Under 5% of Fraud Losses Being Repaid : Restitution: Courts order repayment of financial institutions’ losses, but convicted defendants seldom have the money or assets.

The federal government has recovered less than 5% of the $771.4 million in court-ordered restitution for criminal fraud against financial institutions over the past four years, the Justice Department said Friday.

The government asks judges to order full repayment of the losses suffered by banks, savings and loan associations and credit unions, but convicted defendants typically cannot pay the large sums involved, a senior Justice Department official said.

“I put the guy in jail, I leave him penniless, I put the (family) on the street, I take away the car and jewelry, what more can I do?” the official asked.

Federal “prosecutors all over the country ask that question,” he said. After stringent criticism earlier this year from Congress and the General Accounting Office that insufficient amounts of money have been recouped, the Justice Department has been anxious to justify its performance.

The latest figures, contained in the second quarterly report to Congress on financial fraud, offer the most complete statistical portrait to date of the government’s activities in prosecuting fraud against financial institutions.

Since October, 1988, the federal government has prosecuted 3,058 people in cases of fraud against banks, S&Ls; and credit unions. These defendants caused estimated losses of $11.2 billion for financial institutions, including $8.3 billion among S&Ls;, the report said.

The government won 2,376 convictions, and 1,526 defendants were sentenced to jail. Courts ordered the repayment of $771.4 million, but just $37 million was ultimately recovered.

The court decides the amount of restitution due after a person is convicted of having committed fraud. The amount “is usually based upon the size of the victim’s loss, rather than the defendant’s ability to pay,” the Justice Department said in its report.

The senior department official said that, despite the high conviction rate, there is comparatively little in cash and other assets remaining in the hands of people who contributed to the downfall of hundreds of financial institutions during the 1980s.

The Justice Department report offers several explanations as to why prosecutors cannot recover more cash from the S&L; debacle: “Most often, because the money was lost through speculative investing in such things as collapsing real estate markets or junk bonds; sometimes, it was dissipated because of land and loan flips (rigged price increases); in still others, it was squandered on lavish lifestyles; and in some cases the money was simply never there to begin with--it was only ‘on the books.’ ”

When “criminal investigators arrived on the scene, the assets were gone, and that was why almost everyone in the past felt we would be lucky to recover anything,” the Justice Department said.

The department was criticized in Congress for lacking a central system for tracking the government’s success or failure at collecting from convicted defendants. And many courts never bothered to report to the government whether any money had been collected.

Congress ordered the development of a National Fine and Restitution Center in 1987. The headquarters of the system has been opened in North Carolina, and pilot operations will soon be expanded to sections of Missouri, Pennsylvania and Texas. The system will not be in full operation until 1993 or 1994, the Justice Department reported.

The federal government has recovered much larger sums in civil complaints involving financial institutions. There is a lesser standard of proof, requiring prosecutors to demonstrate a preponderance of evidence that the defendant harmed the financial institution. The government has recovered $767.5 million since 1989 from professional liability cases, according to the Justice Department report. These include claims against bank and S&L; officers and directors, and malpractice claims against lawyers, accountants and appraisers. Many such cases are settled without trial.

Criminal cases are the most difficult to prosecute and win because the government must prove beyond a reasonable doubt that the defendant committed fraud.