State Seizes L.A. Money Order Firm : Finance: General Money Order couldn’t honor $3.16 million of its paper.

A Los Angeles money order company, which sold an estimated 300,000 orders worth $60 million last month, was seized Wednesday by the state Department of Corporations after it was revealed that the firm was unable to reimburse at least $3.16 million of its money orders.

State Corporations Commissioner Thomas S. Sayles said he took possession of General Money Order at 1717 S. Hoover St. The firm’s customers are “typically members of the African-American, Korean and Hispanic communities” who buy money orders to pay rent, utility and department store bills, he said. Many are lower-income people living mainly in South-Central Los Angeles who have no bank accounts.

Wednesday’s takeover comes only five months after another money order company in California was seized because it ran short of funds.

The takeovers illustrate such firms’ potential for abuse. Largely unregulated, they can prey on low-income consumers who have few alternatives for paying bills.

General Money Order’s president, Jay S. Hwang, could not be reached for comment Wednesday.

Sayles said his agency is trying to determine where the missing funds are.

“What makes this so unfortunate is the time of the year,” he said. “There is never a good time for this to happen, but at Christmas it is the worst time. This is a time when people need more money.”

To lessen the impact, Sayles said he has been trying to pressure stores, phone companies, government agencies, landlords and other recipients of unreimbursed money orders not to begin collection or eviction proceedings. The state Public Utilities Commission has agreed not to prosecute people who have purchased money orders from the failed company.

The Department of Corporations on Wednesday appointed David Ray of the Westwood law firm Salzberg, Ray & Bergman as a receiver to “reconcile the books and records of General and to marshal its assets in order to make distributions to holders of dishonored money orders,” Sayles said.

He added that in the weeks ahead he will be pursuing allegations of “wrongdoing” at the company. Until now, the Department of Corporations believed that General Money Order was a healthy business, Sayles said, adding that the company’s quarterly statement for the period ended in September showed no signs of trouble.

Wednesday’s takeover comes only four months after the Department of Corporations seized Los Angeles-based Pan American Money Order. William McDonald, the agency’s chief of enforcement, said he will be looking into ways to screen companies that sell money orders and the agents they hire to remit the money. He will also look at better controls on the industry--such as bonding requirements to control the flow of funds.

Problems at “two (money order companies) in such a short period of time really concerns me,” McDonald said. “As soon as we know where the money went, we will be in a lot better position to remedy this situation.”