McCain Profile: The Keating Five (AKA All You Need to Know About the K5 Scandal)

by Dan Nowicki and Bill Muller - Mar. 1, 2007 10:52 AM
The Arizona Republic

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In happier times, there is McCain holding his newborn daughter while his wife, Cindy, smiles from her hospital bed.

But it is an innocent vacation picture that carries the reminder of the scandal that threatened his political career.

In the picture, taken in the Bahamas, McCain is seated on a bandstand while wearing an outrageous straw party hat. Next to him on the dais sits Charles Keating III, son of developer Charles H Keating Jr.

McCain calls the Keating scandal "my asterisk." Over the years, his opponents have failed to turn it into a period.

It all started in March 1987. Charles H Keating Jr., the flamboyant developer and anti-porn crusader, needed help. The government was poised to seize Lincoln Savings and Loan, a freewheeling subsidiary of Keating's American Continental Corp.

As federal auditors examined Lincoln, Keating was not content to wait and hope for the best. He had spread a lot of money around Washington, and it was time to call in his chits.

One of his first stops was Sen. Dennis DeConcini, D-Ariz.

The state's senior senator was one of Keating's most loyal friends in Congress, and for good reason. Keating had given thousands of dollars to DeConcini's campaigns. At one point, DeConcini even pushed Keating for ambassador to the Bahamas, where Keating owned a luxurious vacation home.

Now Keating had a job for DeConcini. He wanted him to organize a meeting with regulators to deliver a message: Get off Lincoln's back. Eventually, DeConcini would set up a meeting with five senators and the regulators. One of them was McCain.

McCain already knew Keating well. His ties to the home builder dated to 1981, when the two men met at a Navy League dinner where McCain spoke.

After the speech, Keating walked up to McCain and told him that he, too, was a Navy flier and that he greatly respected McCain's war record. He met McCain's wife and family. The two men became friends.

Charlie Keating always took care of his friends, especially those in politics. McCain was no exception.

In 1982, during McCain's first run for the House, Keating held a fund-raiser for him, collecting more than $11,000 from 40 employees of American Continental Corp. McCain would spend more than $550,000 to win the primary and the general election.

In 1983, as McCain contemplated his House re-election, Keating hosted a $1,000-a-plate dinner for him, even though McCain had no serious competition. When McCain pushed for the Senate in 1986, Keating was there with more than $50,000.

By 1987, McCain had received about $112,000 in political contributions from Keating and his associates.

McCain also had carried a little water for Keating in Washington. While in the House, McCain, along with a majority of representatives, co-sponsored a resolution to delay new regulations designed to curb risky investments by thrifts such as Lincoln.

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The five senators, including McCain, seemed like a united front to Black.

"They presented themselves as a group," Black said, "and DeConcini is the dad, who's going to take the primary speaking role. Both meetings are in his office, and in both cases it's we want this, with no one going, 'What do you mean we, kemo sabe?'"

According to nearly verbatim notes taken by Black, McCain started the second meeting with a careful comment.

"One of our jobs as elected officials is to help constituents in a proper fashion," McCain said. "ACC (American Continental Corp.) is a big employer and important to the local economy. I wouldn't want any special favors for them. . . .

"I don't want any part of our conversation to be improper."

Black said the comment had the opposite effect for the regulators. It made them nervous about what might really be going on.

"McCain was the weirdest," Black said. "They were all different in their own way. McCain was always Hamlet . . . wringing his hands about what to do."

Glenn, a former astronaut and the first American to orbit the Earth, was not as tactful.

"To be blunt, you should charge them or get off their backs," he told the regulators. "If things are bad there, get to them. Their view is that they took a failing business and put it back on its feet. It's now viable and profitable. They took it off the endangered species list. Why has the exam dragged on and on and on?"

DeConcini added: "What's wrong with this if they're willing to clean up their act?"

Cirona, the banking official, told the senators that it was "very unusual" to hold a meeting to discuss a particular company.

DeConcini shot back: "It's very unusual for us to have a company that could be put out of business by its regulators."

The meeting went on. McCain was quiet. DeConcini carried the ball. The regulators told the senators that Lincoln was in trouble. The thrift, Cirona said, was a "ticking time bomb."

Then Patriarca made a stunning comment, according to transcripts released later.

"We're sending a criminal referral to the Department of Justice," he said. "Not maybe, we're sending one. This is an extraordinarily serious matter. It involves a whole range of imprudent actions. I can't tell you strongly enough how serious this is. This is not a profitable institution."

The statement made DeConcini back off a little.

"The criminality surprises me," he said. "We're not interested in discussing those issues. Our premise was that we had a viable institution concerned that it was being overregulated."

"What can we say to Lincoln?" Glenn asked.

"Nothing," Black responded, "with regard to the criminal referral. They haven't and won't be told by us that we're making one."

"You haven't told them?" Glenn asked.

"No," said Black. "Justice would skin us alive if we did. Those referrals are very confidential. We can't prosecute anyone ourselves. All we can do is refer it to Justice."

After the meeting, McCain was done with Keating.

"Again, I was troubled by the appearance of the meeting," McCain said later. "I stated I didn't want any special favors from them. I only wanted them (Lincoln Savings) to be fairly treated."

Black doesn't completely buy that argument. If McCain was concerned about Keating asking him to do things that were improper, why go to either meeting at all?

Black said McCain probably went because Keating was close to being the political godfather of Arizona and McCain still had plenty of ambition.

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The Keating Five became synonymous for the kind of political influence that money can buy. As the S&L failure deepened, the sheer magnitude of the losses hit the press. Billions of dollars had been squandered. The five senators were linked as the gang who shilled for an S&L bandit.

S&L "trading cards" came out. The Keating Five card showed Charles Keating holding up his hand, with a senator's head adorning each finger. McCain was on Keating's pinkie.

As the investigation dragged through 1988, McCain dodged the hardest blows. Most landed on DeConcini, who had arranged the meetings and had other close ties to Keating, including $50 million in loans from Keating to DeConcini's aides.

But McCain made a critical error.

He had adopted the blanket defense that Keating was a constituent and that he had every right to ask his senators for help. In attending the meetings, McCain said, he simply wanted to make sure that Keating was treated like any other constituent.

Keating was no ordinary constituent to McCain.

On Oct. 8, 1989, The Arizona Republic revealed that McCain's wife and her father had invested $359,100 in a Keating shopping center in April 1986, a year before McCain met with the regulators.

The paper also reported that the McCains, sometimes accompanied by their daughter and baby-sitter, had made at least nine trips at Keating's expense, sometimes aboard the American Continental jet. Three of the trips were made during vacations to Keating's opulent Bahamas retreat at Cat Cay.

McCain also did not pay Keating for some of the trips until years after they were taken, after he learned that Keating was in trouble over Lincoln. Total cost: $13,433.

When the story broke, McCain did nothing to help himself.

"You're a liar," McCain said when a Republic reporter asked him about the business relationship between his wife and Keating.

"That's the spouse's involvement, you idiot," McCain said later in the same conversation. "You do understand English, don't you?"

He also belittled reporters when they asked about his wife's ties to Keating.

"It's up to you to find that out, kids."

The paper ran the story.

In his 2002 book, McCain confesses to "ridiculously immature behavior" during that particular interview and adds that The Republic reporters' "persistence in questioning me about the matter provoked me to rage."

"I don't know how (The Republic journalists) would have reported the story had I been more civil and understanding or just more of a professional during the interview," McCain wrote.

At a news conference after the story ran, McCain was a changed man. He stood calmly for 90 minutes and answered every question.


LOADS more here:

http://www.azcentral.com/news/election/mccain/articles/2007/03/01/20070301mccainbio-chapter7.html

On the shopping center, his defense was simple. The deal did not involve him. The shares in the shopping center had been bought by a partnership set up between McCain's wife and her father. (The couple also had a prenuptial agreement that separated Cindy McCain's finances and dealings from his.)

One thing that Marley and Hensley didn't have-- governmental authority themselves. They had to depend on their friends in government to help them out. But then Hensley got a gift-- his daughter married the former Navy pilot and decorated veteran of the Vietnam conflict, John McCain. Hensley knew right away what to do. According to an article published in 2000 by the Phoenix New Times,

retired from the military in 1980, divorced his first wife, wed Arizona native Cindy Lou Hensley and moved here to plunge into the world of politics. His first job in Arizona was as a public affairs agent for Hensley & Company, one of the nation's largest beer distributors. He was paid $50,000 in 1982 to travel the state, touting the company's wares. But he was promoting himself as much as he was Budweiser beer. A better job description might have been "candidate."

Then in 1982, McCain ran for Congress. That takes some quick money, and McCain had access to it-- thanks to his father in law (whose employees at his liquor distributorship were 'persuaded' to donate thousands of dollars to McCain), and one of Hensley's friends, Charles Keating of the Lincoln S&L (I won't get into the Lincoln S&L scandal here because it is pretty well known by now that McCain was one of the 'Keating Five.') To seal the deal, Jim Hensley and Cindy Hensley McCain invested $359,100 in one of Keating's projects. In fact, when McCain first ran for the Senate, in 1986, even Kemper Marley, through his son Kemper Jr. (who was now running United Liquor-- Marley himself had become politically radioactive) donated money to him.

Cindy McCain said Thursday that she would never release her personal income tax filing even if her husband, Senator John McCain, was elected president. But Federal Aviation Administration records indicate that she appears to be using her personal wealth to help his campaign, through the continued use of her corporate jet.

The New York Times reported last month that during a crucial five-month period Mr. McCain’s campaign regularly used a corporate jet owned by the Phoenix-based beer distributor that Mrs. McCain heads, saving the campaign hundreds of thousands of dollars. His campaign pays rates well below market ones for the plane’s use because of an unresolved exemption in a recent campaign finance law that Mr. McCain backed.