INSIDE EFI: The Long Fall

May 3, 2008

Part 2: Maybe money does grow on trees

By DANIEL BLACKBURN

(Editors’ note: This is the second in a series examining the high-rolling, multi-million-dollar Paso Robles financial lender, EFI, and the fascinating reasons for its current critical condition.)

When Karen Guth angrily ordered the locks changed on the office housing Paso Robles’ Estate Financial Inc. (EFI) in February 2003, banishing her then-husband and partner, she helped set into motion a series of events that eventually would publicly expose both her private life and the inner working of her businesses.

And despite her penchant for marketing, the public attention has not been beneficial, to her or to the businesses.

Only last week, Guth learned that EFI’s permit allowing the sale of properties has been suspended by the California Department of Corporations. That’s the first overt action by a regulatory or law enforcement agency against EFI, but a cooperative investigation by San Luis Obispo County, state and federal agencies has been ongoing for the past month – with the Paso firm as a target.

The official probe into EFI’s practices is the outgrowth of a growing swell of anger, apprehension and legal activity by hundreds of EFI investors trying to find out where their money went. Investors are just now learning that the company currently has only 20 percent of its mortgage funds in current loans.

Charles Applebaum and his then-wife, Guth, purchased the financial brokerage in 1994. After the purchase, they divided their shares, and their duties. (The pair holds 85 percent of EFI; Guth’s adult son, Joshua Yaguda, owns the remaining 15 percent.) Guth and Applebaum own all of a subsidiary company, Republic Properties).

The man Guth calls “Charlie” became the target of her wrath in the aftermath of their marriage’s sticky breakup. Still, the inevitable divorce might have gone relatively smoothly, had Applebaum not quickly discerned that Guth was moving to lock him not only out of the office, but out of the vault, too.

This, and a whole lot more, is memorialized in a yet-growing mountain of documents, sworn declarations and other court documents, the paper fallout of four years of contentious litigation between Guth and Applebaum scrapping for the spoils of a troubled business. And it’s not over yet.

A lot was at stake when it came time to divide the couple’s assets. In 2004, Applebaum estimated their community property to be worth $10-15 million, and their business ventures another $10 million.

Applebaum’s first clue that he was being separated from both his spouse and the couple’s golden goose occurred when he read this in Guth’s response to his divorce action as she sought to gain exclusive management and control of their business interests:

“When Charlie abandoned me,” she alleged, “the bank cancelled our line of credit… several months ago, Charlie just disappeared,” she said in February 2004 court papers. “I have been running the businesses single-handedly. He has been hiring personal friends and interfering with contractors… helping himself to unusually large amounts of cash” from a Templeton service station they own. She said he leased a new Jaguar “shortly before he disappeared… (and) evidently now doesn’t want this car.”

She also belittled Applebaum’s contribution to EFI, claiming he had not been actively participating in the company’s operations “for years.”

Funny. That wasn’t the way he remembered it.

“If that was true,” Applebaum shot back through his lawyer, “then it is (Guth) alone who made the bad loans which the company has had to absorb. Those loans arose through decisions made by (Guth) in the use of various loan funds which resulted in losses of several million dollars.”

Applebaum said those bad loans “were transferred by EFI into Republic Properties so as to avoid having to hand them back to various investors in the projects… she wishes to use all the cash flow from these investments when sold to pay interest into EFI rather than use the cash flow of EFI to service EFI’s bad debt. This would have the effect of dramatically increasing the assets of EFI.”

As a result, EFI’s largest asset is a note receivable from Republic Properties, which is not collectible.

Applebaum said Guth “refuses to account in any meaningful way for the uses she has placed monies to in the past, and there is no reason to expect that she will be more forthcoming now.”

EFI’s business seeks to attract private investment money to fund construction projects. The so-called “hard money” loans cost, and sometimes pay, high interest rates. Builders often use these loans as “bridges” to complete projects.

It was Applebaum who was the managing real estate broker for EFI before the divorce. In his position, he told the court, he was responsible for establishment of loan-to-value ratios; review of construction plans; establishment of disbursement schedules; monitoring of the construction budget; and supervision of all construction. Applebaum described his professional attributes in an early 2004 divorce document: “…a B.A. degree in engineering, a Master’s in business administration. I am a certified financial planner and am a licensed California real estate broker. I have held a state general contractor’s license for 17 years.”

Once Applebaum was out of the picture, Guth turned to her son, Yaguda, to fill the empty chair. Yaguda took the state real estate broker’s exam, failed the first time, but got his license in late 2004.

The mother-son team then set out on a whirlwind marketing tour, snagging investors and pulling them in one EFI door while the loans were going out to builders through another. In a sworn deposition in March 2004, Yaguda explained his new role in EFI: “I explain to (investors) how we will handle their investments and I further answer any questions. I then try to sell them on the merits of our company and encourage them to invest with us.”

And for every dollar that Guth and Yaguda pushed into the hands of hungry developers, they took one, two, or three percent off the top for their services. There was no shortage of investors, and no shortage of supplicant builders.

When times were good, investors were making 12 to 14 percent on their money. Many simply rolled over their interest earnings into other projects. But according to court documents, Guth and Yaguda were collecting money, distributing it, and then failing to monitor construction money draws, or even the progress of building.

That had been Applebaum’s job.

While the feuding pair jockeyed for position in court, their assets slowly dwindled. They either sold or divided their stable of new vehicles – a Volvo, Jaguar, GMC Yukon, and two trucks. Residential real estate in Templeton and Cambria went on the block.

But even as Guth’s personal assets disappeared, she still found favor in the North County banking community. Around Feb. 1 2006, EFI got a $5 million unsecured revolving line of credit from Heritage Oaks Bank. In mid-November 2007, Heritage changed the terms of the loan. It was no longer a revolving account, and now was secured by collateral -– two gas stations owned by Guth and her son, Josh, one in Templeton, the other in Morro Bay.

As of January1, Guth owed Heritage Bank $1,180,629. And today, she still owes Applebaum $1.3 million. But she still has her $3 million Paso Robles ranch.

Or does she?

SUNDAY: PART 3: The shoe keeps falling.


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15 Comments

  1. ccn_debate says:

    Member Opinions:
    By: Anonymous on 5/15/08
    Dear Open Letter,
    Please get used to the words 'management team' or 'receiver.' Generally a temporary receiver is placed first who's appointed by the courts. They then report back to the courts on their findings. Next they are appointed a permanent receiver and is now a part of a management team. This is very typical.

    First, to address a letter I received about having a few investors check in on certain projects with Karen weekly is absurd. Karen wouldn't and hasn't as of yet, let us see the finances and details of any of these projects. Why on earth do you think she will now? That's out of the question. She will only tell you what she wants you to know and will not give out that type of information. We keep getting lip service from her. Go ahead and believe her lip service but without you testing it, it's just a personal belief. Go in into EFI and ask to see the finances/checks/books. Then you will know if you should believe her.

    We are left with no other choice but to look at court appointed receivers. This takes a few individual investors who hire a lawyer to take this to a Federal court (preferably) and get permission granted for a receiver to be placed. If you don't believe this, please don't call a lawyer but call a receiver. They will tell you how THEY get placed. This is most common. Either they get placed by the state agencies, federal agencies, or individuals as in the attempts of Cedar Mortgage Fund case going on right now in Monterey. If you'd like to wait around for one of the agencies to do this work, then it will take SO VERY LONG that by the time the agencies get around to it the money will be gone.

    Please wake up! I spoke to a Federal Bankruptcy Trustee recently that said we are fools if we wait. The mere fact that Karen loaned money out to builders, took her fees up front and then didn't have the money to pay them as they requested it in phases is enough to show her incompetency. Also her lack of exposing books and her recent DOC violation. And that's just a small fraction of the alleged fraud out there. Why are you stil having faith in Karen and Josh is beyond belief to me. Or are you just used to the abuse?

    AND TO ROGER FREDRICKSON – Please make sure you have these type of people mentioned above at the meeting to explain what they do. You are not seasoned at this type of situation. To try and answer these highly sophisticated questions will take the knowledge and experience of SEASONED receivers and management teams. We are counting on you for their knowledge at this meeting. Most receivers come with an attorney that know how to get them placed. Our future is in your hands. Please be careful with it!
    By: Anonymous on 5/15/08
    Please don't cross post. If you post the same comment in multiple threads to get your message across it actually diminishes the effectiveness. Readers and responders can't be sure they are following the posts because they appear in more than one thread. It is like having three conversations at the same time.
    By: Anonymous on 5/15/08
    Tired of blogging – Let's act says:

    To Open Letter –
    I'm sure there will be many questions by many investors and he wouldn't be able to answer them all here. Let's go hear what our options are. Mr. F would not be putting this meeting together if he didn't have advice on how we should proceed, where we would find a new manager,how we would hire a new manager,and the steps we must take. Karen Guth is not the only manager of a hard money lending corporation. There are educated people who do this for a living. We would not go into this blind – as we are now. We would know what the costs are and even be able to see the books if we want. It's our right. Let's go to the meeting and hear him out. Let's get some facts. There is too much stuff to sort through on these blogs. Who knows what's true or not? I want some legal advice and to know what we can do to get a new manager in there to see if there is any money or assets of value left.

    May 15th, 2008 at 7:14 AM

    (0) 0 Total Votes - 0 up - 0 down
  2. ccn_debate says:

    By: Anonymous on 5/15/08
    Dear Mr. Fredrickson:

    I look forward to the upcoming investor meeting. As one of the fund investors, I would like to following questions answered before the meeting. Being invited to a "blind meeting" is, in my mind, going to be counter productive. We will have multiple opinions about what to do, very little guidance from professionals (other than yourself) an will leave without accomplishing anything. However with these questions already answered we can move more cohesively. So please don't tell us we'll find these answers at the meeting. I for one, want these answers now.

    1. If we replace Karen and Joshua, who is going to take their place?

    2. I hope you have someone, or a group of people, ready to go into Estate right after the meeting so Karen and Joshua don't have the opportunity to do more harm than they have already done.

    2. Who is going to enforce the vote to remove them? There is no court order behind what we hope to accomplish, so how do you plan on handling this?

    3. Who is going to protect/stop Karen and Joshua from rapping the fractionalized interest mortgage holders?

    4. Is the new manager gong to be bonded and insured? They are not going to be responsible to any court, so we should have some insurance to back up their integrity or we could find ourselves in the same boat we are in now.

    5. How is the new management going to deal with people who have funds in both the Mortgage Fund and are fractionalized interest holder? Or are the fractionalized mortgage holders going to be the stepchildren of this exercise?

    By: Anonymous on 5/14/08
    A similar case in Monterey – Cedar Funding. Paste this link into your address bar and see what the lawyers are doing about it. They are hoping to have a receiver placed soon.

    http://www.montereycountyweekly.com/archives/2008
    By: Anonymous on 5/13/08
    This was found on another uncoveredslo blog yesterday. It's worth sharing here.

    Marylin says:

    Nice to see someone is doing something, FYI Cindy got her monies and moved to Nevada, to enjoy her retirement. She made a deal and is going to stay out of the loop. She warned many investors apparently none listened, until now. My spouse has been investigating several SLO Developers and Investment Scams for the past two years for an Insurance Company who is concerned one of their clients has been running a con game. One matter that has gotten the ATTENTION of the IRS is a local developer named Ronald W. Hertel of RW Hertel & Sons in a Florida Federal Case # 2007-CV-61031-JIC where the developer tried to launder ill gotten monies from SLO to the tune of about $ 14,975,000.00 apparently a LLC called COOKHAM HOLDINGS, LLC and ATASCADERO VENTURES,LLC all connected to a Winery called the 5 Mile Bridge dba VERDOT GROUP, LLC are all connected to several scam operations with Rossi, Hertel, Fowler, Guth, Hurst, Point Center Financial, Inc. The Dolphin Group, DOYA Partners, Troxler Ventures Partners, Inc. Woodlands Ventures, LLC Central Coast Development Co., Los Robles Ventures, LLC SLO-HAAS, LLC and them some. He tells me a case has been going on for some time trying to determine Insurance Fraud, and Defrauding investors. I asked him could he talk to any of you and he can't since he works for a Major Insurance Carrier who is concerned they may be liable if a suit ever comes down they are in the damage control mode. But he warned some of those he has interviewed to go to the authorities with their information. Good Luck. FYI Cindy was an insider who did provide in valuable information to the Federal Authorities

    (0) 0 Total Votes - 0 up - 0 down
  3. ccn_debate says:

    By: Anonymous on 5/15/08
    Dear Mr. Fredrickson:

    I look forward to the upcoming investor meeting. As one of the fund investors, I would like to following questions answered before the meeting. Being invited to a "blind meeting" is, in my mind, going to be counter productive. We will have multiple opinions about what to do, very little guidance from professionals (other than yourself) an will leave without accomplishing anything. However with these questions already answered we can move more cohesively. So please don't tell us we'll find these answers at the meeting. I for one, want these answers now.

    1. If we replace Karen and Joshua, who is going to take their place?

    2. I hope you have someone, or a group of people, ready to go into Estate right after the meeting so Karen and Joshua don't have the opportunity to do more harm than they have already done.

    2. Who is going to enforce the vote to remove them? There is no court order behind what we hope to accomplish, so how do you plan on handling this?

    3. Who is going to protect/stop Karen and Joshua from rapping the fractionalized interest mortgage holders?

    4. Is the new manager gong to be bonded and insured? They are not going to be responsible to any court, so we should have some insurance to back up their integrity or we could find ourselves in the same boat we are in now.

    5. How is the new management going to deal with people who have funds in both the Mortgage Fund and are fractionalized interest holder? Or are the fractionalized mortgage holders going to be the stepchildren of this exercise?

    By: Anonymous on 5/14/08
    A similar case in Monterey – Cedar Funding. Paste this link into your address bar and see what the lawyers are doing about it. They are hoping to have a receiver placed soon.

    http://www.montereycountyweekly.com/archives/2008
    By: Anonymous on 5/13/08
    This was found on another uncoveredslo blog yesterday. It's worth sharing here.

    Marylin says:

    Nice to see someone is doing something, FYI Cindy got her monies and moved to Nevada, to enjoy her retirement. She made a deal and is going to stay out of the loop. She warned many investors apparently none listened, until now. My spouse has been investigating several SLO Developers and Investment Scams for the past two years for an Insurance Company who is concerned one of their clients has been running a con game. One matter that has gotten the ATTENTION of the IRS is a local developer named Ronald W. Hertel of RW Hertel & Sons in a Florida Federal Case # 2007-CV-61031-JIC where the developer tried to launder ill gotten monies from SLO to the tune of about $ 14,975,000.00 apparently a LLC called COOKHAM HOLDINGS, LLC and ATASCADERO VENTURES,LLC all connected to a Winery called the 5 Mile Bridge dba VERDOT GROUP, LLC are all connected to several scam operations with Rossi, Hertel, Fowler, Guth, Hurst, Point Center Financial, Inc. The Dolphin Group, DOYA Partners, Troxler Ventures Partners, Inc. Woodlands Ventures, LLC Central Coast Development Co., Los Robles Ventures, LLC SLO-HAAS, LLC and them some. He tells me a case has been going on for some time trying to determine Insurance Fraud, and Defrauding investors. I asked him could he talk to any of you and he can't since he works for a Major Insurance Carrier who is concerned they may be liable if a suit ever comes down they are in the damage control mode. But he warned some of those he has interviewed to go to the authorities with their information. Good Luck. FYI Cindy was an insider who did provide in valuable information to the Federal Authorities

    (0) 0 Total Votes - 0 up - 0 down
  4. ccn_debate says:

    By: Anonymous on 5/13/08
    After hearing all I've heard, it appears Karen and Joshua will be in jail. Although Karen is scrambling to save herself, it's very apparent now she has fraudulantly breached her duties. Regardless, a receiver will be placed, if not now, later. And during the interm, Karen is using the Fund's money (your money and a lot of it) to fight legal battles. Once a reciever is placed, that waste of money will stop and she'll have to defend her own fraud with HER OWN MONEY! Your capital is being tossed away to fight Karen's battles due to her illegal acts. These battles arrived from misrepresentation to the builders (promised money Karen didn't have to loan leaving projects incomplete) to investors who haven't recieved promised money (ex: FTD's not being paid back after sale). These are rightful cases. I feel keeping Karen in her position would be a disaster. Do you want your money to fund fighting her battles? Learn more about your options!
    By: Anonymous on 5/12/08
    Anyone watching the damico trial?
    By: Anonymous on 5/12/08
    to past employee

    You are stating everything the builders know. Not that builders are perfect. Hope your willing to provide details when the right person asks. You are doing the right thing helping to expose the real deal.
    By: Anonymous on 5/12/08
    you want to know where your money is, well karen funded projects based on completion value to make interest payments, also follow the LLC's, most of them she owns, she has 9 projects funded with mortgage fund money that are bare land, funded as completion value, and funds used to make interest payments to investors in the fund, that is until all the loans were completely funded, and money ran out to make interest payments. EFI was most famous for taking investors money, fully funding construction loans, and using the money to make interest payments, 75% of the time when the contractor was ready to build all the money was gone
    By: Anonymous on 5/10/08

    OK, what am I missing.

    Guth is selling assets. She is foreclosing to get properties in her own or her own company's name:
    "Interesting Legals in the Telegram Tribune. Notice of Trustees Sale on Loan B352-05 – B366-05 Signature Homes and Al D'Amico in the amount of $7,584,421.10 APN: 026-281-055/056 and Three Bells,B193-06 Karen Guth- Al D'Amico in the amount of $6,453,285.89 APN: 040-111-024."

    Attorney Roger Frederickson is trying to get the votes needed to conduct a meeting that will possibly replace Guth as the Fund Manager.

    The DOC suspended Estate's licenses.

    Dept. of Real Estate has a file open and is looking into Estate.

    SEC has a file open and is looking at Estate.

    FBI has a file open and is looking at Estate.

    And Guth continues to tell us that things are going to be OK and Estate is not going anywhere.

    Do we all just sit by while some government agency takes control of the company, liquidates our investments for pennies on the dollar, or do we stop crying and do something.

    Fellow investors we need big help – and we need it now! Who's going to set up and lead us

    (0) 0 Total Votes - 0 up - 0 down
  5. ccn_debate says:

    By: Anonymous on 5/10/08
    To We’ve Got Pay Pal,
    Have you even been reading these blogs? If you have been then you would either think that Anonymous is a full blown schizophrenic or it might dawn on you that the name “Anonymous” appears automatically if someone doesn’t enter a name or handle. You sound like the same person who was upset that someone called Kelly a fat ass and you couldn’t understand our anger. Dah
    By: Anonymous on 5/10/08
    Apparently the Gearhearts,Guths,Hurst,Estate,Slow Bears and the like are not going to send you any money if people don't stop picking on them. I will and so should the people that have been helped be your undercover work. Apparently I've hurt the feelings of these pilars of the comunity. Basically there is only two types of individuals I have and will continue to bring to light. 1) Those who steal from others, particularly the elderly and 2) Those who make excuses for the thieves (Slowww Bear, Duedog, You Know Who) If you fall into one of those two catagories oh well. If you are an investor who wants to hope things are going to get better leaving this den of snakes in charge I am simply sugesting I don't think so. I can see I've really gotten to the Gearhart Cheerleaders and that just makes me smile. I know I blogged excessively when Gearhart had his people jamming the blog with his future standing for Sainthood and what a genious he was at that time it was necessarry to take a stand. Good luck to all investors. Don't let up.
    By: Anonymous on 5/10/08
    To the below post. Aren't you something! First off smarty pants, when the user name Anonymous appears that means that person didn't fill in the Name field. If one leaves it blank then the name Anonymous appears. That accounts for a lot of readers. And I do mean a lot! Take your angry bone somewhere else. Now go get drunk and beat your dog!
    By: Anonymous on 5/9/08
    My question is why? Do people actually pay to support this site?

    After reading some of the post on this website I cannot believe that you would let someone post with blatant disrespect towards others! Does anyone censor this site?
    As for the 210 comments on your recent posting it ended as this is written at 258. Close to 100 of them were from two people, Insider and Anonymous I don't believe that to be real readership!You should be so proud and so should your sponcers for I will not support either!
    By: Anonymous on 5/9/08
    Joe Schacherer says:

    I'm accumulating email addresses of just EFI investors.
    I already have 25. I want to keep everyone in the loop as facts and options become available.
    Please send your "real" email address to jschacherer at hotmail.com
    I will not share your address with your approval.

    (0) 0 Total Votes - 0 up - 0 down
  6. ccn_debate says:

    By: Anonymous on 5/9/08
    Interesting Legals in the Telegram Tribune. Notice of Trustees Sale on Loan B352-05 – B366-05 Signature Homes and Al D'Amico in the amount of $7,584,421.10 APN: 026-281-055/056 and Three Bells,B193-06 Karen Guth- Al D'Amico in the amount of $6,453,285.89 APN: 040-111-024. Open your eyes
    By: Anonymous on 5/9/08
    T K

    Why do you have l0 loans a year old. Are you paying interest on these loans. If so how can you afford to do so. What if you are paying interest on money thats not even there?
    By: Anonymous on 5/9/08
    Sound familiar? Read the below article at this link:

    http://www.montereyherald.com/realestatenews/ci_9
    By: Anonymous on 5/9/08
    Let me get this right.. Let's say EFI tells the investors they have a great investment at 65% Loan-to-value-ratio for a project. So investors hand over their money to Karen. Karen allocates some or all the money to the contractor BUT here's the thought… Karen only loaned 65% of the FINAL VALUE of the project (of course, making the investors feel safe) yet didn't mention to the investors that the project was going to need more money to complete (really being a 85-90 LTV ratio). When it came time for the contractors to hopefully get a new loan (more money) EFI blew them off causing them to go into foreclosure. From there, EFI picks up a wonderful real estate deal for themselves.

    How does Republic Properties fit into this equation? I heard this was Charlie's (x-husband) company and he bought these foreclosure or bad loans at a discount from EFI and then finished contruction to make a bunch of money. Meanwhile the original contractor most likely had quite a bit of his own equity in the project, so he REALLY LOOSES OUT!

    It would see reasonable that Republic Properties owes EFI money for these properties. Recall in the article/blog Charlie stating in the divorce docs 'EFI's biggest asset is a note from Republic Properties which is non-collectible'? I'm guessing this note had to pay interest to EFI amounting to 12% or more, thus the investors are satisfied. I'd like to know the books of Republic Properties? Is it negative or positive? How positive or negative? Those books are crucial to the investors!!!

    Also, Charlie can PAY HIMSELF to run Republic Properties, (coming from the investors money), yet the investor don't know because they are sleepers happily receiving their 12% (no offense investors). Another twist, I'm gathering Karen really ran Republic Properties, not Charlie. His name was more of a front. Any comments or other possible scenerios someone would like to list? Or add any information? Elaborate please!
    By: Anonymous on 5/8/08
    Get a load of this….. says:

    Aired on American Greed last Wednesday was a documentary of the Baptist Foundation of Arizona. I missed the first part of it, but this company/foundation was promising their investors 12% derived from real estate deals. It happened in the 90's but oh, the similarity is stunning to EFI. It ultimately turned into a Ponzi scheme. If you want to understand what so many believe is true about Estate Financial, I suggest watching this show. It concludes with prison time for both owners of the Company. The next airing I can find is Sunday 5/11 at 8:00 CNBC – American Greed.

    (0) 0 Total Votes - 0 up - 0 down

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