Keating Invokes 5th Amendment at His Fraud Trial

A feisty Charles H. Keating Jr. refused to answer questions in federal court Wednesday about charges that he and his advisers swindled thousands of investors in Lincoln Savings & Loan’s parent company out of $285 million.

Keating instead repeatedly invoked the Fifth Amendment privilege against self-incrimination and refused to testify at the civil fraud and racketeering trial.

On the witness stand, Keating started to explain how badly he wanted to testify, telling a plaintiff’s lawyer that he wanted to respond “more than you think.” But Judge Richard M. Bilby cut him off, saying that any response could cause him to waive his Fifth Amendment privilege.

Outside U.S. District Court here, as a lone heckler jeered, the 68-year-old former Arizona developer said: “Until I am able to testify, the truth will not be known.”

Keating, already awaiting sentencing on his California state securities fraud conviction last fall, didn’t want to testify here because it could prejudice his defense in Los Angeles of two federal indictments charging him with fraud, conspiracy and racketeering. Criminal trial on those charges is scheduled to begin in August.

In the civil trial now underway, Keating and his lawyers, accountants and professional advisers are accused of swindling 23,000 investors, most of them elderly Southern Californians, who bought risky bonds issued by Irvine-based Lincoln’s parent company, American Continental Corp. in Phoenix.

The bonds became worthless when Lincoln was seized by the government in 1989. The failure will cost taxpayers $2.6 billion, the most expensive thrift bailout ever.

Keating said that he expects to be testifying at the criminal trial. Well known for his political contributions and fund raising, he said that his testimony probably would come “during the election campaign,” deadpanning: “I can hardly wait.”

Keating isn’t defending himself at the civil trial because the insurance carrier whose corporate policies covered directors and officers refuses to pay further legal bills, said one of his lawyers, Jeffrey Powell.

The carrier argues that it paid its policy limits--$5 million--to settle the cases against other executives and no longer owes a duty to defend Keating.

Keating, who has been muzzled by his lawyers for more than a year, also expressed regrets about the small investors who lost their money after the 1989 collapse of Lincoln and American Continental.

“I feel as bad as they do,” Keating said as he stood outside with his wife, three of his children, his secretary and Powell. “I’ve lost everything I had, too, and, of course, their loss comes first. Nothing in my life grieves me or my wife more than that.”

Even though he wouldn’t answer about 50 questions from an investors’ lawyer and four defense lawyers, Keating forced them to be precise. Several times he asked lawyers to repeat or explain their questions, and one lawyer even decided to skip a question after failing to make it more comprehensible.

The questions were important because jurors could infer by Keating’s refusal to testify that any answer he gave would be adverse, tending to prove the case against him.

Ray C. Fidel, Lincoln’s last president who was in charge of the bond sales at Lincoln branches, also refused to testify Wednesday, citing his Fifth Amendment privilege. He has already pleaded guilty in state and federal courts to securities fraud and has testified against Keating in the state criminal trial last fall.

When one defense lawyer started to ask Fidel about that testimony, Bilby called a temporary halt to the questioning and told Fidel to call his lawyer in Irvine. “Tell him to call me this afternoon,” Bilby ordered. The judge must determine whether Fidel should be required to provide answers about his earlier testimony.

An expert witness for the investors, accountant Raymond Todd Neilson of Salt Lake City, testified that his analysis of Lincoln and American Continental records showed that it was obvious that Keating and high-ranking executives were ripping off the thrift and the company.

The “primary purpose” of American Continental was “to siphon money” out of Lincoln so that Keating and his family and top executives could lead a “lavish and extravagant lifestyle.”

He said that a $4.5-million home in Indian Creek, Fla., was listed as an office building even though the company’s records showed that it was a seven-bedroom home with two golf carts and a $60,000 Mercedes-Benz sitting outside.

Keating and his family also took numerous lengthy trips abroad on company jets at company expense even though there was little or no corporate business purpose. Salaries were “very high,” especially for those who ran the company, he said. And many transactions booked as profitable ventures actually lacked any economic substance, he said.

Defense attorneys, who started to cross-examine Neilson during the last 10 minutes of Wednesday’s court session, will continue questioning him today.