BANKING/ FINANCE : Former Regulator May Eat His Words in Lincoln Memos

The revolving door between government and private employment spun quickly for now-defunct Lincoln Savings & Loan in Irvine. The latest example comes in an amended complaint filed Monday by regulators in their $2.7-million lawsuit against former Lincoln owners, operators and advisers.

Among the 14 defendants added to the suit was William Schilling, a lawyer at the Cleveland firm of Jones, Day, Reavis & Pogue, the nation’s second-largest legal firm.

Schilling was wooed from his government job in the mid-1980s to provide the firm with the regulatory expertise it needed to represent S&Ls.; He was part of the Jones Day team that helped Lincoln comply with federal rules in early 1986.

As a government lawyer a few months earlier, he was director of examinations and supervisions for the Federal Home Loan Bank Board, a job that determines if S&Ls; are in compliance with federal laws and regulations. (The bank board has since been replaced by the Office of Thrift Supervision.)

It was as a regulator that he wrote memos criticizing Lincoln, and those memos may haunt him now.

He wrote, for instance, that “Lincoln has engaged in several serious regulatory violations,” including overvaluation of real estate, and that similar violations “have led to some of the worst failures” in thrift history, according to the lawsuit.

He also warned that Lincoln’s income figures were “unreliable,” that its loan portfolio contained “substantial unrecognized losses” and that the thrift had little capital or management expertise to take on the risky investments it had planned.

Soon after joining Jones Day, Schilling was part of the team that the lawsuit alleges helped Lincoln executives remove incriminating materials from loan files and stuff the files with new documents justifying the decisions to grant loans.