McCain and the Hidden Keating Five!!!

McCain First, Second, and Always

Saturday 01 November 2008

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by: Sahil Mahtani, The New Republic

In this November 20, 1990 file photo, Senator John McCain, R-Arizona (left) sits with his attorney during a Senate Ethics Committee hearing on the Keating Five Savings and Loan Scandal. Carefully timed leaks during the investigation successfully deflected the blame from McCain to his other Senate colleagues. Evidence continues to surface that points to John McCain as the possible source of those leaks. (Photo: John Duricka / AP)

Should he have been expelled from the Senate? Exclusive evidence reveals the Keating Five story you've never heard.

One day in early March 1986, John McCain, an Arizona congressman, sat down to write a letter. McCain had heard that a long-time friend and donor, Charles Keating, was upset for being listed as a member of McCain's campaign finance committee when a more prominent position would seem more appropriate. So McCain apologized. Needlessly it turned out, for "Charlie," as he signed his letter, would reply a few days later: "John, don't be silly. You can call me anything...I'm yours until death do us part."

Three years later, McCain and four other senators would be called to the carpet for this loyalty, which was accompanied by a total of $1.3 million in contributions from Keating. Senators Alan Cranston, Dennis DeConcini, John Glenn, John McCain, and Donald Riegle were being investigated by the Senate Ethics Committee for helping Keating's company, Lincoln Savings and Loan, resist regulators. That lack of regulation precipitated Lincoln's collapse that year - part of the larger savings-and-loan collapse - at a cost of about $3 billion to the federal government.

This episode has been invoked in the current campaign first as a parable against Reagan-era financial deregulation, which McCain supported and which was a significant factor in the collapse of savings and loans institutions; and second, as a reminder that McCain himself was rebuked by the Senate Ethics Committee for "poor judgment" after a 14-month investigation.

Yet the Ethics Committee's was not the only investigation into the scandal. There were two other probes at the time that got barely any public attention - both of which largely focused on McCain himself. These were probes into illicit leaks about the proceedings of the Ethics Committee - leaks that repeatedly benefited McCain and hurt his Keating Five colleagues. One of those senators described the leaks at the time as a "violation of ethical behavior at least as serious as anything of which we senators have been accused."

The leaks, if they were coming from a senator, were also illegal. All five senators - including McCain - had testified under oath and under the U.S. penal code that the leaks did not come from their camps. The leaks were also prohibited by rules of the Senate Ethics Committee; according to the rules of the Senate, anyone caught leaking such information could face expulsion from the body. These, then, were not the usual Washington disclosures: Discovered, they could have stopped the career of any Washington politician in his tracks.

The two investigations into the leaks suggested McCain's involvement but were officially inconclusive. New evidence, obtained in recent weeks, again points back to the McCain camp. The investigator of those leaks now says that he does not doubt that they came from McCain or his team. A reporter who possessed evidence in the Keating case now says he believes that McCain was the source and got away with it. Finally, a senator who has emerged as a key backer of McCain's presidential campaign turns out to have authored a letter stating flatly that McCain was the source of the damning leaks. Put together, a large record of evidence now points in the direction of Senator McCain. Far from McCain's reputation of putting "country first," these leaks depict a formidable politician willing to go through great lengths to maintain his standing. More than McCain's relationship with Keating, it is the story of the Keating investigation leaks that voters should know.

The Senate Ethics investigation into the Keating Five scandal would last over a year, between 1989 and 1991. But before the actual hearings even began, carefully timed leaks featuring information from Committee deliberations - which were secret - began to appear. Committee members were privy to the information that was ending up in the leaks, but so were the five senators and their staffs, who received Committee documents in order to safeguard their due process rights.

The leaks had instant impact. One source close to the case described them as "backfires lit in the beltway press and in the states where the five senators were from." There were nine in all, some correct, some incorrect. Almost all of them - eight to be precise - either exonerated McCain or implicated the other senators.

Essentially, the leaks deflected public attention away from McCain and toward his colleagues. One leak, the week of DeConcini and Riegle's appearances before the Committee in October, 1990, described the probe against them as having "broadened," and accused Riegle, then Banking Committee chairman, of improper regulatory intervention. Neither part was true, yet the leak ricocheted in the press instantly. One headline from the Washington Post blared, "Panel Reveals Riegle-Keating Meetings; Senator Said to Have Maintained Contact After Start of S&L Probe," and another from the Los Angeles Times read, "Panel Action is Seen as Prelude to a Full-Scale Investigation of Sens. Cranston, DeConcini and Riegle." Meanwhile, approval ratings for Riegle and DeConcini began to tank in their home states. Later on, the leaks investigation would conclude that the leak "[could] only be described" as an attempt to "influence the deliberations on DeConcini and Riegle."

Just five days after that October leak, McCain appeared on the Senate floor urging the Committee to recuse him from the rest of the hearings. It was an impassioned speech, laced with references to his Vietnam service. "I do not deserve ... to be strung out for week after week, month after month," he said. The Ethics Committee rejected that argument as undue political pressure, for the first time suggesting that there was an "organized campaign of leaks to gain some advantage for some cause or person to which the leakers are partisan."

There were other leaks. One occurred after McCain appeared before the Committee. Five days later, an article appeared in the Arizona Republic with the favorable headline, "Source: Nothing New Found Against McCain." Also leaked was a letter from Keating's son-in-law thanking DeConcini while expressing disappointment over McCain. In the Keating affair, there existed all manner of documents, some that hurt each senator, and others that helped. The leaked documents reoriented the entire direction of public scrutiny to McCain's benefit.

This reorientation was significant because McCain was in many ways a natural suspect in the entire affair. McCain and Keating had been friends as early as 1981. He was the only senator who took personal gifts from Keating, including nine trips to Cat Cay, Keating's island in the Bahamas. Cindy McCain and her father were also involved with Keating in an Arizona real estate development called the Fountain Square Project. "I always thought McCain had by far the worst case facts," said one senior government official. None of the other Keating Five senators had a close personal relationship with Keating.

Nonetheless, the leaks created "a presumption of guilt" among the others, said one government official. As DeConcini said at the time, "Those leaks were very damaging to me, and yet I did not respond in kind." Cranston, Riegle, and DeConcini retired from political life soon after.

To investigate those leaks, two investigations were convened: one private, by the Senate Ethics Committee and conducted by Clark "Bud" Hall; the other public, by the Senate's Temporary Special Independent Counsel, New York lawyer Peter Fleming. Howell Heflin, the Democratic Senator from Alabama who chaired the six-person Ethics Committee, consisting of three Democrats and three Republicans, took the matter very seriously. A former Chief Justice on the Alabama Supreme Court, he was respected enough to have been on Reagan's Supreme Court shortlist. After the leaks, Heflin was "madder than hell," according to Democratic Senator David Pryor of Arkansas, who was one of the other six senators on the Committee.

In October 1990, Heflin called in the General Accounting Office's Office of Special Investigations, which was staffed by some of the FBI's most accomplished agents. The investigative unit sent in Bud Hall, who had a distinguished career in the Bureau as a Supervisory Special Agent in the Organized Crime section and not long before had come off a stint as the lead House investigator in the Iran-Contra scandal.

Hall arrived with a colleague to McCain's office, sometime between 1990 and 1991, armed with a letter signed by Heflin and fellow Senator Warren Rudman - which he "carried like a pistol in [his] holster," according to Hall - urging cooperation with the investigation. By the time he reached McCain, Hall had spent three months on the investigation and had already interviewed approximately 60 people, including Senators Bob Dole, Rudman, and DeConcini. "In an investigation, when you have a target that looks good, so to speak ... you wait 'til the very end 'til you interview him because you want all the information you can get. Second, you want him to be a little nervous," said Hall.

Hall and McCain had never met, yet soon as Hall entered, he knew McCain was not glad to see him. "He looked at me hard, right in the eyes," said Hall. He believes McCain "felt like he was being forced. ... He was there because his attorney told him he had to [be there]." McCain would not respond to any of Hall's questions about the leaks, but every so often would say, "you're crazy," "you're crazy, man, you're crazy." This went on for about 15 minutes by Hall's estimation.

"It was one of the strangest things I've seen," says Hall. "And as a professional investigator, I've interviewed a lot of weird people. ... I am a professional investigator and he treated me like some guy off the street. I just came away with a very bad impression." Eventually Hall addressed McCain's lawyer and told him that because his client was not being responsive to the inquiry, the meeting was over.

The report Hall wrote after his investigation is privileged Ethics Committee information and is under permanent restrictions - Hall himself said he did not have a copy of it, having turned all notes and documents to the Committee, including his interview transcripts, which, according to one source, feature dozens of interviews with McCain associates, family members, and in some cases intimate friends. His final report was formally inconclusive but argued for a strong trail of circumstantial evidence that pointed in McCain's direction. In our interview, he was emphatic on this point. "There is absolutely no doubt in my mind that McCain made those leaks."

Hall was barred by Committee rules from discussing the evidence he had, but other evidence appeared during of the private investigation by Peter Fleming that also pointed to McCain. First, Washington Times reporter Jerry Seper told a congressional staffer that he heard a taped conversation between McCain and Paul Rodriguez, his colleague at the Times who wrote many of the stories containing the leaks, and that he had also received independent information confirming McCain as the source of the leaks. This would have been important evidence, except that Seper declined to testify under a subpoena, asserting first amendment privileges. However, Seper, now the chief investigative reporter at The Washington Times, recently told The New Republic about the leaks that McCain "got a walk on that." Seper said, "[H]e did what they said he did, no doubt."

A second episode in the Fleming report that pointed to McCain happened when the senator held his much-publicized "mea culpa" news conference in October 1989 to acknowledge his mistakes during the Keating affair. Even in this moment of contrition, McCain was simultaneously on the attack, releasing - according to the Fleming report - a heavy-handed memo that DeConcini's office sent to regulators. The next day, the Arizona Republic had two headlines that both benefited McCain: "McCain Meets the Press" and "DeConcini Staffer's Memo Bared." In his report, Fleming wrote that he had discovered the leaked memo had "come to press from Senator McCain's office, and the juxtaposition of the two articles is disturbing."

Finally, Fleming concluded in his report that partisanship was the motive for the leaks and that they were designed to hurt DeConcini, Riegle, and Cranston. A Republican spokesman, quoted in the Fleming report, explained the politics: If enough people pressured the Committee into releasing McCain - the only Republican - and Glenn, who still had a heroic aura around him from his astronaut days, from the investigation, then the Keating Five would become the "Keating Three," and the GOP could then use the whole affair against the Democrats. Fleming also concluded that while Glenn "presumably stood to benefit by disclosure[s] ... there is simply a total absence of evidence implicating Glenn."

Ultimately there was no smoking gun: from a legal point of view, that would have meant either an admission from the person who leaked, an admission from the reporter who received the leak, or a statement from someone who was told about the leak by the leaker directly. This is why neither the Hall nor Fleming reports were "conclusive," in the legal and technical sense.

Nonetheless, evidence continues to surface. A letter from Rudman to Heflin (now in Heflin's archives) that states unambiguously that McCain was involved with at least some of the leaks, according to Steve Raby, who was Heflin's chief of staff at the time and recently reread the later. (Raby is a close friend of the family and spoke to TNR from Alabama, where he lives and where Heflin's records are located.) This letter would square with what Rudman wrote in his 1996 autobiography, that McCain and his staff were among those responsible for the leaks. (When prodded by the Boston Globe in 2000, Rudman - who has been a strong backer and participant of McCain's 2000 and 2008 campaigns - denied this, saying, "When you're writing a book, sometimes you're not that careful.")

Finally, there are Hall's reflections on the leaks today: "When you look at these stories, you interview the people - I must have interviewed 50-60 people, and I didn't have one single person defend McCain. If and when they pointed, they pointed in his direction."

Had either of the leaks probes found McCain guilty, in all likelihood he would have been recommended for censure by the Ethics Committee, but also possibly faced expulsion by the Senate or charged with perjury for having lied under oath. As it was, the worst that happened is that those observing McCain reevaluated the senator. Said one source close to the leaks investigation, "It pricked the balloon I had that McCain might have had integrity."

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Sahil Mahtani is a reporter-researcher at The New Republic.