KEATING DENIED RELEASE : APPEAL CHALLENGES FEDERAL JURY VERDICT.

Byline: E. Scott Reckard Associated Press 

Former Lincoln Savings boss Charles H. Keating Jr. will remain in prison while awaiting a federal court hearing on whether jury misconduct improperly led to his conviction.

U.S. District Judge Mariana Pfaelzer denied Keating's motion to be released on his own recognizance while the appeal on his convictions is hashed out, despite two recent court rulings favorable to Keating.

Pfaelzer ordered prosecutors and defense lawyers to list for her the issues they believe should be raised in questioning the federal jurors about their knowledge of Keating's prior conviction in state court.

The judge ordered the list to be delivered to her by Jan. 26 and said she hoped to have the jurors in court for a hearing within a week after that. She said she would take up the bail issue again after that hearing.

Keating's lead attorney, Stephen Neal, protested that his client should be freed from a Tucson, Ariz., prison because his conviction in state court before Judge Lance A. Ito has been ``gutted'' by U.S. District Judge John G. Davies, who ruled Ito botched the jury instructions.

Earlier Monday, Davies refused to grant state prosecutors a request to put the reversal on hold while they appeal it, leaving the state court conviction for all practical purposes void.

Neal also said the jury contamination issue is substantial enough that it is likely to result in a new trial in federal court - the standard for having bail granted.

``Nobody should be rotting away in prison while his appellate issues are hashed out unless he is a threat to society, which Mr. Keating is not, or a flight risk, which he is not,'' Neal said outside court.

In papers filed for Monday's court hearing, Keating lawyer Scott D. Devereaux said public opinion about savings and loans ``is more favorable to Keating'' now and argued that jury misconduct is likely to result in a new federal trial.

Wide criticism of the S&L bailout agency and a Supreme Court ruling holding the government liable for breach of contract in forcing accounting changes on some thrifts ``undercut the previous popular views that the savings and loan crisis was caused by people like Charles Keating,'' Devereaux wrote.

``That government legislators and regulators contributed to the savings and loan mess is now accepted as undeniably true.''

He said witnesses previously too intimidated by the government to testify would now take the stand in Keating's defense. And he argued that Keating is no flight risk - a stance prosecutors challenged, suggesting Keating has money and influential friends overseas.

The government estimated losses to taxpayers at $3.4 billion after Lincoln was seized by regulators, one of the worst S&L failures of a crisis whose costs are now put at $480 billion. Keating has steadfastly blamed the regulators and legislators for his and Lincoln's woes.

Keating, 72, was sentenced to a 10-year state prison term for misrepresenting junk bonds to investors who previously had bought government-insured CDs. A federal judge threw out that conviction, citing the jury instruction mistakes by Ito.

Keating was given a concurrent 12-1/2-year prison sentence on federal charges of racketeering, fraud and conspiracy. But an appeals court ruled that Pfaelzer should have held a hearing on allegations of misconduct by the jury in that case.

In its June ruling, the 9th U.S. Circuit Court of Appeals also said the evidence against Keating was less than overwhelming. Pfaelzer had ruled that it was overwhelming, one of her reasons for previously denying a request for a hearing into possible juror misconduct.

No mention was made of Keating's state court conviction during federal jury selection on grounds it would be too prejudicial. The defense contends some jurors not only knew about the conviction but discussed it.