Cranston Alters Defense in Lincoln Savings Case : Thrifts: After his statements were publicly challenged by a federal official at a House

As the story behind the $2-billion collapse of Lincoln Savings & Loan has continued to unfold, Sen. Alan Cranston (D-Calif.) has altered a key element of his original defense against charges that he intervened improperly on behalf of the Irvine thrift.

Earlier this year, when Cranston was asked to explain why he intervened with federal regulators in 1987 on behalf of the savings and loan, he said that he had asked the government to take “prompt corrective action” against Lincoln owner Charles H. Keating Jr.

“I said: ‘Do something or leave him alone. If there’s anything criminal, indict him,’ ” Cranston declared at a press conference last May.

But Cranston no longer makes that assertion when he speaks in defense of his actions in the Keating affair. Instead, he now contends that he simply asked Edwin J. Gray, then chairman of the Federal Home Loan Bank Board, why the investigation of Lincoln was taking so long.

Cranston’s story changed after Gray, in testimony before the the House Banking, Finance and Urban Affairs Committee earlier this month, publicly challenged the senator’s original explanation.

It is not the first time that Cranston has waivered in his recollection of matters involving Keating. Nor is it the first time that Cranston and Gray have clashed over what happened in April, 1987, when Cranston and four other senators met with the bank board chief to discuss Lincoln.

In fact, Cranston and Gray--California political adversaries since 1966, when Cranston criticized Gray’s boss, then-GOP gubernatorial candidate Ronald Reagan--appear to be engaged in an escalating war of words involving every aspect of the Lincoln scandal.

Asked in an interview about Gray’s charge that his original statements were “untruthful,” Cranston replied that he never intended for anyone to think that he had advocated Keating’s indictment in the April 2 meeting.

“I didn’t say I said that in that meeting,” the senator said in an interview. “I said it upon other occasions.”

But neither Cranston nor his aides could identify exactly when the senator advocated the possible indictment of Keating.

“You are not going to get a very satisfactory answer on that,” said Cranston’s press secretary, Murray Flander. “He recalls that he said it at some time, but he doesn’t remember when.”

The involvement of Cranston and the four other senators has been cited as a possible factor in a decision by bank board officials to reject a recommendation to seize Lincoln in 1987. When the government finally assumed control of Lincoln last April, the ultimate cost to taxpayers had grown to an estimated $2.3 billion.

Gray and other critics contend that the senators’ action in the Lincoln case was improper because the five previously had solicited campaign contributions and other donations totaling $1.3 million from Keating.

Moreover, Gray has said that when he met with the senators on April 2, 1987, they were asking for special treatment for Lincoln, which at the time was under investigation by the bank board.

The other four senators are Dennis DeConcini (D-Ariz.), John McCain (R-Ariz.), John H. Glenn (D-Ohio) and Donald W. Riegle Jr. (D-Mich.).

In response, Cranston has said that his actions on behalf of Lincoln were no different than the inquiries that he regularly makes at many federal agencies regarding complaints from his constituents. During 20 years in the Senate, Cranston said, he has intervened with the bureaucracy on behalf of thousands of Californians.

Cranston has also insisted that his actions had no impact on the bank board’s investigation of Lincoln. He has noted that both Gray and his successor, M. Danny Wall, have testified that they were not swayed by the contacts that they received from the senators.

Gray has been quick to assert that there are discrepancies in Cranston’s explanations. After Gray began telling his side of the story last May, according to the former bank board chairman, “the knee-jerk reaction by the senators was simply to deny what I have said.”

Cranston is by no means the only senator whose account of his role in the controversial case has changed over time. Riegle, who originally cast himself as a bit player in the drama, since has acknowledged that Gray met with the senators in April, 1987, at his suggestion.

Beginning last May, Cranston frequently said that his primary concern in 1987 was that the bank board investigation of Lincoln was taking too long.

He denied that he had sought special treatment for Keating. He repeatedly emphasized that he had told Gray and other bank board officials that he did not care whether Keating was indicted for criminal activity but only wanted the inquiry to be concluded before it hurt the reputation of the Irvine thrift.

As Cranston put it last August: “There was nothing improper in any of my contacts with Charles Keating, nor was there anything improper in my joining with other senators to ask the FHLBB to take prompt corrective action, including seeking criminal action against Keating, if grounds existed.”

But in Gray’s testimony before the House committee Nov. 14, the former regulator denounced as “untruthful” that statement and similar ones by the California senator.

“Cranston did not ask that we take ‘prompt, corrective action’ nor did he ask that we take ‘criminal action against Keating’ under any circumstances,” Gray told the panel.

Gray also said in an interview that Cranston made no such statement during a subsequent meeting on April 9, 1987, between the five senators and top federal regulators from San Francisco, who were responsible for the Lincoln inquiry. A transcript of the second meeting shows that Cranston, who attended the meeting only briefly, said: “I just want to say I share the concerns of the other senators on this subject.”

Furthermore, Gray emphasized that these were the only two meetings that Cranston has acknowledged having with federal regulators on the Lincoln matter in 1987.

Ever since Gray disputed Cranston’s earlier statement, the senator no longer has stated that he urged the indictment of Keating when he is asked about it in public forums. Instead, he has quoted Gray as saying that he talked very little in the April 2 meeting and “only asked some questions about the duration of the examination.”

Originally, Cranston also denied Gray’s charge that DeConcini had tried to negotiate with the bank board on Keating’s behalf during the first meeting on April 2. Gray has stated that DeConcini pledged Lincoln would make more home mortgage loans if the bank board withdrew a regulation restricting other investments. DeConcini has denied it.

It was not until Cranston recently read the transcript of the April 9 meeting--in which DeConcini raised the same subject--that he began to doubt his original recollection of the first meeting. The California senator said that “there may well have been some discussion of the regulation” by DeConcini on April 2.

NEW MILKEN PROBE--Federal probers are examining links between indicted financier Michael Milken and failed S&Ls.; D1