SAN FRANCISCO — Disgraced former savings and loan executive Charles Keating, released from prison earlier this year after admitting to federal fraud charges, won a federal appeals court ruling Thursday against a prosecution attempt to reinstate his state fraud convictions.
In a 2-1 decision, the 9th U.S. Circuit Court of Appeals agreed with a federal judge that Keating's Los Angeles Superior Court convictions on charges of defrauding investors in the parent company of Irvine-based Lincoln Savings & Loan were tainted by flawed jury instructions.
Judge Lance Ito's instructions improperly allowed the jury to convict Keating without deciding whether he intended to swindle the investors, the court said. A dissenting judge said Keating's fraudulent intent was established by "absolutely overwhelming evidence."
The investors, many of them elderly, lost nearly $200 million when American Continental Corp.'s unsecured "junk" bonds turned out to be worthless. Taxpayers lost $3.4 billion in the collapse of Lincoln Savings.
Keating, who became a symbol of the S&L scandals of the 1980s, was convicted of separate charges in state and federal courts. He also owes $1.5 billion in damages to investors.
His federal convictions, for defrauding Lincoln and its investors, were overturned on the grounds that the jury had improperly heard about his Superior Court convictions.
Federal prosecutors then accepted his guilty plea in April to three counts of wire fraud and one count of bankruptcy fraud. The 75-year-old financier was freed after serving nearly five years of a 12 1/2-year federal sentence.
His state sentence was 10 years, running at the same time as his federal term, and he had about six months to serve before parole when the state convictions were set aside in 1996 by U.S. District Judge John Davies.
Although state prosecutors could seek to reinstate the convictions and the remainder of Keating's sentence, "I would hope they would have the good sense now to give up and move on to other things," said his lawyer, Stephen Neal.
Deputy Attorney General Sanjay Kumar said he disagreed with the court and wouldn't rule out an appeal, though no decision has been made. "As a prosecutor, you want to see that justice is done," he said.
The court said Ito told jurors, properly, that they could convict Keating of helping American Continental's bond sellers commit fraud if they decided he intended to mislead investors about the bonds' value. But Ito also allowed jurors to convict Keating of committing the fraud himself, as the chief strategist and controller, without requiring fraudulent intent, the court said.
Ito's instructions were consistent with previous state court rulings on the issue, but the state Supreme Court later ruled that proof of intent to defraud was required in all cases. The state's high court refused to review Keating's convictions in 1995, but the federal court said Thursday the verdict was marred by the jury instructions.