Read here and here for good explanations on how John McCain is trying to cheat the McCain-Feingold law on public election financing.
They both have good explanations of the legal issues involved, which are complicated. Basically his loan transaction was the equivalent of what is called an avoidance transaction in tax law - a transaction that uses legal methods to get around a tax law provision to achieve the same effect. The tax code is constantly being updated to close these kinds of loopholes, and there is also a General Anti-Avoidance Provision that catches transactions that generally violate the spirit and purpose of the tax code.
Under other statutes, some provisions are just broadly interpreted by Courts to ensure these types of transactions don't happen. We just did a case in Secured Transactions that closely mirrors McCain's loan transaction and the judge just disregarded the transaction and enforced the law as it would apply had the transaction not occurred.
Anyway, the point is just that the transaction did not necessarily violate the letter of the law (I don't know how McCain-Feingold addresses avoidance transactions), but it certainly violated the spirit of the law. Which is embarrassing if you wrote the law in the first place.
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