‘Unsafe and Unsound’ Operation Prompts Takeover : Regulators Seize Manhattan Beach S

U.S. banking regulators have seized a small savings and loan in Manhattan Beach and charged Friday that the institution used deceptive lending and business practices that “personally enriched” its majority stockholder and former chairman by more than $3 million.

The Federal Home Loan Bank Board said it took over Manhattan Beach Savings & Loan Assn. because it was being operated in an “unsafe and unsound” manner characterized by conflicts of interest, bad loans and heavy losses.

Regulators say they obtained court orders in U.S. District Court in Los Angeles on Friday that placed a lien and partial freeze on the assets of Peter Sajovich. Sajovich, who resigned as chairman of the S&L; four months ago, was not available for comment.

The 36-year-old, Budapest-born savings banker opened Manhattan Beach Savings in 1984, and its failure marks one of fastest closures in U.S. banking history. Regulators said the S&L; grew quickly by making construction loans using large certificates of deposit carrying high rates of interest.

Bank board regulators took control of the financial institution at the close of business Thursday. The S&L;, which has $53 million in assets and one retail office, opened for business as usual Friday under new management from Santa Monica-based First Federal Savings Bank of California, a bank board spokeswoman said.

This is the 12th time in nine months that regulators have seized a California savings and loan because of poor lending practices. The first and best-known seizure came last April when regulators took over Beverly Hills Savings & Loan Assn., which had nearly $3 billion in assets.

Each has been put into what has become known as the “management consignment program,” whereby the S&Ls; are allowed to remain open while regulators figure out how to sell the bad loans.

Though Manhattan Beach Savings is one of the smallest S&Ls; to be put in the management consignment program, the charges are among the most detailed.

Those details were made public in a lawsuit filed Friday by the Federal Savings and Loan Insurance Corp. in U.S. District Court in Los Angeles.

The FSLIC, an arm of the bank board, was named as conservator for the S&L.; The lawsuit charges that:

- Manhattan Beach Savings pumped $4.5 million into a mortgage service company, known as National Home Equity, that Sajovich also owned. National Home Equity then used $3 million of the money to cover a check that it could not fund.

- Another Sajovich-owned company received a total of $192,000 in fees, paid in $16,000 monthly payments, in what regulators described as an “allegedly bogus consulting arrangement.”

- Manhattan Beach Savings made “unlawful” purchases of loans from another company also controlled by Sajovich. That firm was identified as Encino-based Deseret Pacific Mortgage, a mortgage banking firm that was named as a defendant in the lawsuit. The suit said that Deseret is also insolvent.

Sajovich has been in the mortgage lending business for more than a decade, according to Ernest Leff, a Beverly Hills attorney who has represented him. Sajovich worked as an assistant branch manager for American Savings & Loan Assn. in the mid-1970s, then spent several years as senior underwriter for the Federal Home Loan Mortgage Corp. in Los Angeles, Leff said.

Leff described Sajovich as “very bright and extremely sharp,” but another associate said Sajovich had problems at Manhattan Beach Savings because he frequently disagreed with bank regulators about what loans the S&L; should make.