Lawyers for former Lincoln Savings & Loan owner Charles H. Keating Jr. asked a federal judge Tuesday to halt a restitution hearing brought by thrift regulators, claiming that it threatens his right to a fair trial in a criminal case set to begin next month.
Keating and former aide Judy J. Wischer filed an appeal before U.S. District Judge Stephen V. Wilson to stop the administrative hearing. They argued that the hearing could taint a trial on 21 counts of securities fraud and deny them time to prepare a defense for that trial.
Wilson ordered the Office of Thrift Supervision, which seeks to ban Keating from the S&L industry and to recover $130.5 million for losses suffered by Lincoln, to respond today to the contentions. He is expected to make a ruling at that time.
The legal maneuvering stems from the 1989 failure of Lincoln Savings, which is expected to cost taxpayers $2.6 billion. Regulators blame the collapse on Keating, but he denies any wrongdoing and says vindictive regulators caused the failure.
Lawyers for Keating and Wischer went to three different courts Tuesday defending their clients on the state fraud charges and the restitution action, the biggest OTS enforcement action ever filed.
Early Tuesday, Los Angeles County Superior Court Judge Lance A. Ito told lawyers that the criminal trial will begin as scheduled Aug. 2. Besides Keating and Wischer, two former Lincoln presidents also were indicted; one, Ray C. Fidel, has pleaded guilty to six charges.
In the criminal case, Keating and the others are accused of duping investors into thinking that $250 million worth of risky junk bonds were safe. The junk bonds, issued by American Continental Corp., Lincoln's parent, and sold at Lincoln branches, are now worthless.
Later Tuesday in the second day of restitution hearings, agency attorneys wanted to deviate from the order of witnesses they planned on calling so they could start questioning Keating, Wischer and five others.
Calling Keating and the others would force them to decide whether to testify or invoke their constitutional Fifth Amendment privilege against self-incrimination, a decision that their attorneys don't want them to be faced with yet.
Stephen C. Neal, lawyer for Keating, said it was "inappropriate for the administrative action to continue" when his client is so close to facing trial on criminal charges. Publicity about either Keating or Wischer invoking the Fifth Amendment privilege could taint the jury pool, he argued.
"There is no public interest to be served," Neal told Administrtative Law Judge Paul J. Clerman, who is presiding over the OTS action. Continuing the hearing "will inevitably impair the defendants' rights to a fair trial," he said.