Jail Terms Urged for Convicted Financiers : Thrifts: Charles W. Knapp and associate could be ordered to pay $11.2-million restitution in Western Savings case.

Convicted financier Charles W. Knapp should be sentenced to nine years in prison and ordered to pay $11.2 million in restitution for defrauding an Arizona thrift in 1988, federal prosecutors urged in court documents filed Monday in Los Angeles.

Knapp, a high-flying thrift executive in California during the early 1980s who later tried to build an investment banking empire, was found guilty in July of lying to obtain a $15-million loan from Western Savings & Loan in Phoenix.

The loan was never repaid, and Western Savings failed in 1989 at a cost to U.S. taxpayers of about $500 million, the filing says.

Knapp’s attorneys have asked that he be spared a prison term and be ordered only to perform community service. Assembly Speaker Willie L. Brown Jr. (D-San Francisco) also wrote a letter to the court urging community service for Knapp. Brown could not be reached for comment.

A federal jury convicted Knapp, 59, on two counts of making false statements and one count of conspiracy. He is scheduled to be sentenced Monday by U.S. District Judge Stephen V. Wilson in Los Angeles.

Anthony C. Sarno, one of Knapp’s former business associates who was convicted on the same counts for his role in the Western Savings affair, should receive a jail sentence of five years and 10 months, the prosecutors recommended in their filing.

Sarno should also be held jointly liable with Knapp for the $11.2 million in restitution, they said.

The prosecutors, Assistant U.S. Attys. Carolyn J. Kubota and David J. Schindler, said the restitution request reflects the sum lost by Western Savings on the Knapp loan.

They also wrote that Knapp has claimed to have a net worth of between $30 million and $70 million even though he and his wife, actress Lois Hamilton, filed for personal bankruptcy protection in September, 1992. The “record clearly demonstrates (Knapp’s) ability to accumulate assets and earn large amounts of income,” Kubota and Schindler said.

The prosecutors say Knapp got the $15-million loan in part to bail out one of his companies, Trafalgar Capital. They also say he and the firm “were flat-out broke” at the time and that Knapp never intended to pay back the loan.

In their first public disclosure of some of the ways Knapp allegedly spent the $15 million, the prosecutors said $5.8 million went toward buying land in Arizona that helped Western record “sham profits.”

Another $3.7 million was used by Knapp to help launch a failed takeover bid for Southmark Corp., and $1.5 million went toward Knapp’s personal expenses, including $52,000 for a yachting vacation in Europe, prosecutors said.