Keating a ‘Crook,’ Babbitt Allegedly Warned Cranston : Ethics: The S&L; scandal hearings open with the Senate panel being told how the Californian pressured regulators while receiving the thrift executive’s funds.

As the Senate Ethics Committee opened hearings into the “Keating Five” scandal, the panel’s top investigator said Thursday that Sen. Alan Cranston (D-Calif.) persisted in pressuring regulators on behalf of Lincoln Savings & Loan after he had been told by a fellow Democrat that the thrift’s owner was a “crook.”

In outlining evidence against five senators, who are accused of acting improperly on behalf of Lincoln owner Charles H. Keating Jr., special counsel Robert S. Bennett said he had found that “hundreds of thousands of dollars” from Keating passed through Cranston’s Senate office while the Californian was assisting the controversial thrift executive.

Furthermore, Bennett said, Cranston was personally aware as he put pressure on federal regulators that Keating was “sweetening” his requests for help with large political contributions. His actions continued even after former Arizona Gov. Bruce Babbitt had told him in March, 1989, that Keating was a crook, Bennett charged.

The committee counsel, who has spent a year investigating the scandal, characterized Cranston and Sen. Dennis DeConcini (D-Ariz.) as “important players” in Keating’s strategy to delay enforcement action by the Federal Home Loan Bank Board while he allegedly looted the Irvine-based thrift of millions of dollars of federally insured funds.

As for the other three senators, Bennett said that Sen. Donald W. Riegle Jr. (D-Mich.) was an “active player,” and Sens. John McCain (R-Ariz.) and John Glenn (D-Ohio) “did not play any meaningful role” on Keating’s behalf after they learned in 1987 that FHLBB officials had found evidence of criminal wrongdoing by Lincoln officials.

McCain said afterward that he believes he was exonerated by Bennett’s presentation of the evidence but Glenn noted that nothing will be decided until the committee’s six members vote on possible disciplinary action sometime in December.

Cranston, who is not seeking reelection in 1992, was the only Keating Five senator who did not attend the first session Thursday. An aide said he was closeted in his Senate office, watching the proceedings on television and preparing the statement that he will deliver to the committee today.

The 76-year-old senator has notified the panel that he will not be present at any hearings after today because he will be undergoing radiation treatments in California for a recently diagnosed case of prostate cancer. His absence is expected to focus more attention on DeConcini’s role in the Keating scandal.

Bennett’s presentation was the opening round in what promises to be a long and contentious round of hearings expected to continue at least 10 days. Never before in Senate history has a committee conducted hearings on allegations of official misconduct by as many as five senators.

Chairman Howell Heflin (D-Ala.) noted at the outset of the hearings that the five senators, who together solicited $1.3 million in contributions from Keating, have become a national symbol for the $500-billion collapse of the savings and loan industry.

“I need not tell you . . . many of our fellow citizens apparently believe that your services were bought by Charles Keating, that you were bribed, that you sold your office, that you traded your honor and your good names for the contributions and other benefits,” he said. “Many of these same people believe that your actions . . . were solely responsible for S&L; failures of scandalous proportions.”

Although the committee is expected to hear from dozens of witnesses, Keating--who has been charged with fraud in California--will not be among them. He asserted his 5th Amendment right to avoid self-incrimination in a closed-door session of the committee. Even if Keating were willing to testify, Bennett asked, “could you believe him anyway?”

The committee is investigating charges brought against the five senators by the citizens lobby, Common Cause, which claims that they were persuaded by big campaign contributions to intervene with regulators on Keating’s behalf. Furthermore, the group contends that the senators’ actions delayed regulatory action against the Irvine-based thrift, allowing it to squander an estimated $2 billion of federally insured funds.

The question facing the six-member Ethics Committee is whether the senators assisted Keating because he was a constituent or because he gave them large campaign donations. In addition, the panel must decide whether their actions went beyond the legitimate pressure that lawmakers bring to bear on regulators in cases involving their constituents.

“The mere fact of putting on pressure is not in and of itself improper,” Bennett noted.

Bennett said that the key to understanding the case is that Cranston and DeConcini--unlike the three others--continued to assist Keating in his battle with the government even after they were told in April, 1987, that regulators intended to ask the Justice Department to press criminal charges against Keating.

Moreover, he said, Cranston continued to pressure federal regulators on Keating’s behalf after his conversation with Babbitt on March 16, 1989. When Cranston asked him about Keating, according to Bennett, Babbitt replied: “He’s a crook--C-R-O-O-K.”

It was after Cranston’s talk with Babbitt, who had extensive dealings with Keating during his governorship, that Cranston pleaded with both FHLBB Chairman M. Danny Wall and FHLBB member Roger Martin to allow Keating to sell Lincoln. In addition, Cranston told Wall on April 14, 1989, that the government was making “a mistake” by seizing Lincoln on that day.

William Taylor III, Cranston’s attorney, explained that Cranston had talked to Babbitt about Keating during a chance encounter. At the time, he noted, the California senator was urging the regulators to take Lincoln “out of his (Keating’s) hands.”

Although all five senators have denied any connection between their actions and Keating’s contributions, Bennett said there is evidence “that Cranston, DeConcini and Riegle knew that Mr. Keating was sweetening his request for help with political contributions.”

He said he found evidence of a number of meetings between Keating and the three senators “when actions and money were discussed at the same time and hundreds of thousands of dollars, in the case of Sen. Cranston, passed through his office.”

Bennett appeared to be referring to the $850,000 that Cranston solicited from Keating for voter registration groups that he sponsored in hopes of registering more minority voters in California and other states. Cranston also got $39,000 from Keating for his 1986 reelection campaign and $85,000 for the California Democratic Party.

Even if Cranston did not see a link between Keating’s contributions and his requests for assistance with the regulators, he should have, Bennett said.

“Didn’t the thought ever occur to Mr. Cranston, a liberal Democrat, why Mr. Keating . . . a well-known Republican, was giving him hundreds of thousands of dollars so that more black citizens and Hispanics could vote?” he asked.

He noted that Keating never sought the help of California Sen. Pete Wilson, a Republican.

In an interview, Taylor disputed Bennett’s assertion that Cranston collected money in Senate offices. “My best recollection of the evidence is that no checks were delivered to Cranston’s office,” he said.

The committee adjourned for the night before Bennett had an opportunity to provide any more details about Cranston’s role, but he presented considerable evidence against the other four senators.

DeConcini was portrayed as the ringleader of the group--someone who almost never turned down a request for help from the thrift executive.

Among other things, the Arizona Democrat put pressure on both federal and California state thrift regulators. And it was DeConcini who allegedly proposed a “quid pro quo” on Keating’s behalf in two meetings between the senators and FHLBB Chairman Edwin J. Gray in April, 1987.

Bennett said that DeConcini, acting on Keating’s instructions, told Gray that Lincoln was willing to resume making home loans if the bank board would rescind a newly promulgated regulation that restricted direct investments in risky ventures.

Bennett said DeConcini was consistently rewarded for his actions by Keating with generous campaign contributions.

When DeConcini lobbied the White House in 1985 for Gray to be fired, he got $20,000 from Keating in the same month. And while he was pleading with the White House to nominate Keating’s friend, Lee Henkle, to the bank board in 1986, he received $11,000.

Riegle “played a much greater role than he now recalls,” according to Bennett.

Although the Michigan Democrat claims to have little recollection of the events at issue in the Keating affair, Bennett found documents that appear to support his allegations.

On March 6, 1987, Riegle persuaded Gray to attend a meeting with the senators at which the quid pro quo was allegedly proposed. The next day, Riegle left for a fund-raising trip to Phoenix, where he visited Keating’s firm, American Continental Corp., the parent company to Lincoln Savings.

The Arizona trip produced $11,000 in contributions. The checks were forwarded to DeConcini, who gave them to Riegle. In 1988, Riegle returned his campaign contributions from Keating.

McCain, the only Republican included in the Keating Five, had the closest personal relationship with Keating, a friendship that began even before the Arizona senator started his political career.

Keating gave McCain $110,000 in contributions for three political campaigns, but there was no evidence linking the contributions to any action McCain was asked to undertake, according to Bennett.

The McCain family enjoyed vacations at the Keating family home in the Bahamas in 1984, 1985 and 1986. The trips were valued at $13,433. McCain reimbursed Keating’s company $2,000 at the time of the trips and the rest was repaid in 1989 after the trips became known.

McCain attended the two meetings in April, 1989, in which the senators discussed Lincoln’s problems with Gray and other federal regulators. But McCain refused to go along with Keating’s request that they negotiate a deal.

Keating later denounced McCain as a “wimp.”

Glenn told regulators during the 1987 meetings that they should charge Keating with wrongdoing for mismanagement of Lincoln or leave him alone. After that, Bennett said, “there was no evidence Sen. Glenn or his staff ever contacted the bank board about Lincoln.”

Glenn’s political action committee received $200,000 from Keating, and he received $34,000 in direct contributions but “there was no evidence linking the contributions to any action by Sen. Glenn,” Bennett said.

Bennett disclosed that Glenn also arranged a luncheon meeting between Keating and then House Speaker Jim Wright in January, 1988, sent letters of introduction for Keating to Yugoslavian bishops and sent Keating birthday wishes in December, 1988.