State Agency Denied Control of O.C. Firm : Court: Bankruptcy trustee remains in charge of Washington Trust Deed.

A state agency lost a round in federal bankruptcy court Thursday when a judge refused to give it control again of Washington Trust Deed Service Corp., a Newport Beach company accused of defrauding hundreds of elderly investors.

The state Department of Corporations in December persuaded a state judge to appoint its hand-picked receiver to run the company in order to protect investors.

To wrest control from the receiver, Washington’s owner filed for Chapter 7 bankruptcy a few days later.

The practical impact of the ruling is nil because control of the company remains beyond the reach of the owner, Kenneth E. Sarvak, 68. A federal bankruptcy trustee is now in charge of the company, which will be closed down and its assets sold off to pay debts.

Washington is a sister company to Lincoln Mortgage & Loan Co. in Newport Beach, also owned by Sarvak and also in bankruptcy. Both concerns sold investments in second mortgages mostly to senior citizens and sports figures.

The Department of Corporations said Thursday that it had not decided whether to appeal the ruling by U.S. Bankruptcy Judge John J. Wilson.

The state agency acknowledged that--either way--Sarvak has relinquished control of the company but said the issue is a matter of principle: Sarvak, it maintained, should not be able to thwart state regulators by filing for bankruptcy.