Law reported closing in on EFI principals
July 20, 2008
By KAREN VELIE and DANIEL BLACKBURN
Local and federal law enforcement agencies are investigating Estate Financial Inc. (EFI) and a criminal case is said to be “moving forward” even as a battalion of interested parties scrap over control of the failing hard money lender in federal bankruptcy court.
Federal Secret Service agents, who had commenced a parallel probe into the Paso Robles’ company’s practices, apparently have decided to halt their examination of alleged fraudulent management of EFI. The Secret Services’ interest in the case stemmed from the agency’s charge to protect U.S. financial institutions.
“This case is being worked diligently by the Paso Robles Police Department, the FBI office in Santa Maria, and the San Luis Obispo District Attorney’s Office,” Secret Service agent Mike Parker wrote in an e-mail July 17 to an investor and builder he previously had interviewed. “It is my understanding the case is moving forward and any involvement on my part would only slow the progress.”
And in federal bankruptcy court, Judge Robin Riblet ruled EFI’s leaders’ proposed trustees were tainted and ordered new trustees brought in to manage EFI. In the interim, Freddie Reiss will oversee EFI and David Gould will oversee the mortgage fund.
Early last month, creditors forced EFI into involuntary Chapter 11 bankruptcy proceedings. About a week later, EFI owners Karen Guth and Joshua Yaguda voluntarily placed EFI mortgage fund into Chapter 11.
On July 16, U.S. Trustee Marjorie Erickson filed a motion to object to Reiss and Gould, Guth’s choice of trustees.
More than 3,000 investors have placed more than $300 million into EFI construction projects, creating a financial gold mine for future trustees. With much at stake, emotions ran high at the July 18 hearing. Gould and Reiss presented their experience and qualifications, but Judge Riblet determined prior contact with Guth had “poisoned” the pair.
Even before Guth announced in June to hundreds of investors at the Madonna Inn that she was “in for the long haul,” she had huddled with liquidating specialists Gould and Reiss at the suggestion of Lewis Landau, her attorney.
Judge Riblet noted Department of Real Estate allegations of fraud and mismanagement as a compelling reason to prohibit those “tainted” by Guth from having authority over EFI.
Judge Riblet also refused to permit a stay to allow San Luis Obispo County Superior Court Judge Barry T. LaBarbera appointed attorney Hanno Powell to finish his evaluation of EFI’s mortgage fund.
Investigations have provided information that Guth wrote checks for insurance payments, merchandise, and employees’ salaries for her Pasolivo Olive company from EFI accounts.