DeConcini & Keating

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This explanation skirts the many questions still surrounding the triangular relationship among Ron Ober's homebuilding company, Charles Keating and DeConcini's supposedly unrelated actions on behalf of Keating.

DeConcini aides dismiss such talk. They offer the standard political line that DeConcini should be reelected next year because his seniority in the U.S. Senate means clout for Arizona and that the Keating affair is history. They claim Ober's ties to Keating are not an issue with DeConcini because Ober was never charged criminally in the Keating cases.

The DeConcini camp is taking the view that Ober--rather than knowingly entering sleazy deals with Keating--was actually one of the many victims of Keating's ruthless schemes.

"There are hundreds of small businessmen who lost money as a result of having financial dealings with Charles Keating and they are all victims," Maynes says.

Mike Hawkins says there was no way the government or bondholders could prove that Ober or other R.A. Homes executives knew how Keating was handling his end of the transaction.

"I think the reason they couldn't prove that was that R.A. Homes didn't know what Keating's plans were and why they were doing the transaction," Hawkins says.

But Michael Manning, the RTC's top lawyer in the government's $1.5 billion civil suit against Lincoln Savings, says Ober was lucky to get out of the legal thicket. He credits Hawkins, who was nominated for U.S. attorney by DeConcini, for circling the wagons around Ober early in the legal proceedings.

"His attorney was very astute in getting him out early, because I think his attorney probably recognized the degree, the level of his exposure," says Manning.

Ober's Continental Ranch deal with Keating in September 1986 was the biggest transaction, but hardly the first. They'd been doing business deals since at least 1985.

At the same time, DeConcini had been actively supporting Keating in his battle against federal regulators who were trying to place restrictions on how savings and loans invested federally insured deposits. Keating was upset because when he purchased Lincoln Savings on February 22, 1984, for $51 million, it was a California-chartered thrift that had no restrictions on how federally insured deposits were invested. But suddenly, regulators were trying to tell him how to run his business.

Edwin Gray, then-chairman of the Federal Home Loan Bank Board, which oversaw the nation's thrifts, believed thrifts like Keating's Lincoln Savings were threatening to bankrupt the nation's insurance fund by heavily investing insured deposits in wildly speculative deals in undeveloped real estate, junk bonds and stocks.

Prior to Keating's purchase of Lincoln Savings, the thrift was a traditional home-mortgage lender. Within a year, Lincoln only issued a handful of home loans, most of which went to Keating family members and other corporate insiders. Instead of home mortgages, Keating began investing the thrift's deposits into speculative real estate deals and Wall Street.

But in May 1984, Gray proposed rules that would greatly curtail Lincoln's operation by limiting the amount of direct investments a thrift could make to 10 percent of the thrift's total assets. If this rule went into effect, Lincoln Savings would have to unload millions of dollars' worth of real estate, stocks, bonds and other speculative investments. The investment rule change would have dried up Keating's cash cow that fueled his buying and trading mania.

Keating attacked Gray at every opportunity, using high-powered lawyers, lobbyists, public relations firms and political contributions to key members of Congress, including DeConcini, to fight his battle. The stakes increased in January 1985 when Gray convinced the other two members of the Federal Home Loan Bank Board to impose the 10 percent direct-investment rule. The same month, DeConcini introduced a bill that would delay implementation of the investment rule for a year.

But the investment rule stayed in place, and Keating had to adopt a new strategy. By August 1985, Keating enlisted the powerful Washington, D.C., law firm of Akin, Gump, Straus, Hauer and Feld to devise a scheme to weaken Gray by placing a Keating puppet into a vacant seat on the three-member bank board.

The firm developed a blueprint that was put into action. Soon, favorable stories about Keating and unflattering ones about Gray began appearing in prominent publications like the American Banker and the Wall Street Journal. Key congressional members began attacking Gray with hostile questions, often provided by Keating's attorneys, at every opportunity.

Keating kept up the pressure personally, firing off letters to the Reagan White House, including a hostile note dated July 1, 1986, to Chief of Staff Donald Regan. "The Federal Home Loan Bank Board under Edwin Gray is Nazi and diametrically opposed to everything your administration stands for," the letter read.

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John Dougherty
Contact: John Dougherty