Vast Investment in State Politics by Keating Told

Lincoln Savings & Loan owner Charles H. Keating Jr., his family and his business empire poured nearly $350,000 into state politics during 1985 and 1986, with about half of it going to Gov. George Deukmejian’s reelection campaign, contribution records show.

Along with the $173,000 donated to Deukmejian’s campaign, Keating’s family and business connections also contributed $176,500 over the two years to Democratic and Republican groups and such politicians as then-Assembly Republican Leader Pat Nolan of Glendale and Gray Davis in his successful race for state controller.

The figures do not include at least $83,336 in contributions made personally or through the firms of two other Keating associates--Los Angeles attorney Karl M. Samuelian and San Diego businessman Tom C. Stickel.

Keating hired Samuelian, the governor’s chief fund raiser, to be one of his California attorneys. He also invested heavily in a San Diego company controlled by Stickel, who also was a Deukmejian fund raiser and became the Republican Party’s finance co-chairman in 1987.

“Charlie Keating’s political reach, in retrospect, was phenomenal,” Stickel said in a recent interview about Keating’s political muscle.

The political largess in Sacramento was part of a web of influence that the blunt-talking Arizona businessman wove throughout the country to nurture and protect his ill-fated financial and investment companies, which regulators now contend inflated the value of their assets and deceived investors into buying high-risk bonds.

In April, Keating’s American Continental Corp. of Phoenix filed for bankruptcy, prompting federal officials to immediately take over its subsidiary Lincoln Savings & Loan. The move is expected to cost taxpayers $2 billion--the costliest savings and loan bailout in American history.

After the seizure, the outspoken Keating candidly declared that he had expected the political contributions to prod influential politicians, such as U.S. Sen. Alan Cranston (D-Calif.), to fend off hostile regulators.

“One question, among the many raised in recent weeks, had to do with whether my financial support in any way influenced several political figures to take up my cause,” said Keating. “I want to say in the most forceful way I can, I certainly hope so.”

In California, Keating hired key Deukmejian supporters or appointees to help protect his ill-fated Lincoln Savings. As attorneys, he hired fund raiser Samuelian and Franklin Tom, a former state commissioner of savings and loan who left public service to join Samuelian’s Los Angeles law firm. The lawyers helped Keating obtain state permission to float more than $200 million in high-risk bonds, on which his company subsequently defaulted.

Keating also paid $200,000 in 1985 for the consulting services of former Savings and Loan Commissioner Lawrence W. Taggart, who had left government service in December, 1984, for a job with TCS Enterprises of San Diego. Days before he left for TCS, Taggart approved a request by Lincoln to increase the amount of assets the institution could sink into high-risk real estate investments.

In January, 1985, when Taggart joined TCS, Keating hired him as an executive and paid $2.89 million to buy 19.2% of the fledgling San Diego firm’s stock as it went public.

Meanwhile, Keating and his associates were investing heavily in California state politics. His coalition of contributors included his family--son Charles Keating III and three sons-in-law--and his corporations, including American Continental, Lincoln Savings and three other subsidiaries.

The group also included eight employees and executives, such as American Continental Vice President Robert J. Kielty and consultant Taggart, as well as Phoenix business associate Conley Wolfs-winkel, who bought 6,150 acres in Tucson with American Continental in 1985.

While Keating himself gave only $7,000--all of it to Deukmejian--the coalition of his relatives, business interests and associates brought total donations to $349,500 in 1985 and 1986. Reports show:

- Deukmejian received $173,000 from the Arizona businessman and his associates. The governor received $80,000 directly from American Continental and Lincoln Savings; $19,000 from Keating and his family members; $51,000 from other American Continental subsidiaries and executives; and $23,000 from Keating business associates.

The governor has said that he met Keating only once and never knew of Lincoln’s financial woes until he read about them in newspaper reports this year.

- Keating and associates gave $176,500 to other state political organizations and politicians. They gave $7,500 to the California Republican Party, $50,000 to the League of Conservative Voters, $17,000 to then-Assemblyman Davis’ campaign for state controller, and $85,000 to the state Democratic Party.

They also gave $17,000 to four legislators--Nolan, who authored the law deregulating the savings and loan industry in 1982; Assembly Rules Committee Chairman Tom Bane (D-Van Nuys); Assemblyman Bruce Bronzan (D-Fresno), and Assemblyman Dennis Brown (R-Los Alamitos).

- Stickel and TCS contributed $50,666 in money, staff time and office space to Deukmejian and the Republican Party. Samuelian and his law partners gave $32,700.

EARLY WARNING--A key federal regulator told top government officials nearly a year before the collapse of Lincoln S&L; that their efforts to control the Irvine thrift would be unsuccessful. D1