S&L Regulator: Senators' Pressure Led to Greater Lincoln Losses
WILLIAM M. WELCH
Dec. 06, 1990
WASHINGTON (AP) _ William K. Black, a blunt-spoken savings and loan regulator, once prompted financier Charles H. Keating Jr. to write, ''Kill him dead.''
Lawyers for the so-called Keating Five senators didn't go that far, but they clearly were unhappy with Black's testimony today and Wednesday before the Senate Ethics Committee.
Black offered the most dramatic and damaging testimony so far in the panel's hearings into allegations that the senators improperly intervened with S&L regulators on behalf of Keating, a big financial contributor.
Black, a red-bearded senior attorney with the federal government's thrift regulatory agency, underwent cross examination today by lawyers for the five senators.
He repeated his assertion that political pressure by the senators caused the Federal Home Loan Bank Board to loosen its regulatory control on Keating's Lincoln Savings and Loan, resulting ultimately in greater losses which taxpayers must now cover.
He blamed the senators' pressure for the decision by top regulators to take San Francisco-based regulators off the examination of Lincoln, which he said would have disclosed phony transactions and a ''tax-sharing scam'' that sent false profits to Lincoln's parent company.
''This is the most likely explanation for this completely unprecedented and grossly improper action of halting the examination that would have blown all of these thing so wide open,'' Black said.
The committee disclosed Wednesday it had voted to grant limited use immunity to compel the testimony of James Grogan, the former top aide and lobbyist for Keating.
The panel met in private for two hours today, and afterward said Grogan would produce subpoenaed documents in an executive session next Wednesday and undergo questioning in executive session on Monday, Dec. 17.
The new schedule will extend the public hearings, now in their 13th day, and leave the date of their conclusion further in doubt - perhaps pushing them beyond the first of the new year.
Committee Vice Chairman Warren Rudman, R-N.H., said Grogan would be questioned in public after the executive sessions. The senators under investigation will be questioned in public session after Grogan's appearance, Rudman said, but delays could push that beyond Christmas.
Black, in his first day on the witness stand, supported earlier testimony that the senators pressured regulators to help Keating's Lincoln Savings and Loan.
And he raised new allegations, saying that pressure by the senators prompted the Federal Home Loan Bank Board to delay and relax regulatory controls on Irvine, Calif.-based Lincoln, which subsequently was taken over by the government.
The result, Black said, was greater losses - which taxpayers eventually must bear - than otherwise would have occurred.
''This ... is probably the worst institution in America, and instead of people trying to help bring it under control, five U.S. senators were pushing us in the opposite direction,'' he testified.
None of the five senators was present for Black's testimony. Besides Cranston, they are Republican John McCain of Arizona and Democrats Dennis DeConcini of Arizona, John Glenn of Ohio and Donald Riegle of Michigan.
Keating had targeted Black as a problem to be eliminated long before.
The Ethics Committee released copies of a memo Keating wrote to Grogan, his lobbyist, on July 15, 1987, making clear he wanted Black removed. In it, Keating referred to the then-House Speaker Jim Wright, D-Texas, as an ally.
The memo began: ''Highest Priority - Get Black,'' with the last two words underlined.
''Good Grief,'' Keating wrote. ''If you can't get Wright and Congress to get Black - kill him dead - you ought to retire.''
Throughout Black's testimony, the defense lawyers objected, paced, stammered and complained.
''Innuendo,'' said James Hamilton, attorney for DeConcini. ''... Reckless and irresponsible.''
''What this witness testified to are not facts,'' said Taylor, Cranston's attorney.
The lawyers tangled with the committee's special counsel, Robert S. Bennett, who called Black as a witness. Committee Chairman Heflin settled the dispute in his unruffled drawl, saying: ''Now, he's got wide latitude to address the witness.''
Black said Lincoln operated like a ''Ponzi scheme,'' or financial pyramid dependent on an ever-increasing churning of assets.
Its parent, Keating's American Continental Corp., was no more than a ''shell'' that siphoned dividends from Lincoln and distributed them through inflated salaries to Keating, his family members and associates, Black said.
''We call it a scam,'' Black said. ''I think most people do.''
Keating, the Arizona high-flier who contributed $1.3 million to the senators' campaigns and favored causes, is under indictment in California.
The cost to taxpayers of paying off Lincoln's insured deposits are estimated at more than $2 billion.
Black testified the bank board backed off its tough position on Lincoln in May 1988. After first taking a hard line on May 5, he said, a Cranston aide, Carolyn Jordan, ''called two senior officers at the bank board ... and indicated severe displeasure.''
The board revised its policy, Black said, to let Lincoln make new speculative investments and expand its sale of junk bonds.
''This led to greatly increased losses'' for the taxpayers, he said.