A federal judge has kept alive a long-running fraud case against Washington-based Capital City Mortgage Corp. by ruling that government lawyers can pursue millions of dollars that poured out of the operation into family-held trusts after the company's president died two days before trial.

U.S. District Judge Gladys Kessler last week rejected motions and declarations filed by Capital City Mortgage attorneys. They argued that the company and the estate of Thomas K. Nash were the targets of a mean-spirited campaign by the Federal Trade Commission to hound the real estate mogul to his grave and beyond. Nash, 57, died on April 6, 2002, two days before the scheduled opening of a trial on charges that he and his company were predatory lenders.

Kessler ruled that the FTC's request to add four family trusts and four unnamed beneficiaries of the Nash estate as "relief defendants" was not "untimely, futile and prejudicial" or "made in bad faith," as argued by Philip M. Musolino, attorney for the Nash family.

Musolino, in one filing, wrote, "The FTC has shamefully exploited the death of Thomas K. Nash" by seeking to extend the reach of the case. Attorneys for the company and the estate also opposed the judge's motion to freeze not only assets of the estate, which was declared insolvent in Nash's will after he died, but also what government lawyers believe to be millions of dollars in trust funds set up for Nash's three daughters, his 101-year-old father and others.

In a ruling that took almost a year to be delivered, Kessler wrote that "any delay in filing the FTC's motion was well justified because it was only upon Nash's death that the agency realized that none of Nash's major assets" held in the trusts "would pass through the probate estate, and therefore those assets would not be reachable if the FTC prevailed."

In a footnote, Kessler also took note of the timing of the trial and the family's decision to take Nash off life support machines that he had been on for a year, after a fall from a polo pony.

When Nash's attorneys informed the court of his death on the day the trial was supposed to start, Kessler had asked whether Nash had died of natural causes. "Yes, your honor," was Musolino's response. When Kessler then asked, "Or were decisions made?" Musolino said, "Well, decisions have been made over the course of the year, your honor."

Musolino offered to go into more detail but then said, "I would rather not . . . certainly not in public."

Kessler wrote last week that "the amendments the FTC seeks [to add the 'relief defendants'] only became clearly necessary after Nash's death because . . . defendants have only recently produced critical information identifying Nash assets and Nash-controlled entities."

In the footnote, she wrote: "The FTC filed its motion [to add the relief defendants] on April 17, 2002, only 11 days after Nash's family made the decision to take him off life support machines. The decision was made by the family only two days before trial, even though Nash had been on life support for well over a year."

Musolino did not return calls requesting comment on the ruling.

Almost a year ago, Musolino said the FTC's motion to amend the complaint to add defendants was "replete with misstatements, and it attempts to shift the blame to Capital City for its own litigation shortcomings."

Company attorneys argue that the FTC has proved none of its charges, that it turned down the chance to request a court-ordered trust fund earlier in the case and that now, out of desperation, it seeks to seize assets belonging to Nash's family.

The FTC counters that Nash used the family trust funds to make his controversial loans, then funneled "ill-gotten gains" back into them, thus making the trust funds proper targets for repaying defrauded homeowners.

The FTC has been pursuing what it terms the "Nash Empire" for five years. After a Washington Post investigation, the agency filed charges on behalf of 1,400 current and former customers alleging that Nash's company used fraud and deception to foreclose on minority homeowners with credit problems.

The FTC has used the case against the company to highlight a nationwide campaign against lenders who allegedly take advantage of the naive or the elderly or who unfairly target minority homeowners with credit problems. It seeks up to $8 million to reimburse clients who may have been defrauded and an additional $3.6 million in penalties.

The FTC has asked Kessler to order an accounting of Nash's trust funds and set aside at least $11.6 million. On paper, the patriarch of Locust Grove, an estate in Brookeville, died insolvent, about $2.3 million in debt.

Thomas K. Nash, president of Capital City Mortgage Corp., died two days before he was supposed to go to trial on federal predatory lending charges.