Detroit Papers’ Tie to Lincoln S&L; Case Causes Concern : Media: The president of the newspapers is the brother of the key figure in the thrift’s collapse. Some reporters fear that they won’t be allowed to dig deeply.

DETROIT —  Two of the nation’s largest newspapers have been placed in an awkward position as they try to cover one of the year’s hottest scandals--the massive Lincoln Savings & Loan fraud case--which has important connections in their own back yard. The business operations of both the Detroit News and the Detroit Free Press are now jointly run by William Keating, the brother of Charles H. Keating Jr., the central figure behind the collapsed Irvine thrift.

William Keating, the new president of the Detroit Newspaper Agency, which took control of the two newspapers Monday under a long-delayed joint operating agreement between the two media companies that own them, was a director of his brother’s company, Phoenix-based American Continental, the parent of Lincoln Savings.

William Keating has been named as a defendant in a $1.1-billion federal civil lawsuit filed in Phoenix in September charging him with fraud, conspiracy and a breach of his fiduciary duties as a director of American Continental. The suit, brought by federal regulators, is the largest ever filed against the directors and officers of a failed institution.

William Keating, a 62-year-old former congressman who is reportedly seeking to be removed from the civil lawsuit, refused any comment Tuesday. But his ties to the Lincoln case have raised serious concerns among reporters at the two newspapers, because there are strong local angles to the scandal in Detroit. One of the five U.S. senators caught up in the Lincoln scandal is from Michigan, and the purchase of one of Detroit’s premier hotels by a partnership run by Charles Keating has played a key role in the government’s investigation of Lincoln’s activities.

At least one reporter at the Detroit News has already felt William Keating’s wrath for probing into his role in the Lincoln case. News reporter Jon Pepper, assigned to write a story about Keating, profiling him as the new president of the newspapers, was kicked out of Keating’s office in the Detroit News building after asking Keating a question about Lincoln.

When Pepper asked about Lincoln, “he declared the interview over and escorted me out of his office,” Pepper said. “He got a little emotional and raised his voice. He said he would never talk to any reporter again.”

Meanwhile, upset that the Free Press might be “soft-pedaling” William Keating’s role in its stories about the Lincoln controversy, about two dozen reporters and editors at the Free Press met with Executive Editor Heath Meriwether earlier this month and held a rancorous, hour-long discussion of the paper’s Lincoln coverage.

Several Free Press staffers said that some of their concern developed after one reporter, temporarily acting as “reader representative” in editorial meetings, complained in a memo that his suggestions about further coverage of Keating’s role in Lincoln were shot down. “There were rumors that top editors were keeping Bill Keating’s name out of stories on Lincoln,” said one Free Press reporter who attended the meeting.

In addition, reporters said they were upset about the handling of a recent profile of William Keating, which mentioned that he was a defendant in the civil case. After the reporter turned the story into his editors, a sentence was inserted, without the reporter’s knowledge, saying that Keating was not the subject of any federal investigation. Free Press reporters were angered by the action because, they said, it is not yet clear whether William Keating is currently under investigation.

“It had gotten to the point where it was embarrassing,” said one reporter. “People (in the newsroom) had been grumbling for weeks about the lack of coverage of Bill Keating.”

Meriwether said in an interview, however, that the Free Press has aggressively covered the Lincoln story and, in fact, was first to reveal William Keating’s involvement with his brother’s company. Meriwether also stressed that Keating has no involvement with editorial decisions at either newspaper and instead runs only their joint business operations.

“I don’t answer to him for a single newsroom decision,” Meriwether said. “If there is an awkwardness, it is because he is Charles Keating’s brother and he is president of the newspaper agency. But that is not going to influence the way we cover the story. If we uncover any further evidence of a relation between him and Charles Keating and Lincoln, we will report it.”

David Everett, a Free Press reporter in Washington who is covering the Lincoln scandal, added that he believes the Free Press is covering Lincoln and William Keating as “aggressively as possible. Nobody has ever told me to back off.” But he noted that Keating has refused to talk to him about the Lincoln scandal.

Robert Giles, publisher and editor of the Detroit News, said the News has not felt any reason to restrict its coverage of Lincoln or William Keating’s role in the scandal. “We have covered this story very aggressively. We’ve mentioned Bill Keating where it has been appropriate.”

The Lincoln story certainly hits home in Detroit. Sen. Donald W. Riegle Jr. (D-Mich.), chairman of the Senate Banking Committee, is one of five senators who allegedly helped Charles Keating and Lincoln avoid closer and earlier regulatory scrutiny before Lincoln’s $2-billion failure. The role played in the Lincoln scandal by Riegle and the four other senators, including Sen. Alan Cranston (D-Calif.), is now under investigation by the FBI and the Senate Ethics Committee.

In addition, the 1984 purchase of one of Detroit’s landmark hotels by a partnership headed by Charles Keating is now one focus of the federal investigation into Lincoln. The government has charged that Keating and his partners illegally funneled funds from a lender that they controlled to purchase and renovate the Ponchartrain Hotel, which is now controlled by federal regulators following Lincoln’s collapse.

With such important local angles to be covered by the city’s papers, some Free Press reporters are now arguing that Keating should be removed from his position to avoid the appearance of a conflict of interest.

Some note that the appearance of a conflict is worsened by the fact that Keating was appointed by Gannett Co., owners of the Detroit News, to run the Detroit joint operation in 1986, while he was still a director of American Continental.

The partial merger of the newspapers was delayed three years by court challenges, however, and was finally approved this month by the U.S. Supreme Court. Keating resigned as a director of American Continental in 1987.

Officials at Washington-based Gannett declined to get involved in the controversy, however. Gannett spokeswoman Sheila Gibbons said Keating’s involvement with the Lincoln case is “his personal business, and we can’t speak for him.”