CHICAGO — Investors of a failed trust company are suing Illinois regulators, claiming that their losses resulted from regulatory delay.

Independent Trust Corp. of Orland Park, Ill., was put into receivership last April after a $68.1 million investment in an affiliate turned sour. James Matkins, an individual investor from Rapid City, S.D., and Aztec Management Service Inc., a privately held investment firm in West Chester, Pa., allege in a lawsuit filed last month that the Illinois Office of Banks and Real Estate was negligent in its examination of Independent Trust, also known as Intrust.

Both plaintiffs say the state agency knew the company was in trouble and should have put the company in receivership much sooner.

“These massive losses would not have occurred” if the regulatory office “had not negligently and wantonly violated its affirmative statutory duties,” the suit says. It puts the plaintiffs’ losses at $89.9 million, including the investment in the affiliate and $21.8 million in fees to the state-appointed receiver, Pricewaterhouse Coopers LLP.

Intrust, which had been in business since 1984, focused on managing individual retirement accounts. Over six years it lost $68.1 million invested in an affiliate, Intercounty Title Corp. of Illinois in Chicago, a title insurance company that is also in receivership. A grand jury is conducting a criminal investigation into possible fraud connected with the loss.

Examiners repeatedly criticized Intrust’s business practices but only asked for voluntary changes, the lawsuit says. It further alleges that regulators should have investigated and put Intrust under stricter regulations rather than taking the company’s word that the problems would be corrected. As recently as September 1999, the Office of Banks gave Intrust a clean bill of health, according to the plaintiffs. Intrust was put into receivership on April 14 after the agency decided it was “operating in an unsafe, unsound, and unlawful manner and would not be able to pay off all the demands of its customers.”

The state banking agency has 60 days to respond to the suit, which was filed Feb. 23 in the Illinois Court of Claims.

“We certainly understand the concern of the customers that lost money with Intrust, although the agency followed appropriate examination procedures, and ultimately we discovered the embezzlement,” said Scott D. Clarke, assistant commissioner at the banking agency. This is the first trust company that has failed in Illinois since 1934, he added, and the lawsuit is the first of its kind.

Benjamin Schwartzman, a lawyer with Grant Law Firm in Seattle, which represents Aztec, also said this is the first such case he has seen. “It’s really a different scenario than most times when investment companies have bitten the dust,” he said. Usually when a company fails, it is only later, when “sifting through the rubble,” that problems come to light. Intrust was a case where regulators knew beforehand but waited too long to act, Mr. Schwartzman said.

Mr. Clarke noted that fees assessed so far are only $2.1 million, not the $21.8 million sought in the lawsuit. A spokesman for Kirkland & Ellis, the law firm representing Pricewaterhouse, confirmed this figure and said no new fees would be assessed.

About 1,700 accounts are being frozen while the case is resolved. When related and subaccounts are included, the number rises to 21,000, with a market value of approximately $3 billion, said Jim Boyd, chief executive officer of Millennium Trust Co., also of Orland Park, which purchased Intrust’s assets on Nov. 30. The plaintiffs want the lawsuit to be a class action, but the court has not made that call yet.

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