A federal judge yesterday dismissed a lawsuit filed by Charles H. Keating Jr. seeking to regain control of Lincoln Savings and Loan Association, but not before he accused Keating of "looting" the California thrift and chastised his accountants and lawyers for their roles in an S&L collapse that could cost taxpayers $2 billion.

U.S. District Court Judge Stanley Sporkin ruled that federal regulators "acted appropriately in all respects" when they seized Lincoln from Keating's holding company, American Continental Corp. (ACC) in April 1989.

"This is a saga that demonstrates the excesses of a misconceived and misapplied regulatory program {for the S&L industry} along with a group of individuals who were bent on exploiting these excesses, all to the detriment and ultimate demise of Lincoln," Sporkin said.

The decision was both a legal and public relations setback for Keating, whose political contributions and high-profile feud with federal regulators have made him the most widely recognized symbol of the savings and loan scandals. Keating had counted on the lawsuit for vindication, proclaiming in speeches and television appearances that the case would prove he was an innovative thrift executive whose successful business was destroyed by run-amok federal regulators.

That was not the way Sporkin saw it.

"What has emerged is not a pretty picture," the judge said in the 50-page ruling issued yesterday. "It is abundantly clear that ACC officials abused their positions with respect to Lincoln. Bluntly speaking, their actions amounted to a looting of Lincoln.

"This was not done crudely. Indeed, it was done with a great deal of sophistication," noted Sporkin, who before he became a judge had uncovered several of the most elaborate investment frauds ever while serving as enforcement director for the Securities and Exchange Commission.

During proceedings in the case earlier this year, Sporkin had personally questioned Keating for more than an hour, drawing out details of four complex business deals that regulators said were so rife with fraud and unsound banking practices that they justified the decision to seize control of the giant thrift.

Keating had told Sporkin that federal regulators simply didn't understand the way things were done in the real estate business. After all, Keating said, the very transactions that regulators claimed were illegal were approved by the accounting firm of Arthur Young, now part of Ernest & Young.

But yesterday Sporkin sided with the regulators on every case, blistering Keating and his bookkeepers. "If ACC, its accountants and experts are correct," the judge said, "then the system of accounting that exists in the United States is in a sorry state. Here we have a sham transaction from the start."

Drawing on his experience as a regulator, Sporkin not only ruled on the specific legal issues presented in court, but also volunteered his opinion on several related topics raised by the case. He suggested changes in federal banking laws to keep holding companies like Keating's from exploiting their S&L subsidies. He urged that Congress protect federal regulators from personal lawsuits such as those filed by Keating against several officials. And he all but invited the government to pursue new legal actions, noting that two Lincoln transactions appeared to violate federal securities laws and that Lincoln board members failed to live up to their legal duties to shareholders.

Sporkin noted, for example, that the Lincoln board of directors approved a plan to pay $94 million to Keating's holding company for federal income taxes even though Lincoln owed no taxes. "It is inconceivable to this court how the board of directors of a savings and loan institution could agree to remit payments that were not due and owing. The entire board of directors, in addition to Keating and the others that controlled and operated Lincoln, must be held strictly accountable for this flat-out dissipation of Lincoln's assets."

Though he upheld the government's action against Keating, Sporkin did not spare federal regulators from his criticism. He described as "inexplicable and clearly inappropriate" the decision by former Federal Home Loan Bank Board chairman M. Danny Wall to take responsibility for Lincoln away from regulators in San Francisco who were pushing for prompt action.

But whatever the shortcomings of federal regulators, Sporkin added, there was also a failure of the private-sector safeguards.

"This court believes far too little scrutiny has been focused on the private sector," he wrote. Keating "surrounded himself with literally scores of accountants and lawyers" who are bound by their professional oaths to prevent wrongdoing, the judge said.

"Where were these professionals, a number of whom are now asserting their rights under the Fifth Amendment, when these clearly improper transactions were being consummated?" Sporkin asked rhetorically.

"Why didn't any of them speak up or disassociate themselves from the transactions?

"Where also were the outside accountants and attorneys when these transactions were effectuated?

"What is difficult to understand is that with all the professional talent involved (both accounting and legal), why at least one professional would not have blown the whistle to stop the overreaching that took place in this case."

Following yesterday's decision, L. William Seidman, chairman of the Federal Deposit Insurance Corp., noted that his agency had already filed a $1.1 billion bank fraud and racketeering case against Keating and would consider legal action against Lincoln's lawyers and accountants.

The FDIC is charged with insuring deposits at thrifts, managing the institutions when they fail and seeking restitution wherever possible from those who might have contributed to thrift failures.

Timothy Ryan, director of the Office of Thrift Supervision, the successor agency to the Home Loan Bank Board, called the decision "an extremely important victory in a very significant case" and the second loss for Keating in two days. On Wednesday, a federal judge in California ordered Keating to provide a detailed accounting of his personal finances to OTS, which is trying to get back $41 million in money the government says he drained out of Lincoln.

After months of sounding off against federal regulators, Keating was conspicuously silent yesterday. Keating's son-in-law, Bradley Boland, issued a statement saying, "American Continental Corporation is reviewing all of its options and has no comment at this time."