Disciplined in Wake of Alleged Mortgage Fraud : Demoted Branch Manager Sues B of A

A former Bank of America branch manager demoted and accused by the bank last year of negligence in connection with an alleged $95-million mortgage securities fraud has sued the bank for unspecified damages.

Beverly Hegg was one of six bank officers and three companies named by Bank of America in two civil suits filed last March seeking recovery of the bank’s lost $95 million. The same day the suits were filed, the bank announced that it had fired five employees and demoted Hegg, citing gross negligence and breach of duty.

In her suit, filed late last week in U.S. District Court in Los Angeles, Hegg denied any responsibility for the alleged fraud. She said her demotion from her post as manager of the bank’s Inglewood branch after 28 years of service with the bank was a breach of contract.

She is now a financial-services officer at a different Los Angeles-area branch.

The bank had served as trustee and escrow agent for pools of mortgage securities syndicated by National Mortgage Equity Corp. of Palos Verdes Estates. When the deal went sour, B of A was forced to repay two dozen savings and loan companies that had invested $133 million in the mortgage pools for property that was worth no more than $38 million.

Accused of fraud in Bank of America’s civil suits were National Mortgage Equity Corp. and its president, David A. Feldman; West Pac Corp. and its president, Kent B. Rogers; the Chicago law firm of Lord, Bissell & Brook, and one of its partners, Leslie W. Michael.

Hegg was named Inglewood branch manager in April, 1983, about 18 months after the branch began handling the mortgage investment funds. She replaced William Powers, who first accepted the National Mortgage Equity account, according to the B of A lawsuit.

He is one of the five bank officials who were fired.

The bank said Hegg failed to exercise proper oversight of the mortgage pools, especially considering the “large amount of money involved and the unusual nature of the escrow services” related to the mortgage program.

Hegg said in her lawsuit that she had never previously managed a branch with an escrow department, knew nothing of escrow procedures and relied on Powers’ assurances that the department was operating properly. Neither Hegg nor her attorney, Alan Ribakoff, could be reached for comment. Powers has declined to discuss the case.

A B of A spokesman said the bank had not yet seen the suit and would not comment on it. He said no date for a trial of the bank’s suit against Hegg and the others has been set.

The mortgage securities case also is being investigated by state and federal law enforcement authorities.