Acg 4325
Zach Myatt, Patrick Mullen, Daniel Osman, Jill Hass, (Group 8)
Chapter 12 Lincoln Savings & Loan 1. What "red flags" might have warned Arthur Young that LS&L was a high risk client? * They used land swaps and circular transactions to overstate the thrift's earnings. * The SEC charged Lindner and Keating with issuing $14 million of sweetheart loans to AFC insiders through Provident Bank. In the most egregious alleged violation, the SEC charged that Keating borrowed $500,000 and then ordered the loan written off. * AFC settled the charges in 1979, assigning most of the blame to Keating. Keating was fined $1.4 million and banned from the securities markets for three months.
2. What motive did Charles Keating have to understate LS&L's loan portfolio when he purchased the thrift? * Keating allocated an improperly small amount of the $51 million purchase price to LS&L's loan portfolio and inflated the amounts allocated to other assets. * When LS&L subsequently sold the loans at their true value, it reported a gain for the difference between the selling price and the understated carrying values.
3. LS&L reported $153 million of gains on real estate sales in 1986 and 1987. What facts might have caused the auditors to question whether such gains were feasible? * Its ability to report profits and pay dividends depended entirely on its ability to report gains on land transactions. Without the $153 million of gains on real estate sales reported during 1986 and 1987, LS&L would have reported pretax losses totaling $8 million. * This type of seller-financed deal was common for LS&L during 1987. Most of the parties who purchased Hidden Valley land at inflated prices received direct or indirect loans from LS&L. * Keating and his family reaped $34 million from salaries, bonuses, and sales of stock between 1985 and 1988.
4. Why wasn't LS&L closed in spring 1987 as investigators from the San Francisco
Chapter 12 Lincoln Savings & Loan 1. What "red flags" might have warned Arthur Young that LS&L was a high risk client? * They used land swaps and circular transactions to overstate the thrift's earnings. * The SEC charged Lindner and Keating with issuing $14 million of sweetheart loans to AFC insiders through Provident Bank. In the most egregious alleged violation, the SEC charged that Keating borrowed $500,000 and then ordered the loan written off. * AFC settled the charges in 1979, assigning most of the blame to Keating. Keating was fined $1.4 million and banned from the securities markets for three months.
2. What motive did Charles Keating have to understate LS&L's loan portfolio when he purchased the thrift? * Keating allocated an improperly small amount of the $51 million purchase price to LS&L's loan portfolio and inflated the amounts allocated to other assets. * When LS&L subsequently sold the loans at their true value, it reported a gain for the difference between the selling price and the understated carrying values.
3. LS&L reported $153 million of gains on real estate sales in 1986 and 1987. What facts might have caused the auditors to question whether such gains were feasible? * Its ability to report profits and pay dividends depended entirely on its ability to report gains on land transactions. Without the $153 million of gains on real estate sales reported during 1986 and 1987, LS&L would have reported pretax losses totaling $8 million. * This type of seller-financed deal was common for LS&L during 1987. Most of the parties who purchased Hidden Valley land at inflated prices received direct or indirect loans from LS&L. * Keating and his family reaped $34 million from salaries, bonuses, and sales of stock between 1985 and 1988.
4. Why wasn't LS&L closed in spring 1987 as investigators from the San Francisco