Keating Goes Free Pending Trial Hearing

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

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

Greeted by two women, Keating put his arms around each, 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 lawyer, 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. In the meantime, she told prosecutors and defense attorneys, they were not to discuss the testimony of the jurors.

Keating was accused of looting Irvine-based Lincoln’s federally insured deposits by booking phony profits on sham land and securities transactions and fooling auditors and investors about the failing health of the S&L; and its parent company.

His release Thursday 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 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 delay, 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 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 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 his Phoenix company, 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.

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 free-wheeling 1980s.

When his empire collapsed in 1989, taxpayers were left to pay for the cleanup of the thrift, a bill recently revised by regulators to $3 billion.

A state grand jury indicted Keating and three others on charges of defrauding investors in American Continental. The other three pleaded guilty. Keating was convicted in December 1991 and, less than a week later, was indicted with his son on federal charges of racketeering, conspiracy and fraud.

Keating has adamantly denied any criminal guilt for the collapse of his financial and real estate empire. He has blamed federal regulators for hamstringing his high-flying operation.

Industry critics, without necessarily agreeing with him, have questioned the regulators’ role in the S&L; debacle, which led to a congressional bailout that will eventually cost taxpayers about $500 billion with interest.

“We have about reached a point where history lets us revisit what he was doing,” Neal said Thursday.

He said that one of those ventures, the Phoenician Resort in Scottsdale, is “turning into a good investment.” Regulators, however, had written its value down before selling it.

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