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Judge Stalls on Ordering Keating Forfeiture : Courts: Concern for small investors defrauded by former head of Lincoln Savings & Loan prompts action.

July 27, 1993|From the Associated Press

LOS ANGELES — Ordering Charles H. Keating Jr. to forfeit $265 million in ill-gotten gains may actually thwart small investors from recovering their losses in the collapse of Lincoln Savings & Loan, a federal judge said Monday.

U.S. District Judge Mariana R. Pfaelzer--who sentenced Keating earlier this month to 12 years, seven months in prison for fraud and racketeering--said at a hearing that she is not yet ready to order forfeiture of his assets.

She told prosecutors to brief her this afternoon on the Justice Department's plans for any hidden Keating assets it seizes, saying she fears the government will use them to defray the costs of its own investigation.

"I want the people who were the victims of the fraud to get the money, not the United States government," Pfaelzer said.

Her concerns underscore why Lincoln differs from other colossal S&L failures. Not only did it cost taxpayers $2.6 billion to pay off insured depositors after the thrift's 1989 collapse, but Keating had sold uninsured bonds from Lincoln's parent company to small investors--and thousands of them lost roughly $190 million in principal alone.

Pfaelzer acknowledged that the government's power makes it the ideal entity to investigate whether Keating secretly transferred spoils of his enterprise to family and cronies. But she said she was loath to create a situation in which the small investors would have to hire lawyers to petition the government to repay their losses.

Keating already has been ordered to pay billions of dollars in the case, including a $1.75-billion judgment in a federal suit filed by the bondholders and a $122-million restitution order in the criminal case.

He contends such orders are meaningless because he is broke.

Keating continues to maintain his innocence, saying he bought a deregulated S&L and then was hounded into bankruptcy by vindictive regulators. Bureaucrats were angered by his powerful opposition when they tried to re-regulate the thrift industry, threatening his investments in land, securities and hotels, he contends.

"There's no crime," Keating said as he was led in shackles from Monday's court session. "That's why they can't find anything that was stolen."

Keating's son, Charles H. Keating III, faces a separate forfeiture request for $231 million when he is sentenced Thursday in the case.

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