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Valencia Bank Will Pay $8 Million in Trust Case

June 15, 1985|HEIDI EVANS | Times Staff Writer

Valencia Bank has agreed to pay nearly $8 million to a group of trust department clients who claim that former bank officials misappropriated their pension funds, The Times learned Friday.

In the settlement agreement with 37 clients, most of them doctors, Valencia will pay $3 million into a special trust and will have the trust liquidate bank trust department assets worth at least $4.6 million more over an undetermined period. The clients will receive the first $3 million immediately.

The payments are being made to cover the clients' 1983 loss of $6.5 million in pension funds, plus $1.1 million in interest.

The bank and attorneys for the pension fund owners have retained former Superior Court Judge Bruce W. Sumner to administer the special trust account set up to pay off the debt.

The settlement agreement, reached Thursday night after three previous attempts failed, calls for the trust clients to drop the lawsuits they already have filed against Valencia, which is selling its $30-million trust department to another bank.

Sumner said Friday he was hired by attorneys for the bank and the investors, at a fee of $200 an hour, to administer the special trust. The account contains not only the initial $3-million payment, but other assets--mainly real estate--that will be sold to raise at least $4.6 million more.

Valencia's trust department, which invests and manages clients' money, had been the focus of concern at the bank since December, 1983, when Valencia officials uncovered the misappropriation of more than $6 million. The bank said the money was illegally invested in real estate deals by several former Valencia employees.

"The bank had a major liability . . . ," said Ken Sleazak, a Valencia spokesman.

Sleazak added that the $3-million cash advance came from the sale of other bank assets and not from the bank's capital fund. Valencia, once one of the county's most successful independent banks, has been ordered by federal regulators to raise several million dollars in new capital to offset large loan losses.

Officials of the Santa Ana bank said last month that Valencia hoped to return the bank to profitability in part by selling its trust division to Pacific Inland Bancorp of Anaheim. Valencia, however, continued to assume the $6-million trust department liability.

In addition to raising money and distributing it to the trust department clients, Sumner said he is contemplating at least one lawsuit against certain former Valencia officers and directors "to compensate for any mismanagement that might have occurred" when the trust funds were depleted.

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