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Just What Phoenix Needs

In his seventies, Maurice "Biff" Niehaus of Cincinnati found an exciting new career. He had been a lawyer, then a state senator, then a judge. Last year, he became a "news distributor" of horror stories about his old chum Charlie Keating.

The law of supply and demand was at work in downtown Cincinnati. Keating, a native Cincinnatian who had moved to Phoenix in the mid-Seventies but who was still a huge name in his hometown, was hot copy as his financial empire was crumbling under federal pressure.

Luckily, Biff Niehaus had a daughter living in Phoenix. When Keating's world started ripping apart in the spring of 1989, Biff's daughter started shipping newspaper clippings to Cincinnati. The retired judge started spreading the word among his cronies.

"We all have access to copy machines, and it's interesting reading for people who know him," Niehaus says. "Nobody around here knew anything about this until they saw some of these Phoenix Gazette and Arizona Republic stories."

Oddly, the Cincinnati Enquirer, biggest paper in town, was hardly covering this biggest thrift failure in U.S. history. Well, maybe it wasn't so odd. The chairman of the Enquirer, one of the anchors of Gannett, the nation's largest newspaper chain, was Bill Keating, Charlie's younger brother. There was lots of chumminess between the Keatings and the paper's top management.

When it came to coverage of Keating and other business types, the Enquirer seemed to be of the Hindu persuasion: lots of sacred cows.

But there was more than reverence going on.

Top management at the paper had long suppressed news about Charlie Keating. Publisher John Zanotti made decrees concerning Keating coverage and Zanotti's underlings often invoked his name during the squelching or manipulation of Keating news and other business stories, former Enquirer business editor John Morris tells New Times.

Why should anyone in Phoenix care about a Cincinnati newspaper's coverage of Charlie Keating? Last month, John Zanotti became the publisher of the Arizona Republic and Phoenix Gazette.

He moved from a newspaper that has received widespread criticism for its milquetoast coverage of the Keating case to a paper that recently won a national award for its aggressive reporting of Charlie Keating's activities. The Keating story is bigger news than ever in Phoenix, considering the still-smoldering ruins of the local real-estate market and thrift industry. Readers want to know how it all shakes out.

It's not as if the Arizona press regularly does an outstanding job reporting on business topics. It took out-of-state reporters--like Jonathan Laing in Barron's--to tell us in 1988 why our local economy had just gone bust. The mostly moribund Republic was late getting to the Keating story--other newspapers' stories in 1986 about Keating's fights with federal regulators could have been reprinted in the Republic, but they were spiked by editors. These days, however, the Republic is trying to do a thorough job covering Keating.

But, what is it like to live in a city where a vitally important news story is suppressed?

The lawyers, judges and business people of Cincinnati were fascinated with the Keating drama being distributed by Biff Niehaus.

"Some of these stories were pretty funny," recalls Niehaus, who decades ago worked in the same law firm as Charlie Keating and who now works as corporate counsel to a Cincinnati thrift. "I mean, Charlie was known as Straight-Arrow Charlie, and the one about the beautiful girls being personally interviewed by him--the wildcats around town got a big kick out of that. He personally interviewed every young lady and paid her $100,000 for stenographic work. They got a big kick out of that. Especially the judges."

It was a national story with hot Cincinnati angles. Big salaries for beautiful people. Junk bonds and junk real estate. Ohioans taking a financial bath after investing in Keating ventures. All of it revolving around Keating's California thrift called Lincoln Savings and Loan amid charges of inappropriate interference by the Keating Five senators--Ohio's John Glenn, Arizona's Dennis DeConcini and John McCain, California's Alan Cranston, and Michigan's Donald Riegle.

"You know how it is when people know something like that," Niehaus says. "`Hey, Maury, you've been reading that stuff. Would you make a copy of that for me?' And they in turn give it to somebody else. It's like I'm a distributor for everybody."

The Enquirer's noncoverage of Keating wound up getting national attention. Negative attention. The paper was publicly hammered for being meek in covering business news, for protecting corporate interests from negative publicity.

The Republic's coverage of Keating also got national attention: the prestigious Headliner award. The guy directing the coverage is a finalist for Arizona Journalist of the Year. After years of flaccid stories about Keating and other business people--while they were taking Arizona's economy straight to hell--the Republic is starting to tell the public what's going on, at least on this story.

 

In journalism, timing is everything and irony can be intense.

A Keating yarn suppressed by the Enquirer in December 1988--a telling vignette about Keating's glee after besting federal regulators the previous spring--became a blockbuster when the Arizona Republic reported it a year later, in December 1989. And it was a major part of the Republic's winning package of stories submitted for the Headliner award.

This vignette was not just a piece of color for a drab story. The party occurred in May 1988, right after Keating had finally succeeded in getting federal regulators to back off. Congress is still investigating how much help he got from the Keating Five, to whom he had given considerable campaign money. No wonder Keating was celebrating.

Two years later, the feds have seized his businesses and Keating is no longer celebrating. But others are. At a banquet last Wednesday, the Republic's seven reporters on the Keating story received Silver Ingot awards--their company's highest honest honor. Fittingly, the banquet was held at the Crescent Hotel, which the federal government has seized from Charlie Keating. It was the first time the Republic's investigative reporters met their new publisher, John Zanotti.

THE NICKNAME "SKIPPY" doesn't mean that John Zanotti is another Dan Quayle. No, he's a smart, well-spoken businessman and a confident, courteous 41-year-old yuppie-looking lawyer who was the best publisher in the biggest newspaper chain in the country.

In the Gannett world, he was a star of circulation and ad revenue. In April 1988, he was named the chain's publisher of the year. That December, Gannett named him Manager of the Year and gave him $5,000. Those awards aren't handed out for news coverage. And they mean something in that hard-driving chain of papers.

Last year, the Pulliam family, owner of daily newspapers in Phoenix and Indianapolis, took their company semipublic, and industry observers criticized them for having a rather ancient management team. Zanotti solves that problem. He's the new breed of publisher. No scion of a newspaper family, he's trained as a lawyer, not a journalist.

"I think it's a very good choice," says Howard Rosencrantz, a securities analyst at H.D. Brous in Great Neck, New York, who follows the papers' parent company, Central Newspapers, Inc. "He's a young guy, and he's recognized throughout the industry for his financial control. He has a very, very strict bottom-line orientation. I think it's a very big positive."

Zanotti leaves behind him in Cincinnati a sterling reputation in the business community, according to Chamber of Commerce spokesman Roger Ruhl. He was a trustee of the chamber, a member of that city's version of the Phoenix 40 big cigars and, like most Gannett publishers, he was ardent about civic and charity work.

Zanotti stayed in the background during the controversy over the Enquirer's coverage of Keating and other business stories. In and out of the newsroom, it was editor George Blake who took the heat and defended the paper.

Blake sang love songs to his staff about Bill Keating's honesty and integrity and kept his name out of stories. Blake defended the paper against allegations of unhealthy connections with the Keatings--for example, the fact that one of the law firms used by the paper was founded by the Keating brothers and employs Bill Keating Jr.

From all accounts, it would seem that Zanotti will stay in the background in Phoenix, except in the business community. He is unlikely to try heavy-handed arrogance and persuasion on politicians, as did his Phoenix predecessor Duke Tully. And he's even less likely to publicly harpoon politicos, as another predecessor, Pat Murphy, did when he called Ev Mecham's administration "a brutish, ideological juggernaut." Zanotti is likely, however, to play racquetball with local business types. That's a good business tack and it's harmless, as long as a publisher doesn't compromise his paper's independence by bending stories to please those business friends.

Unlike some other publishers, John Zanotti doesn't pretend that he's on good terms with the rich and powerful. He really is. In August 1988, in a story in U.S. News & World Report about America's billionaires, there was a little photograph by famous paparazzo Ron Galella of megafinancier Carl Lindner of Cincinnati at a New York social event with a happy, young-looking guy identified as Cincinnati Mayor Charles Luken. The magazine goofed. It wasn't Luken. It was John Zanotti.

Lindner is a junk-bond expert who gave Charlie Keating his start as an entrepreneur and bought the Cincinnati Enquirer in the mid-Seventies, installing then-Congressman Bill Keating as publisher. (When Lindner sold it to Gannett, Bill stuck around. Recently, he's headed the combined operations of two giant dailies in Detroit, while serving as chairman of the board of the Associated Press, the newspaper cooperative that is the world's largest news-gathering organization. Last week, Bill decided to go back to Cincinnati to succeed Zanotti.)

 

Lindner also bankrolled Phoenix's own Karl Eller, chairman of ailing Circle K Corporation, which is headquartered here.

Eller's Circle K is dying on the vine, and Lindner, who owns more than a third of it, has already stepped in to try to rescue it.

What will the coverage of that attempt be like in the Phoenix dailies given that Lindner and new publisher Zanotti are social friends from Cincinnati? Will the Republic investigative team still be allowed to work on the Keating story? Zanotti refused numerous requests by New Times to be interviewed for this article.

HERE'S WHAT HAPPENED in Cincinnati.

On top of everything else, Carl Lindner has been one of the biggest users of junk bonds, those high-risk securities used by corporate raiders. He was one of the biggest customers of fallen junk-bond kid Michael Milken of defunct brokerage house Drexel Burnham Lambert. Perhaps that's why John Morris' bosses at the Enquirer, according to Morris, told him to stop referring to junk bonds as "high-risk."

"Zanotti's theory was that junk bonds were not dangerous in the right hands," says ex-business editor Morris. "That was his view [relayed] through Blake. Mine was they're inherently dangerous." Morris laughs as he recalls that he was told "to run the definition of junk bonds from the Drexel brochure."

That is not standard newspaper practice. However, it is a good way to try to convince newspaper readers who may be thinking of investing that junk bonds aren't high-risk.

Lindner's name popped up again at the Enquirer in another case of news manipulation. In the late 1970s, Lindner and Charlie Keating were accused by the Securities and Exchange Commission (SEC) of fraudulently diverting millions of their company's assets. They signed a consent agreement with the SEC in 1979. They did not admit guilt, but Lindner agreed to pay his own company $1.4 million. Charlie Keating would say the public controversy over this later cost him a spot as Ronald Reagan's ambassador to the Bahamas. That's what "bad publicity" can do to you.

Ironically, a story about the SEC agreement was splashed on the Enquirer's front page at the time by then-publisher Bill Keating. Reporters praised Bill Keating's decision to do so.

A decade later, times had changed at the Enquirer.

Morris, who was business editor in 1988-89, says publisher Zanotti ordered that the Enquirer would no longer mention the SEC consent agreement as background information in Keating stories. This kind of blanket ruling is unusual on papers.

Morris is free to speak his mind because he was forced out at the Enquirer. "I was not a team player," says Morris. "I could not be on a team that suppressed news so widely." Now he is manager of media relations for a General Electric facility in Cincinnati.

Before his time at the Enquirer expired, he resigned, taking a second to blast his bosses. "Management's widespread suppression of the news--for example, stories that are not upbeat about downtown, retailing or realtors or that criticize junk bonds, as well as the past-burying or spiking of Charles Keating stories--makes it impossible to do an honest job in reporting the news," Morris wrote to editor George Blake last December 22.

Sour grapes? Many reporters in Cincinnati agree with Morris, even some people who think he often was too chicken to stand up to his bosses. And Morris' comments helped spark stories and a seminar about the Enquirer's coverage of business news.

Many readers agreed, too. When the Keating saga moved into Congressional hearings and hit network TV earlier this year, the story got too big to ignore. And the Enquirer itself became a story.

Letters to the editor started appearing in the Enquirer complaining about the paper's lack of coverage of Charlie Keating. "That wasn't news to me," says retired judge Biff Niehaus. "I'd known about it. It didn't take somebody's letter to the editor to tell me that it wasn't appearing here.

"There were a lot of letters to the editor about how everybody found out about this everywhere but in our local newspaper. It wasn't until it broke in Washington that there was any news in Cincinnati. No one knew about it except for us people who had contact with Phoenix."

Late last year the Enquirer's coverage of Keating started to get national notice. Newspapers in Cleveland, Detroit, and Saint Petersburg, Florida, ran stories about accusations from within the paper and among other Cincinnati journalists that the paper was suppressing Keating coverage and generally was meek about reporting on other business topics. This past January, the Columbia Journalism Review, a sober national magazine of the journalism business, blasted the Enquirer for deleting the name Keating from a story about the fall of Lincoln Savings.

 

Cincinnati journalists, including some from the Enquirer staff, convened an unusual meeting in February of the local chapter of the Society of Professional Journalists: Its purpose was to confront Enquirer management with allegations that Keating stories were being suppressed and negative business news generally was being squelched.

George Blake stoutly defended his paper at the meeting. In particular, he defended his deletions in reporter Mark Braykovich's December 1988 story about Charlie Keating's raucous party--you remember, the story that helped win an award for the Arizona Republic.

THE BRAYKOVICH EPISODE is the kind of newsroom saga that makes reporters reach for the antacid. All the reporter was trying to do was a lengthy profile of Keating. He was refused an interview, but he did manage to find out about this celebration of Keating's the previous May. And he had some interesting, up-to-date information on the status of Keating's empire.

Charlie Keating was intensely curious. "He didn't want a story published at all, and if it was going to be published, he wanted to make sure it wasn't negative," Keating's spokeswoman at the time, Patricia Johnson, tells New Times. Johnson says Keating told her to call Marty Flanagan, assistant to Enquirer publisher John Zanotti, to try to find out what was in Braykovich's upcoming story. Keating gave her Flanagan's home phone number to make sure Johnson would reach her. Flanagan had been Charlie Keating's secretary from 1960 to 1973.

When asked whether Patricia Johnson had contacted her, Flanagan tells New Times, "I don't think I recall that."

Keating was not granting interviews to reporters at the time, according to Johnson. But Enquirer editor George Blake obtained one. Blake recorded the interview, handed the tape to Braykovich and told him to rewrite the story.

The vignette about the raucous party that led off the story was killed by Blake, the editor has freely acknowledged. (He did not return calls for this article, but New Times obtained a tape recording of the journalism seminar in Cincinnati.)

Blake explained his actions this way at the seminar: "I killed the vignette not because of the fact that I didn't believe the vignette so much as the fact that I didn't think that that story called for a vignette lead. I thought it called for a harder news edge . . . "

Braykovich's original beginning, according to copies of both versions obtained by New Times: "A champagne bottle smashes through the second-story office window. A short time later, a computer, desk chairs and an assortment of other office furniture follow the same path as the bottle, crashing to the ground below. Charles Keating Jr. is, in the truest sense of the word, throwing a party." The original version's fifth paragraph says: "The party--and the brutal fight against the feds--typify the former Cincinnatian who has become a legend in the nation's financial circles and a thorn in the side of regulators. In a career that has never strayed far from controversy, the lanky and gregarious chairman of Phoenix-based American Continental Corp. somehow manages to keep stirring up new ones."

The rewritten version starts out this way: "Charles H Keating Jr. doesn't want to come across as confrontational. He would prefer to stay away from controversy. And he'd rather not tussle with federal regulators."

Right.

Other changes also were made in Braykovich's lengthy profile of Keating, many of them toning down a story that wasn't hysterical to begin with. Naturally, a background paragraph--appropriate for a deep profile--about Lindner and Keating and the SEC agreement was deleted. And a sentence that originally said: "There also is some betting, however, that Keating will again win out," was changed to: "No matter what the controversy, there are many willing to bet that Keating will again win out." "Some" to "many." The phrase "Keating's corporate vision" in the original was changed to "Keating's energetic corporate vision."

In a brief section about Keating's lavish Phoenician resort, Braykovich originally said, " . . . the issue [of the resort's possible success because of a glutted market] is worrisome to regulators since Lincoln depositors are footing 55 percent of the bill and, should the project fail, they wonder what impact that would have on the institution . . . ." The reworked version said, "The Phoenician is being watched by regulators because Lincoln depositors are footing 55 percent of the bill." "Worrisome" to "watched."

Braykovich was upset by the changes, especially the deletion of the vignette about the raucous party. In an internal memo to his editor, John Morris, before the story was to run, Braykovich asked that his byline be removed. The memo, obtained by New Times, says in part: "By agreeing to delete a portion of the story--namely, the lead vignette--in return for an interview of the subject of the article, I believe we undermine the integrity of the article and the Cincinnati Enquirer. The decision to do so was not mine, and I do not hesitate to say that I would have never made any such agreement." Braykovich's request was refused. Blake has denied that he took out the party vignette in exchange for an interview with Keating.

 

The Enquirer has a tradition of suppressing bad news about specific businesses, several journalists publicly have charged. "I've never worked in a place where so many stories were killed," says one Enquirer reporter who requested anonymity.

Blake, however, has strongly denied that. Speaking to reporter Dan Shingler of the Cincinnati Business Courier last January, Blake said, "We've had a number of staff meetings, and we came to the conclusion that the only two sacred cows are fairness and accuracy."

RETIRED JUDGE Biff Niehaus' new career may be ending. The Enquirer itself is reprinting Republic stories about Keating--one just turned up on the front page a couple of Sundays ago. So there's no longer a pressing need to import the news from Phoenix. But Niehaus remembers the chagrin some of his friends felt last year during the almost-daily revelations imported from Phoenix. There were quite a few Ohioans who had invested money in Keating's ventures. They hadn't read about the tremendous controversy.

"They didn't hear about the bad part of it," says Niehaus. "They heard about him being one of the biggest bankers and all that stuff. You know, `Hometown boy makes good.' And they all knew how sharp he was. He's sharp. He's not brilliant. He's sharp. Everybody knew that and we all knew he'd walk in where angels fear to tread. Like the Donald Trumps and all that."

In spite of the local interest, George Blake told his fellow journalists that he didn't consider the Keating story a "local" story for Cincinnati. He considered it "an Arizona story." But reporter Bernie Shellum of the Detroit Free Press reported on December 27, 1989, that "some brokers [in Cincinnati] who touted Keating's bonds are going out of business and TV stations there have been running daily accounts of retirees who have lost their life's savings in the wreckage of Lincoln Savings."

Other papers in Ohio were trying to kick butt on the story. Many Cincinnati journalists have said the smaller Post was beating the pants off the bigger Enquirer. Bernie Shellum points out that the Akron Beacon-Journal broke the story in December 1989 that at least eighty Ohioans, mostly in Cincinnati, had bought American Continental bonds and securities. These revelations from out-of-towners are embarrassing to local journalists, but it's worse for readers. Who's going to drive to Akron to pick up a paper or go to the trouble of spending hours in the library reading out-of-town newspapers?

That's why local business sections are important.

"Any newspaper should have a business section that is aggressive and provocative," says John Morris, "because only by stimulating the readers and not massaging them can you help change things for the better. . . . A business section has a responsibility to be very supportive of the area's business environment, but with individual businesses the relationship would be at arm's length. The relationship should be friendly rather than antagonistic. It should be fair, but it should not be friendly toward a business. There's a big difference there."

Morris adds, "Some business people in Cincinnati seemed to think that the business section was to be used as a company newsletter."

Reporter Bill Sloat, who covers Cincinnati for the Cleveland Plain Dealer, says he has high regard for George Blake, and so he doesn't understand why there have been problems with the Enquirer's coverage of Keating and other business controversies.

"When George Blake was an editor in Florida, he used to be able to smell a swamp peddler coming," says Sloat. "That's like a basic skill in Florida journalism. You can spot a swamp peddler a mile away. For some reason, he has not exercised those instincts here."

A DAILY NEWSPAPER'S business pages are the most controversial and, at the same time, often the dullest. It's the area of the newspaper where the motives of advertisers and reporters clash most often. Facts, if they're negative, can hurt business. It's one thing for a politician to complain about negative publicity. It's another for a giant retail advertiser to complain. The potential loss of revenue is huge. A full-page ad in the Republic, one shot, costs more than $14,000.

 

If the Enquirer has sacred cows, it wouldn't be the only paper with them. The Republic business section has had its share of puffery over the years directed at business people like Pinnacle West's Keith Turley, Western Savings' Gary Driggs, and MeraBank's Gene Rice, who turned out to be living in houses of cards.

Forbes magazine wrote in depth about the problems of Western Savings long before any local journalist did. Charles Bowden and Richard Vonier of Tucson's now-defunct City Magazine produced the state's first exhaustive profile of Keating. That was in 1988.

A question is: Will the Phoenix dailies' comparatively new aggressiveness in covering the Keating story continue?

In the Republic story of last December on Charlie Keating, the reporters quoted a March 1989 memo to American Continental employees by Keating son-in-law and vice president Robert Hubbard, warning the employees to beware of reporters' "insane quest to destroy [American Continental] or [Charles Keating]." The memo, according to the Republic, also said an "out-of-control newspaper can be cruel in its disregard of a person's rights."

Enquirer reporters know of that memo, but it's never shown up in their paper.

Besides Keating and the current situation of Zanotti's friend Carl Lindner stepping in to try to save Phoenix-based Circle K, there are plenty of other important business stories out here. The number of stories about financial problems in Arizona's savings and loan industry is likely to rise. Why? There will be more scrutiny. A little item deep inside the Republic last Thursday noted that the U.S. Department of Justice will beef up its investigation of fraud in the Arizona thrift industry by adding ten staff members by May.

Another recent story pointed out that the Apache helicopter has problems flying in the rain. McDonnell Douglas, which makes the choppers in Mesa, is a major Valley employer. For whatever reason, previous problems with the Apache, which is a costly Department of Defense project, haven't been explored in depth in the Republic. The Los Angeles Times has, however, covered those problems. Will the Republic, like a good daily newspaper, take on this topic?

Will the Republic staff be encouraged to explore these and other business stories? When Gene Rice finally got booted out of MeraBank earlier this year by the feds, he rated a warm, twinkly story in the Republic business section. Most other local captains of industry have escaped in-depth reporting by the Phoenix dailies. Will that malign neglect continue?

John Zanotti not only wouldn't grant an interview with New Times, he wouldn't even return calls to say, "No!" In an impromptu interview at the R&G's parking garage last week, while security guards hovered around him to protect him from a reporter, Zanotti refused to answer questions, saying, "I have questions about your publication, your agenda. . . . I have questions about what your publication does. You write to a different audience." The reporter neglected to point out that most people in Zanotti's newsrooms read New Times, if only to look at the romance ads.

During the brief conversation, Zanotti was told that his response to questions was being requested because "people in Cincinnati say you played a role in suppressing coverage of stories about Keating and other business topics." Zanotti's reply: "That's great. You let them tell you anything they want."

Zanotti referred questions about his "role in news coverage in Cincinnati" to George Blake. Zanotti then was asked: "Well, did you have a role in news coverage? Are you saying you never did?" He replied, "Well, sometimes. I can't talk to you today. I'm looking at a house."


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