Keating’s Advisers to Face Jury

A federal judge on Friday refused to drop three major accounting firms and a national law firm from the upcoming civil trial of former Lincoln Savings & Loan owner Charles H. Keating Jr.

U.S. District Judge Richard M. Bilby, however, dismissed two minor defendants--Star Bank in Cincinnati and an officer of Offerman & Co. in Minneapolis--from the class-action lawsuits brought by small investors after the 1989 collapse of Irvine-based Lincoln and its parent company, American Continental Corp. in Phoenix.

Bilby also dropped a minor defendant--First Bank National Assn. in Minneapolis--from the federal government’s $2.7-billion racketeering case against Keating and others.

In brief orders issued after three days of hearings, Bilby also rejected most of the efforts by defendants to limit the fraud, conspiracy, racketeering and other allegations against them.

Lawyers for small investors in the Irvine thrift’s parent company were delighted with the judge’s rulings.

“It’s clear that Judge Bilby believes that Mr. Keating’s professional advisers should be required to undergo the scrutiny of a jury,” said attorney Ronald Rus of Orange. “We’re confident that a jury will see through their manipulations just as the jury in Los Angeles saw through Keating’s manipulations.”

Keating was convicted on state securities fraud charges Dec. 4 in Los Angeles County Superior Court and is to be sentenced April 10. Since that conviction, he has been indicted by federal grand juries in Los Angeles and Phoenix on bank fraud, conspiracy, bankruptcy fraud and racketeering charges.

In the civil litigation, Bilby ordered that the major accounting firms of Ernst & Young, Arthur Andersen & Co. and Deloitte & Touche must defend themselves before a jury. The Cleveland law firm of Jones, Day, Reavis & Pogue also must go to trial in the bondholder cases, the judge ruled.

The accountants and the lawyers have been the heart of the bondholders’ case all along. The investors charge that Keating never could have swindled them without the help of the professionals. Most of the bondholders were elderly Lincoln customers who bought the bonds at the S&L;’s branches.

Altogether, about 23,000 investors lost more than $250 million when Keating’s empire collapsed in April, 1989. Lincoln is the nation’s biggest thrift failure, costing taxpayers $2.6 billion.

About 17,000 bondholder suits have been combined in two class-action proceedings. The trial is scheduled to begin March 2.