CHICAGO -- A now-defunct Colorado bank on Tuesday returned $45.2 million to the Iowa Trust after failing in its efforts to appeal a U.S. District Court decision ordering the bank to surrender the funds.

The bank, Jefferson Bank & Trust of Lakewood, Colo., was shut down by state regulators last Friday because the amount owed the Iowa Trust was far more than the bank's $9 million in capital. The bank's $118 million in assets and $109.4 million in deposits were sold to another Colorado institution.

U.S. District Court of Colorado judge Lewis Babcock last Friday ordered that the funds be handed over to Iowa officials, who distributed the money to Iowa Trust participants on Wednesday. The funds were transferred to the bank in 1991 through a series of elaborate transactions handled by Steven Wymer, the Iowa Trust's investment adviser.

Babcock originally directed Jefferson Bank to return the funds in May 1992, but ordered that they be held in escrow until the bank exhausted its efforts to appeal the decision.

The Iowa Trust comprised 88 communities that pooled their cash in an investment account handled by Institutional Treasury Management, a now-defunct California firm headed by Wymer.

In May of this year, the 10th U.S. Circuit Court of Appeals in Denver affirmed Babcock's decision. Shortly after, the appeals court and district court turned down requests by the bank to reconsider the case. And in June, the U.S. Supreme Court rejected Jefferson Bank's plea to hear the case, returning it to Babcock.

According to Rosanne Mead, staff attorney for the lowa Insurance Division, the funds were distributed to the Iowa Trust participants Wednesday in amounts ranging from $6.2 million for the city of Dubuque to $1,543 for the Le Grand parks and recreation department.

Mead said that Iowa Trust officials are seeking an additional $500,000 in interest that was not included in the escrow account and that is now being held by federal banking regulators.

The return of the $45.2 million represents the trust's largest victory since it lost $76 million in an investment scheme conducted by Wymer, according to Iowa Trust officials. In May, Wymer was sentenced to 14 and a half years in federal prison after pleading guilty to nine felony counts, including securities fraud.

The Securities and Exchange Commission charged Institutional Treasury Management with fraud in December 1991 after determining that $76 million was missing from the trust's account.

At one time, Wymer and his sales associate, Steen Ronlov, were part owners of the Jefferson bank. They sold most of their interest before the collapse of Wymer's scheme.

Meanwhile, Iowa attorney general Bonnie Campbell said in a press release that the state is "elated" to retrieve the funds, bringing the Iowa Trust's total recovery of funds to $62 million.

"We have been tracing and retrieving Iowa Trust funds from all over the country," Campbell said. "And the Jefferson Bank funds were by far the largest sum we were after."

Mead said the trust is pursuing funds through other legal actions, including a lawsuit against two California cities for $12 million.

Jay Gsell, city administrator in Marshalltown, Iowa, one of the Iowa Trust participants, said the city received $593,708 of the $45.2 million.

Gsell said the funds have enabled the city to recover its initial investment in the Iowa Trust. However, he said the additional funds will not meet the city's capital needs for projects such as road and sewer improvements.

In February 1992, Moody's Investors Service lowered the city's rating to A from Aa on $12 million of general obligation debt in the only rating action taken against any government in Iowa because of its involvement with Wymer and Institutional Treasury Management.

Dan Aschenbach, a vice president in the central regional group at Moody's, said the rating agency will review the impact the recovery of the funds has on Marshalltown's financial position. He said Moody's also needs time to "feel comfortable" with the city's new investment practices implemented in the aftermath of the Iowa Trust scandal.

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