Keating Aide Testifies That She Misled Auditors on S&L; : Trial: Testimony is first by a major insider in the case against Keating. It supports contentions of accounting firms.

Charles H. Keating Jr.’s top aide testified Wednesday that she misled independent auditors about transactions that produced millions of dollars in profits for Lincoln Savings & Loan and its parent company, American Continental Corp.

Former American Continental President Judy Wischer told jurors in the federal criminal fraud and racketeering trial of Keating and his son that she, Keating and other executives didn’t tell the Arthur Young & Co. accounting firm about inducements given to prospective buyers or about secret promises and arrangements, including deals to buy back properties later.

Had the information been revealed, she said, it would have “significantly” altered the glowing opinions that Arthur Young had offered about the financial condition of the Irvine thrift and the Phoenix parent company for the years 1986 and 1987.

Her testimony, the first from a major insider in a criminal case against Keating, supports what three national accounting firms had been contending since Keating’s empire collapsed in April, 1989. Lincoln’s failure is the nation’s biggest, costing taxpayers an estimated $2.6 billion.

Arthur Young, now Ernst & Young, and two other firms paid $95 million earlier this year to settle lawsuits brought by American Continental investors, who lost $288.8 million.

Wischer’s testimony doesn’t clear the accounting firms completely, though, contends Ronald Rus, a lawyer for the investors. Wischer revealed Keating’s intent to defraud, he said in an interview, but the accounting firms had enough information to uncover the shaky financial condition of Keating’s empire.

Wischer, who worked with Keating for 18 years, said she saw a number of promises fulfilled when Lincoln repurchased property from the buyers, often at a profit for the buyers.

She is expected to discuss specific transactions that were allegedly fraudulent when her testimony continues today.

Wischer also provided a host of anecdotes showing that Keating was in control of every aspect of American Continental’s far-flung operations, including Lincoln and its subsidiaries, even though he never held a position at the S&L.;

“Charlie would tell people in my presence that he was the chief lending officer at Lincoln,” she said. He would also arrange for major loans to be made and then have Lincoln’s loan committee “rubber-stamp” its approval, she said. And in transactions requiring board approval, she said, he would have directors sign memos approving deals that had already been made.

Wischer, who earned more than $850,000 a year, testified as part of a plea bargain. She hopes to obtain a light sentence on her guilty pleas to several charges in the indictment.

Keating is already serving 10 years in a state prison for his conviction last year on state securities fraud charges.