Kept Outrage in Check, Gray Says : Thrifts: Ex-regulator admits he did not tell senators he believed their demands at 1987 meeting on behalf of Lincoln S&L; owner were improper.

Under intense questioning, former thrift regulator Edwin J. Gray acknowledged Tuesday that he did nothing three years ago to protest what he believed was improper conduct by five senators on behalf of Lincoln Savings & Loan owner Charles H. Keating Jr.

Gray, the chief witness in the “Keating Five” case, told the Senate Ethics Committee that he quickly decided while he was meeting with four of the senators on April 2, 1987, that they were making unethical demands. He said that he was particularly surprised when Sen. Dennis DeConcini (D-Ariz.) asked him to withdraw a regulation opposed by Keating.

Nevertheless, Gray--who headed the Federal Home Loan Bank Board from 1983 to 1987--said that he did not express his outrage to the senators, even though they asked him if their entreaties were improper. In fact, he said, he never communicated his thoughts publicly until he was interviewed by a newspaper reporter about the meeting two years later.

Newspaper accounts of the meeting--combined with reports that the five senators had solicited a total of $1.3 million in contributions from Keating--eventually led to charges of misconduct against DeConcini and Sens. Alan Cranston (D-Calif.), John McCain (R-Ariz.), Donald W. Riegle Jr. (D-Mich.) and John Glenn (D-Ohio).

Although Riegle did not attend the April 2 meeting with Gray, he was involved in setting it up and took part in a follow-up session a week later with San Francisco thrift regulators who were investigating Lincoln’s affairs.

The five senators have been accused of helping to delay a federal takeover of Lincoln while the institution continued to pile up $2 billion in federally insured losses. Although some regulators wanted to shut down Lincoln in 1987, it was not seized until April, 1989.

Defense attorneys, seeking to undermine Gray’s credibility, noted that he had several opportunities after the April 2 meeting to tell the senators what he thought about their conduct. In fact, Thomas Green, attorney for Riegle, disclosed for the first time that Gray went to Riegle only 19 days later seeking the senator’s assistance in finding a new job.

Green said that Riegle will testify later in the hearing that, after Gray came to him for help on April 21, the senator arranged for Gray to have a job interview with Prudential Bache, a New York securities firm.

Gray said that he vaguely remembered the job interview but not the meeting with Riegle.

The former regulator was asked by the committee’s special counsel, Robert S. Bennett, why he waited so long to protest the impropriety of the April 2 meeting. Gray said that he had been reluctant to challenge the senators because he needed their votes for legislation to fund the Federal Savings and Loan Insurance Corp., which guaranteed thrift deposits.

“I had no incentive at the time to make any senator angry at me,” he said. “Why? Because we needed that legislation desperately.”

He added: “I did not have a history of getting into big confrontations with members of Congress. . . . I frankly didn’t have the temperament to be a whistle-blower.”

Bennett also entered into evidence two previously unpublished documents suggesting that Gray maintained cordial relations with DeConcini and Riegle after the allegedly improper meeting in April, 1987.

One document was a memo written to DeConcini by one of his aides, Rip Wilson, on April 3, 1987, saying that Gray had telephoned with information that “you would want to hear.” Wilson told his boss that Gray wanted the senator to telephone him at home to relay the information.

Gray said that he has no recollection of this telephone call.

The second document was an April 14, 1987, letter to Riegle forwarding a memo that had been written by one of Gray’s deputies, William Black, describing an April 9 meeting between the five senators and regulators from the San Francisco office of the bank board, who were investigating Lincoln.

Gray said that he sent the memo to Riegle because “I wanted him to know . . . that there was a record of that meeting.”

Gray, who began his political career in 1966 as an assistant press secretary for then-California Gov. Ronald Reagan, recalled that he was under considerable pressure from Keating at the time he was summoned to Capitol Hill in 1987 to meet with the senators. Keating had accused Gray and the regulators then investigating Lincoln of having a “vendetta” against him.

Gray said that he was wary about this meeting from the start, because he had been instructed to come to DeConcini’s office without any aides. He said that he had never before been asked to meet with members of Congress without staff members present.

“I felt awkward and pressured,” he said. “The whole setting was an intimidating one because I’d never had (a meeting) like that before . . . because there were only five there. No one else to hear, no one else to know.”

At the beginning of the meeting, Gray recalled, McCain said that the senators did not want to do anything improper. To this, Gray said he replied: “It’s not improper to ask questions.”

But when DeConcini asked him to withdraw a regulation governing investments by thrifts in real estate and other risky ventures, Gray said, it “descended on me like a dove” that the request was improper.

Nevertheless, Gray acknowledged that he suggested to the senators during the April 2 meeting that they meet at a later date with the regulators from San Francisco, who knew more about the Lincoln investigation than he did. A subsequent meeting with the San Francisco regulators took place on April 9.

Even though Gray did not protest what he said he believes was improper conduct, his aides have said that he was clearly upset when he returned to FHLBB headquarters from DeConcini’s office.

Gray emphasized in his testimony that he resisted the senators’ pressure and told DeConcini flatly that he would not withdraw the regulation.

When asked by Bennett what impact the meeting with the senators had on the FHLBB’s investigation of Lincoln, he replied: “I don’t think it had any impact for this reason: We did not succumb.”