Fidelity Federal Bank, which has been stung by real estate losses and was forced through a painful restructuring last year, now faces a lawsuit by a former employee alleging violations of banking and securities laws.

William Strocco, a 53-year-old former manager of real estate that Fidelity had acquired by foreclosure, is suing the thrift in Los Angeles County Superior Court. He claims he was wrongfully forced out of his job and defamed in an especially ugly manner after objecting to the alleged violations.

Neil Osborne, a Fidelity Federal senior vice president and investor relations manager, said the company, as a matter of policy, does not comment on litigation.

Many former officials of Fidelity Federal said they had severe doubts about Mr. Strocco's lawsuit. But some investors privately said they are eager to learn more and see whether there is any merit to the charges.

"Obviously, it's of some concern," said an official at an investment company that is one of the biggest stakeholders in Fidelity Federal, insisting on anonymity.

The $3.7 billion-asset thrift, based in the Los Angeles suburb of Glendale, went through a private stock offering last year in order to raise much-needed capital from new investors.

The stock offering, which was led by a securities subsidiary of J.P. Morgan & Co., succeeded in raising $109 million from such high-profile investors as Michael F. Price and Harry V. Keefe Jr.

But since then, new lending by Fidelity Federal has slowed to a trickle, and the price of its thinly traded stock has plummeted to a trading range of about half its value a year ago.

Continuing loan losses have forced Fidelity to enter into a supervisory agreement with regulators. The thrift has warned investors that it may have to raise even more capital.

Though Mr. Strocco's suit was filed in March, it has thus far escaped widespread public notice.

Mr. Strocco and his lawyer declined to discuss their suit for this article. But according to court documents they have filed, Mr. Strocco was hired to manage Fidelity's real-estate-owned department in January 1993 and was "terminated" in October 1994, six weeks after Fidelity Federal completed its restructuring and stock offering.

As part of the restructuring, Citadel Holding Corp., which formerly owned all of Fidelity Federal, saw its position in the company reduced to 16%. Ownership of the remainder of Fidelity was split among investors in the private offering.

Mr. Strocco has alleged that Fidelity's management, led by chief executive Richard M. Greenwood, knowingly overstated the thrift's prospects to investors in violation of securities law.

Among other things, Mr. Strocco charged, Fidelity management deliberately, and without any foundation, ignored loan-loss estimates prepared by the real estate asset group for which Mr. Strocco worked - and circulated much more favorable estimates to potential investors.

For example, Mr. Strocco claimed, expected losses on real estate were understated by more than $20 million per year. He also alleged that loan- loss projections were understated by 75%.

Mr. Strocco also alleged violations of banking law that requires transactions between thrifts and their holding companies be made at fair market value. Assets were transferred to Citadel, he alleged, for $20 million less than other potential buyers were willing to pay.

The reason for such a transaction was not spelled out in the court documents. But people close to Mr. Strocco said privately that he believes the purpose was to give Citadel a sort of "undeclared dividend" to encourage its management to go along with the restructuring.

Citadel is also named in the suit. A receptionist at the company said its top executives were out of the country and unable to comment.

Mr. Strocco charged that he was forced out of his job and defamed by Fidelity management. Fidelity executives publicly accused him of living on company property without permission and allowing a female co-worker to live there too in return for sex, he said.

Mr. Strocco said in his suit that these allegations are untrue. A lawyer for the woman also denied the charges.

Several former senior executives of Fidelity, who insisted on anonymity, said they would be very surprised if Mr. Strocco were able to prove that Fidelity violated banking and securities laws.

The investors in the private offering, the former executives said, are among the most sophisticated in the country and well-versed in due diligence work. Additionally, regulators from the Office of Thrift Supervision were said to be closely involved in the entire process.

The agency has taken no regulatory action against Fidelity Federal that relates directly to the restructuring.

"Everything was gone over, again and again, by everyone who had a stake in it," said one former Fidelity executive. "I would be very surprised if something fell through the cracks."

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