Documents Stolen From Key Defense Witness’s Hotel Room, Keating Lawyers Say

Important trial documents were stolen from the hotel room of a key defense witness for former Lincoln Savings & Loan operator Charles H. Keating Jr., the ex-banker’s lawyer told a federal judge Wednesday.

Defense attorney Stephen C. Neal revealed details of the alleged burglary as Keating was preparing to start a second day of testimony in his trial on charges of conspiracy, fraud and racketeering stemming from the 1989 collapse of Lincoln and its parent company, American Continental Corp.

The account of the purported break-in overshadowed Keating’s testimony, in which he acknowledged spending freely during the years he controlled Lincoln--making payments of $18 million over six years on personal loans and laying out $40,000 a month in mortgage payments on two homes.

Neal said the break-in occurred sometime Tuesday while the expert witness, John D. Dorchester of Chicago, was out of his room at the Hotel Inter-Continental in downtown Los Angeles. Neal said Dorchester, a real estate consultant expected to testify later this week, has also been followed by unknown people for the last two months.

The hotel would not discuss the case, and Dorchester could not be reached for comment. Though Neal said police were called, the Los Angeles police said no report of such a burglary was filed.

In addition, the lawyer told U.S. District Judge Mariana R. Pfaelzer that in recent weeks at least three packets of computer disks containing Keating case information have been opened by unauthorized people at his own law firm. On one occasion, he said, an item disappeared.

The disks were sent by courier between offices as a backup security measure, Neal later explained to reporters. The stolen item, which he wouldn’t identify, was specifically planted in an attempt to trace what was happening.

Neal did not accuse the government--or anyone else--of wrongdoing and did not seek any action by the judge.

Assistant U.S. Atty. Alice C. Hill said she was aware of Dorchester’s belief that he was being tailed, but she told Pfaelzer that neither her office nor the FBI ordered any surveillance of the consultant. Hill said she did not learn of the alleged burglary and opened packages until just before the trial resumed Wednesday morning.

Keating and his son, co-defendant Charles H. Keating III, are accused of using Lincoln and American Continental to enrich themselves and their families. Lincoln’s failure is expected to cost taxpayers $2.6 billion, the most expensive thrift cleanup to date.

In his testimony Wednesday, Keating maintained his innocence--and his composure--under cross-examination by Assistant U.S. Atty. David A. Sklansky.

Sklansky suggested that Keating relished his lavish lifestyle, which included frequent use of three corporate jets and expensive ground transportation. Prosecutors are attempting to show that Keating’s spending spree was financed by looting Lincoln.

Keating also defended a three-week European trip that 20 family members took in 1988 to visit restaurants and hotels and to interview chefs.

Times staff writer Thomas S. Mulligan contributed to this story.