State Seizes Operations of Costa Mesa Money Order Firm : Finance: Izalco Express Services was not authorized to collect $1.3 million in deposits from customers, banking regulators say.

State banking regulators said Thursday that they have seized the operations of Izalco Express Services, an Orange County money order company, alleging that it violated banking laws by collecting $1.3 million in deposits from more than 900 customers.

Izalco, operated by Roger O. Vega, was put into receivership but allowed to remain open for normal business unrelated to deposit accounts. Vega, who could not be reached for comment, is being allowed to continue working to assist the appointed receiver, Dennis I. Simon, a partner in Price Waterhouse LLP accounting firm.

The Costa Mesa company, which opened in 1983, is authorized to sell money orders and transmit money abroad under licenses it held from the California Department of State Banking.

Generally, Izalco helps immigrants from El Salvador and other Latin American countries send money home to their families, said John Paulus, the state agency’s chief bank examiner. Most of the customers don’t have accounts at commercial banks.

The state agency said that Vega, after losing money on third-party checks that banks refused to honor, began in 1989 to hold off on transmitting funds until after the checks cleared. That practice grew until a commercial bank asked the state agency to investigate. The agency would not identify the bank.

Regulators allege in court documents that Izalco has been taking deposits and giving customers passbooks to keep records of the money in their accounts. Such deposits are uninsured, and that banking activity was never authorized by state regulators, Paulus said.

Simon, appointed as receiver Wednesday by an Orange County Superior Court judge, will determine whether deposit accounts exist, how much money they hold and how much money, if any, is lost. He also must determine if there is enough cash and other assets to pay depositors and other creditors.

Simon is expected to report his findings to the court March 8, when the court will hear arguments on whether Vega should be stopped from operating his business or whether the lawful operations can be returned to his control.