By a Staff Writer

The tentative settlement of a federal lawsuit in which Los Angeles Superior Court Judge Patrick B. Murphy and others are accused of fraud and money-laundering fell through yesterday apparently based on the inability of Murphy and a co-defendant to raise the sums called for by the accord.

Murphy's attorney, Tracy Green, told the MetNews that the agreement worked out by U.S. District Court Judge Wm. Matthew Byrne Jr. for the Central District of California unraveled because Murphy and co-defendant Dr. George Taus "couldn't come up with the money demanded by the plaintiffs."

The two men would have paid most of the settlement amount, which one attorney said was $550,000. There are six other defendants in the case.

Byrne had set a hearing for 9:30 a.m. Thursday in the event the agreement fizzled. A trial date of April 11 is now in place, but Byrne said last week he would consider a delay since Green and Richard Moss had just joined the case on Murphy's behalf.

Green said she and Moss last week filed an application to continue the case about 90 days, until mid-July. She added that they have 31 boxes of files to go through and have not read all the depositions yet.

Early Trial

If Byrne requires the trial to go forward on April 11, Green said, she and Moss would seek to be relieved as Murphy's counsel. If they tried to represent the jurist in that time frame, she said, "we'd be committing malpractice."

Two securities firms and a bankruptcy trustee accuse the former Citrus Municipal Court Judge and his co-defendants of organizing a plan to "launder" Taus' funds so that neither they nor Taus' ex-wife could recover them.

Taus in 1996 unilaterally liquidated accounts totaling $1.8 million he held with Susan Taus at Smith Barney, Inc. and Prudential Securities, Inc. She sued, claiming a martial settlement agreement entitled her to half the money, and a National Association of Securities Dealers arbitration panel agreed.

The two firms then sued George Taus and others after being ordered to pay Susan Taus more than $785,000. George Taus filed for bankruptcy in Nov. 1998 and was subsequently sued by bankruptcy trustee David A. Gill on behalf of his creditors.

Bankruptcy Case

Gill's law firm, Danning, Gill, Diamond & Kollitz, LLP, represents the trustee in the bankruptcy case, and also has standing in the suit in Byrne's courtroom.

The settlement that fell apart yesterday would have also resolved the bankruptcy suit, which was joined with the other suit for discovery and which involves identical allegations.

Robert Mobasseri, attorney for defendant Arnold Secord, described the agreement as an attempt to revive an earlier settlement that fell through in January, but with the plaintiffs' demand increased from $400,000 to $550,000.

He declined to divulge the amounts each defendant would pay.

Secord was the founder of the a Nevada-based start up corporation, Copex International, in which Taus invested the $1.8 million. Those funds wound up in the care of Encino attorney Paul Ottosi, who is also a defendant.

Ottosi's Account

Ottosi's version of the facts is that Murphy asked him to hold onto the money, characterizing it as the community property of himself and his wife, Susan Sweetman Murphy. The judge said the funds would be divided in their dissolution of marriage action, according to Ottosi.

Murphy has testified in a deposition that it was Secord, not he, who entrusted the money to Ottosi.

The funds were next transferred by Ottosi to defendant Maryanne Baumgarten, who worked as a paralegal for Murphy in the late 1980s.

Ottosi has said that Murphy told him to give Baumgarten the funds, saying that they represented a settlement of Baumgarten's claim against Copex for sexual harassment. Murphy has denied that account.

Murphy also denies reports that he helped Baumgarten launder the funds through Las Vegas casinos, saying he merely accompanied her to cashiers' cages when she was buying chips.

An allegation in the lawsuit is that some of the funds were converted to gold, and that former Azusa Mayor Steven Alexander, an attorney, delivered gold to Murphy worth $85,000. The judge has testified that he did receive a box from Alexander which the latter told him contained gold, but insisted that he did not look inside and that he did not know the value of the contents.

He acknowledges delivering the box to Baumgarten.

The other defendants are Winnie Eisen, Baumgarten's sister, and a nurse, Colby Cota, with whom Murphy has been acquainted since his days as a nurse prior to entering law practice.

Immunity Sought

The January settlement deal fell through after the U.S. Attorney's Office denied Murphy's request to be immunized from future criminal proceedings. Murphy has been under investigation by the FBI, as well as the Los Angeles County District Attorney's Office, in connection with possible his role in the disposition of the $1.8 million.

He is also under investigation by the Commission on Judicial Performance stemming from the rarity of occasions when he has taken the bench over the past two years. Murphy claims he has health problems.

As with last week's deal, Taus and Murphy would have contributed the bulk of the payment under the January deal. That agreement had Ottosi paying $75,000 and Baumgarten, Eisen and Secord paying a total of $30,000, attorneys said at the time.

Byrne required attorneys to keep settlement amounts in last week's tentative agreement confidential.