Why Keating Didn't Cut It

Only a few weeks ago, Oklahoma Gov. Frank Keating had every reason to believe he'd soon be moving to Washington. Talk inside the Beltway had him topping the short list for attorney general. Having campaigned his heart out for Bush, Keating--an ex-FBI agent with a sterling law-enforcement resume--didn't hesitate to call Dick Cheney and volunteer for the job. "I don't think there's anybody who's better qualified to be attorney general," says the rarely bashful governor.

Keating, of course, eventually lost out to defeated Missouri Sen. John Ashcroft. Just why he was passed over provides a revealing glimpse into the way the president-elect scrutinizes candidates for top posts. Bush demands three litmus tests of all his would-be advisers: unswerving loyalty, tight lips and a skeleton-free closet. As it turned out,Keating flunked all three.

Keating's first mistake came during the campaign when Bush was swamped with questions about possible cocaine use. Instead of keeping mum, Keating bluntly suggested that the candidate disclose anything "arguably criminal." The remarks did not go down well with the Texans, who "didn't appreciate it," a Keating aide says.

That wasn't Keating's only offense. Newsweek has learned that for nearly a decade, the man who wanted to be the country's top cop quietly took cash gifts totaling about $250,000--largely unreported but legal--from one of his top political fund-raisers. Keating first met ex-Wall Street financier Jack Dreyfus, founder of the Dreyfus mutual funds, back in 1988. At the time, Keating was Ronald Reagan's associate attorney general. Dreyfus met with Keating to promote the virtues of Dilantin, a mood-altering drug he thought could be used to control violent federal prisoners. For decades, Dreyfus had been a tireless promoter of Dilantin, a "wonder drug" he credits with stemming his battle with depression. Keating set up a meeting for Dreyfus, who has no financial interest in the drug, with top officials at the Bureau of Prisons. Nothing came of it, but Keating and Dreyfus became fast friends.

Two years later, when Keating was chief counsel at HUD, Dreyfus offered to give each of Keating's three kids a cash Christmas gift of $10,000. Keating got approval from HUD ethics officials, saying the gifts were unrelated to his official duties. The payments, Keating confirms, continued annually for nearly 10 years after he left HUD. Keating, elected governor in 1994, has never disclosed these gifts in Oklahoma; state law doesn't require it.

Keating sees no problem with the payments. In papers submitted to Bush campaign officials last year, he called Dreyfus "a kind and generous man" who has never asked for "any actions or material returns from me"--a sentiment he repeated in conversation with NEWSWEEK last week. Yet over the years Dreyfus continued to press Keating about Dilantin. Two years ago Keating arranged for Dreyfus to meet the state's prison director. Nothing came of that session either, but Dreyfus, now 87, says he remains eternally grateful. "He's the only public official who has ever gone out of his way to help," Dreyfus gushes. Unfortunately for Keating, he may have helped himself right out of a job.