A state-appointed receiver for Izalco Express Services said Wednesday that the money order company, seized by state regulators last month for illegally accepting nearly $1.4 million in deposits, is insolvent and has $700,000 in debts that it can't pay.
Part of that loss, though, should be recouped in a sale of the Costa Mesa company, which could occur within a month, Dennis I. Simon of the accounting firm Price Waterhouse LLP said after a brief Orange County Superior Court hearing.
Lawyers for Simon and Izalco's owner, Roger O. Vega, began discussions later in the day to devise a plan to repay creditors. That plan likely will include the sale of the 12-year-old company. Simon said a number of potential buyers already have contacted him.
Simon said a system will be set up to refund money on a proportionate basis to customers, but a "big issue" will be devising a system that reaches all the customers. Many did not leave addresses, according to court documents.
Izalco is authorized by banking regulators to sell money orders as well as MoneyGrams issued by American Express Travel Related Services. Generally, the company helps immigrants from El Salvador and other Latin American countries transfer money home to their families, banking authorities said. Izalco also rents mailboxes, cashes checks and exchanges foreign currency for customers.
But Izalco was not authorized to accept deposits, and state regulators seized the company Feb. 22, saying a state audit showed that Izalco had taken in deposits totaling $1.4 million from about 900 customers.
Vega was not present for the court hearing, in which Judge James L. Smith approved Simon's appointment as receiver and continued an order barring Izalco from taking deposits.
David Cortez of Costa Mesa, a customer and friend of Vega's since Izalco opened, said many immigrants who didn't want to go, or couldn't go, to banks began asking Vega, "Can you take care of my money?"
The California Department of State Banking, however, said that Vega, after losing money on third-party checks that banks refused to honor, began in mid-1989 to delay 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 said Vega gave customers passbooks to keep track of their funds and paid interest on their money.