TIME: Almanac 1993/TIME Almanac 1993.iso/time/110689/p27

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                z                                                              NATION, Page 27

$1 Billion Worth of Influence


How a shaky businessman put five Senators in his corner

By Margaret Carlson/Reported by Hays Gorey/Washington


    Hardly any time elapses between the onset of a political
scandal in Washington and the search for the smoking gun. No
one is culpable until such explicit proof is found, and it
hardly ever is: the cagey Washington player wipes off his
fingerprints and heaves the weapon into the river.

    That is why the scandal involving five U.S. Senators and
the Arizona business man who gave them more than $1 million is
tantalizing: the smoking gun is being waved for all to see.
Charles Keating is a former owner of California's Lincoln
Savings and Loan and a defendant in a law suit involving
racketeering, fraud and conspiracy in using the institution's
funds. After the smoke clears, bailout of this S&L is expected
to reach $2.5 billion, making it the nation's costliest thrift
failure. When asked whether his fat contributions to the five
Senators influenced them to take up his cause, Keating replied,
"I want to say in the most forceful way I can: I certainly hope
so."

    Keating sought to keep his savings and loan operating even
though the Federal Home Loan Bank Board (FHLBB) in San
Francisco had found enough bad loans and shaky business
practices to shut it down. After Keating purchased Lincoln in
1984, he switched from investing in safe, single-family
mortgages to go-go deals in raw land, junk bonds and huge
development projects like the $900-a-night Phoenician Resort in
Scottsdale, Ariz.

    He asked for help from the five Senators, all beneficiaries
of direct and indirect contributions from him: Arizona Democrat
Dennis DeConcini (who had received $55,000), Arizona Republican
John McCain ($125,433), Ohio Democrat John Glenn ($234,000),
California Democrat Alan Cranston ($897,000) and Michigan
Democrat Donald Riegle, chairman of the Senate Banking Committee
($76,100). In addition, according to the Arizona Republic,
DeConcini's top aides received more than $50 million in real
estate loans. Keating also gave McCain and his wife trips,
including vacations in the Bahamas valued at $13,400, which
McCain paid for after they became public knowledge.

    Four of the five Senators met for an hour with FHLBB head
Edwin Gray on April 2, 1987. In a letter written to McCain last
May, Gray referred to this unprecedented intervention as
"tantamount to an attempt to subvert the regulatory process,"
and subsequently branded DeConcini a "consummate liar" for not
admitting that he attempted to cut a deal for Keating. His
charge was buttressed when the Arizona Republic published a
confidential memo prepared by DeConcini's staff for the meeting
listing Keating's bargaining positions.

    On April 9, 1987, all five Senators met with bank examiners
summoned from San Francisco to DeConcini's office. De Concini
is quoted in notes from the meeting telling the examiners that
"actions of yours could injure a constituent." Glenn said, "To
be blunt, you should charge them or get off their backs."
Riegle asked, "Where are the losses?" The federal banking agents
pointed out that Lincoln was "flying blind on all of their
different loans and investments," that there was no underwriting
on most loans, that the bank's practices "violated the law,
regulations and common sense" and that a $49 million profit
reported for 1986 was a result of bookkeeping trickery.

    "What's wrong with this," DeConcini demanded, "if they're
willing to clean up their act?" Replied the agent: "This is a
ticking time bomb."

    The bomb was allowed to keep ticking for two more years.
Fortunately for Keating, FHLBB head Gray was replaced by the
very sympathetic M. Danny Wall, a former aide to Utah's
Republican Senator Jake Garn. Wall transferred responsibility
for Lincoln from San Francisco to Washington. At House Banking
Committee hearings on Oct. 17, L. William Seidman, head of the
Resolution Trust Corp. and chairman of the Federal Deposit
Insurance Corporation, criticized Wall for keeping Lincoln open.
As a result, the federally guaranteed cost of paying back
Lincoln's depositors went up $1.3 billion, to $2.5 billion.
Nationwide, the whole debacle of rescuing failing S&Ls will end
up costing taxpayers about $300 billion.

    The RTC has sued Keating and other insiders for bilking
Lincoln of $1.1 billion. Among other things, the suit alleges,
Keating, his wife, his daughter and five other insiders sold 1
million shares of American Continental Corp., which owns
Lincoln, to the employees' stock-owner ship plan for nearly $8
million, more than they were likely to get on the open market.

    Keating is also being sued by Lincoln customers, who claim
they came into the bank to make insured deposits but in a
classic bait-and-switch were steered into buying uninsured
securities issued by ACC to keep the institution afloat. In
hearings held by the House Banking Committee, Congresswoman
Marcy Kaptur of Ohio read a letter from a 65-year-old man who
was persuaded by a Lincoln saleswoman that the ACC bonds were
just as safe as insured certificates of deposit, paid a point
more in interest, and ran only ten months. "If ACC goes under
in ten months," she told him, "our whole economy is in trouble."
Seven months later, ACC filed for bankruptcy and the retiree
lost all his $65,000 -- "$1,000 for every year of my life," he
wrote. Some 22,000 other customers hold $250 million worth of
worthless ACC bonds.

    Common Cause has asked the Senate ethics committee to
appoint an outside counsel to investigate the five Senators'
efforts for Lincoln and their alliance with Keating, who has
been in trouble with federal regulators once before. In 1979 the
SEC cited Keating for receiving illegal loans and using
corporate funds for the personal benefit of insiders.

    How did five respected U.S. Senators get mixed up with such
an operator? In a word, money. They are obsessed by it at the
rate of about $10,000 a day -- the amount it takes to fuel a
Senate campaign every six years. Glenn, who was carrying a $2
million debt from his 1984 presidential bid, solicited $200,000
from Keating for a political committee he controlled. Cranston
solicited $850,000 from Keating in 1987 and 1988 for
voter-registration drives. In Cranston's tight 1986 Senate race
against former Republican Congressman Ed Zschau, Keating gave
the California Democratic Party $85,000. Of the need for
campaign money, Cranston says, "I have tried to change that
situation but have been unsuccessful." Incumbents, however,
don't try as hard as they might, since the high cost of
elections and the ability to raise money from the likes of
Keating give them a formidable edge over challengers.

    Keating's attorney Len Bickwit says his client has the
right to contribute to like-minded Senators, although the only
philosophy the conservative Keating shares with liberals like
Glenn, Riegle and Cranston is a regard for the Lincoln S&L. Four
of the Senators defend them selves by saying they were only
helping a constituent (Keating lives in Arizona, is incorporated
in Ohio, and the S&L is in California). Keating, however, was
not merely asking for assistance in tracking down a lost Social
Security check. It cost Keating nearly $1.4 million to get the
Senators' help. It cost U.S. taxpayers $1.3 billion more than
it had to when he got his way.