A federal regulatory agency plans to take control of a $77.5-million federal court lawsuit that accuses 13 Oregon real estate brokers and companies of conspiring to defraud Butterfield Savings & Loan Assn. in Santa Ana, a lawyer for the Federal Savings and Loan Insurance Corp. said Monday.
The FSLIC, appointed receiver for Butterfield last Aug. 7 when regulators declared it insolvent, intends to handle the pending suit and probably will join it as a plaintiff, according to Peter J. Diedrich, a Los Angeles lawyer representing the federal agency.
Butterfield's current management had filed the suit against the brokers in U.S. District Court in Los Angeles on June 12, the day that the FSLIC sued the former owners and top management of Butterfield on a number of claims, including a conspiracy involving the same allegations.
Both lawsuits claim that the S&L's former president and chief executive, Donald W. Endresen, and other former officials of the company conspired with brokers in the purchase of $85-million worth of property in the Pacific Northwest. The results of the scheme, according to the suits, were excessive commissions, inflated prices and a superficially higher net worth for the S&L.
As many as a dozen transactions representing investments of more than $48 million were approved and closed in one week, the suits claim. Butterfield took on such a high level of debt that it was caught in a "ruinous negative cash flow," the suits contend.
The transactions, involving 40 parcels in Oregon and Washington, damaged the institution by about $20 million, according to the suits.
The real estate scheme was "a major contributing factor" that led to Butterfield's downfall, said Anne Bacon, the S&L's executive vice president and chief executive officer. Bacon also is a senior vice president for Downey S&L, which FSLIC hired to continue operating Butterfield.
In the suit, the FSLIC seeks $16.5 million in actual damages for alleged breaches of contract, and fiduciary duties, fraud, negligence and conspiracy. It also seeks $48 million in treble damages for violations of the federal Racketeer Influenced and Corrupt Organizations Act, and it asks $1 million in punitive damages against each defendant.
The FSLIC suit against Endresen, four other former officers and the former holding company, Butterfield Equities Corp., seeks more than $40 million on similar claims that stem from allegations of concealing facts about loans and investments from the S&L's board.