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David E. Stevens 4:20 N. Creswell P!. Boise, Idaho 83704-2476

October 26, 1990

Honorable Senator Howell Herlin
Onited States Senate
Washington, D.C. 20510

Dear Senator Heflin:

I as the former Tax Director of American Continental and Lincoln Savings. In this position, I became aware of some of the activities of the so-called "Keating 5." Earlier this year, I ne: with Mr. Bruce Penczek of the investigative tion of Twardowicz, Penczek and Associates, Inc. In that meeting. I answered questions they had and offered to provide any additional assistance that they might want. To date, there has been no request for such assistance.

I am waiting to make sure that you have access to all of the ralevant facts pertaining to the airplane flights taken by Senator uccain and his family on ACC Corporate aircraft. These iacts are sometimes contrary to the public statements which have been made by Senator McCain.

In expressing these concerns, I feel it appropriate to point out that I harbor no personal ill feelings for Senator McCain or his stall. Once I established contact with his office, I was triated with courtesy and respect. I just feel that the information I have should be considered in your decision.

As the Tax Director of ACC, I was responsible for IRS audits. During the course of the 1984-1985 audit of Acc, the subject of airplane flights taken by Senator McCain and his family cane up. The IRS proposed to and wtimately did disallow a portion of the deductions acc took with respect to those flights. Furthermore, they proposed to charge Mr. Keating with income for the flights. Neither of these actions would have been taken had Senator McCain reimbursed ACC when the flights were taken or, possibly, at the time of the audit (early 1989 prior to ACC's Bankruptcy filing).

I didn't feel it appropriate that Mr. Keating be charged with the income attributable to the Mccains' flights personally. ACS'S

policy was to charge the incone to the individuals who took the · flights (unless those individuals reimbursed the corporation). Accordingly, a decision was reached to contact the Senator's of:ice to get their input as to how to deal with the situation. Aste: struggling for awhile to determine the appropriate way to contac: the Senator (I had no contact with him or his office prior to has tine). I contacted Jay Smith, who I understood was a politica! consultant for Senator McCain. This happened in February.

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Mr. Smith said that he thought that it was the Senator's practice to reimburse for the cost of his own flights on corporate jets, but not necessarily for those of his family. I wrote Mr. śmith a letter dated February 17, 1989. Mr. Smith wrote back March 7, 1989 and copied the Senator's office. This letter indicated that the Senator always intended to reimburse for his own expenses. The letter said nothing about the family's expense.

I heard nothing from the Senator's office on this until early May of 1989. This response came after the bankruptcy of ACC and after a settlement needed to be reached on the IRS audit. (Mr. Keating was ultimately charged with $4,672.22 of income as a result of the Mccain !amily flights). By this time, Acc and Mr. Keating were the subjects of considerable adverse publicity. The Senator's administrative assistant, Chris Koch, stated that it was the Senator's intention to reimburse for all flights. This was promptly accomplished based on information I gave then.

To the credit of the Senator, his office did further research to gather information on charter flights which I had no records of. The Senator also reimbursed for an additional trip his wife took where her name was apparently not entered on the jet's Flight Log.

In October 1989, someone in the ACC accounting department found additional checks which had been written by Mrs. McCain in 1986 to reimburse ACC for flights taken by the Senator in 1985. I notified the Senator's office of this by letter dated October 31, 1989. He distributed copies of this letter to the press (without my consent) as evidence that be intended to reimburse for the flights shortly after he took them.

These facts seem to support the conclusion that the intent of the Senator was always to reimburse for the costs associated with Llights on corporate jets that he took personally, I never saw any evidence that he originally intended to reimburse for the cost of his wife and babysitter on all of the flights for which reimbursement was provided on a timely basis, his wife was also a passenger. This is contrary to his public position that the entire matter was completely an oversight.

I have no idea what the House Rules are and were concerning flights taken by tanily members. I am not accusing the Senator of any violation of law. I just feel that one oć the Senator's advisers or statt, or perhaps the Senator himself, made a conscious decision to not reimburse for the cost of family nembers. No el!ort was ever made to reimburse for flights of family members until after the onslaught of adverse publicity following the ACC bankruptcy. Senator McCain's public explanations have not pointed

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I thought a long time before I sent this letter. It would have been much easier to let the matter drop. I am not trying to hurt anyone's political career. But I felt it my duty to make sure that you considered all of these facts before you made your fina! decision. Should you wish to discuss this further with ne, i çan be reached at (208) 368-4650 during the day and (208) 376-3160 evanings and weekends.

Sincerily,

Sant than

David E. Stevens

cc. Senator Warren Rudman

Mr. Robert Bannatt

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