Court Upholds Government Order : Universal Savings' Attempt to Oust 2 Directors Denied

July 14, 1987|JANE APPLEGATE and JAMES S. GRANELLI | Times Staff Writers

A federal judge in Los Angeles refused Monday to lift a government order requiring Universal Savings Bank to reinstate two directors who were suspended from their positions shortly before complaining to regulators about an allegedly improper plan to loan $10 million.

The allegations of a scheme to violate savings and loan regulations by making excessive loans to the chairman of the Australian company that owns the Orange-based S&L prompted state officials to seize Universal last month.

But a Los Angeles Superior Court judge last week said that the allegations had not been substantiated in testimony, so he returned control of the S&L to its parent, Unity Corp. Ltd. of Sydney.

In Monday's federal court action, Universal also sought the right to fire Bruce I. Ellner from its commercial lending operation. The S&L is prohibited by the same government order from making any management changes without regulatory approval.

In a letter written to the Federal Home Loan Bank Board by Universal chairman Christopher Blaxland, Ellner was linked with an FBI investigation at Queen City Bank in Long Beach, where Ellner worked last year. But Ellner said Monday that the FBI was looking into the wrong bank and had ended its probe two weeks ago.

Ellner and the two Universal directors, Christopher J. Gadsby and Serge B. Woodruff, who is also the S&L's president, remained on the job Monday after U.S. District Court Judge Terry J. Hatter denied, without a hearing, Universal's request for a temporary restraining order.

The judge scheduled a July 27 hearing on the S&L's motion for a preliminary injunction.

Universal's motion in federal court followed a letter, sent Thursday by Blaxland, asking the Federal Home Loan Bank Board to let the S&L fire Gadsby and Woodruff.

Gregg Golden, an attorney for the bank board, which regulates S&Ls, argued in documents filed with the court that the order requiring the reinstatements of Gadsby and Woodruff and prohibiting Universal from making any management changes without bank board approval should remain in effect.

Federal regulators, he wrote, had "reasonable cause to believe" Universal was about to engage in prohibited acts when the so-called cease-and-desist order was issued June 18.

The bank board attorney argued that setting aside the order would enable Unity Chairman Garry Carter "to make significant changes in management, essentially free of adequate supervision."

The bank board order, attached to its court papers, also bars Universal from engaging in any transaction of more than $500,000 without prior written approval from the bank board. Golden wrote that the S&L's owners are using depositor money to make loans and said that any losses caused by Universal's actions could further injure an already crippled Federal Savings and Loan Insurance Corp.

Attorneys for Universal argued in their court papers that the bank board's cease-and-desist order was an "arbitrary and capricious" abuse of government discretion.

They said the reinstatement of Gadsby and Woodruff has created "dissension, uncertainty," and "disharmony," resulting "in insurmountable hardship to Universal."

Universal's attorney, Robert K. Wrede, could not be reached for comment after the ruling.

Assuming the court does not throw out the bank board's order, the agency will hear the S&L's request on Aug. 12 to revise or eliminate the order.

In his letter to the bank board last week, Blaxland also said that the FBI had investigated Ellner in connection with irregularities at Queen City Bank when Ellner was employed there.

But Ellner said Monday that the only investigation he knew about was an FBI probe into a wire transaction that involved some of his former customers. In the end, he said, the FBI was looking at the wrong bank and ended its investigation.

The FBI has said it has no current investigation on Queen City Bank and, under agency policy, would not name any individuals under investigation.

Ellner, who was recruited by Gadsby, said that the FBI now "is working with our guys" in a probe of Universal. The agency said on Friday that it has been looking into possible bank fraud and embezzlement at the S&L, but it would not say who is under investigation.

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