2 Grand Juries Reportedly on Lincoln Probe

The criminal investigation into Lincoln Savings & Loan is so massive that authorities have taken the unusual step of using two specially convened federal grand juries in Los Angeles to probe the thrift’s failure, sources close to the cases said.

One grand jury is looking into allegations of bank fraud and securities violations, while the second is probing accusations of illegal campaign contributions and other political issues, said the sources, who did not want to be identified.

The fraud and securities probe is being conducted with the help of a task force made up of local, state and federal authorities. The political corruption investigation is aided largely by FBI agents.

The use of two grand juries is a rare event in federal prosecutions, but it signals the significance that the federal government has placed on the nation’s biggest thrift failure.

The 1989 failure of the Irvine-based S&L; is expected to cost taxpayers $2.7 billion. The thrift’s deposits and branch system were sold earlier this year to Great Western Bank, a Beverly Hills thrift. Lincoln’s parent company, American Continental Corp. in Phoenix, is being liquidated under bankruptcy laws.

The main targets of the bank fraud investigation are former American Continental Chairman Charles H. Keating Jr. and his top associates. Already three individuals have pleaded guilty to various charges stemming from the two-year probe and agreed to testify against Keating and others.

“This is the unique case of the decade, maybe of the century,” said Eric L. Dobberteen, a former assistant U.S. attorney who had represented some Keating family members until this year. “It’s so complex that nobody’s ever going to understand all that was done.”

The complexity is one of the reasons the government has decided to use more than one grand jury and to designate them as special grand juries, which means they generally don’t hear evidence about other, unrelated cases as typical grand juries do.

“The worry is they did not want to overburden one grand jury with too much information,” one source said. “The idea is one of expediency and efficiency.”

In addition to the two federal grand juries in Los Angeles, a federal grand jury in Phoenix is investigating mainly borrowers of Lincoln and other Arizona thrifts that have failed. A federal grand jury in New York investigating the operations of bankrupt Drexel Burnham Lambert brokerage and its junk bond pioneer, Michael Milken, has also looked into Milken’s junk bond dealings with Keating and other executives of failed thrifts that held junk bonds.

Abbe David Lowell, an attorney for former American Continental President Judy J. Wischer, said he did not believe that it was unusual for several grand juries to handle pieces of a large case. “There is probably more than one grand jury looking into any major business that crossed state lines,” he said.

Indictments from the Los Angeles grand juries, which were expected months ago, may start to be handed up in a month or so, sources said, but it is unlikely that the separate investigations would be coordinated enough to return all indictments at the same time.

Federal prosecutors are taking their time to build a major case, the sources said. They are rechecking the evidence and the proposed charges in an effort to avoid the problems that the state has run into with its prosecution of Keating, Wischer and two others.

In September, a state grand jury under Los Angeles County Dist. Atty. Ira Reiner indicted the Keating group on 42 charges of state securities violations. Los Angeles County Superior Court Judge Lance A. Ito threw out 22 counts but allowed prosecutors to rewrite the indictment. When the district attorney’s office came back with 46 counts, Ito threw out 12.

Federal officials said they would not be surprised if the remaining 34-count state court indictment against the Keating group is thrown out entirely because of issues relating both to the evidence gathered and to the laws under which the defendants are charged.

One of the defendants in the state case, Ray C. Fidel, a former Lincoln president, pleaded guilty to six counts, but he will be able to join co-defendants in trying to obtain a dismissal of the indictment. He also has pleaded guilty to two counts of securities violations in the federal case.