After years in court and months of closed-door negotiations, Salt Lake City onFriday received $2.5 million in out-of-court settlement money gleaned from the Select Telephone Technologies scandal.

Assistant City Attorney Bruce Baird nervously fondled a check handed over by attorneys for defendants in a 1986 fraud suit filed in federal court by Salt Lake City against STT principals."I get a little nervous with a $2.5 million check in my hands," said Baird, counsel for the city in the suit, filed to regain $4.2 million in lost federal grant money.

Salt Lake City can keep the money, which is in essence part of the funds the city alleged in its suit was fraudulently obtained through a grant to the city from the U.S. Department of Housing and Urban Development in 1984.

STT was actually a shell corporation used to secure the $4.2 million, which was then used to pay for items other than equipment purchases approved by HUD, the city charged.

Two years after the city filed suit, defendants and the U.S. Justice Department reached an agreement awarding $2.5 million to the city. Foremost among the defendants was the Dallas law firm of Aikin, Gump, Strauss, Hauer & Feld.

The defendants jointly paid the city Friday. "The city does not know, and will not speculate, on which of the defendants are making what share of the settlement payment," Mayor Palmer DePaulis said in a prepared release.

David B. Watkiss Jr., a Salt Lake attorney representing the law firm, also would not comment and said the terms of the settlement do not assign guilt to any of the defendants charged by Salt Lake City in the STT affair.

Under the settlement agreement, Salt Lake City is released of responsibility of any claims in the dispute, DePaulis said. In 1986, HUD demanded the city repay them for the lost grant money.

"HUD has also agreed that the city can keep the recovered $2.5 million to beused for approved purposes," DePaulis said. It remains in escrow until HUD approves its use, City Attorney Roger Cutler said.

The original grant for STT was a HUD Urban Development Action Grant, and the $2.5 million must be used on projects that are UDAG eligible, said Rosemary Davis, director of Capitol Planning. UDAG was not funded this year by Congress.

Michael Chitwood, executive director of the Salt Lake City Redevelopment Agency, last week told the City Council, which doubles as the RDA board, that the money could be used to build a parking complex to attract developers to the city's ailing downtown.

The likely recipient of the money would be a parking project on Block 53, bound by State Street, Second East and Third and Fourth South streets, Chitwood said. HUD still must approve any project, Baird cautioned.

Baird called the Justice Department's involvement in the controversy a "turning point" leading to a settlement. In a prepared release from Washington, D.C, the Justice Department charged STT officials misrepresented the financial condition of the company.

STT misrepresented that it had $2.5 million in working capitol, a condition for the HUD grant, on deposit in The Hong Kong & Shanghai Banking Corporation, another defendant in the suit, the Justice Department said.

The money was not actually available, the Justice Department said. A principal defendant in the Salt Lake case, Michael S. Mandel, a partner with Aikin, Gump, "acted in reckless disregard . . . of the truth" when he told HUD the money was available, the Justice Department said.

Additionally, the Justice Department said James L. Beane, a former STT officer, submitted false draw requests to the city. More than $3 million of the $4.2 million grant was spent for unauthorized purposes, the government said.

Some of the money was used to repay a $525,000 loan by Robert E. Gyemant, former STT president, and others. In depositions taken by Salt Lake City in federal court in 1986, Mandel testified he knew the repayment was improper.

Baird qualified charges made in the suit, saying "it's a situation where the deal didn't work and nobody greased the pockets with large amounts of money."