Decision Is Major Defeat for Regulator : Judge Overturns State’s Seizure of Universal S

A Los Angeles Superior Court judge Wednesday overturned the state’s unprecedented June 16 seizure of a financially sound savings and loan firm in Orange County, a decision representing a major defeat for California’s top S&L; regulator.

Judge Christian E. Markey Jr. ordered the state to return control of Universal Savings Bank in Orange to its suspended chairman and its Australian parent company. He said there was “no substantial evidence” to support the state’s claim that the S&L; was about to lend $10 million to the chairman of its ailing parent, Unity Corp. Ltd.

“Universal was (not) and is not engaging in practices that threaten to impair its (financial) condition,” Markey said, ruling from the bench after 2 1/2 days of testimony.

“I now regard this unfortunate episode as over,” Universal Chairman Christopher Blaxland said. William J. Crawford, commissioner of the state Department of Savings and Loan, last month obtained authorization from Markey to place Universal in a conservatorship, using allegations from two officers of the S&L; who had been suspended by Blaxland. They charged that certain pending real estate transactions would damage Universal’s finances by diverting funds to Unity’s chairman and depleting the S&L;’s capital.

The two officers--Universal President Serge Woodruff and Vice Chairman Christopher Gadsby--were under investigation by Universal’s chairman for alleged improper conduct and had been relieved of their duties the day before they complained to regulators.

Commenting on Wednesday’s ruling, Crawford said his department “tried to prevent . . . (any transfer of funds to Unity’s chairman) from taking place. . . . This (decision) doesn’t mean we’ll quit watching this outfit.”

Crawford also said he believes that the decision means that “judges will probably be a lot more careful in ratifying (conservatorships), and maybe I’ll be a lot more hesitant about what we do in the future.”

The court’s decision may have broader ramifications, including the possibility that industry pressure could result in Crawford losing his job, said several industry consultants who requested anonymity because of their relationships with the commissioner’s office. Other consultants, however, said the situation is unique and that the industry would not react against Crawford, a political appointee.

Crawford’s office has been more aggressive in the last year in trying to halt what it sees as unsafe, unsound and illegal activities in the S&L; industry.

Michael Kadish, an attorney representing Gadsby and Woodruff, said the two men would be reinstated under provisions of a cease-and-desist order issued June 18 by the Federal Home Loan Bank Board.

That order states that all suspended managers “shall be restored to their duties” if the state’s conservatorship were removed.