Some senators concerned by handling of Navy secretary's S&L; troubles


WASHINGTON -- When President Clinton announced last year that he had picked John H. Dalton to be secretary of the Navy, he praised the nominee's "true leadership ability" as a Texas businessman.

The resume made public by the White House was impressive: Naval Academy graduate with distinction, service in the Navy on two submarines, former head of the Federal Home Loan Bank Board, executive for Stephens Inc., the influential Arkansas investment bank, and, for nearly five years in the 1980s, chief executive of Freedom Capital Corp.

Three months later, the Senate -- eager to see a capable manager at the helm of a service tarnished by scandals over sexual harassment, cheating and weapons procurement improprieties -- confirmed Mr. Dalton without dissent or debate.

But there was a part of Mr. Dalton's background that most senators were unaware of: that his longest managerial tenure ZTC had been as the head of a Texas savings and loan, the Seguin Savings Association, that failed at a cost to taxpayers of at least $100 million.

Nor did they know that federal regulators had asserted in a $3.8 million settlement of possible civil charges that he had violated state and federal laws and committed "gross negligence" as Seguin's president, chief executive officer and chairman of the loan committee and board of directors.

Some senators now say that Mr. Dalton's confirmation hearings were mishandled. They say his troubles, all of which are spelled out in court records, should have been publicly disclosed and debated.

Instead, knowledge of his background was restricted not only by White House officials but also by the Senate Armed Services Committee, which dealt with those troubles only in a closed hearing.

Sen. Howard M. Metzenbaum, an Ohio Democrat who is not a member of the committee, says he was never told of Mr. Dalton's stewardship of a failed savings and loan and would have wanted to be informed.

"It's the kind of thing you don't sweep under the rug," said the senator.

Speaking on condition of anonymity, some senators say they think the decision to limit knowledge of Mr. Dalton's background reflected a bipartisan reluctance to confront the legacy of the savings and loan crisis openly.

The 52-year-old Mr. Dalton defends both his record and the handling of his nomination. "Despite the adversity I experienced in the savings and loan business, I am proud of my record," he said. "The confirmation process thoroughly explored my background."

And Sen. Sam Nunn, the Georgia Democrat who is chairman of the Armed Services Committee, defends the use of a closed session to consider Mr. Dalton's business dealings, saying it was the most efficient way to consider the matter thoroughly and respect the confidentiality of executive branch background material.

"It could be done," Mr. Nunn said of a public hearing, "but it would bog down the process."

Others on the committee have had second thoughts, however, including Sen. John W. Warner, a Virginia Republican and a former Navy secretary himself, who, in a speech on the Senate floor, delivered the committee's recommendation that the nomination be confirmed.

In that speech, Mr. Warner said he had examined "all of the reports pertaining" to Mr. Dalton and had concluded that "John Dalton has extensive business and managerial experience, so critical to today's modern Navy."

In an interview last week, Mr. Warner said Mr. Dalton's performance as Navy secretary had confirmed the committee's judgment.

But the senator also now believes that discussing the savings and loan matter only in a closed session was a mistake.

"Frankly, in retrospect," he said, "it was the responsibility of the committee to put references to his savings and loan in the public record."

Ten weeks after Mr. Clinton announced his choice of Mr. Dalton, the White House formally sent his nomination to the Senate.

The Armed Services Committee requires nominees to list "all jobs held" in the last 10 years. Mr. Dalton's form did not include his jobs at Seguin, although it did list his posts at Freedom Capital, a holding company whose main asset was Seguin.

The White House counsel, Lloyd N. Cutler, says he believes that the entire FBI report was made available to the committee and was looked into thoroughly.

But he acknowledges that the review was limited to looking at court documents, and a number of regulators and other participants say the FBI never spoke to them.

One of those regulators, Art Leiser, former chief examiner for the Texas Savings and Loan Department, found himself perplexed by Mr. Dalton's nomination.

"I wouldn't say anything to hurt John Dalton," Mr. Leiser said, "but I got a chill seeing someone who headed a troubled savings and loan being appointed to head the Navy."

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