LOS ANGELES (AP) _ The fraud trial of Charles Keating Jr., whose risky investments, lavish lifestyle and political access symbolized the savings and loan scandal, began Wednesday with prosecutors calling his junk bond sales an elaborate pyramid scheme.

The defense countered that Keating obeyed all laws regarding the risky bond sales and blamed government regulators for his thrift's downfall.

Keating, 67, has been accused in various proceedings of looting his Lincoln Savings before it failed in April 1989, costing taxpayers a record $2.6 billion for the bailout.

Keating is charged with 20 counts of deceiving Lincoln investors about the safety of junk bonds issued by another of his companies, American Continental Corp. The maximum sentence is 10 years in prison.

From 1986 to 1989, Lincoln's foolhardy investments in real estate development loans were fueled by sales of risky bonds issued by Lincoln's parent, Deputy District Attorney William Hodgman said in opening statements.

By September 1988, as regulators warned that Lincoln was nearing insolvency, American Continental had no meaningful source of revenue other than the junk bonds it sold in California, Hodgman said.

From that point on, the steady drumbeat of bond sales was nothing but a pyramid scheme, with later investors paying off the earlier ones, he said.

''The scheme, or the house of cards, falls apart when you run out of new purchasers,'' the prosecutor said.

Keating's lawyer, Stephen C. Neal, portrayed his client as a man who took the advice of the country's best lawyers and accountants in running his bond program.

Keating complied with laws requiring disclosures about his companies and the bonds, but ultimately became a victim himself when regulators hounded American Continental into bankruptcy.

''Strip away the rhetoric, strip away the emotion,'' Neal said. ''Ladies and gentlemen, you will conclude that Charles H. Keating Jr. is innocent.

''In the end ... I think you will give my client back his future, allow my client to go home,'' Neal said.

Superior Court Judge Lance A. Ito cleared the way for opening statements Wednesday after dealing with motions, including yet another ruling limiting the prosecution's case.

Ito ruled he probably will not allow former bank examiner Richard Newsom to testify to a statement Keating allegedly made on Nov. 7, 1988.

The remark was made at the beginning of a meeting with regulators, who were about to formally notify Keating that they believed soured Lincoln-funded hotel and housing development deals would cost tens of millions of dollars.

Newsom said Keating looked up and down a conference table surrounded with seven regulators and twice that many company officials, and said: 'Well, did you bring enough handcuffs for all of us?''

Ito said the remark could be prejudicial against Keating and that prosecutors failed to demonstrate it was made in a serious context, since it came before regulators made their concerns known.

It was the latest in many rulings against prosecutors since 11 months ago, when District Attorney Ira Reiner announced Keating's indictment.

Reiner accused Keating of swindling thousands of investors out of $250 million in junk bonds that became worthless when his companies collapsed. But he said he'd prosecute just 20 bond sales to avoid jury confusion.

Since then, Ito has tossed out 26 counts alleging that Keating bamboozled regulators, who approved the sale of the junk bonds by American Continental, Lincoln's parent.

Ito earlier rejected a theory that Keating, merely by heading American Continental, can be blamed for the actions of any bond sellers who lied to investors or withheld information from them.

Ito said Keating must be proved to have known bond sellers were lying or misrepresenting facts and must have helped them do so through his actions or advice.

''Judge Ito properly ruled that Keating ... must be shown to have done something, not just hung around while someone else did something,'' said Abbe Lowell, lawyer for Keating co-defendant Judy Wischer, a top aide who will be tried later.

Deputy District Attorney Paul Turley said that despite the setbacks, prosecutors believe the heart of the case remains and are confident they can win.

Former Lincoln President Ray Charles Fidel and Chief Executive Robin Scott Symes have pleaded guilty in plea bargains and are expected to be star witnesses against their former boss.