Keating Pressured State Officials to Lay Off, Memo Says

SACRAMENTO —  Complaining that California regulators were being too tough, Charles H. Keating Jr. personally met several times from 1985 to 1988 with top Deukmejian Administration regulators in an attempt to get them to ease up on his faltering thrift, Lincoln Savings & Loan.

The meetings were part of a campaign by Keating and his associates to exert pressure on state officials at a time when state regulators were trying to clamp down on Lincoln’s high-risk investments and federal officials were taking the first tentative steps toward an eventual takeover of the savings and loan.

When Keating failed to get his way in Sacramento, Lincoln tried to get the state savings and loan commissioner and his top deputy fired, according to a February, 1988, memo prepared by the Federal Home Loan Bank Board’s San Francisco office.

“We just felt the heat at the back of our necks,” state Savings and Loan Commissioner William J. Crawford said on Thursday, referring to his meetings with Keating. But Crawford said he had no knowledge of attempts to fire him.

Keating also sent the governor’s top fund-raiser, Los Angeles attorney Karl Samuelian, to meet with Crawford in early 1987 “to lobby on behalf of Lincoln,” according to the memo. Samuelian was hired to represent both Lincoln and and its parent company, American Continental Corp. The meeting occurred shortly after Deukmejian’s successful 1986 reelection campaign, to which Keating and his associates contributed nearly $200,000.

The governor has previously said that he met Keating only once, at a luncheon during the campaign. Deukmejian said he had no knowledge of what Keating was seeking from state regulators.

Deukmejian’s press secretary, Kevin Brett, said Thursday that neither Keating nor Samuelian met with the governor’s personal staff to discuss Lincoln’s difficulties. Brett said he was not aware of any effort by Lincoln officials to have Crawford fired. “If there were, it was obviously unsuccessful, because Bill Crawford is on the job.”

Keating, a blunt-talking Arizona business executive, was chairman of Lincoln’s parent company, American Continental, which declared bankruptcy in April of this year. The day after the collapse of American Continental, federal regulators took control of Lincoln--an action that may cost the nation’s taxpayers more than $2 billion, the largest bailout ever of a savings and loan.

Despite the objections of Crawford and his staff, the State Department of Corporations approved the sale of more than $200 million in high-risk bonds by American Continental. The bonds were sold through Lincoln branches to about 22,000 individuals, many of them retirees who now stand to lose all their investments.

In addition to the sale of bonds, Crawford said on Thursday that he was concerned with Lincoln’s heavy reliance on land purchases and other risky investments almost from his first day in office. Within months of taking over the post in February, 1985, Crawford said he had his first of three or four meetings with the Arizona-based financier.

In those meetings, Keating argued against plans by Crawford and his top deputy, William D. Davis, to limit the thrift’s reliance on shaky investments, the regulators said. The state officials, who are based in Los Angeles, eventually began to question the value and profitability of many of Lincoln’s holdings.

“Keating knew what our attitude was and started appealing to Sacramento,” Davis said.

In February and March of 1988, Keating met with Crawford’s boss--state Business, Transportation and Housing Secretary John K. Geoghegan.

“Keating was complaining about overzealous regulators,” Geoghegan said in an interview. “Crawford was pushing him back. Keating was asking us to approve all his future deals. . . . He wasn’t a guy who belonged in a regulated industry, because he didn’t like people telling him what to do.”

Geoghegan said he did nothing to interfere with the regulators. “First, we don’t have the power to do anything about a decision (by the regulators) and secondly, it’s my philosophy not to interfere,” he said.

The meetings with Geoghegan followed an October, 1987, Crawford directive ordering Lincoln to “refrain from future investments in land and land loans and . . . refrain from future construction loans in excess of $500,000,” according to the Federal Home Loan Bank Board memo.

After Lincoln formally agreed to comply with the restrictions, Crawford said, the directive was withdrawn, Crawford said.

Crawford’s attempts to harness Lincoln angered the thrift’s officials. “After the California Commissioner (Crawford) imposed a directive on Lincoln, Lincoln attempted to get the Commissioner and his top aide fired,” the federal memo said.

The federal official who drafted the memo, the bank board’s San Francisco supervisory agent, J. M. Cirona, refused to elaborate on the allegation Thursday.