he had dismissed 22 counts, increased the number of counts and the number of alleged misdeeds, thus invading the grand jury’s province.

“It’s a big, big victory,” Stephen C. Neal, attorney for Keating, said about Ito’s decision. Keating smiled broadly when the judge announced his decision.

Prosecutors said they were still confident they could win a conviction of Keating.

“We only have to convict (the defendants) on six counts to get the maximum prison term” of 10 years, said William Hodgman, the deputy Los Angeles County district attorney prosecuting the case. “So we still have plenty to work with.”

Hodgman said prosecutors will decide next week whether to appeal Ito’s decision.

The judge set a trial date for Aug. 2 and said he considers that to be “a firm trial date.”

The judge also scheduled a hearing for June 7 on the defense motion to dismiss the remaining 34 counts. Ito said he doubted that 14 other counts would survive a defense motion to dismiss on grounds that the grand jury didn’t have “reasonable or probable cause” to believe that crimes were committed and the defendants were responsible.

The judge told lawyers on both sides to start thinking about a number of other matters, including the basic issues of whether the defendants could be held criminally accountable for the actions of others and held criminally liable without a showing that they were at fault.

Those issues are key to the defense argument that the defendants cannot be tried and convicted without a showing that they had knowledge of the activities of their securities salesmen.

Keating was chairman of American Continental, which filed for bankruptcy protection in April, 1989. Regulators seized Lincoln the next day.

Keating, former American Continental President Judy J. Wischer and two former Lincoln presidents, Robin S. Symes and Ray C. Fidel, are accused of misleading Lincoln customers into buying uninsured American Continental bonds from late 1986 to February, 1989.

In all, more than 17,000 small investors bought about $200 million worth of those risky securities at Lincoln branches. Many have said they thought their bond investments were insured by the federal government.

Keating and the others have denied any wrongdoing in the sale of the securities.

Keating and a host of former executives and associates also face a mountain of civil lawsuits, including a $1.1-billion racketeering lawsuit filed by federal regulators.

The district attorney’s office, acting as a special state attorney general, had shepherded the state’s case against Keating and his associates through a grand jury, which returned a 42-count indictment in mid-September.

Ito set aside 22 counts two months ago, saying 20 counts failed to state a public offense and two others were vague. State law allows prosecutors to rewrite an indictment for minor defects but requires them to go to the grand jury to make major changes.

Prosecutors rewrote the 22 counts, adding four new ones to make a 46-count indictment. It was the rewritten portions that Ito acted on Friday.

The first 20 counts, which Hodgman calls the “heart and soul” of the case, have remained intact throughout the defense attacks. Those counts accuse the defendants of making false statements or omitting material information in selling the securities.