Keating Kin Makes Deal With Feds : Fraud: Son-in-law of Lincoln Savings founder pleads guilty to misapplying $14 million in deposits; prosecutors agree to drop additional charges

Robert M. Wurzelbacher Jr., son-in-law of former Lincoln Savings & Loan owner Charles H. Keating Jr., pleaded guilty Friday in federal court to three charges of misapplying nearly $14 million of the thrift’s federally insured deposits.

In a plea bargain with federal prosecutors, Wurzelbacher agreed to cooperate with federal authorities in their continuing investigation into the collapse of the Irvine-based Lincoln three years ago.

Wurzelbacher will not have to testify in the federal government’s main fraud, conspiracy and racketeering case against Keating and three others, said Alice C. Hill, assistant U.S. attorney. However, he could be called to the stand as a rebuttal witness after the defense presents its case at Keating’s trial, which is scheduled to begin Aug. 4.

Hill said that in exchange for his plea, additional charges brought against Wurzelbacher in a 77-count indictment filed last December will be dropped at his sentencing.

U.S. District Judge Mariana R. Pfaelzer set July 16 as a tentative sentencing date for Wurzelbacher, but lawyers on both sides said they expect a delay until after the trial of Keating and the others. Wurzelbacher faces a maximum of 15 years in prison, along with fines and restitution.

Wurzelbacher was the family member closest to Keating in the years that he exercised control over Lincoln. The thrift’s failure, linked to risky junk bond investments and real estate projects, is the costliest in history. It is expected to cost U.S. taxpayer’s $2.6 billion.

The plea agreement did not surprise Keating or his lawyers. Prosecutors had told the defense attorneys after the indictment was filed that they would be offering deals to certain defendants, a Keating lawyer said.

Wurzelbacher’s wife, Elizabeth, was the only family member in court Friday. She supports her husband’s decision “100%, and so does the rest of the family,” said Mark E. Beck, Wurzelbacher’s lawyer.

“They understand that at 38, with a young family, he had to take into consideration the risk of going to trial and could not turn away from this offer in this circumstance,” Beck said. “There is not a schism in the family.”

In the plea bargain, Wurzelbacher admitted that he and other officers at Lincoln were instrumental in the thrift’s extending $13.9 million in loans to the Hotel Pontchartrain Limited Partnership in 1986 and 1987, even though they knew that the loans were not in Lincoln’s best interests and probably would not be repaid.

The partnership, which owned the Hotel Pontchartrain in downtown Detroit, was made up mainly of Keating, Wurzelbacher and other Lincoln insiders. The enterprise suffered large losses but generated substantial tax benefits, the federal charges allege. Wurzelbacher and his wife received more than $100,000 in tax-shelter benefits, a federal source said.

Keating, who was convicted of state securities fraud and sentenced last month to 10 years in state prison, was transferred Thursday to the California Men’s Colony in San Luis Obispo, where he was assigned to spend the rest of his term.