State Supreme Court Says It Will Not Hear Keating Case Appeal : Judiciary: The panel once wanted to consider it. The reversal lets stand the former thrift operator’s conviction on 17 state charges.

The state Supreme Court, after opening the door slightly to the appeal of convicted thrift defrauder Charles H. Keating Jr., slammed it shut Thursday by reversing itself and saying that its previous decision to hear the appeal was “improvidently granted.”

The 5-2 vote dashed the short-lived hopes that the former Lincoln Savings & Loan operator held of winning a reversal of his 1991 state securities fraud conviction, for which he is serving a 10-year prison term.

In reversing itself, the court reinstated a lower court decision upholding the verdict against him on 17 counts of violating state securities laws.

“Mr. Keating is obviously disappointed,” said his attorney, Stephen C. Neal of Los Angeles. Neal said he is looking at additional steps to take, including a possible request for the federal court to intervene.

About 22,000 investors--most of them elderly Southern California customers of Lincoln--lost more than $285 million when the Irvine thrift and its parent company, American Continental Corp. in Phoenix, collapsed in April, 1989.

Lincoln’s failure is the second most costly thrift collapse in the nation, leaving taxpayers with a $3.4 billion cleanup bill. American Savings & Loan, which also was based Irvine, is the nation’s costliest failure, at $5.4 billion.

Keating, 71, had argued in his appeal that his conviction should be overturned because Los Angeles Superior Court Judge Lance A. Ito, who presided over his trial, refused to require proof that he had knowingly withheld information that American Continental bonds issued mainly in Lincoln branches were highly risky.

Only two months ago, the state’s high court appeared to bolster his argument by ruling in an unrelated case that prosecutors who charge defendants with making false statements in selling securities must prove that the false statements were knowingly made.

The Supreme Court agreed two years ago to hear Keating’s appeal, but its only statement Thursday was that the decision to hear the appeal was “dismissed as improvidently granted.”

Neal said he and Keating were “puzzled” by the court’s decision Thursday, especially since the court previously indicated that the issues in both cases were similar.

In January, 1993, Keating also was convicted in federal court of racketeering, conspiracy and fraud and was sentenced to 12 years and seven months in prison. He is serving his state and federal terms concurrently in a California state prison. He had wanted to serve the terms in a federal facility in Arizona, closer to his home in Phoenix.