Regulators Settle Last Case in Collapse of Butterfield Savings

Federal regulators, acknowledging a lack of evidence, have agreed to settle the last piece of litigation accusing defendants of conspiring to defraud Butterfield Savings & Loan in Santa Ana and contributing to its collapse four years ago.

The tentative settlement, reached Monday, would bring the government’s total compensation in two lawsuits it had filed to about $6.5 million.

The bailout of Butterfield, which regulators declared insolvent and seized in August, 1985, cost the federal government $281 million. That’s the amount of federal assistance pledged in the sale of Butterfield last September to Downey Savings & Loan in Newport Beach, which operates a now healthy Butterfield as a subsidiary.

Within a year of the S&L;’s failure, regulators filed two civil lawsuits against 19 defendants alleging they conspired to defraud Butterfield through a series of about 50 real estate transactions in the Pacific Northwest.

In one suit, regulators claimed that Donald W. Endresen, Butterfield’s former president and chief executive, and other directors and officers conspired to increase the S&L;’s sagging net worth by inflating the value of the properties. That suit was finally settled earlier this year when the defendants’ insurer agreed to pay about $5 million.

In the second suit, regulators accused 13 Oregon brokers, appraisers and companies of conspiring with Endresen and S&L; officials to pay inflated prices--a total of $85 million--for the Pacific Northwest properties, mostly in Portland. The properties were worth less than $50 million, regulators alleged.

Regulators previously settled with nine Oregon defendants, receiving a total of about $500,000, lawyers said. Monday’s tentative settlement with three brokers and an appraiser would bring the government an additional $1 million. The U.S. District Court in Los Angeles is expected to approve the last settlement within a month.

None of the defendants in either lawsuit admitted any liability in settling the cases. In an unusual twist, two of the remaining Oregon defendants will receive letters explaining that there was insufficient evidence for the government to bring fraud and conspiracy claims against them.

The discovery process “did not supply as much evidence as we had originally believed of fraud or conspiracy to defraud,” said Peter Diedrich, a Los Angeles lawyer representing the federal government.

The last defendants are brokers Michael J. Safley, R. Michael Van and Thomas V. Clarey, and Portland, Ore., appraiser Alan A. Paget. The brokers were doing business as Riverside Realty in 1984 when the alleged damages were incurred.

The settlement calls for the federal government to receive $1 million from the defendants’ insurance company. In return, Safley and Van will be provided a letter explaining the lack of evidence against them.

According to John Folawn, who represents Safley and Van, the bulk of the settlement will come from Paget’s insurance policy.

Paget was named in the lawsuit because the government claims that some of his appraisals were inadequate. They allege he used faulty economic data, incorrect zoning and invalid professional standards in arriving at property values.