Lincoln Savings And Loan Association Summary

The Case "Lincoln Savings and Loan Association" presents an individual named Charles Keating Jr. that was an intelligent law graduate and leading critic of the pornography industry, which became the commissioner of pornography to President Nixon and later a business owner. In 1978, he founded a real estate firm named American Continental Corporation (ACC), which he acquired Lincoln Savings and Loan Association in 1984. He promised to keep their management team, to not use brokered deposits to expand the size of the savings and loans and to keep Lincoln’s core business residential home loans. Disregarding these promises to the regulatory authorities, Keating broke every promise. In this, he replaced the management team, began taking in larger

deposits from money brokers which triple the size of the savings and loan and he shifted the core business from residential mortgage loans to land development projects.
In 1985, Keating signed his son as Lincoln’s president, but his son, Charles Keating III, did not understand the transactions that he signed off. Eventually in 1989, the Federal Home Loan Bank Board (FHLBB) took back control of Lincoln Savings and Loan Association describing that the operation has been handled in an unsafe and unsound manner. Upon the fall of the Lincoln Savings and Loan Association, Henry Gonzalez, the chairman of the U.S House Committee on Banking, Finance and Urban Affairs sponsored a congressional investigation.
Keating was facing allegations of influence peddling, since he did contribute a lot to governmental bodies.

Henceforth, they would use their influence to benefit Keating in order to keep getting these favorable treatment. Keating was also accused of being involved in fraudulent real estate transactions that allowed savings and loan to report millions of nonexistent profit. He created accounting schemes to move money from the Lincoln’s Savings and Loans federally insured deposits into the ACC’s treasury. One scheme mentioned in the article had to do with the Hidden Valley transaction. The Hidden Valley transaction was completed with Keating friend, Ernie Garcia Company that borrowed a 19.6 million loan. Thereupon, Garcia loaned 3.5 million to his friend, Fernando Acosta’s small business. Acosta then used this 3.5 million to purchase a land from Lincoln for 14 million, and 11.1 of it was a nonrecourse note. As a result, Lincoln recorded a profit of 11.1 million. Keating knew that this scheme would eventually fail, but he did not mine because of the Federal Savings and Loan Insurance Corporation guaranteed Lincoln’s liabilities and he had little invested in Lincoln. Both Fernando Acosta and Ernie Garcia admitted to following through with this transaction for different

reasons.