SANTA ANA — Dealing a blow to federal banking and thrift regulators, a bankruptcy judge has ruled that the government failed to prove that former developer Bill L. Walters hid millions of dollars in assets from creditors and intentionally lied about his earnings.
The long-awaited decision, released Friday, all but clears the way for Walters to be freed from as much as $220 million in debts while he continues to live in luxury in a rented beachfront home in the Emerald Bay area of Laguna Beach and reportedly jets to Europe to consult with bankers and investors.
Walters gained attention here when he filed for bankruptcy while continuing to maintain three homes: a $1.9-million Newport Beach estate, a $1.8-million Indian Wells desert house and a $250,000 Laguna Beach mobile home. All three, like other assets, had previously been transferred to his wife, Jacqueline, and have since been sold.
Once one of Denver's leading real estate developers, Walters defaulted on more than $100 million in loans from FarWest Savings & Loan in Newport Beach and Silverado Banking, Savings & Loan in Denver. Both thrifts subsequently failed.
In November, 1990, Walters filed for bankruptcy, listing assets of $11 million and liabilities of $220 million.
The Federal Deposit Insurance Corp. and the Resolution Trust Corp., receivers for Silverado and FarWest, respectively, alleged that Walters fraudulently transferred the homes and other assets, totaling $14 million at one point, to his wife in a 1986 prenuptial agreement and that he lied by failing to disclose that he was earning $10,000 to $20,000 a month while his real estate empire was crumbling and bankruptcy was looming.
But in his 36-page opinion, Bankruptcy Judge John J. Wilson often stated that the government presented "no credible evidence" to support its various allegations. He noted that his ruling "will not be satisfying" to creditors or the government.
"A debtor with over $200 million in debts will receive a discharge, while his wife, and certain trusts, retain millions of dollars of assets which the debtor will be able, in part, to enjoy," Wilson said.
"This may be an unfortunate result from the standpoint of social and economic policy, but it is not the function of this court to engage in social or economic reform," he said.
In rendering his decision, Wilson noted that the government went to great lengths to prove its case during nine days of well-publicized hearings last summer. It sought 60,000 pounds of documents from Walters and produced 314 exhibits, many containing hundreds of pages of deposition.
In a pointed footnote, Wilson remarked that while the FDIC and the RTC jointly pressed a lawsuit seeking to dismiss the bankruptcy filing, the single largest creditor, Manufacturers Hanover Trust Co., which is owed $110 million, never joined in.
The irony is that, had the government won, it could not have collected anything from Walters, though it could continue to pursue him for years. Walters claims to be broke. His wife, who was sued by the trustee for Walters' estate, settled that action by agreeing to pay $1.4 million.
Only a small claim remains to be decided before all debts are wiped off the slate for Walters.