Keating Allowed to See Testimony From SEC Probe


A Superior Court judge ruled here Monday that former thrift owner Charles H. Keating Jr. of Phoenix should be granted access to more than 8,000 pages of testimony developed as part of a five-year Securities and Exchange Commission investigation into his business dealings.

Judge Lance A. Ito ruled that Keating and three other defendants are entitled to see the SEC testimony from 83 witnesses in order to prepare a defense on charges of state securities fraud stemming from the 1989 failure of Irvine-based Lincoln Savings & Loan.

In a related ruling, Ito denied a request by local prosecutors to reinstate a dozen fraud counts against the defendants. The judge had earlier dismissed 12 of 46 counts because they did not state an offense or were not what the grand jury had intended.

Keating, former chairman of Lincoln’s parent company, American Continental Corp., and three former associates are accused of having led thousands of mainly elderly Southern Californians to believe that risky American Continental bonds were safe.


The bonds--sold through Lincoln branches--became worthless after the company filed for bankruptcy protection in April, 1989, and regulators seized Lincoln. Regulators now estimate that the S&L;'s collapse will cost taxpayers more than $2 billion.

The SEC has been investigating Keating since 1986, when federal regulators raised questions about the financial condition of Lincoln and American Continental. Testimony from that inquiry was provided to the grand jury that indicted Keating in September.

SEC attorney Faith Ruderfer argued in court that the agency’s investigation of fraud at Lincoln would be jeopardized should the material be given to attorneys defending Keating. The testimony is mostly from former employees and officials of Lincoln and American Continental.

“By disclosing that information, we severely limit our ability to successfully litigate the case,” Ruderfer said.

Ruderfer said the SEC investigation might not be over for six months and that disclosing the testimony of SEC witnesses to defense attorneys would “allow them to see into their adversary’s hand.” The SEC staff notified Keating last month that it would ask the commission to file a civil lawsuit against him alleging securities law violations.

But Ito said that “litigation is not playing poker.” He ruled that the defense’s right to discovery under California law outweighs the SEC’s governmental secrecy privilege. Under state law, defendants are generally entitled to find out before trial what evidence prosecutors have in their possession that might help or hurt them.

Ruderfer said she did not know whether the SEC will appeal the judge’s ruling on the documents.

The judge also said he will review a 22-page document from the state Department of Corporations to determine if it should be turned over to the defense.


Ito rejected a request by prosecutors to reinstate 12 charges he threw out last month, and he would not allow them to amend the indictment again. Ito said he wanted to keep firm the trial date of Aug. 2, but his ruling will probably provoke further delay.

William Hodgman, a deputy Los Angeles district attorney, said his office will appeal Ito’s decision not to reinstate the charges.

In September, a special grand jury indicted Keating, former American Continental President Judy Wischer and two former Lincoln presidents, Ray C. Fidel and Robin S. Symes, on 42 counts of state securities fraud. Ito threw out 22 counts but allowed prosecutors to rewrite them.

In an amended indictment, prosecutors expanded the indictment to 46 charges. Last month, Ito threw out 12 counts, saying six changed the offenses charged by the grand jury and six others failed to state an offense.


Meanwhile, a newspaper reported that three Cincinnati businessmen were subpoenaed by the Office of Thrift Supervision in its investigation into Keating’s assets. The Cleveland Plain Dealer, citing unidentified federal sources, said the OTS was investigating allegations that Keating may have hidden as much as $10 million in personal assets from the government or that he may have transferred it in violation of an August court order.

The OTS is seeking nearly $41 million in restitution from Keating and six former American Continental directors on four complicated transactions that caused losses to Lincoln.