Estrella

The boat dock on the north lake of Estrella Mountain Ranch. December, 2000


Which Estrella?

Estrella, Spanish for "star," is named after the Sierra Estrella Mountains which lie southeast of the community. The Estrella station of the Southern Pacific Railroad, 25 miles south of the community of Estrella, was established in 1881. The Estrella Hill post office was established in 1919.¹

The Keating Swim Connection

Gary Hall, Jr.
Grandson Pictured above as Grand Marshall of the 2000 Fiesta Parade.
Silver medallist in the 50 and 100-meter freestyle in Atlanta in 1996.
In 1998, suspended from swimming for 3 months and dropped by his sponsor, Speedo, after testing positive for marijuana.
Developed diabetes in 1999.
Silver medallist in the 4x100-meter relay; Bronze for the 100-meter freestyle, Tie in a dead heat for the Gold medal in the 50-meter freestyle at the 2000 Sydney Olympics.^a

Gary Hall, Sr.
Son-in-law Renowned valley eye surgeon, a three-time Olympic swimmer and father of six, married to Charles Keating's second-oldest daughter, Mary, who swam at Xavier University.
Silver medal in the 400-meter individual medley at the 1968 Mexico City Games. Silver medal in the 200-meter butterfly at the 1972 Munich Olympic Games. Bronze medal in the 100-meter butterfly at the Montreal Olympics in 1976.^b

Charles H. Keating, III
Son Finished fifth in the 200-meter breaststroke at the 1976 Olympics.
Received an eight-year sentence for fraud and racketeering for his role in the Lincoln Savings & Loan debacle.^c

Charles H. Keating, Jr.
Patriarch Swimming champion at the University of Cincinnati,^d winning the 1946 NCAA title in the 200-yard butterfly.^e
Convicted of 17 counts of securities fraud in 1991, for inducing 17,000 investors to buy $250 million in uninsured bonds while acting as chairman of Lincoln Savings & Loan,^f and was residing at the Federal Corrections Institution in Tucson when his grandson swam in the 1996 Olympics.^g

Founding felon

The planned community of Estrella, now named Estrella Mountain Ranch, owes its origins to infamous land developer, savings & loan mogul and convicted felon, Charles H. Keating, Jr. Keating started the American Continental Corporation in Ohio in 1978. He moved the business to Arizona just in time to reap the benefits of Arizona�s real-estate boom of the early 1980s. In 1984, American Continental Corporation acquired Lincoln Savings & Loan which had 30 branches in California. Keating made Phoenix the headquarters for both companies.²

Lincoln purchased two adjacent 10,000 acre parcels of land 25 miles southwest of Phoenix in 1985. The plan was to develop the first parcel as Estrella, and about ten years later to extend the development to the second parcel. At completion the land would have 50,000 homes and over 200,000 residents.³

With the average cost for land acquisition at $3,000 an acre, a substantial profit could be anticipated--by the year 2000, custom home sites were selling for 66 times their acquisition costs, and often more.⁴The land cost was, of course, only part of the development expense. By 1987 the investment in the development had risen to $100 million.⁵

The problem for Lincoln was that it could not wait until 2000 to sell the property. By 1987, the Phoenix housing market was in decline, and Savings & Loan organizations (S&Ls) were suffering mightily from the governmental rules under which they operated.


Buy high--sell low

Government policy encouraged S&Ls to make 20 to 30 year fixed-rate mortgages with increasingly smaller down payments. At the same time, the S&Ls obtained the money they lent from depositors who had only minor restrictions on the withdraw of their money to take advantage of higher market interest rates. The result: as interest rates increased, the S&Ls were forced to fund their low rate long term loans with high rate short term borrowing. Between 1976 and 1980, interest rates on long-term Treasury securities rose from 6 percent to 13 percent. By 1982, an estimated 85 percent of all S&Ls were losing money.⁶

In spite of the poor climate for most S&Ls, Lincoln seemed to prosper. Prosecutors would later allege that Keating generated $82 million in bogus profits with the sale of land, much of it around Estrella, at inflated prices to "straw buyers" who would finance their purchases with loans from Lincoln. The illusory profit was then transferred to the parent company while certain employees--many being Keating relatives--reaped lavish salaries and bonuses.⁷


Unique bonds

In January 1987, Keating began selling bonds of the parent American Continental Corporation in Lincoln branches. Most investors were told the bonds were just as safe as their federally insured certificates of deposit. That was hardly the case. Unlike S&L deposits, they were not federally insured. Adding to the risk, they were subordinated debentures, and would be paid only after the corporation had paid off its other debts, totaling $207 million. Neither were the bonds underwritten. Underwriting would require that an independent party determine the interest rate the bonds would pay, with higher rates rewarding buyers for higher risks. Without underwriting, there was virtually no place that would market the bonds except the captive Lincoln S&L.⁸

Keating knew the benefit of having friends in high places. He generously contributed $1.3 million to the campaigns of senators Dennis DeConcini and John McCain, both of Arizona, Alan Cranston of California, John Glenn of Ohio and Don Riegle of Michigan. When federal regulators began to uncover what they described as massive abuses at Lincoln in 1987, Keating called on the Keating Five, as they would later be known, to run interference with the regulators. The senate would later sanction the five with penalties ranging from censure (Cranston) to mild rebukes (McCain and Glenn), depending upon how vigorously they took up their benefactor's cause.⁹


Most costly S&L failure ever

In April, 1989, the federal regulators seized control of Lincoln. They found that although the principle business of Lincoln was supposed to be the making of low risk residential mortgages, nearly sixty-seven percent of Lincoln's assets were high-risk land ventures and commercial development projects. Losses linked to Lincoln's downfall were estimated to be $3.4 billion, making it the most costly S&L failure ever.¹⁰

In 1993 the federal regulators sold Lincoln's Estrella development to the SunChase group.¹¹

1. Will C. Barnes, Arizona Place Names, University of Arizona Press, Tucson, 1988, p. 149.

2. Merle Erickson, Brian W. Mayhew, and William L. Felix, Jr., Cases in Strategic-Systems Auditing, Lincoln Savings and Loan, PMG/University of Illinois, Business Measurement Case Development and Research Program, 1999.

3. Ericson, supra.

4. "Custom Homesite Pricing," Realty Vision, LLC, 9760 South Estrella Parkway, Goodyear, AZ, 12-2-00.

5. Ericson, supra.

6. George G. Kaufman, A Lesson in Goverment [sic] Mismanagement, Foundation for Economic Education, Inc., April 1995, Vol. 45, No. 4.

7. Jerry Kammer, "RETRIAL FOR KEATING EX-FINANCIER, SON ACCUSED OF LOOTING LINCOLN SAVINGS," The Arizona Republic, 01-12-1999, pp A1.

8. Rita Henley, "In Whose Best Interests?", APF Reporter Vol.17 #1.

9. Kammer, above.

10. Farrell, Barbara R. and Joseph R. Franco. 1999. "The Role of the Auditor in the Prevention and Detection of Business Fraud: SAS No. 82." Western Criminology Review, 1999, 2/1.

11. Doug Donsky, NYC Sales, IPOs, Some Relocations Lead R.E. Surge During 1993, Commercial Property News, December 1, 1993.

a. Leigh Montville, "Olympics 2000: Double Take The surprisingly strong American swimmers got the biggest surprise of all when Anthony Ervin and Gary Hall Jr. won in a dead heat," Sports Illustrated, 10-02-2000, pp 51.

b. Johnette Howard, "OLYMPICS [BONUS PIECE]: THE TALENT POOL HIS GRANDFATHER'S BANKROLL AND HIS FATHER'S HEARTBREAK ARE PART OF SWIMMING LORE. NOW IT'S GARY HALL JR.'S TURN, AT THIS SUMMER'S OLYMPICS, TO ADD HIS CHAPTER T.", Sports Illustrated, 04-22-1996, pp 58.

c. Johnette Howard, above.

d. William Oscar Johnson, "1990 A LOOK BACK: City of the Year CINCINNATI A WORLD SERIES TITLE, A PHOTO EXHIBIT, PETE ROSE, SAM WYCHE AND CHARLES KEATING MADE FOR AN EMOTIONAL YEAR", Sports Illustrated, 12-31-1990, p 120.

e. Johnette Howard, above.

f. "United States History: Chronology of Events,", The World Almanac and Book of Facts 1997), Primedia Reference Inc., Mahwah, NJ, 11-15-1996.

g. Johnette Howard, above.