Lincoln Savings and Loan

Topics: Savings and loan crisis, Charles Keating, Resolution Trust Corporation Pages: 2 (649 words) Published: February 9, 2011
Creative accounting, influence peddling and other abuses at Lincoln Savings and Loan
Charles Keating employed accounting schemes to divert the savings and loan’s federally insured deposits into ACC’s treasury. Keating would be permitted to withdraw funds from Lincoln and invest them in ACC or use them for only to the extent that Lincoln reported after-tax profits. He and his associates wove together complex real estate transactions involving Lincoln, ACC, and related third parties to make profits for Lincoln. Kenneth Leventhal & Company, an accounting firm to analyze and report on Lincoln’s accounting practices. In 1987 Lincoln was the large Hidden Valley transaction that took place. On March 30, 1987, Lincoln loaned $19.6 million to E.C. Garcia & Company. And Garcia is a close friend of Keating and the owner of the land development company; extended a $3.5 million loan to Wescon, a mortgage real estate concern owned by Garcia’s friend, Fernando Acosta and Wescon purchased 1,000 acres from Lincoln for $14 million. Acosta used the loan from Garcia as the down payment on the tract of land and signed a nonrecourse note for the balance. Lincoln recorded a profit of $11.1 million on the transaction-profit that was never realized, since the savings and loan never received payment on the nonrecourse note. Lincoln never expected to be paid the balance of the nonrecourse note and executives arranged the loan simply to allow the saving and loan to book a large paper gain. Garcia that agreed to become involved in the deceptive Hidden Valley transaction only because he wanted the $19.6 million loan from Lincoln. Recognizing a profit on the Hidden Valley transaction would have openly violated financial accounting standards if Garcia had acquired the property directly from Lincoln and used funds loaned to him by the saving and loan for his down payment. Which prior to the Hidden Valley transaction has total assets of $87,000 and a net worth of $30,000, was only a straw buyer...
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