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 Monday after four and a half years in prison.
Judge Mariana Pfaelzer ruled after a hearing in U.S. District Court here that several members of the federal jury knew of and improperly discussed his earlier conviction on state fraud charges. That was enough, defense lawyer Stephen C. Neal argued, to taint Keating’s 1993 conviction on federal charges.
“He’s an innocent man now; he hasn’t been convicted of anything,” Neal said after the two-hour hearing in federal court in Los Angeles.
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 thrown out earlier this year when a federal court ruled that the state judge, Lance 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 that it would review the case and its options before making a formal decision.
Some legal experts said that 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 and the executive director of a bipartisan commission that studied the savings and loan crisis for Congress several years ago.
“This is a little frustrating,” he said, “and it sends the wrong message. But it does underscore that what happened was a systemic failure for which the Government had primary responsibility. It wasn’t just a bunch of individual criminals.”
The government has said the seizure of Lincoln Savings, which had been based just south of here in Irvine, eventually cost taxpayers $3.4 billion. Its collapse also ended up costing 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, who has been free on bail since October, smiled after the hearing but kept his comments to a minimum.
“You’ll have to talk to my attorney, man. He’s doing pretty good for me so far,” Keating said. The once outspoken Arizona developer, who has been held under tight wraps by Neal, simply agreed with his lawyer that he was delighted with the ruling.
Keating’s son, Charles H. Keating III, who was convicted with his father nearly four years ago, must wait until Tuesday for Pfaelzer’s ruling on whether he, too, will get a new trial. The judge said there wasn’t much legal precedent to guide her decision.