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Keating Aide Pleads Guilty to 3 Counts : Fraud: In plea bargain, Judy J. Wischer agrees to testify against the former owner of failed Lincoln S&L of Irvine in his federal indictment.

May 20, 1992|JAMES S. GRANELLI | TIMES STAFF WRITER

Judy J. Wischer, a onetime close associate of Charles H. Keating Jr., pleaded guilty Tuesday in a Los Angeles federal court to bank and securities fraud and has agreed to testify against the former owner of failed Lincoln Savings & Loan.

Wischer, the former president of American Continental Corp., the parent company of Irvine-based Lincoln, is the highest-ranking official in the Keating empire to plead guilty in the three-year criminal investigation of the thrift's collapse.

Wischer, 43, is the seventh individual to plead guilty in the sweeping federal case. On Friday, Robert M. Wurzelbacher Jr., 37, a Keating son-in-law, pleaded guilty to misapplying nearly $14 million of the thrift's federally insured deposits.

Lincoln is the nation's biggest S&L failure, costing taxpayers $2.6 billion. In addition, thousands of small investors lost $285 million in American Continental and are pursuing damages against Keating and his professional advisers in a civil court trial underway in Tucson.

Wischer is expected to be the prime witness at the upcoming criminal trial of Keating, American Continental's former chairman; his son, Charles H. Keating III, and Andrew Ligget, the company's former chief financial officer.

Trial on the 77-count fraud, conspiracy and racketeering indictment is scheduled to start Aug. 4 before U.S. District Judge Mariana R. Pfaelzer.

"We view the pleas today as a very significant development in the case," said David Sklansky, an assistant U.S. attorney in Los Angeles.

Wischer pleaded guilty to two charges of bank fraud and one of securities fraud, all of which are central to the conspiracy charges in the indictment filed in December.

She admitted to participating in a scheme to generate sham profits for Lincoln and American Continental, making two deals appear as if they were financially sound. She also admitted that she participated in a scheme to defraud small investors who bought the corporation's bonds at Lincoln branches by concealing American Continental's shaky financial condition.

The phony profits came from a Lincoln subsidiary's sale of undeveloped land to R.A. Homes, an Arizona developer, for $25 million and its sale of property for $20 million to Atlanta car dealer C.V. Nalley III. Down payments totaling $10 million on the deals came through separate deals with Lincoln, which meant that the S&L financed 100% of the transactions and should not have recognized any profits.

The securities fraud stemmed from the sale of an American Continental bond to Lincoln customer Grace Bock on Aug. 17, 1987. Wischer admitted that the figures showing that the operation was healthy and sound were artificially inflated, in part by the sham profits.

"My client feels deep regret for her involvement," said Wischer's attorney, Donald C. Randolph. "Her plea today is an acknowledgment of that regret."

Wischer could be sentenced to a maximum penalty of 15 years in prison, a $750,000 fine and restitution.

A certified public accountant who worked at Phoenix-based American Continental since the mid-1970s, Wischer rose to become corporate president. After the home-building company bought Lincoln in 1984, she held various positions at the thrift, including chairwoman.

By the time the company failed in 1989, Wischer was second in command to Keating. She and general counsel Robert J. Kielty were his closest confidants.

Keating was convicted of state securities fraud and sentenced last month to 10 years in state prison.

For more than a year, Wischer and federal prosecutors have talked about a possible plea bargain, sources said. Her main concern has been to avoid prison time because she has custody of her two young daughters since her separation from her husband.

Under the plea agreement, her sentencing will be delayed until after her testimony and cooperation with federal authorities end, a period that could last for several years as the investigation continues.

"Our office does not intend to ask for her sentence until after her cooperation is complete," Sklansky said. "That could last a considerable time."

The additional time for further investigation prompted Keating's attorney, Stephen C. Neal, to quip: "The taxpayers should be delighted to hear that."

Neal said he is not "terribly surprised" by Wischer's plea bargain, partly because it had been expected for so long.

He would not comment on what he expects her to reveal but said: "We obviously know a lot about what her views of the world are."

Wischer could conceivably avoid prison because the charges to which she pleaded relate to actions that occurred before November, 1987. That will allow her to avoid federal sentencing guidelines put in place at that time, requiring prison terms for certain crimes, regardless of plea bargains and cooperation.

Sklansky said the agreement does not bar her from testifying in other courts, including the federal court in Tucson where small investors are trying to recover some of their lost money.

Attorneys for the investors have said they believe that she could help link the accounting firm Touche, Ross & Co.--now called Deloitte & Touche--with their allegations of fraud and conspiracy in taking on American Continental as a client in November, 1988, as the unraveling of the empire began to come under public scrutiny.

Wischer played a part in the accounting decisions at issue in the civil cases against Keating and the accountants, attorneys and other professionals he retained.

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