Ex-S&L; Officers Deny Plan to Divert Funds : Accuse Directors Who Blew Whistle on Universal of Being Dishonest

Deposed officials of Universal Savings Bank vehemently denied in a Superior Court hearing Monday the state’s allegations that the Orange-based savings association was planning to divert millions of dollars to its Australian parent company.

They also lashed out at the two directors who reported alleged financial problems at the savings bank to state and federal regulators, calling the board members “dishonest” and “corrupt.”

Universal’s former chairman, Christopher Blaxland, also testified that he had stopped a $25-million Malibu real estate transaction, which was one of several pending transactions that prompted the state Department of Savings and Loan to obtain a court order and seize control of the S&L; on June 16.

The seizure of a healthy and solvent S&L; was unprecedented in California banking history, according to state banking officials.

Meanwhile, it was revealed at the hearing before Judge Christian E. Markey Jr. that the Federal Home Loan Bank Board has issued a cease and desist order prohibiting Universal from selling any of its loans in the secondary loan market. State and federal regulators refused to confirm or deny the existence of such an order, saying that all such orders are confidential, but two Universal officials confirmed that it was issued some time last week.

In addition to detailed testimony about the state’s allegations, the June 16 court order placing the bank into conservatorship was unsealed by Judge Markey.

Among other things, the order alleged that:

- Universal “committed to the funding of multimillion dollar loans without first having the loans reviewed and approved by the loan committee.”

- The S&L; had planned to pledge the assets of the association as collateral for loans made by other entities--specifically Australian subsidiaries of the parent firm, Unity Corp. Ltd.

- The S&L; proposed to make loans that would “reduce liquidity” and severely restrict the ability of the association to make other loans.

- The S&L; planned investments in real estate exceeding its direct investment limitation set by state and federal regulators and committed loan proceeds to “an affiliated person.”

One of the loans questioned by state regulators was on a Malibu property that had been appraised at $21 million. The state alleged that Universal was planning to buy the parcel for $25 million and lend $6.8 million more to one party in the transaction.

However, both Blaxland, the suspended chairman of Universal, and Garry Carter, chairman of Unity Corp. Ltd., which owns the savings bank, testified that the Malibu deal was dropped after they decided it would be too expensive to develop.

However, Blaxland testified that he had authorized two $250,000 checks to be issued to real estate promoter Leon Bruckman, who was working with Universal on various proposals, including the Malibu deal.

Regulators Alerted

Bruckman was also negotiating to sell Universal a 500-acre parcel in Oceanside, Blaxland said--a deal still pending.

In court, Blaxland accused Christopher Gadsby, vice chairman, and Serge Woodruff, president and chief executive officer, of “dishonest and corrupt” dealings. The two men alerted state and federal regulators to the problems at Universal, prompting the state to seize control.

“I had been very concerned about Mr. Gadsby’s personal probity. I felt he was no longer a person I could take into my confidence,” Blaxland testified.

Blaxland said he “formed some reservations regarding Mr. Woodruff’s conduct as well (because) Mr. Woodruff was clearly under Mr. Gadsby’s influence at the best, and at the worst, corrupt.”

“It’s absolute nonsense and totally untrue,” Gadsby said outside the courtroom, in response to Blaxland’s remarks about himself and Woodruff.

Woodruff said outside the courtroom the relationship among himself, Gadsby and Blaxland began to deteriorate because it was difficult to reach Blaxland when he was frequently in Australia.

‘Right Will Prevail’

“We tried to do the right thing,” said Woodruff, who was suspended from serving as president by the state regulators, but remains as a consultant. “We are sure right is right, and right will prevail.”

Meanwhile, Unity’s Carter said he is optimistic that the state will return control of Universal to its Australian owners.

“The state is not going to be able to prove a single allegation,” Carter said outside the courtroom. “They jumped in and got an order on the evidence provided by a disgruntled employee (Gadsby).”

Carter said he flew to California to ask Gadsby to resign just a few days before the state moved in to seize control of Universal. “I had no idea Gadsby was setting us up,” Carter said.

Carter acknowledged that Unity continues to experience problems at home. This week, the company reported a $20 million loss for the first six months of the year, stemming from an unsuccessful takeover bid for Humes Ltd., an Australian heavy industrial company.

The bid, which was investigated and resulted in sanctions imposed by Australia’s equivalent of the Securities and Exchange Commission, prompted Unity to begin selling assets to raise cash.

However, Carter said the company still has $300 million in equity, its stock price is stabilizing and he hopes to overcome the negative publicity generated by the Universal seizure.