DETROIT -- The case of Stanford C. Stoddard has become an embarrassment the government would like to forget.

One of America's most visionary bankers, Mr. Stoddard was forced to resign as chief executive of Michigan National Corp. seven years ago and amid allegations he had misused $700,000 in company funds.

Federal prosecutors and regulators then lodged a barrage of criminal and civil actions, expecting to drive him out of banking for good.

But Mr. Stoddard has proved an elusive target. Backed by an army of high-priced lawyers, he has methodically beaten all the charges and bloodied many of his accusers. Now, at age 60, he's mapping out a comeback.

"I've defended the Stoddard name against unjust charges," says Mr. Stoddard, whose father founded Michigan National 50 years ago. "I've earned the right to again serve a banking or thrift institution."

But first, Mr. Stoddard is settling a few scores.

For starters, he has sued the bank for reimbursement of $5 million in legal fees and expenses.

Then there is a $21 million defamation suit against the company and its general counsel, Lawrence L. Gladchun, who was a key government witness against him.

On top of that, Mr. Stoddard is seeking $3 million in damages for "emotion distress" from each of the bank's 19 directors.

"I am going to win all of these suits," he vows. "The truth and the facts are on my side."

Last-Minute Reversal

Yet even if he prevails - a prospect far from certain - Mr. Stoddard's reputation will be indelibly tarnished. Indeed, few of the players involved in the messy affair have emerged unscathed.

The regulators who pressed the charges, including Karen Wilson, a senior official at the Office of the Comptroller of the Currency, were themselves accused by Mr. Stoddard's supporters of double-crosses and underhanded tactics. An in a humiliating setback, when victory appeared near, the rug was pulled out from under them by their boss, Comptroller Robert L. Clarke.

Top company executives who testified against Mr. Stoddard, including Mr. Gladchun, suffered embarassments of their own when the defense turned the tables and questioned their behavior and ethics.

Judge's Rebuke

And the scandal has produced years of bad press and mudslinging that have besmirched the name of Michigan National, the state's fifth-largest banking company, with $10.5 billion in assets.

As for Mr. Stoddard, while he can point to legal victories, some hinged on technicalities. Three of the men weighing his fate have made clear they disapproved of his behavior. One judge said that having to rule in Mr. Stoddard's favor was "one of the most distasteful this I have ever had to do."

The Rise

The Stoddard name has been synonymous with Michigan banking since 1941, when Howard Stoddard founded Michigan National Bank in Lansing. Unlike most commercial bankers then, the elder Mr. Stoddard avidly courted consumers and was ahead of his time in introducing services. His bank, for example, was one of the first to install a drive-in window.

The younger Mr. Stoddard, who is known as Bud, joined the bank as a teller when he was 14 and made his way up the ranks. In 1962, at the age of 32, he became president of Michigan National's lead bank in Detroit. He took the reigns of the company when his father died suddenly in 1971.

Bud Stoddard quickly proved to be aggressive as his father, introducing a level of competition previously unheard of in the state. He built market share by rapidly opening branches, often within a few blocks of each other. Under him, Michigan National started heavily promoting an array of products unusual for a bank, like mortgages for mobile homes.

Competitive Rates

The bank's lending and deposit rates were among the regions's most competitive. And it was the first major institution in the state to open on Saturdays.

Mr. Stoddard was in the vanguard of those who recognized the lucrative potential of credit cards, enabling Michigan National to become one of the top issuers in the country. His bank also was one of the first to operate a large number of automated teller machines.

"Bud Stoddard was probably the most innovative banker we have had in the last half of the 20th century," says Justin Moran, a Michigan banking consultant.

Exploiting Loopholes

But the aggressiveness of Mr. Stoddard and his father often pitted them against regulators.

In one of their more controversial moves, the Stoddards started building a statewide chain of banks long before it was legal. They did it by using employee pension funds, which, unlike banks, were not prohibited from owning bank stocks. With the funds, they formed partnerships with local investors that chartered banks statewide. When Michigan law was changed in 1972 to allow multibank holding companies, Mr. Stoddard overnight was able to form Michigan National Corp., with 360 offices spread across the state.

"Bud was always trying to find the outer limits of regulation, and that always kept the regulators uncomfortable," recalls Mr. Moran.

His confrontational manner extended to bank employees. The autocratic Mr. Stoddard was considered a tough task-master who insisted on personally approving the smallest details, such as the hors d'oeuvres served at receptions.

He appeared to relish his reputation as a maverick. Mr. Stoddard often ignored industry protocol, never even joining the state banking association. And his feisty business maneuvers often riled other bankers.

The Charges

Although a Michigan National investigation raised a host of allegations against Mr. Stoddard, the government's case ended up boiling down to two:

* A civil charge brought by the Comptroller's office that he had misapplied company funds.

* A criminal charge by a federal prosecutor that he had leased a building he partially owned to Michigan National at excessively high rates.

Banking regulators sought a $500,000 civil penalty and Mr. Stoddard's permanent removal from Michigan National, which would effectively ban him from banking. The felony criminal charge carried a maximum sentence of three years in prison.

The Comptroller asserted that Mr. Stoddard treated the company as a personal fiefdom, using corporate funds and resources to defray wedding expenses for his son, daughter, and the children of close friends, as well as to pay for improvements on his winter and summer homes and for other personal expenses.

While the company investigation alleged that Mr. Stoddard had misused $700,000, the charges by the Comptroller's office were far more narrow in scope, seeking to prove he had misapplied $150,000.

Mr. Stoddard acknowledged many of the expenditures, but argued they were justified because his personal and business lives were intertwined. He said that work done on his homes by Michigan National employees was meant to make them more suitable for corporate entertaining.

His lawyers dismissed the government's charges as "the pursuit of trivia." They pointed out that the funds in question were spent over 12 years - or at an annual rate of about $12,500 a year - and that for a chief executive of an institution the size of Michigan National, Mr. Stoddard's pay was relatively low ($270,000 in 1983, for example). They argued that Mr. Stoddard could easily have had his salary raised at the time if he wanted.

In the criminal case, Mr. Stoddard maintained that the lease rate was at fair market value.

The Probe

Mr. Stoddard's downfall began in 1983, when Ms. Wilson, then the Comptroller's top regulator in the Midwest, sent a letter expressing concern about how Michigan National accounted for loan participations arranged with Continental Illinois Bank and the failed Penn Square Bank of Oklahoma City.

Michigan National formed a special committee of outside directors to study the matter and asked the prominent Washington law firm of Arnold & Porter to investigate.

After reviewing Michigan National's books, Arnold & Porter issued a preliminary report that concluded Mr. Stoddard had falsified and destroyed documents, interfered with audits, and received material noncash benefits. The confidential report was presented to the special committee on July 11, 1984.

What happened next is hotly contested - and has spawned more than seven years of litigation.

Regulators Given Report

Mr. Stoddard maintains that Mr. Gladchun, the company's counsel, improperly leaked the preliminary report to Ms. Wilson the next day. That step, he alleges, set off a chain reaction that unfairly toppled him a week later.

Ms. Wilson has testified that she obtained the report in her Chicago office during a meeting with Mr. Gladchun and two Arnold & Porter attorneys.

Mr. Gladchun, in a deposition last year, said he did not recall giving her the report. In any event, Mr. Gladchun said in an interview last week, the special committee had authorized the release of the report to regulators.

But Mr. Stoddard maintains that the special committee did not have the authority to hand it over before submitting it to Michigan National's board. He contends that the investigators reached false conclusions and never sought his side of the story. Turning over the report before he was given a chance to rebut it caused regulators to act too hastily, he says.

Swift Action

Ms. Wilson did move quickly. Within days, she met with the company's directors and demanded Mr. Stoddard's resignation. According to court testimony and depositions, Ms. Wilson threatened to fine the directors $1,000 for every day Mr. Stoddard remained in office.

While it's not clear that she had the power to impose such a fine, the board was clearly shaken. A special delegation of five directors was dispatched to Mr. Stoddard's home to ask him to step aside.

He agreed, but the circumstances surrounding his decision are also hotly disputed.

Mr. Stoddard testified that the delegation asked him to "temporarily" resign until he had an opportunity to respond to the allegations. He asserted that he was promised his full salary and benefits, as well as an office and a secretary, while he prepared his defense.

He also testified that the delegation, which included several close friends, told him it had received assurances from Ms. Wilson that his resignation would obviate the need for an investigation of his company by the Comptrollers's office.

Directors Talked of Deal

Ms. Wilson has denied in court making any deals with Michigan National's board. Her position was supported by Mr. Gladchun and Fred J. Romanoff, then Michigan National's vice chairman and a key witness against Mr. Stoddard.

But several directors testified that Ms. Wilson did make a deal. And the minutes of the board meeting the followed Mr. Stoddard's resignation support their testimony.

In fact, the minutes say Mr. Gladchun himself indicates that by continuing the investigation after the resignation, Ms. Wilson had breached a promise.

Asked last week to comment on the discrepancy between the minutes and his testimony that there was no deal with Ms. Wilson, Mr. Gladchun said his remarks were meant to reflect the board's opinion, not his own. Ms. Ms. Wilson declined to be interviewed for this article.

Mr. Stoddard's relationship with the company soon turned ice cold. Within weeks, Michigan National stopped providing him with legal and office suphis defense, including the minutes of board meetings. His lawyers eventually got a subpoena ordering the bank to cooperate.

In May 1985, 10 months after Mr. Stoddard stepped aside, Ms. Wilson issued a notice seeking to remove him permanently from Michigan National and fine him $500,000.

The Hearing

The charges were presented to an administrative law judge, Thomas Jones, in July 1986. The hearing, held in Ann Arbor and opened to the public at Mr. Stoddard's request, proved to be an explosive affair.

The Comptroller's legal team was headed by Ellen Broadman, whose aggressive tactics gave the proceeding the air of a criminal trial.

Over four weeks, Ms. Broadman called a legion of Michigan National employees who testified that they had performed thousands of hours of work on several of Mr. Stoddard's homes and on churches he was affiliated with.

Mr. Galdchun and Mr. Romanoff, the former Michigan National vice chairman, testified that Mr. Stoddard regularly used company funds and resources for personal use. The two men said they were outraged by the practice.

Planning Weddings for Boss

Ariadne Magoulias, one of Mr. Stoddard's three secretaries, said she spent much of her working time handling his personal matters, such as planning the weddings of his children.

Mr. Stoddard's attorneys protested some of Ms. Broadmans' tactics, and Judge Jones himself seemed concerned at times.

For example, Ms. Broadman, a former aide to Sen. Howard Metzenbaum, charged that Mr. Stoddard had used company funds to purchase liquor.

After a newspaper report noted that Mr. Stoddard was an active member of the Mormon Church, which prohibits the consumption of alcohol, Judge Jones summoned Ms. Broadman to the bench and asked her to substantiate the allegation. The liquor, it turned out, was a case of wine purchased for a memorial service for Mr. Stoddard's father, who was still chief executive when he died.

Deal Is Revealed

Judge Jones also made public -- over Ms. Broadman's vehement objections -- the fact that she had cut a deal with a Michigan National senior vice president in return for his testimony. The government agreed to reduce a $50,000 fine to $1,500 in return for the cooperation of the executive, who allegedly was involved with the alteration of destruction of bank documents.

The regulators also made a damaging allegation that Mr. Stoddard never had a chance to defend.

Ms. Wilson testified that Michigan National was in "critical" financial condition when Mr. Stoddard resigned two years earlier and that its subsidiaries were losing large sums of deposits because of his poor management -- the first time such a charge had been made.

The comment made headlines, but the judge removed them from the record because Ms. Wilson said her schedule left her unable to return to court the next day for cross-examination.

Ms. Broadman rejects suggestions by the defense that regulators used unseemly tactics. "The government presented its case in a completely proper and professional manner," she said in an interview last week.

A Fancy Lunch

If Ms. Broadman played hardball, so did Mr. Stoddard's attorneys. They tried to discredit many of the government's key witnesses by showing that their behavior was similar to that of Mr. Stoddard.

For example, Mr. Romanoff had authorized the company to pay for the orchestra at a wedding reception for the stepdaughter of a company director. He maintained the expense was "customer related."

The defense showed that Mr. Romanoff and Mr. Gladchun took two secretaries to Detroit's fanciest restaurant for lunch. The expense report said the $200 meal was for "business development."

The defense also sought to discredit Ms. Magoulias, the secretary. After she testified that she was forced to accompany Mr. Stoddard's wife on an out-of-town shopping trip, the defense showed that she was a close family friend, who once accompanied the couple on a vacation to Greece paid for by Mr. Stoddard.

Asked why she broke off contact with Mr. Stoddard on the day he resigned, Ms. Magoulias testified that she was following the orders of Mr. Romanoff and Mr. Gladchun.

Success at Last?

Judge Jones was not swayed by the attacks on the government's witnesses. While saying Mr. Stoddard had not demonstrated "personal dishonesty," he ruled the executive had shown a "reckless disregard for the safety and soundness" of Michigan National.

The strongly worded decision supported the Comptroller's order to remove Mr. Stoddard from banking, but lowered the recommended fine to $146,000.

After years of trying, it appeared the government had finally nailed Mr. Stoddard. But the victory proved to be short-lived.

The Reversals

Given the extensive time and resources the Comptroller's office devoted to prosecuting Mr. Stoddard, Mr. Clarke was under considerable pressure to rubber-stamp Judge Jones' decision and impose the fine. But he refused to go along.

After reviewing the case, Mr. Clarke concluded in March 1988 that Mr. Stoddard had not violated the Federal Reserve's Regulation O, the basis of the government's case. His dismissal of the penalty sent shock waves through the agency.

The Comptroller has never publicly discussed his action, but a 1988 memo to senior staffers that the agency released last week explained his decision.

Mr. Clarke, a lawyer, wrote that he believed Mr. Stoddard had indeed "clearly misused bank funds." But, he ruled, the activity did not violate Reg O, the guidelines on loans to insiders. "The bank's expenditures in the case do not constitute extensions of credit," he said.

Fed Backs Judge

Meanwhile, the Federal Reserve Board, which had jurisdiction over the bid to ban Mr. Stoddard from Michigan National, approved the judge's recommendation. However, the decision was overturned by a federal appeals court, which ruled the Fed could not permanently remove a bank executive who had already resigned.

(A little-noticed provision of the 1989 thrift-bailout law, informally known as the Stoddard amendment, has closed the loophole.)

As Mr. Stoddard's legal battles with the Comptroller were making their way through the courts, the U.S. attorney's office in Detroit indicated him on criminal fraud charges stemming from the lease on the building he partially owned.

Mr. Stoddard was found guilty by a federal jury in September 1987 was sentenced to three years in prison. He remained free pending an appeal.

Then in May 1989, an appeals court overturned the conviction on the grounds that his indictment incorrectly listed a Michigan National subsidiary as a member of the Federal Reserve System.

The U.S. attorney's office issued a corrected indictment and retried Mr. Stoddard, but the banker was acquitted by a jury after four days of deliberation.

Despite the outcome, Ms. Broadman maintains that the regulators have been vindicated. "The administrative law judge foud that the government presented a strong factual case of misuse of bank resources for peronal purposes," she said last week. "The Comptroller and the Federal Reserve Board agreed. The government lost these cases because of loopholes in the law."

Still, from a legal standpoint, Mr. Stoddard had made good on his promise that he would one day clear his name.

The Aftermath

After being acquitted of the criminal charge, Mr. Stoddard told reporters he was entitled to have his job back.

Mr. Gladchun responded that there was "zero" chance the board would consider him for any position and said he had acted "in bad faith."

"The board had good reason to request his resignation," Mr. Gladchun told the Detroit News. "Nothing has come to light to change their opinion."

Mr. Stoddard promptly filed the defamation suit. "Anybody who accuses me of bad faith does so at their own peril," Mr. Stoddard says.

When the article was published, Mr. Stoddard says, he was negotiating to take a senior position at a Detroit-area thrift. He says the thrift, which he would not identify, declined to hire him after reading that his former bank would never take him back.

The suit is expected to go to trial in the next few months.

Progress on Legal Fees

Meanwhile, a state judge has issued a partial judgment supporting his claim for legal fees. Michigan National has appealed the decision.

The company has unsuccessfully sought to have the third pending suit, which seeks damages for "emotional distress," thrown out of court.

Mr. Stoddard's legal battles figure to drag on for several years. Mr. Gladchun has made it clear that Michigan National has no intention of reaching a settlement.

Still a Shareholder

The taint of the scandal could well dash Mr. Stoddard's hopes of running a financial institution again.

"There is always that nagging doubt [about me] in people's minds," he admits.

Mr. Stoddard spends his days working as a consultant and administering his estate. His family continues to control 5.3% of Michigan National's stock, worth about $28.2 million.

While he angles for a comeback, Mr. Stoddard has to live with the scars of the seven-year battle. Clearly embittered, he says: "The greatest challenge that I have in front of me is to forgive people for what they have done to me and my family."

But perhaps the most bitter pill is the reality that, despite the legal successes, the company he and his father built is forever out of his control.

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