Keating Hearing Continues Despite Requests for Delay : Thrifts: Regulators want the former head of Lincoln Savings and six others to repay the government $130 million.

Despite arguments that the proceeding was unnecessary, a hearing on the largest enforcement action ever brought by federal thrift regulators began Monday in Los Angeles against former Lincoln Savings & Loan owner Charles H. Keating Jr. and six former associates.

The hearing, presided over by Administrative Law Judge Paul J. Clerman, will determine whether Keating and the others must repay the government $130.5 million lost by Lincoln and whether they should be permanently barred from the thrift business.

Stephen C. Neal, Keating’s lawyer, argued that there was no reason for the Office of Thrift Supervision to waste taxpayer money on the proceeding since his client and the others would agree not to work in the S&L; business in the future.

And, he said, the restitution the OTS is seeking from the Keating group on four deals that caused losses at Lincoln pales in comparison to the $2.7 billion sought by another regulatory agency on the same and other allegations. Besides, he said, the restitution issue is moot since Keating is broke.

The hearing stems from the 1989 failure on Lincoln, which is the costliest to date with an expected cost to taxpayers of $2.6 billion. The thrift’s collapse was linked to risky real estate loans, junk bonds and, according to regulators, insider fraud.

OTS lawyers insisted that the hearing go forward, despite other requests to delay the hearing. “We have an independent basis for proceeding, and that’s what we’re doing,” said Carol Lieberman, the OTS senior deputy chief counsel.

“As the record develops, it will speak for itself,” said Paul Leiman, an OTS senior attorney.

A former federal judge sought one delay while he attempts to reach settlements in the massive civil litigation stemming from the April, 1989, collapse of Lincoln and its parent company, American Continental Corp. The judge said a settlement could give the OTS what it wants most--a lifetime industry ban on Keating and others.

The U.S. Department of Justice also sought a delay, fearing that secret information given to two grand juries investigating Lincoln’s failure for the past two years would leak out before indictments are issued.

After Clerman heard half a day of arguments, he began taking testimony from two witnesses about American Continental’s employee stock option plan. Regulators charge the Keating group of lining their pockets with cash by selling some of their company stock to the ESOP.