Lincoln Deals Had No Safeguards, Trial Told

American Continental Corp. sold junk bonds through its Lincoln Savings & Loan branches without key safeguards that usually accompany securities sales, an expert witness testified Monday at the trial of Charles H. Keating Jr. in Los Angeles Superior Court.

The company’s bonds, which were sold from late 1986 to early 1989, were high-risk investments that were not suitable for the individual small investors targeted by the company, said Alfred E. Hofflander, a professor at UCLA’s Graduate School of Management.

In addition, the bonds were sold without the help of brokers and investment bankers, and there was no market available to sell the bonds--safeguards designed to protect investors, Hofflander testified.

“The average person on the street has no sophistication in evaluating the risk of an investment,” he said during the sixth day of testimony in the trial of Keating, the former operator of Irvine-based Lincoln.

While the company issued a prospectus that was to provide “complete disclosure” about the financial condition of American Continental, it was difficult to read and understand, Hofflander said.

Keating, American Continental’s former chairman, is accused in 20 counts of defrauding 22 small investors out of $1.8 million through false statements and omissions of material information in the sale of his company’s bonds.

The investors are part of thousands of bondholders who lost more than $250 million after Lincoln and its Phoenix-based parent collapsed in April, 1989. Lincoln is the biggest thrift failure to date, with a cost to taxpayers of $2.6 billion.

Keating, 67, denies the charges and counters that he used the best legal and accounting help available to structure the bond sale program.