PASADENA — Federal jurors who convicted former Lincoln Savings & Loan operator Charles H. Keating Jr. were poisoned by knowledge of his state court conviction and prevented by prosecutors from hearing crucial evidence, his defense lawyer told an appeals court Tuesday.
Stephen C. Neal's arguments for a new trial, or at least a hearing on his contentions, were made in a case that has become more than ever a family affair. Keating's son, who is also appealing a conviction in the case, is represented by Stephen Neal's father, Phil C. Neal.
The Irvine thrift failed in April, 1989, and its bailout is estimated to cost taxpayers $3.4 billion, making it the second-costliest thrift failure nationwide behind the 1988 collapse of American Savings & Loan.
Nearly all the testimony at the federal racketeering, conspiracy and fraud trial involved the elder Keating. He was accused of sham business deals, kickbacks and payoffs that covered up the fact that his real estate and financial empire was careening toward insolvency.
The evidence against the younger Keating was so flimsy that his conviction should be thrown out, Phil Neal told the three-judge panel of the U.S. 9th Circuit Court of Appeals in Pasadena.
Stephen Neal said six federal jurors acknowledged knowing that the elder Keating already had been convicted in state court of swindling investors of Lincoln's parent company, American Continental Corp. in Phoenix.
Neal said an alternate juror in the federal trial had sworn in an affidavit that all the jurors "sat in the jury room and discussed the prior conviction," even though the trial judge, Mariana R. Pfaelzer, had barred any mention of the state court conviction because it would be too prejudicial.
Neal also argued that the prosecution's star witness, Judy J. Wischer, American Continental's former president, would have been flatly contradicted by one person, Gene Phillips, who knew Keating well, and undermined by another, C.V. (Jim) Nalley--had they testified at the federal fraud and racketeering trial.
Like Keating, Phillips, former chairman of Southmark Corp., built an ambitious, debt-fueled financial empire that collapsed in the 1980s. Nalley was an Atlanta car dealer and Keating protege. Both refused to testify, citing their constitutional protection against self-incrimination, and Pfaelzer refused to give them immunity from prosecution for what they might say on the witness stand.
One of the prosecutors, David A. Sklansky, argued that defense attorneys had muffed their chance during jury selection to screen out jurors who knew of the earlier conviction. And, he argued, Judge Pfaelzer already had ruled that Nalley's and Phillips' testimony was not needed.
Keating, 70, is serving a 12-year, seven-month federal sentence concurrent with a 10-year state sentence stemming from the collapse of Lincoln. His son, Charles H. Keating III, 39, was sentenced to eight years, one month in prison, but is free on bond pending his appeal.