Keating’s U.S. Appeal Takes On New Import

With Charles H. Keating Jr.’s state securities fraud conviction thrown out in a stunning reversal this week, his appeal of a federal racketeering conviction--including a claim of jury misconduct--is taking on added importance.

It’s now only the federal case that is keeping the former operator of failed Lincoln Savings & Loan in a federal prison in Tucson. He is serving a 12-year, seven-month term for looting the Irvine thrift and is not eligible for parole until 2001.

Keating, his lawyers and federal prosecutors are waiting for the U.S. 9th Circuit Court of Appeals to issue its ruling on an appeal that covers an array of issues.

But lawyers familiar with the case say that Keating’s best hope for a new trial hinges on one key issue--jury misconduct based on pretrial publicity.

Jurors weren’t told--and, presumably, weren’t supposed to know--about Keating’s prior state court conviction for violating California securities laws. The trial judge deemed such information too prejudicial to Keating.

At least four jurors, however, knew before trial that Keating already had been convicted in state court, and a number of jurors discussed that case among themselves in the jury room after the federal trial had begun, according to appellate court documents.

One juror who knew, “either because of neglect or dishonesty,” falsely answered a pretrial question, indicating to lawyers that he didn’t know about a prior conviction, Keating’s appeal papers state.

“Jurors are supposed to take into the jury room their common sense and a general knowledge of the world around them--but not specific knowledge of the case before them,” said Janet Levine, a Los Angeles lawyer familiar with pretrial publicity issues. “And if the information they have is inadmissible, you certainly don’t want them talking about it.”

Particularly troubling, said a lawyer once involved in the Keating case, is that the state case now has been overturned. A federal judge on Wednesday ruled that Keating’s constitutional due process rights were denied because his state conviction was based on “nonexistent legal theory” and “erroneous” jury instructions from Los Angeles Superior Court Judge Lance A. Ito, who presided at the trial.

“It’s a safe bet to say this [jury misconduct] issue is a stronger one” now that the state conviction has been overturned, said the lawyer, who did not want to be identified.

Keating’s lawyer, Stephen C. Neal, argued in his appellate court papers that sworn affidavits from five jurors prove that some knew about the state court conviction before trial and others learned about it from fellow jurors after the federal trial began. As a matter of law, he argued, “there must be a new trial.”

Prosecutors put the blame on Neal. They contend in their written arguments that he never asked jurors before trial if they knew about prior criminal proceedings against Keating. In addition, Keating wasn’t entitled to jurors who were ignorant about such general news as his conviction. Finally, they argued, their awareness of the state case was “entirely harmless” and couldn’t affect the verdict.

The three-judge 9th Circuit panel has taken an unusual amount of time to come up with its opinion, possibly indicating that it is struggling with a decision or working on a dissenting opinion.

Oral arguments in the case were more than 17 months ago, and lawyers familiar with the 9th Circuit say decisions typically are rendered within six months after oral arguments.

Questions from judges during those arguments indicated that they were focusing on the jury misconduct issue as well as two other issues:

* Should the trial judge have provided immunity to two defense witnesses who Keating claimed could have contradicted the prosecution’s star witness had they testified? Without immunity, they refused to testify, citing their Fifth Amendment privilege against self-incrimination. The prosecution asserts that their testimony would have hurt the defense and barely dented the prosecution case.

* Was the evidence sufficient to convict Keating of such heinous crimes as racketeering? No evidence was presented to show that any accounting figures were incorrect or hidden from auditors, or that Keating created sham profits, the defense argued. The prosecution asserts that the evidence “amply” supports the conviction.

Typically, defense lawyers challenge the adequacy of the evidence on appeal. While often raised, it is rarely granted, but an adverse ruling would prevent any retrial on grounds of double jeopardy.

Keating, 72, used his Phoenix company to buy Lincoln Savings in 1984 and transform it into a dynamo that took advantage of liberal investing laws. He put federally insured deposits in high-risk ventures, such as development of raw land, junk bond purchases and corporate takeover efforts.

His empire collapsed in 1989, leaving taxpayers with a $3.4-billion cleanup tab. Small investors, thousands of them elderly Southern Californians, lost more than $285 million.

His state court conviction was narrowly focused on accusations that he set in motion the machinery to defraud his investors.

The federal prosecution was a broad-ranged indictment of his operation of Lincoln, accusing him of fraudulent schemes that pumped up the thrift’s value and increased the flow of money to the parent company and, eventually, to his own pockets.