Panel Withheld Navy Chief’s Ties to S&L; : Congress: Full Senate was not told of nominee’s involvement with failed institution before vote to confirm him. Nunn says it was a confidential issue.

The Senate Armed Services Committee said Friday that it did not tell the full Senate about John H. Dalton’s involvement with a failed savings and loan when it recommended his nomination as secretary of the Navy last July.

Sen. Sam Nunn (D-Ga.), the panel’s chairman, said in an interview that the committee did not make the issue public because it was part of a routine FBI background investigation that the lawmakers had promised to keep confidential.

Nunn said the committee examined the evidence in a closed session before it voted on the nomination and decided that Dalton’s involvement amounted to a “bad business situation” that would “not be disqualifying.” It then recommended him unanimously.

However, with the exception of the 22 members of the Armed Services Committee, the Senate was not aware of Dalton’s S&L; dealings when it confirmed his nomination without dissent.

The controversy emerged after the New York Times reported on Friday that before his nomination, Dalton had been president of a Texas S&L; that went bankrupt in 1988, requiring a taxpayer rescue that cost $100 million.

Although the case ended in a $3.8-million settlement that avoided any civil charges, the Federal Deposit Insurance Corp. initially threatened to charge Dalton and other Seguin Savings Assn. officials with “breach of fiduciary duty, negligence . . . (and) violations of state and federal law.”

Dalton denied any wrongdoing, both to the committee last July and to reporters on Friday, contending that the S&L;’s failure stemmed from an abrupt drop in oil prices, which led to a collapse of the real estate market in Texas.

Nevertheless, Friday’s disclosure renewed complaints by some lawmakers and outside critics that the Senate’s procedures for handling such reports in closed session--and often not making other senators aware of potential problems before they vote--are badly in need of overhaul.

Asked about the Dalton case, Sen. Donald W. Riegle Jr. (D-Mich.), chairman of the Senate Banking, Housing and Urban Affairs Committee, said that he was uncomfortable when he heard about the omission.

“All the relevant information should be brought to the table,” Riegle said.

The procedure of leaving such decisions to the committee that handles a nomination has been a standard practice in the Senate for years. In some cases, when a report is considered especially sensitive, a committee chairman may decide to keep the allegations to himself.

It was just such a situation that backfired in 1992 when Sen. Joseph R. Biden Jr. (D-Del.), chairman of the Senate Judiciary Committee, decided not to tell members of his committee about sexual-harassment charges involving then-Supreme Court nominee Clarence Thomas.

In the Thomas case, the report was leaked to National Public Radio, which broadcast the allegations, forcing the Judiciary Committee to conduct public hearings at which University of Oklahoma law professor Anita Faye Hill made her allegations. Thomas’ nomination, however, was approved.

Despite the revival of the Dalton allegations on Friday, Defense Secretary William J. Perry, returning home from a weeklong trip to the Balkans, moved to reaffirm his support for the Navy secretary, saying that he had “established a record of integrity and good character.”

And Nunn, defending the current procedure for handling such cases, pointed out that much of the information in FBI reports is either hearsay or unsubstantiated. If lawmakers did not agree to keep it confidential, he said, “we’d have a hard time filling (government) slots.”

Along with its other allegations, the FDIC contended that Dalton and other officers of the S&L; had pursued “a negligent course of conduct” that “caused (it) to fail,” according to court documents the agency filed at the time of the collapse.

It also listed a variety of bad loans that had been financed by Seguin Savings. In one case, the S&L; loaned $8.9 million to a land developer without verifying an unaudited financial statement in which he claimed to be worth $6.9 million. The man later declared bankruptcy.

However, experts familiar with FDIC procedures said that the agency routinely uses such language when it hopes to prod S&L; officers into agreeing to a settlement and it pressed no criminal charges in the Dalton case.

Dalton, 52, a San Antonio businessman, was an instrumental figure in President Clinton’s Texas campaign during the 1992 election. He also is a friend of former San Antonio Mayor Henry G. Cisneros, who currently is serving as transportation secretary.

Times staff writer Robert A. Rosenblatt contributed to this story.