Keating Ordered Freed From Prison on Bond

Charles H. Keating Jr., who personified greed and arrogance in the thrift industry in the 1980s with his role in the collapse of Lincoln Savings & Loan, won release from prison on Thursday as he awaits a hearing on a new federal trial.

Keating, 72, walked out of a prison in Tucson late Thursday afternoon, hours after U.S. District Judge Mariana R. Pfaelzer in Los Angeles ordered his immediate release. The judge gave him 10 days to post $300,000 bail.

Keating was greeted by two women and put his arms around each, then walked to a waiting van and drove off as reporters watched from across the street.

Keating, who has served 4 1/2 years in prison, is “obviously delighted; very, very pleased” with the bail ruling, said his attorney, Stephen C. Neal.

“Whatever people think about Mr. Keating, the trials in which he was convicted were not proper trials,” Neal said. “I think he has been in prison long enough, and [this case] should be brought to an end.”

Pfaelzer ordered Keating’s release after a closed-door hearing in which jurors testified about their alleged misconduct at his federal trial in Los Angeles nearly three years ago. The judge’s decision to grant bail could foreshadow a ruling giving Keating and his son, Charles H. Keating III, a new trial on fraud and racketeering charges, say lawyers familiar with the case. The son has been free on bail pending his appeal.

Pfaelzer is expected to decide on a new trial at a Nov. 25 hearing. She told prosecutors and defense attorneys not to discuss the testimony of the jurors in the meantime.

Keating’s release comes seven months after his conviction in state court on securities fraud charges was thrown out because it was based on “nonexistent and erroneous legal theory” and “erroneous” jury instructions.

He sought a new federal trial on the grounds that some jurors had improperly learned about his earlier state conviction and discussed it during the federal proceedings.

After Thursday’s closed-door session with jurors, ordered by an appeals court in June, Neal said he asked to argue the new-trial motion immediately. But prosecutors wanted a postponement, so Neal renewed his previous motion for bail, and Pfaelzer granted it. She limited Keating’s movements to Arizona, California and Illinois.

Keating’s family in Phoenix was thrilled with the news. “We’re running around and trying to get my mom and my kids and all ready,” said Keating’s daughter, Mary Hall.

But some of the thousands of elderly Southern Californians who lost more than $285 million investing in Lincoln’s parent company, American Continental Corp. in Phoenix, were upset.

“I don’t want him to see a day outside, not even a short stretch of time,” said investor Thomas Shelley of West Hills. “There are going to be many bondholders who won’t understand why he’s out, who still suffer painful, agonizing losses. This was the clearest-cut case of fraud in the annals of banking history.”

One of the investors’ lawyers, Ronald Rus of Irvine, had expected Keating to be set free on bail and said he wouldn’t be surprised if a new trial is ordered.

“It’s a Pyrrhic victory at best,” said Rus, who helped to win $1.5 billion from Keating and others in a civil fraud trial in Tucson. “It doesn’t mean he’s innocent.”

The Tucson jury, he pointed out, “found him to be the chief architect of a massive financial fraud, the mastermind of a racketeering scheme that victimized thousands of Southern California senior citizens.”

U.S. Atty. Nora Manella declined to comment on the order for Keating’s release or on prospects for a new trial.

In June, the U.S. 9th Circuit Court of Appeals ordered Pfaelzer to question jurors about allegations that they had improperly learned about Keating’s state court conviction. Pfaelzer had barred all references to the state case in the federal proceeding because it would have been too prejudicial, jeopardizing his right to a fair trial.

After the federal trial, defense investigators learned from jurors that some of them had known about the state case before the federal trial and that others learned about it in discussions among themselves during trial.

One juror said in a sworn statement that he had heard about Keating months before being picked as a juror, even though he had said in a sworn questionnaire during the jury selection process that he hadn’t heard of him.

Keating used American Continental to buy Irvine-based 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.

For many observers, his outspokenness, brash conduct and Washington connections helped to turn him into a national symbol of what was wrong with the thrift industry in the freewheeling 1980s.

When his empire collapsed in 1989, taxpayers were left to pay for the cleanup of the thrift. Regulators recently revised their estimate of the bill for that, to $3 billion. Keating has adamantly denied any criminal wrongdoing.

Times staff writers Greg Johnson and Vicki Torres and Times wire services contributed to this report.