Keating Takes the Fifth

By MARGARET CARLSON

Until last week financier Charles Keating had insisted on being the final witness at congressional hearings on the $2.5 billion disaster at Lincoln Savings & Loan, so that he could rebut the witnesses who had accused him of staving off a federal crackdown on his troubled thrift by lavishing money on influential politicians. But as the aggressive ex-fighter pilot, Olympic swimmer and pillar of the Phoenix business community was being sworn in before the House Banking Committee, his right hand trembled noticeably. His tanned face flushed, his 6-ft. 5-in. frame slumped, Keating, 66, demanded that television cameras be turned off. Then he spoke: "On the advice of counsel, I respectfully exercise my constitutional prerogative and privilege . . . and decline to answer questions here today."

At least five people were probably relieved that the normally garrulous financier had kept his mouth shut: the Senators who received a total of $1.3 million in contributions from Keating. The last time he was asked whether the money he gave to California's Alan Cranston, Michigan's Donald Riegle, Ohio's John Glenn and Arizona's Dennis DeConcini and John McCain had persuaded them to intervene with federal regulators on his behalf, Keating baldly declared, "I certainly hope so." Iowa Republican Congressman Jim Leach, one of the few members of the House Banking Committee who does not accept contributions from political action committees, says that if the allegations against him are true, Keating is "a financiopath of obscene proportions -- the Rev. Jim Bakker of American commerce."

The Government has filed a $1.1 billion fraud and racketeering suit to try to recover some of the money that Keating and his family are said to have taken out of Lincoln. Several class-action suits charging that Keating siphoned off millions to sham corporations in Switzerland, Panama and the Bahamas have been filed on behalf of 23,000 mainly elderly California bondholders. During the two years that Lincoln stayed open after the five Senators met with San Francisco bank examiners who wanted to shut Lincoln in April 1987, the cost of paying off the S & L's federally insured depositors grew to more than $2 billion. Along the way, Keating sought the help of an astonishing array of Government officials as well as financial and accounting experts. To their current embarrassment, some agreed:

Alan Greenspan. In 1985 Keating hired the current chairman of the Federal Reserve Board, then a private economic consultant, to convince the Federal Home Loan Bank Board (FHLBB) that Lincoln was sound and should be exempt from a rule limiting direct investments in risky enterprises to 10% of a bank's portfolio. Though Greenspan wrote to the board on Lincoln's behalf in February 1985, the board turned down the exemption request. But Government officials who let Keating keep control of the S & L still brandish the Greenspan study when they come under fire. If Keating could fool a man as smart as Greenspan, the argument goes, no wonder he could take in five Senators.

Jack Atchison. In 1986 and 1987 Atchison was a managing partner of Arthur Young & Co., the accounting firm that audited Lincoln. Under Atchison's direction, the thrift got a clean bill of health. Later Atchison took a $930,000-a-year job as a vice president with Lincoln's parent company, American Continental Corp. Like his boss, Atchison took the Fifth before the committee several weeks ago.

Lee Henkel. Keating bragged that he had won a seat on the FHLBB for his friend and business associate Henkel (Keating had lent more than $60 million to businesses in which Henkel was part owner) by lobbying former White House chief of staff Donald Regan. Henkel's stint on the board lasted only five months. Although he was cleared of any wrongdoing, he resigned after the Justice Department and the FHLBB investigated his first official act: a motion that would have specifically benefited Keating by exempting Lincoln from direct-investment limits.

Lawrence Taggart. The top thrift regulator in California in 1983 and 1984, Taggart allowed Keating to transfer $800 million in Lincoln's assets to high- risk investments. A month later he resigned from the government to become head of a Keating-controlled enterprise, TCS Financial Inc. Immediately Keating poured nearly $3 million into the business, wiping out the debt of the financially ailing firm. A friend of then FHLBB head Edwin Gray, who became his bitter enemy, Taggart wrote to Don Regan in 1986, calling Gray a "re- regulator" who was having a "very adverse impact on the ability of our party to raise needed campaign funds."

Though Keating's refusal to testify brought last week's hearing to an anticlimactic end, the scandal will soon be revived in other forums. The Senate ethics committee has hired an outside investigator to probe the Keating Five, and the FBI is now in on the investigation. Years may pass before the books are finally closed on this fiasco -- and decades before taxpayers are finished paying the tab for it.