Synopsis

Charles H. Keating, Jr. purchased Lincoln Savings & Loan in 1983 for $51 million. During the next six years, Keating and his family withdrew $34 million from Lincoln while investing more than $2 billion of the thrift’s assets in junk bonds, undeveloped land, and unsecured loans. After Lincoln was seized in 1989, regulators had to pay $2.5 billion to satisfy insured depositors.

Discussion Questions

1. What “red flags” might have warned Arthur Young that LS&L was a high risk client?
2. What motive did Charles Keating have to understate LS&L’s loan portfolio when he purchased the thrift?
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?
4. Why wasn’t LS&L closed in spring 1987 as recommended by investigators from the San Francisco office of the FHLBB?
5. Auditors must maintain independence in fact and appearance. What events might raise doubts about whether Jack Atchison and the Phoenix office of Arthur Young were independent of Charles Keating and LS&L?