‘Keating Five’ Senators Face Critical Questions : Thrifts: The ethics case enters a key phase as the men who aided the S&L; executive undergo cross-examination.

The “Keating Five” ethics case enters its climactic phase today with the first public cross-examination of the senators who went to bat for savings and loan mogul Charles H. Keating Jr. in his battles with federal thrift regulators.

Robert S. Bennett, the Senate Ethics Committee’s special counsel, will attempt to show that at least some of the senators were guilty of unacceptable behavior in their efforts to help Keating, who gave $1.3 million to their political campaigns and causes.

Former top-ranking thrift regulators, however, have testified that the senators’ actions did not influence their treatment of Lincoln Savings & Loan, the Irvine-based thrift formerly controlled by Keating.

Lincoln was not seized by the government until April, 1989, two years after regional regulators first proposed a takeover of the ailing institution. Its collapse is expected to cost taxpayers $2 billion, the biggest single loss among hundreds of U.S. thrift failures.

The five senators--Alan Cranston (D-Calif.), John McCain (R-Ariz.), John Glenn (D-Ohio), Donald W. Riegle Jr. (D-Mich.) and Dennis DeConcini (D-Ariz.)--argued forcefully in initial appearances before the committee that they simply had responded to Keating as a constituent who claimed that he was being harassed by unfair bureaucrats.

Cranston, who will be the last to face cross-examination, is being treated for prostate cancer at the Stanford University Medical Center.

“We are working toward a means by which his live testimony will be presented to the Ethics Committee,” William W. Taylor III, Cranston’s attorney, said Thursday. While the method has not yet been decided, the options include a possible trip to California by committee members and a special satellite television link between Stanford and the committee hearing room in Washington.

“Within the limits of his physical abilities and the indications of his doctors, Sen. Cranston will cooperate fully” with the Ethics Committee, said the senator’s press secretary, Murray Flander.

Taylor also plans to present two character witnesses for Cranston: Cruz Reynoso, a former justice of the California Supreme Court, and Rep. Don Edwards (D-San Jose), the dean of the California congressional delegation.

Each of the five senators can be questioned by Bennett, by the lawyers for the other four senators and by members of the Ethics Committee.

McCain and Glenn will be cross-examined today. They will be followed next week by Riegle, DeConcini and Cranston.

The questioning is expected to be vigorous, eschewing the usual courtesies and elaborate politeness that characterize debate on the Senate floor.

“We look for nothing special,” said McCain’s lawyer, John Dowd. “Let them all come--and bring the front line of the (National Football League’s Washington) Redskins, if they want, I don’t care, or even the Phoenix Cardinals, I don’t care.” McCain and Glenn played the least controversial role in the Keating affair, having only attended two meetings with federal thrift regulators in 1987. Bennett has recommended privately that both senators be cleared of any charges of wrongdoing.

Riegle is expected to be pressed hard by Bennett, who already has indicated that he is skeptical about the Michigan Democrat’s claim that he could not recall playing a major role in arranging the meetings. Keating’s chief lobbyist testified that Riegle arranged the sessions.

Bennett’s harshest accusations, however, have been leveled at DeConcini and Cranston, the only senators who persisted in their efforts after the two 1987 meetings with regulators. Both men repeatedly contacted regulators about a proposed sale of Lincoln in 1989, shortly before its seizure by the federal government.

Regulatory officials from San Francisco warned as early as 1986 that Lincoln had serious financial problems and was engaging in questionable business practices. In one of the 1987 meetings, San Francisco regulator Michael Patriarca told the senators: “This is an extraordinary, serious matter. It involves a whole range of imprudent actions,” according to notes taken at the meeting by another regulator.

The San Francisco officials wanted the government to appoint a conservator to run Lincoln. But top regulatory officials in Washington refused, saying that the case against Lincoln’s management was not conclusive.

Rosemary Stewart, former director of enforcement in Washington, told the Ethics Committee Wednesday that the difficulty of making a strong case caused regulators to wait until 1989 to seize Lincoln.

“There was no time we didn’t see a lot of red flags about Lincoln,” Stewart said, while insisting that she did not have enough evidence to take direct action before the ultimate seizure.

Stewart testified that she had no contacts with any of the five senators between 1986 and 1989, although she said a member of Cranston’s staff called another bank board official about the Lincoln case.

The six members of the Ethics Committee, which began hearing the case in November, must decide whether their colleagues acted in a dishonorable manner.

Most of the $1.3 million went to Cranston or causes he supported: $850,000 to voter registration organizations tied to the senator, $85,000 to the California Democratic Party and $39,000 to Cranston’s 1986 reelection campaign.

Keating gave $71,000 to DeConcini’s campaigns, $200,000 to Glenn’s political action committee and $34,000 to his campaigns, $78,250 to Riegle’s campaign, and $122,600 to McCain’s campaigns and trips the senator took on Keating’s corporate aircraft.

In related developments, Cranston said that he had taken the first step toward suing the San Francisco Chronicle and reporter Gerald S. Cohen for libel in connection with a Dec. 15 story which said that Cranston “directly traded cash for favors with” Keating.

“The Chronicle article says nothing less than Sen. Cranston accepted bribes; it charges him with a crime, which is palpably untrue,” Cranston’s attorneys said in a letter demanding retraction of the front-page story. The demand for retraction is the first step required by California law before a libel suit is filed.

The Chronicle’s general counsel, W. Ronald Ingram, responded: “All I have seen are the first few pages of Sen. Cranston’s press release. We have not yet received any request for retraction.”