Accounting Firm Sued in Lincoln S&L; Failure Settles : Litigation: Arthur Andersen & Co. will pay $30 million to investors in the defunct American Continental Corp.

Arthur Andersen & Co., one of the three major accounting firms sued in the wake of Lincoln Savings & Loan’s 1989 collapse, reached a $30-million settlement Monday with investors in the thrift’s parent company.

Sources also said the investors could receive an additional $40-million settlement in the pending bankruptcy reorganization of Drexel Burnham Lambert, the former brokerage that specialized in sales of junk bonds.

If approved by the courts, the settlements would boost the total amount recouped so far to $110 million in cash and $32.5 million in guarantees for investors in defunct American Continental Corp.

U.S. District Judge Richard M. Bilby announced the Arthur Andersen settlement after an abbreviated court session on the second day of trial in the civil fraud and racketeering case against former Lincoln operator Charles H. Keating Jr. and his professional advisers.

The settlement calls for the company to pay $22 million in cash and another $8 million later to investors who can prove their claims, said a source involved in the negotiations. Arthur Andersen’s attorney, Stuart L. Kadison, declined comment.

Bilby said he will schedule a hearing soon to consider approval of the Arthur Andersen deal and other pending settlements so that investors can begin receiving some of their money by this summer.

The case was brought on behalf of 17,000 investors who claim that they lost $285 million investing in American Continental. The investors said they were misled into buying the company’s bonds at Lincoln branches. When American Continental went bankrupt and Lincoln failed--the biggest S&L; collapse ever--they lost their entire investment.

As opening statements continued Monday, lawyers for two other defendants--the law firm Jones, Day, Reavis & Pogue and the accounting firm Arthur Young & Co., now Ernst & Young--told jurors that their clients didn’t know about or take part in Keating’s alleged scheme to defraud small investors of more than $250 million.

Keating and his executives lied to Arthur Young auditors, which prevented them from detecting fraud at the company, M. Laurence Popofsky, the firm’s chief trial lawyer, told jurors. He said it was unfortunate that people lost money under Keating’s scheme but that there was “no reason to make the outside professional the scapegoat.”

Jones, Day, the nation’s second-largest law firm, did its job in uncovering numerous problems and advising Keating on what to do about them, said Max Gillam, the Cleveland-based law firm’s trial lawyer. Jones, Day didn’t know it at the time, Gillam said, but the advice “was violated wholesale” by Keating and his top executives.

The Drexel Burnham settlement is subject to a number of conditions, including federal court approval in New York of the company’s reorganization plan. The actual amount will not be determined for several months, sources said.