Justice Dept. Weighs Probing Senators’ Lincoln S&L; Ties

The Justice Department is weighing whether it should open a preliminary inquiry to determine if five U.S. senators violated federal law by intervening with regulators on behalf of Lincoln Savings & Loan of Irvine, government sources said Tuesday.

The department’s public integrity section, a unit of its criminal division, is examining the conduct of the senators in light of federal laws prohibiting bribery and obstructing proceedings before a federal regulatory agency, according to knowledgeable sources.

Department officials traditionally are cautious about even opening a preliminary criminal inquiry involving public officials. Knowledge of such investigations--even if no wrongdoing is eventually established--can be damaging to elected officeholders.

The five senators--Alan Cranston (D-Calif.), Dennis DeConcini (D-Ariz.), John McCain (R-Ariz.), John Glenn (D-Ohio) and Donald W. Riegle Jr. (D-Mich.)--have been accused by Edwin J. Gray, former chairman of the Federal Home Loan Bank Board, of trying to cut a deal on behalf of Lincoln in 1987.

The alleged intervention occurred two years before regulators seized the troubled thrift, and critics have claimed their involvement may have contributed to the delay. It will cost the government an estimated $2 billion to bail out Lincoln, making it the biggest thrift failure ever.

The senators accepted large political contributions from Charles H. Keating Jr., chairman of Lincoln’s parent company, before meeting with savings and loan regulators. All five senators have denied trying to make a favorable deal for Keating.

Gray was questioned recently by FBI agents in a session that lasted most of a day, and his allegations constitute the major information under review in the Justice Department.

The former top thrift regulator has said that at one of the 1987 meetings, DeConcini asked him to withdraw a regulation that was hampering Lincoln’s non-traditional business investments.

In return, according to information Gray provided the FBI, DeConcini signaled Keating’s willingness to put more Lincoln money into traditional home loans.

The public integrity section’s interest in the senators came to light as FBI agents from field offices in Los Angeles, Phoenix and Washington questioned current and former regulators about wide-ranging aspects of Lincoln’s activities, according to some of those interviewed.

Mary Ellen Taylor, a former congressional relations director for the bank board, said FBI agents who questioned her last week were “interested in a lot of things, including the senators.” She declined to be more specific.

Government sources said a decision to proceed with a preliminary inquiry, which would stop short of taking grand jury testimony, should not be interpreted as an indication that charges are likely to follow.

They noted, for example, the difficulty of distinguishing between providing of “normal constituent services” and illegally obstructing a proceeding before a U.S. agency.

At the same time, the sources said, a preliminary inquiry is likely because the failure to go that far could be seen as not fully examining suspicious activity by lawmakers. “This is receiving very, very heavy scrutiny,” one source familiar with the matter said.