LOS ANGELES — Through nine days of testimony, the defense attorney for former Lincoln Savings & Loan owner Charles H. Keating Jr. has been driving home a major point--none of the small investors who bought bonds at Keating's thrift can link him to any fraudulent sales techniques.
But prosecutors in the 20-count criminal securities fraud trial of Keating said that they will bring to the stand today one of their two star witnesses--both former Lincoln executives--to provide that missing link.
Robin S. Symes, a former Lincoln chairman and an officer in its parent company, American Continental Corp., is set to testify today about his contacts with Keating in the sale of the parent company's bonds. Ray C. Fidel, a former president of the Irvine-based S&L, is scheduled to testify later in the trial.
Judging from court documents filed by Keating's lawyer in Los Angeles County Superior Court, both Symes and Fidel should be able to show that Keating controlled the bond sales program, including the pitches that were made to prospective buyers.
But at the same time, the two witnesses also could testify about Keating's effort to abide by the law and his anger in learning that a provision in the bond sale program had been violated.
Keating, 67, is the former chairman of American Continental, a Phoenix land development company. Both the company and the S&L collapsed in April, 1989, wiping out $250 million invested by bondholders and leaving taxpayers with a $2.6-billion cleanup bill.
Symes and Fidel were indicted last year--along with Keating and Judy J. Wischer, American Continental's former president--and have since pleaded guilty to six counts of defrauding investors. Wischer's state trial is set to follow Keating's.
Symes and Fidel also pleaded guilty to two federal charges stemming from U.S. grand jury investigations in Los Angeles. No federal indictments have been returned yet.
Keating is accused in the state case of defrauding 22 small investors. If convicted, he faces a maximum prison term of 10 years.
As part of their plea bargains, Symes and Fidel agreed to testify against Keating and provided prosecutors with information. Their statements were turned over to Keating's lawyer, Stephen C. Neal, but were not released publicly.
Neal, however, cited many portions of those statements in written objections he has filed. He contends the information is hearsay, irrelevant, vague or otherwise cannot be introduced in court as evidence. Los Angeles Superior Court Judge Lance A. Ito is expected to rule on those objections as the testimony comes up.
Symes, for instance, is expected to testify that Keating agreed in October, 1987, to reduce the maturity in the next batch of bonds to be sold at Lincoln from five years to one year as part of an effort to raise more cash. Among Neal's objections is that such information is vague and irrelevant.
Prosecutors contend, though, that buyers at the time were never told that they could obtain more cheaply the company's more senior bonds, which would be paid off, in the event of bankruptcy, before the risky bonds they were buying through Lincoln.
Symes has already admitted in his federal court plea that he participated in a strategy of deceit in which he, Keating and others marketed the bonds sold through Lincoln branches as safe securities backed by a financially sound company, while telling holders of more senior debt securities that American Continental was a financially threatened firm.
Among other information Neal wants barred from the trial are:
- Symes' statement that he raised with Keating his concern that there would not be much demand for uninsured bonds that required buyers to read a prospectus. Symes also questioned whether the bond sale program was cost-effective.
- Fidel's statement that Keating was his key contact regarding what was to be included in the sales pitch for the bonds. Keating instructed him to give out key information only if it was sought by prospective bond buyers.
Among information that Neal does not object to is a statement by Symes about Keating's reaction when he learned in April, 1987, that Fidel had set up an incentive plan to pay the sales force a bonus for selling more bonds. Under terms of two bond prospectuses, bonuses for salespeople were prohibited.
Symes said Keating was upset about the incentive plan, saying there was "no way" he would have approved it and that Fidel had better "watch it."
Symes also said that Keating decided within a week that neither Symes nor Fidel were capable of running the bond program and that a senior corporate officer would be designated to oversee their actions.
Neal has told jurors that Keating did not know about any fraudulent sales pitches and did not intend to defraud anyone.