$4.1 Billion in Awards Against Keating, 2 Others Slashed 64% : Law: A federal judge in Tucson says the new amount is enough to express the jury’s anger over the fraud.

A federal judge in Tucson on Wednesday slashed by 64% July’s $4.1 billion in jury awards against former Lincoln Savings & Loan owner Charles H. Keating Jr. and two others.

In reducing the total award to nearly $1.5 billion, U.S. District Judge Richard M. Bilby said the jury had expressed its anger over a fraud that bilked $288.7 million from small investors in the Irvine thrift’s parent company, American Continental Corp. As part of his order, the judge cut in half the $1.5 billion in punitive damages that the jury ordered Keating to pay to the investors, saying that the new amount is enough to send the jury’s message.

He pointed out that the jury also awarded $910 million in punitive damages against developers Conley Wolfswinkel in Tempe, Ariz., and Continental Southern Inc. in Atlanta, even though he had ruled that no punitive damages could be assessed against them.

The judge said he would not rule on a $300-million verdict against a fourth defendant, Saudi European Investment Corp. in the Netherlands Antilles, because he wanted to encourage a settlement. It is unlikely that investors will receive much from the three others, who say they are broke.

Lincoln is the nation’s biggest thrift failure, costing taxpayers $2.6 billion. Keating is serving a 10-year term in state prison for his conviction last year on state securities fraud charges. A federal trial on two indictments against him and his son starts in two weeks.

The verdicts came in a trial that consolidated 15 class-action lawsuits. Most of the 99 defendants in the suits, which alleged fraud and racketeering, settled for a total of $251 million, but that money has not yet been disbursed to the investors.

The bondholders--those who bought their securities at Lincoln branches and make up most of the investor group--will get their money first, but they will have to wait another month before they get a $70-million payment from those settlements.

Star Bank in Cincinnati, which is distributing the money, said it will not be able to update its bondholder database and mail checks before Nov. 16. The payments will amount to about 36 1/2 cents on the dollar for the investors.

Last month, lawyers for small investors in American Continental, which owned the Irvine thrift, had said that checks for about 40 cents on the dollar, representing the first major payment, would be in the mail by now.

At the time, Bilby had approved the distribution of $152 million in settlements. Under his order, bondholders will receive their money automatically. Other small investors, such as preferred shareholders and minority owners of common stock, have to file claims for their money.

But a glitch developed between investors’ lawyers and Star Bank, which had acted as the bond trustee for American Continental before the April, 1989, collapse of the company and the thrift.

The lawyers wanted Star Bank to use its existing database to get the checks ready to be delivered as soon as the order approving the payments became final. That happened last Thursday when the 30-day period for any appeals passed without action.

The lawyers didn’t want to turn the money over to Star Bank before the checks were ready because they wanted to minimize the amount of interest the bank would earn off the float, which is essentially the time the money is in the bank’s hands, said Ron Rus of Orange, one of the investors’ lead lawyers.

But Star Bank wouldn’t cut any checks until it had the money in hand, and it wouldn’t act at all unless Bilby ordered it to distribute the money, said Henry Kasson, a lawyer for the bank. Bilby ordered the bank on Saturday to mail the checks and to return to the investors any interest it earned on the money.

Even so, Kasson said, the bank will need a month to update its database showing that more than 17,000 owners of more than 11,000 bonds were owed a total of $192 million in principal.

The bank has to weed out, for instance, any bondholders who decided not to take part in the class-action lawsuits as well as any insiders. And it has to provide tax statements as well, Kasson said.

The amount owed differs from the $168.2 million indicated in court documents, which would provide bondholders with more than 40 cents on the dollar.

The lawyers and the bank also argued about how much the bank would be paid for its work. The bank agreed to $45,000, which is coming from other settlement money.