How do you satisfy Utah's thrift depositors?

Not by offering 100 percent of their deposit principal and no interest, then refusing to cover their legal fees.But depositors and their attorneys will agree to those terms for now because it's the best offer they've had since Utah's thrift industry collapsed almost two years ago, leaving the majority of some 15,000 depositors without hope of recovering more than half of their savings.

The recommended settlement came after a five-hour debate Tuesday among 12 legislators, depositors and bankers appointed to a task force by Gov. Norm Bangerter to settle a depositor class-action lawsuit against the state. Two other proposed settlements and a motion to send no recommendation were voted down before the final decision was made.

The proposal now goes to Bangerter, who said he will place the thrift issue on the July 5 special session agenda. (see accompanying story).

"We figured the last thing we wanted to see was no recommendation or one that gave a lesser percentage of our money," said Carol Thompson, a depositor and member of a state-appointed task force seeking a settlement to the crisis.

But Thompson added that depositors shouldn't be fooled by the 100 percent provision because when depositors have to pick up attorneys' fees and give up interest they obviously are not getting their money back.

"In some cases depositors would turn out worse than under the liquidation," she said.

The depositors' attorneys, though left out of the proposed settlement, said their clients should take heart that progress is being made and the battle is not over. Attorney Robert Stolebarger, attorney for the group calling itself Depositors of Insured Thrifts, said the recommended settlement is "a step in the right direction, but we aren't there yet."

Stolebarger, one of four attorneys and a team of consultants assisting depositors, said they have a contract with DOIT calling for fees between $10 million and $20 million for their services.

If a settlement is reached it would put an end to the state's worst financial disaster since the Great Depression. Regulators shut down the state's privately insured thrift and loan industry after July 31, 1986, when they declared the Industrial Loan Guaranty Corp. insolvent. The ILGC was a private fund created by the Legislature to insure thrift deposits.

As a result, five thrifts are being liquidated and depositors stand to lose an estimated $47 million out of the $100 million left in the thrifts when the state seized the ILGC. To recover the anticipated loss, thousands of depositors organized under the rubric DOIT and have signed on to a class action suit against the state and several hundred other local individuals and corporations, alleging fraud, negligence and racketeering in handling the troubled thrifts.

Lawmakers, realizing thrift depositors were not going to take their lumps and go home, passed legislation earlier this year to set up a task force to come up with a settlement to the lawsuit.

After several weeks of heated hearings, during which documents were disclosed indicating the state's concern about liability in the thrift crisis, the task force came up with three settlement proposals Tuesday.

Two other proposals - one put forth by the panel's three depositors to reimburse 100 percent principal and interest and cover attorneys fees, and another proposed by Rep. Frank Knowlton, R-Layton, to return 80 percent of depositors' principal - were defeated, and the final proposal failed twice before finally passing 9-3.

Those opposing the measure were Knowlton, and Utah bankers Frank Newman and Lawrence Alder.

Under the approved recommendation, proposed by Sen. Fred Finlinson, R-Salt Lake, the state would bond for $67 million needed to return depositors 100 percent of their money, excluding interest, since July 31, 1986. Depositors have received a small percentage of their money since July 1986 through restricted withdrawals and liquidation proceeds, and those amounts would be subtracted from the state settlement.

The proposal also has a "home run" feature, where any money collected over and above the bond financing will go toward paying interest, accumulating to depositors since July 31, 1986.

To pay off the bond the state would use future proceeds from liquidating the thrifts (in estimated $26 million); money left in the ILGC (about $4.7 million); funds from possible claims against the state's liability carriers (resources estimated between $5 million and $350 million); and a legislative appropriation from the state's $8 million risk management fund, $20 million "rainy day" fund of tax surplus money and other state surpluses.

Finlinson said money could also come from "third party claims" against defendants in the DOIT lawsuit, who include hundreds of local individuals and corporations with alleged ties to the defunct thrift industry. However, Finlinson said, those claims would be pursued by a state-appointed "litigation team" and not DOIT's legal counsel.

Finlinson said his proposal is designed to commit the state morally to help depositors and release any legal liability. In fact, in order for a depositor to receive the state refund he would have to sign a release to his claims against the state.

Another way of avoiding a direct statement of legal liability is not including the DOIT counsel's legal fees in the settlement, Finlinson said.

But depositor task force members didn't like that provision nor an amendment to consider whether accounts with more than the ILGC's $15,000 guaranty should be refunded in full, nor precluding DOIT lawyers from going after third party defendants in their suit as a way to recover legal fees. It wasn't until Finlinson explained that the task force's recommendation is not binding on the governor or Legislature and could be changed that depositors gave in and the measure passed.

And DOIT hopes to make some changes by lobbying lawmakers during the special session, Thompson said.