Bitter McCain, Keating Dispute Told : Ethics: Senate panel witness describes a stormy meeting after the Arizona lawmaker, a former POW, learned the S&L; executive had called him a ‘wimp.’

Lincoln Savings & Loan owner Charles H. Keating Jr. and Sen. John McCain (R-Ariz.) had a bitter quarrel in 1987 after Keating told another senator that McCain--a former prisoner of war in Vietnam--was a “wimp” for refusing to help Lincoln in its battle with regulators, the Senate Ethics Committee was told Tuesday.

Christopher L. Koch, an aide to McCain, testified that he witnessed the nasty encounter between Keating and his boss in the senator’s office in March, 1987. Afterward, he said, McCain declared that his long friendship with Keating was “finished.”

The account of McCain’s falling-out with Keating over the “wimp” remark is central to the Arizona senator’s defense against charges that he acted improperly in attending meetings in which five senators pleaded Keating’s case with officials of the Federal Home Loan Bank Board.

McCain, who had been a friend of Keating before becoming a member of Congress, is one of five senators accused of helping Keating stave off federal regulators while Lincoln piled up losses in excess of $2 billion. Like the other four, he also received thousands of dollars in campaign contributions from the controversial thrift executive.

While McCain has acknowledged that he attended two meetings between the five senators and federal regulators in April, 1987, he contends that he had already told Keating not to expect any help from him and thus was doing nothing improper.

“When he came to see me in March of 1987 and asked me to do something I thought was improper, I said no,” McCain has told the committee. “When he asked me to negotiate for him, I said no. The only thing I could do was to inquire whether American Continental Corp. (Lincoln’s parent company) was being treated fairly.”

Robert S. Bennett, the committee’s special counsel, agreed with McCain’s interpretation of these events and recommended that the panel exonerate him.

Keating, currently under indictment for fraud in California in connection with the sale of $220 million in American Continental securities, was known among members of Congress as a very aggressive businessman who often lobbied them for his help.

Tuesday’s testimony by Koch and another McCain aide, Gwendolyn Van Paasschen, exposed a rift between their boss and Arizona’s other senator, Democrat Dennis DeConcini. The two senators and their aides have disagreed strongly over the facts of the case.

After McCain hesitated to help Keating in his fight with federal regulators early in 1987, Van Paasschen said she learned from a DeConcini aide that Keating had denounced McCain as a “wimp” in a meeting with DeConcini.

Koch told the Ethics Committee that he confirmed the story by contacting DeConcini’s administrative assistant, Gene Karp. He then told McCain about the “wimp” remark, he said, and McCain became “extremely agitated.”

When Keating later came to visit McCain’s office seeking assistance, Koch said, McCain let the thrift executive know how much he resented being called a “wimp.” He said it was perhaps the only time he has ever heard McCain, a former Navy captain, refer to the years he spent as a prisoner of war in Vietnam.

McCain told Keating that he “hadn’t spent 5 1/2 years in a POW camp to have his courage or his integrity questioned,” according to Koch. He said the senator then explained that it was against his principles to negotiate with federal regulators on behalf of a constituent.

Keating continued to press McCain for help, according to Koch, “almost as if he hadn’t been listening to John.” At that point, Koch stepped out of the room with Keating’s lobbyist, Jim Grogan.

Koch recalled that Keating stormed out of McCain’s office a few minutes later. “He looked very angry,” Koch said. “I thought the relationship had come to a screeching halt.”

McCain went to two subsequent meetings with federal regulators to discuss Lincoln’s troubles because he believed that he owed it to the 2,000 employees of American Continental who lived in Arizona. But, Koch emphasized, “John went despite Keating, instead of because of him.”

The two meetings between the senators and the regulators are at the heart of the “Keating Five” case being scrutinized by the Ethics Committee. In addition to McCain and DeConcini, senators at the meetings included John Glenn (D-Ohio), Alan Cranston (D-Calif.) and Donald W. Riegle Jr. (D-Mich.) All have told the panel they had broken no rules and done nothing wrong in connection with Keating.

Former FHLBB Chairman Edwin J. Gray contends that DeConcini, acting on Keating’s behalf, sought to negotiate a deal with the regulators during these meetings.

Van Paasschen also testified that she advised her boss not to comply with Keating’s requests for help and said she feared that DeConcini was trying to maneuver McCain into interfering with the regulators’ investigation of Lincoln.

She recalled warning McCain that, “if the press got ahold of it, it would be more embarrassing for Sen. McCain because Mr. Keating had raised more money for Sen. McCain than for Sen. DeConcini.”

In an earlier affidavit by Van Paasschen released Tuesday by the committee, she said that DeConcini wanted McCain to help “beat up on a regulator.”

Under cross-examination by DeConcini’s lawyer, Koch disputed Karp’s previous testimony before a closed session of the committee. Karp had said he was told by Koch that Keating had also called DeConcini a “wimp” in his meeting with McCain.

Koch insisted that he never heard Keating call DeConcini a “wimp.” He said the issue of who was called a “wimp” by Keating was “very important” since it showed which one of the Arizona senators had refused to intervene improperly on behalf of Lincoln.