Republican presidential nominee John McCain has described his entanglement with convicted savings-and-loan executive Charles Keating as a long-ago misstep.
But as the Washington Independent recently detailed, the relationship between Keating and the McCain family did not end in the late 1980s after the head of Lincoln Savings & Loan was charged with and subsequently convicted of defrauding thousands of investors.
Cindy McCain and her late father, James Willis Hensley, had a lucrative business relationship with Keating through their joint investment in a Phoenix, AZ shopping center, which continued until the shopping center was sold in 1998 for more than $15 million.
McCain has written in a memoir that he ended his six-year friendship with Keating on March 24, 1987, after the two had a heated exchange in his Senate office. The argument occurred after McCain heard from another senator that Keating had called him “a wimp.”
“We never met again,” McCain wrote in his 2002 memoir Worth the Fighting For. “I never had another conversation with him.”
Yet McCain appeared at two more meetings with federal regulators at Keating’s behest the following month - the same month regulators finally seized Keating’s thrift in Irvine, CA.
Moreover, his wife and father-in-law remained as investors for another 11 years in a north Phoenix shopping mall named Fountain Square, in a deal which gave them a significant tax write-off.
In hearings before the Senate Ethics Committee in the early 1990s, McCain said that his late father-in-law, a wealthy Phoenix beer distributor, was the prime mover in the deal and that under a prenuptial agreement he signed with Cindy McCain, the two maintained separate assets.
The partnership with Keating had begun in April 1986, when father and daughter bought an 8-percent stake in Fountain Square Associates Ltd. Partnership – at a time when Keating was already under fire for his operation of Lincoln Savings & Loan, according to a 1989 Newsdaystory.
Cindy McCain and her father made the $359,100 investment through Western Leasing Co., which they jointly owned.
Fountain Square Associates was structured as a tax shelter for wealthy investors. Its only asset was the Phoenix shopping center, which was built by another Keating-controlled company.
The shelter allowed investors to use real-estate depreciation as a tax deduction, a provision later banned by Congress. Its prospectus also promised investors a 37-percent annual return on their investment.
Fountain Square Associates’ general partner, which oversaw daily operations, was American Continental Resources Corp., a subsidiary of Keating’s Phoenix-based American Continental Corp.
American Continental also owned Lincoln Savings & Loan.
In 1989, American Continental filed for bankruptcy, leaving more than 23,000 investors in Lincoln Savings holding worthless bonds. Many of those investors were elderly and had mistakenly believed their investments were insured because Keating had sold them at federally insured Lincoln Savings branches.
Keating was convicted on 73 counts of bankruptcy and wire fraud in 1993, and sentenced to 12 years in federal prison. Four years later, his conviction was overturned on a technicality. In 1999, he pleaded guilty to four counts of fraud and was sentenced to time served.
Despite the bankruptcy, American Continental Resources managed to keep control of the shopping center owned by Fountain Square Associates, which allowed Cindy McCain and Hensley to take advantage of its tax breaks.
The Senate Ethics Committee determined in 1991 that former Senators Alan Cranston, Dennis DeConcini, and Donald Riegle had substantially and improperly interfered with regulators in their investigation of Lincoln Savings, with Cranston receiving a formal reprimand.
Senators John Glenn and John McCain were cleared of having acted improperly, but were criticized for having exercised “poor judgment”.
McCain had testified during Ethics Committee hearings in 1990 that he was aware of the family investment, but was not involved in it
“I was told …they were going to invest in a shopping center and that the investment – the project - was being put together by a subsidiary of American Continental,” McCain told the committee. “He [the executive] later told me that had happened. And I had no interest in it and just noted in passing that this investment took place.”
After the shopping center sold, McCain’s 1998 Senate financial disclosure statement reported under “unearned income” that his wife made between $100,001 and $1 million on the sale of the property. In previous years, McCain’s financial statements had valued the Fountain Square partnership at less than $1,000, generating income of less than $200.
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