April 4, 1996

FEDERAL JUDGE OVERTURNS CHARLES KEATING CONVICTION, CITES ITO\ ERRORS

By E. SCOTT RECKARD
AP Business Writer

LOS ANGELES (AP) -- A federal judge overturned the state court conviction of Lincoln Savings & Loan boss Charles H. Keating Jr. on Wednesday, ruling that Judge Lance Ito's jury instructions were flawed.

The decision came from U.S. District Judge John G. Davies, who got the case after state appeals courts upheld the conviction.

Keating will remain in prison while he appeals his conviction on federal charges.

Davies sided with Keating's lawyers, who said Ito erred in telling jurors Keating could be convicted as a direct perpetrator of fraudulent bond sales to Lincoln investors and had botched a specially crafted aiding and abetting instruction.

Keating was the most notorious figure of the 1980s S&L debacle, known for political influence that tarred the reputation of the "Keating Five" senators and for selling junk bonds that became worthless to elderly investors who previously had owned insured CDs.

"We're still pressing ahead on other fronts," said Keating's lawyer, Stephen C. Neal. "He's obviously delighted with the outcome."

The conviction of Keating on 17 securities fraud counts in December 1991 had been a major victory for the Los Angeles district attorney's office, which has lost many high-profile cases.

The lead Keating prosecutor, William Hodgman, like Ito, was later involved in the most disastrous of those losses, the acquittal of O.J. Simpson on charges of murdering his wife Nicole and her friend Ronald Goldman.

Hodgman and District Attorney Gil Garcetti didn't immediately return phone calls.

Another of the Keating prosecutors, Paul Turley, said he thought Davies misjudged the case and jury instructions.

"I'm really disappointed," Turley said. "But I guess to take a cynical view of things, he at least served four of the five years he had coming" under state law.

Keating was sentenced to 10 years in prison for his role in selling risky bonds in his parent company, Phoenix-based American Continental Corp., to investors in Irvine-based Lincoln. The bonds became worthless after the government seized Lincoln and Keating's empire collapsed in 1989.

Under state law, he would have been released after serving half the sentence.

Keating also was convicted in federal court of racketeering, fraud and conspiracy. He was sentenced to 12 years and seven months in prison for those crimes, and must serve 85 percent of that sentence.