Irvine S&L;’s Owner Banks on His Donations Paying Off

Charles H. Keating Jr. doesn’t flinch when asked if his financial support of politicians is intended to influence them to take up his cause. “I want to say in the most forceful way I can, I certainly hope so,” Keating recently proclaimed.

A review of campaign records by The Times shows that Keating, his companies and a circle of about 75 family members, associates and employees have showered more than $700,000 in campaign contributions on three dozen federal and state politicians over the last 6 years.

Keating’s contributions have come under increased scrutiny since his company, American Continental Corp. of Phoenix, filed for protection from creditors in U.S. Bankruptcy Court on April 13 and Irvine-based Lincoln Savings & Loan, its principal subsidiary, was seized by federal regulators the next day.

Critics charge that Keating and associates have coordinated their contributions in a deliberate effort to buy influence with powerful politicians. As evidence, they cite donations of about $300,000 to five U.S. senators who went to bat in April, 1987, for Keating in two unusual private meetings with savings and loan regulators.

And one of those senators, Democrat Alan Cranston of California, said Friday that he intervened again a month ago by urging federal regulators to allow Keating to sell his embattled S&L; to a group headed by former Republican Rep. John Rousselot of San Gabriel.

Cranston said he was concerned that the seizure would adversely affect the Arizona economy and hurt American Continental bondholders, most of whom are Californians. He and the other senators denied that Keating’s contributions influenced their actions on behalf of Lincoln.

But others are not so sure.

“It’s absolutely clear to me that Mr. Keating and his cohorts had lots of help from the highest quarters, both financially and politically,” said Joseph W. Cotchett Jr., an attorney representing American Continental bondholders who may have lost $200 million as a result of the bankruptcy filing.

“He didn’t show any favorites when it came to political parties,” Cotchett said.

Many of the recipients of Keating’s largess have been in positions to help him in his business affairs and his escalating encounters with savings and loan regulators. And Keating is certainly in need of help these days.

As chairman of American Continental, a Phoenix real estate development firm, he acquired Lincoln in early 1984 and began transforming it from a traditional thrift into a more freewheeling S&L.; Keating supplemented Lincoln’s traditional home loans with investments in high-yield securities and riskier real estate ventures.

Federal regulators, outraged by losses at similar S&Ls; across the country, spent much of the last 3 years poring over the books of Lincoln and American Continental.

On April 13, apparently sensing an imminent showdown, American Continental filed its bankruptcy petition. The next day, federal regulators seized Lincoln, claiming that Keating and American Continental were operating the S&L; in an unsafe and unsound manner.

The recipients of contributions from Keating’s circle include such liberal Democrats as Sen. Cranston and former Vice President Walter Mondale. But most of the money went to the Republican Party and such GOP stalwarts as Sen. Orrin Hatch of Utah, who shares Keating’s brand of staunch conservatism. Hatch received $4,000 in Keating-related contributions over the 6 years.

But candidates are not the only recipients.

Keating is an anti-pornography crusader, and Lincoln Savings helped finance Santa Ana’s unsuccessful 10-year, $700,000 court battle to close the Mitchell Brothers Theater for showing X-rated films at its theater in Honer Plaza. Lincoln Savings has a branch across the street from Honer Plaza.

When the city gave up the fight, Lincoln filed its own unsuccessful lawsuits against the theater and tried unsuccessfully to block the city from paying $200,000 to reimburse the Mitchell Brothers for court costs.

For Keating, campaign contributions are one way that the American political system is made more responsive to its constituents. It is practiced by executives at major corporations across the land. It is something Keating has been doing since the 1950s.

In 1957, he plodded through the halls of Congress in search of allies in the war on pornography. In 1980, he briefly ran the 1980 presidential campaign of former Texas Gov. John B. Connally. Connally’s son, Mark, now is American Continental’s spokesman.

Today, Keating contends that his contributions merely give him a fighting chance against hostile regulators who drove American Continental into bankruptcy proceedings because they didn’t like his unconventional business strategies and his outspoken criticism of the regulatory structure. Elected officials, he has claimed, ought to come to his aid when the government bureaucracy runs amok with its regulatory authority.

“We support and campaign for the political leaders we believe will represent the best of American virtues,” he told reporters last month. “In the contract between the voter and the politician, we have the right to seek their help when needed and demand it when justified. This I have done.”

And he has done it in a big way, with the help of his firms, family members, business associates and employees. In the last 5 years, state and federal campaign records show that:

- More than $100,000 has gone to Sen. John McCain (R-Ariz.) and more than $55,000 to Sen. Dennis DeConcini (D-Ariz.), both of Keating’s home state. Congressmen from Arizona also have fared well, including Jon Kyl (R-Ariz.), who has received $20,950 while representing the district in which Keating lives.

- More than $52,000 has gone to the two California senators--Cranston and Republican Pete Wilson--who represent Lincoln’s home base. Sen. John Glenn (D-Ohio) has picked up $34,500 from Keating’s circle. Keating was born in Ohio, and American Continental is incorporated there.

- Nearly $166,000 has gone to 11 members of the Senate and House banking committees, where deregulation of the savings and loan industry was conceived and implemented in recent years, much to the dismay of some regulators. The largest amount, more than $70,000, was given to the Senate panel’s current chairman, Donald W. Riegle Jr. (D-Mich.). Other members who received donations are Cranston, who got $39,100; Jacob (Chic) Hecht (R-Nev.), $19,000; Timothy E. Wirth (D-Colo.), $8,000; William L. Armstrong (R-Colo.), $7,000; Phil Gramm (R-Texas), $1,000, and Jake Garn (R-Utah), $1,000.

House committee members were Reps. Doug Barnard Jr. (D-Ga.), $16,000; Frank Annunzio (D-Ill.), $1,000; Stephen L. Neal (D-N.C.), $1,000, and Fernand J. St Germain (D-R.I.), $500.

- At the California Capitol, where gubernatorial appointees oversee Lincoln operations, Keating money has added $41,000 to Gov. George Deukmejian’s campaign coffers in the last 4 years.

- Keating and associates pumped $80,000 into the California Republican Party last fall alone. Altogether, he has given the state GOP $97,500 in the last 4 years and has given $3,000 to the Democratic Congressional Campaign Committee. Such “soft” donations allow contributors to get around federal individual contribution limits of $1,000 per candidate per election.

“In the last 5 years, there’s no question that it has been important that we help those who supported the business areas we were in,” Keating said in an interview last week. “I’ve always contributed across a broad spectrum of philosophical and political boundaries. But from my background, to do business (throughout) America, you need to be politically aware.”

With so much money flowing to so many candidates over so many years, Keating apparently cannot keep track of the politicians who benefited from his fund-raising efforts.

He does not recall--and acted surprised when reminded--that he and his family gave $2,500 to Mondale’s 1984 presidential campaign. Mondale “definitely has diverse views from me,” said Keating, a Republican. He said he probably responded to someone raising money for Mondale’s campaign in the hope that he could solicit that person later for funds for one of his own favored politicians.

None to Reagan

Interestingly, Keating made no direct contributions in 1984 to one candidate who seemed to embody his conservative politics: President Reagan. Likewise, 4 years later, Keating did not contribute to President Bush’s campaign, although American Continental gave $80,000 to the California Republican Party. This money, which does not come under federal or state contribution limitations, was used for voter-registration and get-out-the-vote efforts that benefited Bush.

Keating has never been bashful about his political persuasion. And he has not hesitated to encourage employees to contribute to candidates who support deregulation of financial services, the bulwark upon which his business empire is built.

One former executive of an American Continental subsidiary who requested anonymity said he made his only political donation ever--$500--in 1987 because he was made aware by Keating that Sen. Riegle was “in line philosophically with the business we were running.” Riegle also was second in line at the time to take over as chairman of the Senate banking committee, which he now heads.

Keating frequently invited employees into the company’s dining room to hear various politicians, said Deborah Karbo, a former vice president of another company subsidiary. After Riegle stopped by for a quick visit in March, 1987, she contributed $500 to his campaign.

Both former employees said their gift-giving was “entirely discretionary,” as Karbo put it. The other former executive said there was “never any pressure” to contribute.

Keating said he “never put the arm” on anyone to make contributions.

Contributed at Same Time

Although the donors may have reached independent decisions, they tended to reach them at the same time. For example, 51 donations from Keating, family members and associates were made to McCain on the same day: March 17, 1986. And a March 23, 1987, fund-raiser for Riegle netted 86 checks from Keating’s circle. More than a third of those checks were executed on one day, March 12, and all but two of the rest were written on one of two other days that month.

Walter Zelman, executive director of California Common Cause, said it isn’t uncommon to see a large number of executives at a major firm contributing to a number of politicians.

But, Zelman noted, “when the numbers get real large, there’s a question of whether individuals are coerced or even encouraged to contribute.” He said that encouraging contributions “gets borderline illegal really fast.”

Especially during election season, Keating routinely brought in candidates to meet with groups of employees in the corporate dining room. Sometimes, campaign literature would be passed around. After a presentation, Keating said, he would ask his employees to make contributions, but he emphasized that their giving was voluntary.

He lashed out at those who would criticize him for legitimate fund-raising activities, saying the public is being “bullied into not contributing” to political campaigns by people who question every donation.

In his case, he said, regulators are raising the campaign contribution issue to hold senators and members of Congress in check while the federal agencies deal with Lincoln Savings.

But critics contend that Keating has simply used donated dollars to get politicians to do his bidding. And the timing of the contributions raises questions about his motives.

Riegle and Keating, for instance, met in Detroit on March 1, 1986, when Riegle attended the reopening of the renovated Pontchartrain Hotel, which Lincoln owned. A fund-raiser on March 23, 1987, netted Riegle more than $70,000, which Riegle returned a year later after Keating’s contributions became a public issue.

Riegle was one of five senators who met with regulators on April 9, 1987, to find out why a routine examination of Lincoln’s financial condition was taking more than a year instead of the normal 2 to 3 months. Riegle’s closest aide, Kevin Gottlieb, said the senator attended only at the written request of two colleagues, DeConcini and McCain. Cranston and Glenn also were at that meeting.

Never before, top regulators say, had they seen an S&L; owner who had enough political pull to get five U.S. senators to meet with federal examiners over a problem.

At an earlier meeting, Cranston, McCain, DeConcini and Glenn had met with Edwin J. Gray, head of the Federal Home Loan Bank Board. Gray later claimed that the four senators tried to cut a deal for Keating. He termed the effort a “gross violation of the integrity of the regulatory process . . . for the benefit of one person who happened to be a friend and contributor.”

The senators or their aides denied that any deal was offered or discussed. Glenn said he met only to find out why a constituent was having a problem with an unusually long regulatory examination. DeConcini’s press secretary, Bob Maynes, said Gray “has a terrible memory or he’s a liar.”

All of of the senators involved said there was no impropriety in taking money from Keating and his fund-raisers and then representing him in a dispute with agency officials, something they said they do for all their constituents. Gottlieb said Riegle returned the money in March, 1988, only because local papers had written about it and the senator did not want it to become a campaign issue.

An individual “does not suddenly become ineligible for any kind of constituent help because he’s made a political contribution,” Maynes said. “It’s quite irrational to tell anybody who’s made a contribution that if the federal government is mistreating him, he can no longer take the normal course of action by seeking help from his senator.”

In an Orange County Superior Court lawsuit, however, bondholders who purchased $200 million in apparently worthless American Continental debt securities claim that Keating used his political connections to cover up an alleged fraud.

The suit alleges that Keating used politicians--as well as former government employees he hired or retained--to keep regulators at bay while he continued to sell junk bonds to unsophisticated depositors.

Keating vehemently denies the claims in the suit, one of several class actions filed in Southern California and Arizona. He said the bondholders’ only chance at getting any money back is if control of Lincoln is returned to him. Regulators have never saved an institution they have seized, he said.

THE KEATING MONEY MACHINE Political contributions made by Charles H. Keating Jr., his companies, and more than 75 family members, business associates and employees during the last 6 years. Keating is chairman of American Continental Corp. in Phoenix, which acquired Lincoln Savings & Loan in Irvine in 1984. Figures were compiled from Federal Election Commission campaign contribution reports. Federal contributions of less than $500 are excluded.

MAJOR INDIVIDUAL CONTRIBUTORS

Name Amount Charles H. Keating Jr. and his wife, Mary $85,500 Charles H. Keating III and his wife, Krista $40,500 Charles H. Keating’s daughters and sons-in-laws $98,000 Judy Wischer, ACC president, and her husband, George $68,800 Robert J. Kielty, ACC senior vice president, $49,000 and his wife, Judith

THE BIG FIVE

On April 2, 1987, U.S. senators McCain, DeConcini, Cranston and Glenn met with the head of the Federal Home Loan Bank Board in an effort to determine why a government examination of Lincoln was taking longer than usual to complete. A week later Riegle joined his four colleagues in a follow-up meeting with other savings and loan regulators. Riegle and Cranston are members of the Senate Committee on Banking, Housing and Urban Affairs. All five senators represent districts in which Charles H. Keating Jr. had business interests. Lincoln Savings & Loan operates in California. Its parent company, American Continental Corp., is headquartered in Arizona and incorporated in Ohio. One of the company’s major assets, the Pontchartrain Hotel, is in Michigan.

U.S. Sen. John McCain

(R-Ariz.) $101,500

U.S. Sen. Donald W. Riegle Jr.

(D-Mich.) $71,250

U.S. Sen. Dennis DeConcini

(D-Ariz.) $55,000

U.S. Sen. Alan Cranston

(D-Calif.) $39,100

U.S. Sen. John Glenn

(D-Ohio) $34,500

OTHER RECIPIENTS:

Gov. George Deukmejian

$41,000

U.S. Sen. Pete Wilson

(R-Calif.) $13,000

Name Amount U.S. Sen. Jacob Hecht (R-Nev.) $19,000 U.S. Rep. Charles Pashayan Jr. (R-Calif.) $18,000 Former U.S. Rep. Paula Hawkins (R-Fla.) $18,000 U.S. Rep. Doug Barnard Jr. (D-Ga.) $16,000 U.S. Rep. Jim Kolbe (R-Ariz.) $14,000 Other candidates $77,883 Republican National Committee $50,000 Democratic Congressional Campaign Committee $3,000 California Republican Party $97,500 Political action committees $14,000 GRAND TOTAL CONTRIBUTIONS$703,683

Source: Federal Election Commission campaign contribution reports.