Lincoln Bonds Were ‘Lemons,’ Trial Is Told : * Thrifts: The prosecution, summing up the case, says Keating is ultimately responsible for investor losses.
A prosecutor in Charles H. Keating Jr.’s fraud trial said Thursday that the high-yield, high-risk bonds issued by the parent of Lincoln Savings & Loan were the investment version of used car “lemons.”
And just as there are lemon laws to protect auto buyers, Deputy Dist. Atty. William Hodgman said in closing arguments, there are similar laws to protect investors who are duped into buying securities through misrepresentations or undisclosed facts.
“I submit to you that the heart and soul of this case is about truth,” Hodgman said. “It is about victimized bond purchasers . . . who did not get the truth about the bonds they were purchasing.”
Ultimately, he said, the case is about Keating, whom he called “the man who is most responsible for those bond purchasers in Southern California not getting the truth.” Hodgman, recovering from the flu, took most of the day to argue the case against the 67-year-old former chairman of Phoenix-based American Continental Corp., Lincoln’s parent.
Building his case on testimony from 53 prosecution witnesses, Hodgman argued that the “totality of the evidence” showed that Keating should be convicted of defrauding the bondholders.
He cited 11 instances of important information that was not disclosed to buyers. They included concerns of thrift regulators that Irvine-based Lincoln didn’t have enough capital and was being operated in an unsafe and unsound manner. Bond purchasers also were not told that Lincoln, by far American Continental’s biggest asset, was restricted for several months from paying a $20-million dividend to the parent company.
But Keating’s lawyer, Stephen C. Neal, who began his closing arguments in the final minutes of the court’s day, charged that the prosecution’s case consists of “speculation” and contradictory evidence.
Neal said a “glaring and unbridgeable gap” exists in the prosecution’s attempt to link Keating to any false statements or omissions of material information.
The “real heart of the case,” Neal said, is whether the evidence is sufficient to show that any “deliberate, conscious or knowing conduct” by Keating resulted in a failure to provide material information to bond purchasers.
Keating is accused in 18 counts of defrauding 20 small investors. They are among thousands of mostly elderly Lincoln customers who bought American Continental bonds at Lincoln branches in Southern California.
Those investors lost their money after the company went bankrupt and regulators seized Lincoln in April, 1989. Regulators say Lincoln is the nation’s biggest thrift failure to date, expected to cost taxpayers $2.6 billion.
