WASHINGTON -- President Reagan appears to have picked a
tough fight with Senate Democrats by renominating Lee Henkel
to the Federal Home Loan Bank Board.

Mr. Henkel and Lawrence White, both appointed to the
three-member Bank Board Nov. 7 after Congress adjourned
without acting on their nominations, were renominated Friday.
Because the Senate wasn't in session when the two men were
appointed, they were able to serve without confirmation. But
now, both men must go before the Senate Banking Committee for
approval.

That shouldn't be a problem for Mr. White, a 43-year-old
economics professor on leave from New York University's
business school. Committee Chairman William Proxmire (0..
Wis.) has called him "obviously well-qualified." A Democrat,
Mr. White has held positions in the Carter White House and
the Reagan Justice Department.

But Mr. Proxmire strongly opposes Mr. Henkel, 58, because
of disagreements over regulatory philosophy and because of
Mr. Henkel's ties to Charles Keating, an outspoken critic of
thrift regulation. That relationship "would disqualify him in
my mind, Mr. Proxmire has said.

Mr. Keating controls Lincoln Savings & Loan Association in
Irvine, Calif. The thrift made at least $61.9 million in
loans to corporations and partnerships in which Mr. Henkel
had an interest. Lincoln was by far the largest single source
of financing for Continental Southern Inc., a closely held
real estate development company of which Mr. Henkel was
chairman, a shareholder and one of three directors.

In 1985, Lincoln also made a personal loan of more than
$250,000 to Mr. Henkel at two percentage points above the
prime rate, according to Mr. Henkel's financial disclosure
forms. The loan has been paid, according to the document.
Mr. Henkel has put all his business interests that had
transactions with thrifts into a blind trust and has agreed
to recuse himself from Bank Board votes involving thrifts he
has dealt with.

Mr. Henkel, a Republican, was Treasury Department and
Internal Revenue Service counsel in the Nixon administration.
Later, he was a tax attorney and real estate developer in
Atlanta.

Mr. Henkel's nomination wasn't certain and has been
controversial. He was appointed while Congress wasn't in
session after the Reagan administration had told Democratic
lawmakers that Mr. White would be the only appointment made
during that time.

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Then Mr. Henkel raised eyebrows by telling thrift executives that the industry he was then regulating had been "real good to me in helping me make money I m your cheerleader, I'm your spokesman."

-

During his first Bank Board meeting in December, Mr. Henkel proposed a rule that agency officials said could have effectively immunized only two thrifts one of them Lincoln -- from any enforcement actions in a dispute with the agency. The proposal died for lack of a second.

Mr. Henkel's nomination was pushed by former Sen. Mack Mattingly, a Georgia Republican who served on the Senate Banking Committee. Mr. Mattingly was defeated for reelection last year.

Messrs. Henkel and White are known to favor closer examination for ailing thrifts rather than stricter regulations for all institutions. Their stance is more acceptable to the Reagan administration than that of Bank Board Chairman Edwin Gray, also a Reagan appointee, who takes a strong regulatory approach to the troubled industry.

The shift in the balance of power was evident in December at the first Bank Board meeting for Messrs. Henkel and White. Mr. Gray backed down from a proposal to extend for two years a strict rule limiting the investments thrifts may make he conceded that neither of his new colleagues would support him. Mr. Gray's term expires in June.

The Bank Board eventually agreed to extend the rule only through March 15 and to hold hearings on the issue. The Bank Board is to consider the regulation again Feb. 27.

Mr. Henkel was nominated Friday to fill a vacancy for a term expiring June 30, 1989. Mr. White's name was sent to the Senate to fill a vacancy for a term expiring June 30, 1990. Confirmation hearings for the two men haven't been scheduled

yet.

END OF DOCUMENT

President Reagan has renominated Lawrence White and Lee Henkel for positions on the Federal Home Loan Bank Board, which regulates Federally insured savings and loan associations. The nominations were announced Friday.

Both Mr. White and Mr. Henkel were appointed Nov. 7 to fill unexpired terms on the three-member board. Because Congress was not in session then, they have served without confirmation. Mr. Reagan had originally sent both nominations to the Senate in October.

While Mr. Reagan had been expected to renominate Mr. White, there was some speculation that he would offer another name in place of Mr. Henkel, who faces opposition from Senator William Proxmire, the Wisconsin Democrat who is chairman of the Senate Banking Committee.

Mr. White, 43 years old, is an economics professor on leave from New York University.

Mr. Henkel, 56, is a tax lawyer and real estate developer from Atlanta. Mr. Proxmire has objected to Mr. Henkel because of his association with Charles Keating, who controls the Lincoln Savings and Loan Association in Irving, Calif., which has made at least $61.9 million in loans to corporations and partnerships in which Mr. Henkel had an interest.

SUBJECT: APPOINTMENTS AND EXECUTIVE CHANGES

ORGANIZATION: HOME LOAN BANK SYSTEM, FEDERAL; FEDERAL HOME LOAN BANK BOARD
NAME: REAGAN, RONALD WILSON (PRES); WHITE, LAWRENCE; HENKEL, LEE H JR

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EX. 517

Lee H. Henkel Jr. has resigned from the Federal Home Loan Bank Board after the Justice Department was asked to investigate possible criminal violations on his part, it was learned Thursday.

The Office of Government Ethics last Friday asked the Justice Department to investigate Henkel's proposal that might have helped Lincoln Savings, a California thrift owned by Phoenix-based American Continental Corp.

Henkel resigned Tuesday, blaming unfounded charges and the resulting investigations for his decision to quit.

Henkel earlier had been cleared of conflict-of-interest charges on the

RANK 13 OF 14, PAGE 2 OF 3, DB AZ7, DOCUMENT 29024 same matter by the bank board's chief lawyer and the Justice Department. The new investigation would have looked into possible criminal violations.

In his statement, Henkel said, 'While I am confident that I will be exonerated yet a third time, I quite frankly am fed up with the whole process and am unwilling to put my family and myself through any more of this.

Henkel, a tax attorney and real-estate developer from Atlanta, has been serving as a temporary member of the Federal Home Loan Bank Board since November. Confirmation hearings on his permanent appointment have been scheduled by the Senate Banking Committee, headed by Sen. William Proxmire, DWis.

Before his appointment to the three-member bank board, Henkel had received a series of business loans from Lincoln Savings.

*Lincoln Savings has been the center of a debate between bank-board Chairman Edwin Gray and American Continental Corp. Chairman Charles Keating* Jr. Gray favors limiting thrifts to more-traditional home-mortgage loans, while Lincoln Savings has diversified into land development, commercial projects and hotel construction.

At his first board meeting in December, Henkel proposed a change in the direct-investment regulation, which critics say would have favored Lincoln* Savings. The proposal failed for lack of a second.

Ufficials at American Continental in Phoenix could not be reached for comment on the resignation.

Last Friday, Donald E. Campbell, deputy director of the Office of Government Ethics, wrote a letter to Proxmire saying Campbell had asked for the investigation. The letter cited the statute that makes it a crime for a government official to participate in a matter in which he has a financial interest.

Henkel said he will return to his family and business in Atlanta.

I would take the heat if it served a purpose,' he said. 'The bottom line, however, is that it simply serves no useful purpose for me to serve on the board when the constant personal attacks distract me and make me unable to accomplish what I came here to do.

END OF DOCUMENT.

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American Continental's Lincoln Thrift
Is Being Investigated by U.S for Fraud

---

By David J. Jefferson

Staff Reporter of The Wall Street Journal 03.02.39

WALL STREET TOURNAL (J)

AMOC

TENDER OFFERS, MERGERS, ACQUISITIONS (TNM)
SAVINGS AND LOANS, THRIFTS, CREDIT UNIONS (SAL)

LOS ANGELES -- Federal prosecutors disclosed that a fraud
investigation of Lincoln Savings & Loan Association was under
way just as an agreement by American Continental Corp..
Lincoln's parent, to sell the controversial thrift expired.
Assistant U.S. Attorney Terree Bowers wouldn't say if
American Continental executives are targets of the
investigation, and declined to comment. A spokeswoman for
American Continental of Phoenix, Ariz., said she didn't have
any knowledge of a criminal investigation involving the
Irvine, Calif., thrift subsidiary. This is the first we've
heard about it," she said..

News of the investigation came as American Continental, in a sudden turnabout, announced Tuesday night that it wouldn't proceed with the sale of Lincoln to an investor group headed by veteran thrift executive Spencer Scott. American Continental said the group's offer had "expired in accordance with its terms and that the company "declined to grant an extension. American Continental wouldn't elaborate.

However, Charles H. Keating Jr., chairman of American
Continental, said the company is having continuing
discussions with other parties, which he didn't identify,
that have expressed an interest in acquiring Lincoln.

Mr. Keating added that Mr. Scott's group "will continue to
pursue their application éto acquire Lincolné, even though
the deadline has passed." Mr. Keating has been engaged in a
long-running dispute with federal regulators over Lincoln's
real-estate development activities and nontraditional
securities investments, and recently expressed relief at the
prospect of disposing of the company's only thrift.

Individuals close to the transaction said that Mr. Scott
encountered difficulties securing financing for the
acquisition. "When it came down to it, he didn't have the
money," said one regulator close to the transaction, who
declined to be identified.

Another official familiar with the transaction said:
"American Continental thinks the Scott deal is a dead duck.
Frankly, I don't see it ever coming back together, because of
the financing. And the economics of the transaction never
made sense."

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