Big Loss Faced by Depositors in Seized Firm : Regulation: Bills from receiver, lawyer and accountants, if approved by judge, will substantially reduce the funds remaining at the O.C. check-cashing service.

Hundreds of working-class customers who collectively deposited $1.4 million in a Costa Mesa check-cashing outfit that was seized by state regulators are likely to receive only a portion of their money back, attorneys said Wednesday.

A receiver’s report on Izalco Express Services, which was not authorized to accept deposits, shows that $563,000 remained at the end of April after the business had been sold. The amount will be further reduced if a Superior Court judge today approves payment of $166,000 in bills from receiver Dennis I. Simon, his lawyer and the Price Waterhouse accounting firm.

Some of the mostly immigrant clientele of Izalco, many of whom deposited their life savings in the firm, said they are distressed that more hasn’t been done to preserve their nest eggs.

“I’m not bothered by the fact the owner has not paid us, but I am bothered by the lack of action by the government in not taking care of the people who need it,” said Manuel Laguna, 39, a stock clerk who deposited $13,100. He said he built up his savings by working nights and weekends as a painter for six years.

Roberto Salinas deposited $16,500 from jobs as a factory worker and busboy. He had planned to use the savings to pay for his mother’s surgery and for a house in his native El Salvador.

“I am extremely upset over this,” said Salinas from his modest, tidy Costa Mesa apartment. “This is our money. It’s just not fair.”

The receiver’s fees alarmed lawyer Jennifer Feres, who represents former Izalco owner Roger Oscar Vega. Feres said she plans to challenge the fees at the 1:30 p.m. hearing today before Judge Nancy Wieben Stock in Santa Ana.

The expenditures mean “there is much less available for the depositors,” Feres said.

A lawyer for the receiver disputes her allegations and calculations, but agreed that there appears to be little money left for depositors.

Just how much reimbursement is coming to the more than 800 depositors is yet to be determined. The receiver is considering whether to send out claim forms to depositors that would be used as a basis for any eventual reimbursement.

State banking regulators seized Izalco and filed a lawsuit against Vega last February when it was discovered that the center was accepting deposits. Like most check-cashing centers, Izalco was limited by law to cashing checks, selling money orders and wiring money abroad. The lawsuit alleged that Vega was unlawfully operating a bank and making illegal wire transfers of funds.

Making matters worse, state officials said that Izalco did not have enough cash and assets to pay off all of the depositors. Despite $1.4 million in deposits, the state could only identify $925,000 in remaining cash and assets. A lawyer for the receiver said Wednesday even that figure turned out to be inflated.

In an effort to prevent a run by depositors trying to get their money back, the state appointed Simon to operate Izalco in the interim. Izalco stayed in business while the books were reviewed and a buyer was located. The operation was bought in March for $175,000.

But had it not been for the receiver’s insistence that Izalco stay in business rather than being liquidated after the state takeover, Vega lawyer Feres alleges, depositors would have received more.

“This tactic by the receiver accomplished only an increase of the receiver’s fees, costs, payment of selected creditors, legal fees, and little money if any monies . . . for the alleged ‘depositors’ whom this case was instituted to protect,” she wrote in her filing.

To keep Izalco as a “going concern,” Feres said, Simon paid $533,000 to creditor American Express rather than allow a judge to decide whether those funds should go to the depositors. Izalco used American Express money orders and wire transfer services.

Then Simon used 18 Price Waterhouse auditors and representatives, who billed up to $270 an hour, to straighten out the books, Feres said. Simon is a Price Waterhouse employee.

Simon’s lawyer, Edward M. Wolkowitz, said the receiver’s orders were to run Izalco rather than simply close it and distribute the remaining assets. The payment to American Express is a “red herring” because the company was being reimbursed for orders sold during the month that Izalco operated under the receiver’s control before being sold.

The receiver’s costs were up to 35% higher because Vega refused to cooperate with auditors, Wolkowitz said. “The books were in terrible shape” and Vega never showed up for an appointment in March to go over them, the receiver’s attorney said.

Deputy Atty. Gen. Gregory S. Price, who represents state banking officials, also defended the decision to keep Izalco open. Closure would have caused “an almost certain run on the deposits with no control on what happened to the assets, and a lot of people would lose what they otherwise could get,” he said.

He said that the receiver “was able to get in and preserve that business . . . to sell it for that amount of money [$175,000] is worth a great deal.”