A federal bankruptcy judge here recently rejected a bank's claim that it deserved nearly $13 million from the estate of a failed cattleman who is believed to have carried out an elaborate check- kiting scheme.

U.S. Bankruptcy Judge Robert Kressel awarded Milwaukee's Firstar Corp. only $170,208.

The judge ruled that Firstar had failed to get liens on the assets of southern Minnesota farmer John D. Morken in a timely manner and that it had turned a blind eye to some of Mr. Morken's dealings despite a "persistent, increasing balance of uncollected funds."

William Schulz, Firstar's general counsel, said he was "disappointed" by the award. "We disagree with the court's legal analysis, and we do plan to appeal," he said.

Judge Kressel was especially critical of Firstar's failure to catch the check-kiting scam earlier, saying the company had not questioned the cattleman's activities because it got nearly $1 million in overdraft fees during two years.

Firstar began its relationship with Mr. Morken in 1992, setting up a personal account and two corporate accounts: a funding account in Milwaukee and another, for disbursements, in Wausau, Wis.

During the first five months of 1994, Mr. Morken wrote $1.5 billion in checks on his personal account and $1.9 billion on his corporate accounts. About 80% of the total moved between the personal account and the corporate ones.

Firstar insisted it had been duped by Mr. Morken. But Judge Kressel found that Firstar had used "the advantages of the float" as a selling point with Mr. Morken. He wrote:

"Creating a float was crucial enough to this decision that the disbursement account and the funding account were deliberately established geographically far apart so as to guarantee the extra day of float.

"Firstar had access at all times to information on both the Morken and Spring Grove Livestock Exchange accounts, which could have alerted it to the nature of Morken's activities. However, Firstar did not review its records and reports as carefully as it could have done."

Firstar took a $22 million charge in the second quarter of 1994 to cover losses associated with the relationship. Ben Crabtree, an analyst at Dain Bosworth Inc., said the charge minimizes the damage.

"It's very embarrassing for them," he said. "But the decision isn't really new bad news. At this point, it's only an absence of what they could have recovered."

Firstar's actions preceding Mr. Morken's bankruptcy filing will soon be scrutinized. Both the cattleman's estate and his company are seeking $100 million judgments against the bank company. Pretrial motions are expected late this month.

Trustees for both estates charge that Firstar unilaterally shifted $91.3 million to Mr. Morken's funding account from the disbursement account.

Meanwhile, Mr. Morken faces federal criminal charges in connection with the check-kiting allegations. That trial is slated to begin this year in U.S. District Court.

Mr. Engen is a freelance writer based in Minneapolis.

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