A special counsel for the Senate ethics committee has recommended that no action be taken against Sens. John Glenn (D-Ohio) and John McCain (R-Ariz.) in the ethics case involving intervention by five senators on behalf of Charles H. Keating Jr., whose savings and loan association failed, a congressional source said last night.
But the counsel, Robert S. Bennett, recommended to the panel that it proceed with investigations of the three others, Sens. Alan Cranston (D-Calif.) Dennis DeConcini (D-Ariz.) and Senate Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.), the source said.
Bennett filed the recommendation with the committee Sept. 10. The panel has met at least three times with Bennett to discuss his findings but has reached no conclusions about whether to drop proceedings against Glenn and McCain and to proceed against the other three.
Sources close to the panel have said it is divided over how to proceed, with some members urging swift action to end the inquiry involving Glenn and McCain. Committee Chairman Howell T. Heflin (D-Ala.) is urging a more deliberate course.
There has been speculation for several months that the proceedings against Glenn and McCain would be dropped because the evidence against them was weak. Bennett's reasons for recommending no action be taken against them were not immediately known.
The five senators were accused of interceding with federal thrift regulators on behalf of Keating, who controlled Lincoln Savings and Loan of Irvine, Calif., and who also contributed $1.3 million to their campaigns and causes.
Lincoln's failure has been estimated to cost taxpayers $2 billion.
Keating has been charged with fraud in the sale of more than $200 million in junk bonds and is jailed in Los Angeles, where he has been unable to post $5 million bail.
The panel investigating a complaint brought last Oct. 13 by the lobbying organization Common Cause has been looking into whether the intervention was improper and whether it was connected to Keating's contributions to the senators in violation of ethics rules.
Glenn, McCain, Cranston and DeConcini met April 1, 1987, in DeConcini's office with Edwin J. Gray, who then was chairman of the Federal Home Loan Bank Board and claims that they offered a deal in behalf the ailing Lincoln Savings and Loan. Gray alleged that DeConcini suggested more lenient regulatory treatment of Lincoln if it limited its high-risk investments and made home mortgage loans.
A week later, the senators were joined by Riegle in a meeting with bank board examiners, who told them that Lincoln's mismanagement was so serious that its operators could face criminal investigation by the Justice Department.
Glenn, McCain and Riegle have said they had nothing more to do with Keating after learning he could come under criminal investigation.
With the S&L scandal shaping up as a major issue in the Nov. 6 congressional elections, a decision to drop McCain from the investigation would have political implications because it would leave only Democrats as targets of the probe.
However, the committee is looking into accusations that Sen. Alfonse M. D'Amato (R-N.Y.) intervened with federal agencies to help relatives and political associates. The committee had come to no decision in the D'Amato case. In its only other major Senate ethics action this year, Sen. Dave Durenberger (R-Minn.) was denounced by the Senate this summer for financial misconduct.
As of late yesterday, aides to Glenn and McCain said they did not believe the two senators had been told of Bennett's recommendation. Members of the committee have declined to comment on the investigation and are not expected to meet again until next week.