Lawyers Attack Gray’s Integrity at Ethics Panel Hearing : Thrifts: The former regulator falls under relentless questioning designed to convince committee members that he had embellished facts.

Defense attorneys portrayed former thrift regulator Edwin J. Gray Wednesday as an overzealous publicity seeker who has misrepresented the actions of five senators accused of abusing their power by assisting Lincoln Savings & Loan owner Charles H. Keating Jr.

Gray, the chief witness in the “Keating Five” case, was questioned so relentlessly during hearings before the Senate Ethics Committee that he finally said with a sigh: “I gather that this is becoming a referendum on me.”

The attorneys found numerous minor inconsistencies in his testimony, questioned his integrity and competence as chairman of the Federal Home Loan Bank Board and suggested that he is a zealot who thinks all of his political opponents were either “on the take or stupid.”

The harsh line of questioning was clearly designed to persuade committee members that Gray may have embellished upon the facts in recounting how he was asked during a meeting with four of the senators on April 2, 1987, to withdraw a regulation opposed by Keating.

Under cross-examination by Sen. Warren B. Rudman (R-N.H.), Gray acknowledged that only one of the accused senators--Dennis DeConcini (D-Ariz.)--actually voiced the suggestion that Gray considered improper. Gray conceded that the other three senators at the meeting--Sens. Alan Cranston (D-Calif.), John Glenn (D-Ohio) and John McCain (R-Ariz.)--said nothing wrong.

The four senators, along with Sen. Donald W. Riegle Jr. (D-Mich.), have been accused of assisting Keating in his battle against the bank board in exchange for a total of $1.3 million in contributions to their campaign committees or to organizations that they supported. All five senators are vigorously defending themselves before the Ethics Committee, which is seeking to determine whether their actions violated Senate rules.

Under questioning by Cranston’s lawyer, William W. Taylor III, Gray said that he believes the senators were involved with then-White House Chief of Staff Donald T. Regan and others in a “master plan” to drive him out as chairman of the bank board. Taylor then suggested that Gray thought “anybody who disagreed with (him) must be on the take or stupid.”

Gray objected.

Taylor suggested that in 1987 the five senators had reason to believe Keating’s contention that he was being harassed by Gray and other FHLBB officials who were investigating Lincoln. The attorney read aloud numerous newspaper articles published before April, 1987, saying that the White House was trying to fire Gray, that Gray had an unusually close relationship with some thrifts and that Gray often stayed in luxury hotels and ate expensive dinners at the government expense.

Gray’s lawyer, Leonard Garment, hotly objected to one of the stories, calling it “a distraction and a red herring.” But Taylor replied: “I’m concerned that this man (Gray) is trying to ruin my client’s (Cranston’s) reputation.”

The exchange reflected a bitter public feud that Cranston and Gray have carried on since the Keating Five allegations arose. Cranston, who has attended only one session of the Ethics Committee hearings, is in California getting radiation treatments for prostate cancer.

Noting that Gray was a former public relations man and press secretary for Ronald Reagan before becoming FHLBB chairman, Taylor suggested that the witness had been involved in a campaign of press leaks designed to embarrass the senators. At one point, Taylor asked Gray if he had been the source of a story about Cranston published by The Times earlier this year.

Gray denied that he had been the source.

For the first time, there were indications Wednesday that some committee members have grown skeptical of Gray’s account of his encounter with the senators. The panel released copies of a previously unpublished interview with Gray in which Rudman, the committee vice chairman, questioned why the bank board chairman had found DeConcini’s request improper.

“What is hard for me to understand . . . is why you got so upset.” Rudman said. “They didn’t tell you to do it. They asked you to do it and you said no and they said fine.”

Likewise, Sen. Trent Lott (R-Miss.) on Wednesday defended the right of members of Congress to intervene when federal regulators overstep their authority. And Sen. Terry Sanford (D-N.C.) disputed Gray’s assertion that the savings and loan crisis was brought on by members of Congress who were more interested in collecting contributions from thrift executives than in preserving the solvency of the thrift system. Both Lott and Sanford are members of the Ethics Committee, which consists of three Democrats and three Republicans.

Like the defense attorneys, Lott also focused on a comment that Gray made recently in defense of Pete Wilson, the California governor-elect, who was accused by his Democratic opponent in the last election of intervening improperly by writing letters to the bank board chairman about thrift matters. “That’s not intervention; those things never reached my desk,” Gray had said.

Lott suggested that the Keating Five senators may have been forced to seek an unusual meeting with Gray because he was not reading their letters. “How else is a senator or a congressman to get the chief regulator’s attention?” he asked.

DeConcini’s lawyer, James Hamilton, suggested that Gray may have misinterpreted the request that the senator made of him during the April 2 meeting. All four senators either have denied that DeConcini made the request or have said that they do not recall it.

Hamilton noted that a transcript of a meeting a week later with other bank board officials shows that DeConcini did not ask for the regulation to be withdrawn but only that Lincoln be given some leeway.

But Gray insisted that he was asked by DeConcini to withdraw the regulation, an action that he contended would have been illegal.

In questioning the former thrift regulator, Rudman named each of the four senators at the April 2 meeting separately and asked Gray if he believed they had done or said “anything you felt was improper?”

Gray replied “no” when asked about Glenn and McCain. He said that Cranston “asked me questions--it was not improper.” But when DeConcini’s name was mentioned, he replied: “Yes. He asked me to withdraw a duly authorized regulation.”

The regulation questioned by DeConcini was important because it sought to prevent savings and loans from making risky investments far removed from traditional home mortgages, Gray said.