High Court Leaves Keating’s Victory in S&L; Case Intact
Former Lincoln Savings & Loan boss Charles H. Keating Jr. won a final victory Monday before the U.S. Supreme Court, defeating attempts to reinstate his 1991 state court conviction for swindling elderly investors.
Without comment, the high court refused to reopen the case, leaving intact lower court rulings that Los Angeles Superior Court Judge Lance Ito had allowed a flawed prosecution.
The Supreme Court order left Keating without any convictions on charges he duped customers of the Irvine-based S&L; into trading insured deposits for junk bonds issued by Lincoln’s parent company, American Continental Corp. in Phoenix.
The securities became worthless when Keating’s empire toppled into bankruptcy in 1989. More than 21,000 mostly elderly Southern California investors lost about $285 million, and taxpayers had to cover nearly $3 billion in Lincoln’s losses, making it the nation’s second-most costly thrift failure.
Keating had served nearly five years in prison on both state and federal convictions. A sweeping 73-count federal conviction on racketeering and fraud also was reversed. To avoid a retrial in the federal case, he pleaded guilty last year to bankruptcy fraud and was sentenced to the time he already had served.
Keating, 76, whose aggressive investments and disdain for federal regulators made him the symbol of the S&L; debacle in the 1980s, couldn’t be reached for comment.
“It’s safe to say he’s very pleased,” said his attorney, Stephen C. Neal. “This vindicates the position we’ve been arguing for 10 years.”
No Decision Made on Possible Retrial
Assistant Los Angeles County Dist. Atty. William Hodgman, who prosecuted Keating, said through a spokeswoman that no decision had been made on whether to retry Keating.
A conference is scheduled Nov. 9 before Ito, but another trial seemed unlikely given the passage of time, the deaths of many key witnesses and the many previous rulings in state and federal courts against the prosecution.
Like other S&L; operators in the 1980s, Keating took advantage of deregulation to make investments that previously would have been unthinkable. He poured government-insured deposits mainly into highly risky junk bonds, corporate takeovers, luxury hotels and a huge planned community outside Phoenix.
With his thrift under intense federal scrutiny, he sold his own junk bonds directly to Lincoln customers, who later described themselves as unsophisticated financial patsies. In battling government examiners, Keating persuaded five U.S. senators to meet with top federal regulators. The episode tarred the reputations of the senators, including former presidential candidate Sen. John McCain and former Sen. Alan Cranston of California.
After Lincoln’s collapse, Keating was convicted in state court on 17 counts of securities fraud. He was sentenced to 10 years in prison.
His appeals were rejected through the state court system, but a federal trial judge and the U.S. 9th Circuit Court of Appeals ruled that Ito wrongly allowed jurors to convict him without deciding whether he intended to swindle investors.
“The Superior Court permitted the jury to convict him without a finding of criminal intent,” Neal said.
The three-judge 9th Circuit panel split 2 to 1 to uphold the lower court. The dissenting judge said there had been “absolutely overwhelming evidence” of Keating’s fraudulent intent.
Before the U.S. Supreme Court, California authorities argued that Keating should not have been allowed to challenge his state court convictions in federal court because he had missed the deadline to do so.
In the federal case, Keating was sentenced to 12 years, seven months in prison. But that conviction also was tossed out on appeal when it turned out the jurors learned of his state court conviction and discussed it.
The federal charges accused him not only of defrauding the investors, but also of conducting a series of sham land and securities deals amounting to a conspiracy to misuse government-insured deposits.
Keating Not Required to Make Restitution
In an April 1999 plea bargain, he admitted to four limited counts of bankruptcy and wire fraud related to corporate loans made to him and his family shortly before his operation fell apart.
Federal charges against his son, Charles H. Keating III, were dismissed as part of the plea agreement in federal court.
Under his federal plea agreement, Keating is not required to make financial restitution to investors. The federal government had won a $4.3-billion civil judgment against Keating, but that was thrown out on appeal because he was denied a full trial before being held personally liable.
Investors, however, won about 70 cents on the dollar in settlements of civil lawsuits against a host of lawyers, accountants and other professionals accused of helping to prop up Keating’s empire.
