Charles Keating scandal proves Supreme Court is dead wrong on money

What a fantastically ironic coincidence that on the same day the Supreme Court struck down a law limiting campaign contributions because money does not automatically corrupt politicians, we received news of the death of Charles Keating, the very poster boy for the corrupting influence of money on elected officials.

Today in his opinion for the majority in the case pitting an Alabama businessman and the Republican National Committee against the Federal Election Commission, Chief Justice John Roberts reiterated the court’s appalling view that money is the equivalent of free speech, and Congress has no business imposing limits on speech.

But Justice Stephen Breyer rightfully warned in his dissent that allowing nearly unlimited political contributions essentially denies real free speech to the majority of citizens who do not have special access to politicians because they do not give money.

“Where enough money calls the tune,” wrote Breyer, “the general public will not be heard.”

So how does this sort of thing work in practice? The Keating scandal is instructive.

Keating, who died at 90, was a Phoenix-based home construction magnate (and former anti-pornography crusader) who in 1984 purchased the Irvine-based Lincoln Savings & Loan, a stodgy old thrift that had half its assets in home loans.

Taking advantage of the deregulation of the savings and loan industry, Keating used Lincoln to engage in a 5-year orgy of speculative investing – real estate, junk bonds and other risky instruments – as he sucked out investors’ cash to finance his high-flying lifestyle.

Tellers and managers at his thrift persuaded thousands of mostly elderly investors to ditch their government-insured certificates of deposit and unwittingly put their life savings into uninsured junk bonds issued by Lincoln’s parent company, American Continental Corp. Lincoln’s salespeople were told to foist the bonds off on customers who were “weak, meek and ignorant.”

When the thrift failed in 1989, more than 20,000 of those customers had lost some $256 million. Lincoln’s failure eventually cost the government – well, taxpayers – $3.4 billion. Keating was convicted of swindling customers and raiding his thrift. But after serving 4 1/2 years in prison, his conviction was overturned on a technicality related to jury instructions. Facing a new trial on federal charges, he pleaded guilty to wire and bankruptcy fraud, and was sentenced to time already served.

But before it all went south, when regulators began to turn up the heat on Keating, he did what any crooked businessman who had given $1.3 million to five senators would do: He called them up and demanded they pressure regulators to back off.

To their credit, the senators refused to intervene, telling Keating it would be wrong to insert themselves into government investigation on behalf of a political donor. Ha ha ha! Just kidding!

The four Democratic senators and one Republican senator snapped to attention.

The Democrats were Alan Cranston of California, Dennis DeConcini of Arizona, John Glenn of Ohio, and Don Riegle of Michigan. The only Republican was John McCain of Arizona, later the 2008 Republican presidential nominee.

(When McCain initially told Keating that he would not intervene on his behalf with regulators, McCain would later testify, Keating called the former Navy flier who had spent more than six years as a prisoner of war in Vietnam a “wimp.”)

But the senators all did meet with regulators. One gathering took place in April 1987 in DeConcini’s Washington office. “We wanted to meet with you because we have determined that potential actions of yours could injure a constituent,” DeConcini was reported to have said at the meeting’s start.

It would be another two years before the thrift would collapse, and it was during this period that many unwitting investors were coerced into buying the uninsured bonds that would result in massive losses.

What would have happened if the senators had refused to meet with regulators on Keating’s behalf, or had urged them to force the thrift to comply with rules governing risky investments?

The senators, who became known as the Keating Five were tarnished by the Senate Ethics Committee’s ensuing corruption investigation. In 1991, the committee found that Cranston, DeConcini and Riegle had improperly interfered with federal regulators, though only Cranston was formally reprimanded. All three served out their terms and retired. Glenn and McCain, both of whom would later run for president, were found only to have used “poor judgment.”

McCain has often said that getting involved in the matter was the “worst mistake of my life” and that the questions raised about his ethics during the subsequent Senate investigation were more difficult than the torture he endured in Vietnam.

But Charles Keating knew exactly what he was buying with his political contributions.

“One question, among many raised in recent weeks, had to do with whether my financial support in any way influenced several political figures to take up my cause,” Keating said in 1989. “I want to say in the most forceful way I can: I certainly hope so.”

Why is that dynamic so difficult for the Supreme Court to understand?

More from Robin Abcarian

robin.abcarian@latimes.com
Twitter: @robinabcarian