CALIFORNIA ELECTIONS : ATTORNEY GENERAL : Smith Ad Seeks to Link Lungren to S&L; Scandal

Seeking to capitalize on public revulsion over the savings and loan scandal, Democratic state attorney general candidate Arlo Smith Wednesday unveiled a last-minute campaign radio ad accusing his Republican foe, Dan Lungren, of involvement in the massive financial debacle.

The sixty-second ad, which Lungren’s campaign swiftly labeled a “desperation tactic by a failing candidate,” charges that the former five-term congressman “has accepted thousands of dollars in contributions from people under criminal investigation . . . and he won’t give the money back.”

The reference is to campaign contributions of approximately $4,000 that Lungren has received from S&L-related; sources including GOP fund-raiser Karl M. Samuelian, who is under investigation by the Sacramento County district attorney’s office in connection with the Lincoln Savings & Loan failure.

Smith’s ad also cites a 1986 letter signed by Lungren to Edwin Gray, then the nation’s top thrift regulator, which Gray said last month was apparently written on behalf of Lincoln’s owner, Charles H. Keating Jr. Smith’s ad does not make clear that the letter was actually drafted by another congressman, Charles Pashayan (R-Fresno), and then signed by 16 Republican congressmen including Lungren and now-Secretary of Defense Dick Cheney.

The Smith ad continues: “The ethical standards of California’s next attorney general must be beyond question. Dan Lungren’s aren’t.”

In reply, Lungren spokesman David Puglia said: “It’s appropriate that Arlo is trying to fool the voters of the state on Halloween. In ten years in Congress, nobody ever questioned Dan Lungren’s integrity.”

The Lungren campaign also labeled San Francisco Dist. Atty. Smith hypocritical for having accepted $10,000 in campaign contributions from Sen. Alan Cranston’s political action organization, The Committee for a Democratic Consensus.

The Senate Ethics Committee has scheduled public hearings this month on ties between Keating and five senators, including Cranston. The senators, who received $1.3-million in contributions from Keating for their campaigns and causes, reportedly intervened with thrift regulators on behalf of the high-flying thrift owner.

“The only treat Arlo will receive for Halloween is the $10,000 from Alan Cranston,” said Puglia.

Lungren’s name first surfaced in the savings and loan scandal with the disclosure last month of the 1986 congressional letter to former Federal Home Loan Bank Board Chairman Gray.

Although the letter did not specifically refer to Lincoln Savings, Gray told reporters that it appeared to have been a poorly disguised attempt to pass confidential information to the Orange County-based thrift about possible federal actions to tighten controls over it.

Gray said he believed that in signing the letter, Lungren, Cheney and other congressmen “allowed themselves to be duped and used by people like Charlie Keating” and that they “certainly have to take responsibility for what they signed.”

Keating is awaiting trial in Los Angeles on securities fraud charges in connection with the sale of junk bonds through the now-bankrupt thrift, whose failure could cost taxpayers more than $2 billion.

Lungren, who is neck-in-neck in the polls with Smith, has said he signed the letter as a favor to Pashayan and had no knowledge it dealt with Lincoln Savings.

In 1988, Lungren received a $500 contribution from Lincoln’s parent company, American Continental Corp., for a litigation fund he had set up while challenging the state Senate’s rejection of his selection to the post of state treasurer by Gov. George Deukmejian.

Lungren’s campaign has also received $2,250 from Samuelian, who has served as campaign finance chairman for Deukmejian, and $1,600 from former state Commissioner of Corporations Franklin Tom. The two attorneys are partners in a Los Angeles law firm which recently agreed to pay up to $14.3 million to settle class-action lawsuits filed against it by 22,000 individuals who bought now-worthless junk bonds from Lincoln Savings.

Tom and Samuelian are under investigation for possible criminal or civil wrongdoing in connection with a probe of Lincoln Savings.