LOS ANGELES -- Charles Keating Jr., whom government officials once characterized as the most notorious swindler in the savings and loan crisis, had his last remaining criminal conviction thrown out by a federal judge yesterday after 4 1/2 years in prison.
U.S. District Judge Mariana Pfaelzer ruled after a court hearing -- here that Keating's conviction was unfairly tainted because several members of the federal jury knew of and had improperly discussed Keating's earlier conviction on state fraud charges.
Keating, despite vociferous protests of his innocence and claims that government incompetence caused the collapse of the institution he ran, the Lincoln Savings and Loan Association, had been serving a sentence of 12 1/2 years on charges of securities fraud, conspiracy and racketeering.
Keating's other criminal conviction, on state charges of securities fraud, was reversed in April when a federal court ruled that the state judge, Lance A. Ito, famous for presiding over the O. J. Simpson murder trial, had given improper instructions to the jurors.
It is unclear how the government will respond to the ruling, but it was an embarrassing setback both for the prosecutors and for federal regulators, who had long maintained that much, if not most, of the losses from the savings and loan crisis were the result of criminal schemes like those they said were engineered by Keating.
The U.S. attorney here can appeal the decision, retry the case or drop it. Sharon McCaslin, the assistant U.S. attorney who argued the case, said the government would "absolutely" retry Keating. But the U.S. attorney's office here later said it would review the case and its options before making a formal decision.
Some legal experts said the prospect of a retrial did not appear strong because several of the main witnesses against Keating, former executives at his holding company, American Continental Corp., have long since pleaded guilty to criminal charges and have served their sentences.
"It makes you wonder about the quality of the government's work in prosecuting this case," said James L. Pierce, an economics professor at the University of California at Berkeley.
Pierce was the executive director of a bipartisan commission that studied the savings and loan crisis for Congress several years ago.
The government has said the failure of Lincoln Savings, based in Irvine, Calif., eventually cost taxpayers $3.4 billion. Its collapse also cost individual depositors, many of them retirees, nearly $250 million because they bought bonds in Keating's holding company in the mistaken belief the bonds were government-insured.
The reversal of the criminal convictions does not affect a $1.6 billion civil judgment that the bondholders won against Keating several years ago. Those bondholders have now collected approximately 74 cents for every dollar they had invested.
Keating had been free on bail since October. His victory yesterday is another milestone in the career of one of the most flamboyant and contentious savings and loan owners who fell during the debacle of the 1980s, a man who has insisted the government caused the crisis.
Pub Date: 12/03/96