Judge Refuses to Sever Keating, 2 Companies From Trial : Litigation: Ex-Lincoln owner, accounting firms must defend themselves. Information surfaces about a donation to gubernatorial candidate.
A federal judge ruled Wednesday that Charles H. Keating Jr. and two accounting firms must be ready to defend themselves March 2 in the long-awaited civil securities fraud trial stemming from the collapse of Lincoln Savings & Loan.
U.S. District Judge Richard M. Bilby refused to separate them from other defendants and delay their trial until after criminal trials involving Keating and two others are complete.
“There has been a Herculean effort at great expense . . . to get this ready for trial,” Bilby said. “I don’t see a basis for delaying it.”
Keating’s lawyer and lawyers for the accounting firms said no decision has been made yet on whether they would appeal the ruling.
That was Bilby’s first decision this week as he has listened to a series of arguments on more than 13 motions from a host of defendants trying to get out of the case or to get some of the claims against them dismissed.
More than a dozen state and federal lawsuits, consolidated before Bilby, contend that Keating, his top aides and the professionals he hired defrauded investors in the Irvine thrift’s parent company, American Continental Corp., out of more than $250 million. Most of the investors were elderly Lincoln customers who bought American Continental bonds at the S&L;’s Southern California branches.
Keating has been convicted of securities fraud in state court and is awaiting sentencing. He faces federal indictments on bank fraud, conspiracy, bankruptcy fraud and racketeering charges in Los Angeles and Phoenix.
He and two co-defendants in the federal cases, his son Charles H. Keating III and son-in-law Robert Wurzelbacher Jr., had claimed that they could not defend themselves in the civil case before Bilby until after the criminal proceedings were over.
The accounting firms of Ernst & Young and Arthur Andersen & Co. had argued for a delay because it appeared that the criminal trial would develop evidence that American Continental insiders had duped their auditors as well.
Startling information came to light during Wednesday’s arguments about political donations Keating had asked a Cleveland-based law firm to make.
Internal memos at Jones, Day, Reavis & Pogue, which Keating had hired to review Lincoln’s loan files, showed that the law firm agreed to donate $5,000 to an Arizona gubernatorial candidate Keating supported in return for the law firm’s ability to engage in “liberal billing,” possibly, as plaintiffs’ lawyers contend, to recoup the money.
“There is no evidence that there was overbilling to recoup a $5,000 political contribution,” asserted Nancy Scheurwater, a lawyer for Jones, Day. “Often clients ask for charitable or political donations.”
Keating believed in supporting politicians financially. Among the beneficiaries of his largess were five U.S. senators, including Alan Cranston (D-Calif.). They were reprimanded by the Senate Ethics Committee last year for taking a total of more than $1.3 million while intervening with federal thrift regulators, at Keating’s behest, over Lincoln.
