Keating Defense to Open in Lincoln S&L; Case : Courts: Son-in-law, a key aide who pleaded guilty, will take stand in the federal trial of conspiracy, fraud and racketeering charges.

Moving with surprising swiftness, federal prosecutors concluded their case Tuesday against Charles H. Keating Jr., paving the way for the former operator of Lincoln Savings & Loan to put on his first defense to charges that he looted the Irvine thrift.

Defense testimony is scheduled to begin today in U.S. District Court here with Robert M. Wurzelbacher Jr., a Keating son-in-law and top aide, taking the stand. Defense lawyer Stephen C. Neal wouldn’t say whether Keating himself would testify.

Keating, who became a symbol of arrogance and greed in the scandal-scarred thrift industry, has long maintained his innocence and has insisted that he wanted to tell his story in court.

But up to now, he has never testified in his own defense nor has he defended his actions in any of the myriad court cases filed after the 1989 collapse of Lincoln and its Phoenix-based parent company, American Continental Corp. The S&L;’s failure was the industry’s costliest, with taxpayers facing an estimated $2.6-billion cleanup bill.

Last year, when Keating was tried in state court on charges that he violated California securities laws, Neal presented no defense, in the belief that state prosecutors failed to prove their case. Keating was convicted of fraud and later sentenced to 10 years in state prison.

Keating, 68, was American Continental’s chairman and chief executive. He is charged in two federal indictments with 73 counts of conspiracy, fraud and racketeering. He faces a maximum of 525 years in a federal prison.

Also on trial is his son, Charles H. Keating III, 37, who is accused of most of the same charges in 64 counts. He faces a maximum of 475 years in prison.

Wurzelbacher, the family member closest to Keating at American Continental, had been indicted also, but he pleaded guilty in an agreement that prohibited prosecutors from calling him as a witness against his father-in-law. Recently, however, Wurzelbacher sent letters to prosecutors and defense attorneys, saying he would be willing to take the witness stand.

Federal prosecutors had expected initially to take about two months to tell their story of greed, manipulation and hush-hush dealings that, they allege, resulted in the looting of Lincoln’s federally insured deposits.

But in only 11 days of testimony over the last month, 27 witnesses quickly laid out a series of deals in testimony intended to show that Keating used straw buyers of raw land to book phony profits, fooled his outside auditors about the deals, misled buyers of corporate bonds and reaped millions of dollars in salaries and other benefits for himself and his family.

The prosecution’s star witness was Judy J. Wischer, American Continental’s former president and one of Keating’s closest aides. She pleaded guilty and agreed to testify against Keating in return for a chance to receive a reduced sentence.

Wischer testified that Keating misled independent auditors about 14 transactions that produced millions of dollars in profits for Lincoln and American Continental. The accounting firm of Arthur Young & Co., she said, couldn’t tell from loan documents that Keating had given buyers inducements or made secret promises or arrangements, including deals to buy property back at a later date.

Under cross-examination, however, Wischer said she didn’t know whether Arthur Young accountants had learned from Keating or other executives the true nature of the transactions. And she acknowledged that the accounting firm’s working papers indicated that they knew fully about some of the deals.

After the prosecution rested Tuesday, Neal argued for a court ruling to acquit Keating on all charges on grounds that the prosecution failed to prove that any fraud was committed. He asserted that the core of the prosecution’s case was that Keating misled Arthur Young auditors but that no evidence linked him to any misleading actions.

The younger Keating’s lawyers also joined in the arguments, pointing out that little evidence linked the son to any wrongdoing.

Assistant U.S. Atty. David A. Sklansky, however, pointed out that the victims were American Continental bondholders and Lincoln itself, not the auditors. He contended that enough evidence existed to show that the auditors were never informed of the secret deals that Keating made and that his son knew about.

U.S. District Judge Mariana R. Pfaelzer will decide this morning whether to acquit the Keatings on some or all of the charges.