Federal regulators have sued the former owners and top managers of Butterfield Savings & Loan Assn., claiming they negligently operated and defrauded the Santa Ana-based S&L.;
The suit, filed in U.S. District Court in Los Angeles, seeks more than $40 million from the S&L;'s former chairman, Donald Endresen, four other former officers and the former holding company, Butterfield Equities Corp., for allegedly concealing facts about loans and investments from the S&L;'s board.
Butterfield was declared insolvent and seized Aug. 7 by the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corp. The regulators kept the S&L; open and turned over its management to a team from Downey Savings & Loan. Downey is not involved in the lawsuit.
Reached at the Anaheim office of Butterfield Equities, which was not taken over by regulators, Endresen was reluctant to comment Wednesday on any specific allegations, saying he had not yet been served with the complaint and was unaware of its contents.
"Whatever the charges are, they are patently absurd," he said. "There is absolutely no truth to any of it."
In the suit, the bank board and FSLIC contend that Butterfield Equities and Endresen, his brother, William, and his father, David, caused the the S&L; to invest $15 million in a promissory note secured by a high-rise office building.
The suit alleges that they failed to tell the S&L;'s board, which had to approve the deal, and that they had given up a key right that would have protected Butterfield from potential loss. The investment later soured, and Butterfield lost money.
The suit further alleges that the Endresens and Butterfield Equities conspired with a number of brokers to boost commissions and property prices in the S&L;'s $85-million purchase of property, primarily in the Pacific Northwest. The suit claims that the S&L; overpaid by about $20 million for the properties.
Yet another allegation is that former director Chris R. Reinhardt fraudulently misled S&L; executives in selling his Gold Insurance Co. to a subsidiary of Butterfield S&L.; Reinhardt, the suit alleges, competed against the subsidiary even though he promised not to compete and even though he continued working for the subsidiary.
Also named as a defendant is Nelson H. Coleman, a former officer and director. The suit claims that, as an accountant, Coleman should have questioned, objected to or otherwise advised Butterfield S&L; on the matters that got it into regulatory trouble.
The often controversial and outspoken Endresen was sanguine about the takeover a day after it happened. He said then that he understood the reasons for the takeover and was not bitter about it. He said he was "not suited to manage in a regulated business" and that his management style and the course he set for the S&L; "sent up a lot of flags."
Under his reign, the S&L; grew from $100 million in assets in 1982 to $820 million in assets at the end of 1984. It had 11 subsidiaries, including units involved in the restaurant business, real estate syndication and development, property management and financial planning.
During that time, Butterfield also had been a target of criticism by Edwin J. Gray, chairman of the Federal Home Loan Bank Board, the federal regulatory agency that oversees FSLIC.
Gray often chided Butterfield for operating restaurants, claiming the S&L; was using financial deregulation to get into non-traditional businesses that threatened the stability of the industry.
In the two years before the takeover, Butterfield lost more than $40 million.
Last August, Endresen blamed the S&L;'s problems on the failure of its real estate lending policies, which were based on the belief that Southern California property values do not decline.
He said then that Butterfield concentrated its lending on coastal area homes in the $500,000-plus price range in 1981 and 1982, but the collapse in the market for high-priced homes the following two years drove prices down 25%, resulting in a huge number of foreclosures and Butterfield's demise.