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.


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Stefan

By: Anonymous on 7/30/08

G – Thanks for sharing but the tie is above most of us. Where is the relationship? I remember Gloria and especially Cindy but without the money trail spelled out in plain English to us all, the trail is too hard to follow without a professional investigator. May the FBI, SS, State Attorney General, etc, figure all this out. You are quite a few steps in front of all of us. A further explanation would be well appreciated.

By: Anonymous on 7/30/08

Well now i see Gloria, Cindy and others were right on RW Hertel & sons breaking news from Ventura and now in the Tribune RW hertel is in big trouble, which your viewers reported months ago on UCSLO my Neigbhor was interviewed yesterday by Investigators from State and Feds on a very Serious Criminal matter.

By: Anonymous on 7/30/08

To all of you morons who were applauding these two at the Madonna Inn as they stood up there lying to all of us at that farce, wake up…. We have been taken people. They will get what they deserve and hopefully we will see some of our invesment $$$ back. Two hicks, over their heads, never believing they could actually raise this kind of capital. No idea how to handle it, absolutely leading to this… End of story.

By: Anonymous on 7/30/08

ex-employee


I apologize for my question. I know you don't have it and couldn't have it. The CPA can't give it out either. It can only be obtained by the Trustee and through the court. If and when Karen and Josh gets the cuff, the investigative party will obtain it regardless. How much we see of it is another question. When and if it gets to court, we'll have access to more information.


Thaks for your information even if its limited in scope.

By: Anonymous on 7/30/08

Anoynomous: If you want to know what documents were given to Karens cpa why dont you go to his office and ask him, to think that an ex employee would know that is reaching far beyond wht information they would have. His name is Mark Seid, his office is in Paso Robles on Riverside in the alliance square

By: Anonymous on 7/30/08

Ex Employe #365


What documents were provided to the CPA? Was the CPA aware of the sources of funds, loan pay offs, sources of interest payments etc? I think if he was given falsified documents than he would be off the hook. If the CPA was remotely aware of the the sources of funds nd payments than he is in cohuts with Karen and Josh.

I am interested in many of these issues.

By: Anonymous on 7/30/08

Question ?


Get the copy of the Involuntary BC filing dat June 25, 2008

By: Anonymous on 7/30/08

I am also an ex employee, who contacted an attorney regarding questionable Estate Financial details. I was told that unless I had concrete proof in my hand I wouldn't get very far. Believe me when I say Karen kept most of the employees in the dark. Like the other ex employee I was fired when I asked too many questions and when I refused to do things, that I wasn't comfrotable with. They hired and fired up to 15 people a year.


Stefan

By: Anonymous on 7/30/08

I tend to agree with ex-employee. Those who continue to support Karen may very well have been on the inside and got thier money out or most of it. How about it Knows Better because anyone who turned out on the sweet side of the deal needs some looking into.

By: Anonymous on 7/30/08

unfortunately i was one of the many who kaen fired when i started to ask questions egarding her business tactics, what did i do to "help" anyone, i pursuaded people who were thinking of investing money with efi to not do so, and recommended that they tell anyone they knew who had money invested to take their money out, am i legally responsible for what she did, hell no, do i have to work in this county to make a living hell yes, do i want to be blackballed from being able to work in this county hell no, will i tell the truth if required to do so, of course, how about you, when did you know she was a crook since you seem to be one of very few fans left?

By: Anonymous on 7/30/08

Does anyone know who the main creditors of either EFI, or the Fund are? Who is owed money, besides the investors?

By: Anonymous on 7/30/08

Thank you!


Beautifully said. I wish more people were using their head on this site.


Stefan

By: Anonymous on 7/30/08

Plain worn out


Further comments to the previous entry;


Still believe that this site makes unfair accusations against Karen and Josh? Consider a few previously posted items;


When Karen and now her x-husband Charlie fought each other through the court, they left a telling tale who and how they operated. By setting up a Corporation “Republic Properties” they were able to shift nonperforming and foreclosed properties. Somehow the company was able to generate additional profit to Karen while hiding losses to investors.


She expanded rapidly, by collecting additional funds from new investors and making new loans that generated large amount of fees to her personally.


Many of the loans she originate was never fully funded which in turn caused delays to builders. As long as real estate values were rising at 20% a year, many mistakes were covered up and nobody paid attention to the gross mismanagement.


As loans matured on incomplete projects many of them were refinanced for additional fees and interest. Most of the loans shows that they were made 3 4 years ago, some even longer. Now, that begs the question; How come she didn’t foreclose on them earlier. The simple answer to that is; she risked lawsuits by borrowers, because the loans were not funded timely as agreed.


To enhance her own pockets further, she set up several LLC herself through other LLC’s being the managing member. Large loans were placed on these overvalued projects with hardly any work done. The money was taken out by Karen and Josh that actually belonged to the investors.


No way could market recovery make up for those projects! She used much of the funds for personal expenses and who knows what?


New investor’s money was used to pay interest payments to those who demanded, while others were mesmerized by the monthly statement showing their balance compounded. Investors who received those statements, but no money had to pay taxes on phantom income.


If you take the time, please read about what constitute a “PONZI SCHEME”. There will be many investors/associates who will be found liable to pay back money they already spent long time ago. The damage is larger than it looks on the surface.


Before you make any accusation against this site for uncovering this massive fraud, please get a little education on the subject.


Don’t blame the messenger and the ones who vent their frustration. Much better here than violently acting out.


Also, ask yourself a question; why is that the Secret Service, FBI, DA and other Governmental Agencies are investigating Karen and Josh?


Maybe one of these days we all will learn the truth.


Stefan

By: Anonymous on 7/30/08

Plain worn out


Your comments are well taken; however let me enlighten you with some further notes.


Many of the bloggers are frustrated for not getting information from Karen and Josh in a timely manner as was promised. Don’t blame any one for turning their frustration into written words.


Karen repeatedly stated to be upfront with investors while proclaiming her dedication to properly manage and return investors money.


If it was not for some of the investor’s relentless efforts and communication with Ron Cooper initially and than this site’s expose, we would still be wondering what happened. Karen would be cleaning out any remaining funds from sale of liquidated properties as she so cleverly stated on the information website (prior to any distribution to investors, expenses shall be paid including management fees).


On May 8th she met with David Gould and a BC attorney while on June 17th she insisted to be here for the long haul. I assume long enough to grab what she could as we are going to learn soon.


As you can see, she was preparing to Bankrupt the company likely when Hanno Powell completed his work. To her chagrin, Involuntary BC was filed against EFI. Instead of opposing it as she had the right to do, EFMF fled for BC within a week. Prior to that, she thought she can still have her cake and it too. She and Josh resigned from EFI and installed two handpicked people to handle the situation. She must have believed that by doing so, all questions directed to her and Josh could be deflected when the BC trustee comes in.


Again, to Karen’s disappointment, investors and creditor opposed to have any one remotely associated with her being involved with the company and the Mortgage Fund.


Now there are two independent Trustees appointed and the work can start to uncover what went wrong throughout the years. I can assure you that EFI’s problem has not much to do with the credit crises and real estate market melt down.


As for you and any one still in defense of Karen, I wish you the best because when you wake up from your stupor it will taste bitter.

By: Anonymous on 7/29/08

All these people claiming personal knowledge of crimes and fraud, when did you know it?! If you knew about it way back in time, then you have aided a crime. Maybe you better check yourself out of this blogging business before somebody climbs up your computer and cuffs you in your undies.


By: Anonymous on 7/29/08

ex-employee, does your complete knowledge of the dealings of EFI make you in some way responsible for the losses suffered by these investors?


You sound like part of the problem, not part of a solution.


Many (most?) people here are hoping for criminal indictments…will you be named? I'd like to know who you are…you (by your own admission) knew what was happening…but you did nothing?!? We "IDIOTS" wanna know what you knew and when you knew it.

By: Anonymous on 7/29/08

For one thing i am not a bozo, i know exactly what karen & Josh did, and no im not an ex janitor, receptionist or boyfriend, im an ex employee that knows more than any of you idiots trying to claim karen & Josh are innocent of fraud, theft, and down right greed, the only bozos on this blog are the ones who are in karens corner and still trying to claim she is innocent, wake up people, she stole from u, she stole from her ex husband, and she stole from her fellow comrades, call me what you will but the truth of the matter is, you know absolutely nothing and I know it all, so take that comment and join the circus with the rest of the clowns in here"


Stefan

By: Anonymous on 7/29/08

PEOPLE, PEOPLE! THE MARKET CAN’T COME BACK ON HOUSES THAT WERE NEVER BUILT. THE MONEY WE LENT TO BUILD HOUSES WENT INTO A BLACK HOLE. WANTING TO WAIT FOR THE MARKET TO COME BACK ON HOUSES THAT DON’T EXIST IS JUST PLAIN DUMB. THE VACANT PROPERTY ALONE WILL COVER ONLY A SMALL PORTION OF WHAT WAS LENT TO BUILD SOMETHING.


TO THINK THE EFI SITUATION RELATES TO THE CURRENT MORTGAGE BANKING PROBLEM IS LUDICROUS. BANKS HOLD MORTGAGES ON ACTUAL HOUSES. WE HOLD MORTGAGES ON MOSTLY THIN AIR.


PEOPLE WHO STILL BELIEVE THIS IS A MARKET DOWN TURN PROBLEM ARE SIMPLY SHOWING DESPERATION IN THE FACE OF REALITY.


By: Anonymous on 7/29/08

to plain worn out


To whoever thinks you would have been better off letting K & J wind things down. You might want to reserve your judgement until you can analyze the moves they made in thier last year of trying to "fix" things. Past performance is usually a pretty good indicator of future actions. So lets review what they were doing before giving them credit for what you thought they might have done if allowed to stay in place. Of course since they held all information close no one knows for sure what they were doing do we?

By: Anonymous on 7/29/08

Naive? Plain Worn Out sounds like a pretty sharp person. At the very least, an adult.

By: Anonymous on 7/29/08

Plain worn out says:


After following these blogs for the past several months, all I can say to the relatively few


You making a good point, but missing the truth. If EFI Karen and Josh were honest, there would be lossess, but not nearly as much as it is now. I agree, they couldn't have planned this out. That would take real inteligence.

The markets around the world sucks, and just look at what caused it Greed and fraud.

I will get back with more later when I cool off from your naive post.

By: Anonymous on 7/29/08

To Ex:


So typical. Somebody offers some sain commentary and a bozo like you jumps all over them. You claim to be an "ex" which there seem to be a lot of — or people who claim to be. Something which Plain Worn Out observed is very true — it's going to take years. To bad people can't have a civil discussion. Ex ? Ex janitor? Ex receptionist? Ex boyfriend?

By: Anonymous on 7/29/08

To Plain Worn OUt, as an ex employee to answer your question as to whether Karen planned on taking the investors for every dime they had, well when it came down to being honest with the investors and stopping this disastor when money got tight, she funded millions of dollars on projects that she had an interest in and collected the commission fees which was all she was concerned about, Id say yes she planned this, get a grip and either be for the investors or go straight to hell with Karen & Josh


Stefan

By: Anonymous on 7/29/08

I havent posted anything on here lately, but I feel the need to make a comment to "Know's Better" comment to Barbara who lost every dime her and her husband saved, You are a very rude, uncaring and down right ruthless individual to ask an elderly person who cannot even afford to buy groceries how she is doing on a "dog food diet", im sure even Karens mutt gets a nutrious dinner every night, you are a true loser to make such a comment, maybe u should offer Barbara a Real Meal instead of making fun of what she does have to eat

By: Anonymous on 7/29/08

After following these blogs for the past several months, all I can say to the relatively few participants in these postings is thanks for nothing. Rather than praise the journalistic integrity of undercoveredslo.com, let's look up the words Muckraking, Yellow journalism, Paranoid Egomania. I personally believe that as a result of the local fear mongering that has been driven by a very few individuals, and this site in particular, that as a whole; Everyone in the fund, and all of the FTD investors are all going to end up much worse off than if we had allowed a rational reorganization and planned completion and sell off of the assets of both companies.


I'm not at all happy with EFI and what has happened with my portfolio there, but for the last seven years I certainly have been.


Every day we are hearing about local and national and international banks failing for exactly the same thing we are experiencing here locally at EFI and Hurst and others.


Do you really think Karen and Josh dreamt up this entire global mess? Honestly! This log has deteriorated into nothing more than a witch-hunt.


You all wanted a receiver? Seems like you got one. Or two. Start getting happy with 20 cents on the dollar two or three years from now when it could have been 60 or 70.


For those of you who greedily invested all of your money in a 12% investment when the local banks were paying 2.5%, when AAA corporate stocks were paying 5%, shame on you for taking such risk. The reason theses borrowers all over the country had to pay 13% for their construction loans was that they did not qualify for traditional financing.


That on top of the worst real estate correction in decades, and here we are. Not a huge surprise.


Like many of you out there, I'm going to have to work a few more years and cut back on a lot. I sleep just a little bit better knowing that I still own some California dirt. Even if nothing is built yet. Better than owning Enron or Indymac stock

By: Anonymous on 7/28/08

From SLO County Clerk Recorder


Document

Number Document

Date Pages Document Type

2008038495 07/25/2008 33 BANKRUPTCY PETITION

Grantor Grantee

ESTATE FINL MTG FUND LLC BKPT


and

Document

Number Document

Date Pages Document Type

2008038496 07/25/2008 5 BANKRUPTCY PETITION

Grantor Grantee

ESTATE FINL INC BKPT


Stefan

By: Anonymous on 7/28/08

The way I see it, 20 cents now is better than 25 cents 5 years from now. The attorney fees will rack up as years go by. And there is no guarantee real estate will be up then. It's still on a downward trend and is expected to level out for years before its incline. Not trying to heartless below.

By: Anonymous on 7/28/08

Hey Barb, how's that dog food diet going?

By: Anonymous on 7/28/08

Anonymous how can you say something like that either you have very little money here or you're just not thinking correctly, my investments at EFI were set up by my husband years ago before he died and it is what I rely on to pay my everyday expenses.


Certainly a more planned approach in selling these properties over a two to five year period would have netted us much more money than to fire sale at in the worst real estate market we've had in decades I think it's thinking like yours that got us to this place where we are now

By: Anonymous on 7/28/08

I say why waste the time to even call it a Chapter 11? Make it a Ch 7 now. Save the time, legal fees, and etc. It's very obvious it's a Ch 7 already since Karen and Joshua were so incompetent (and need I say fruadulant?). The faster the trustees do their job, get in and out, the better.

By: Anonymous on 7/27/08

Barbara is absolutley correct on this and that is why 25 cents on the dollar is a reasonable expectation

By: Anonymous on 7/27/08

If things are as I suspect before they turn the lights off at the end of day one they will be able to see chapter 7 as the only alternative.


Stefan

By: Anonymous on 7/27/08

I think you're missing the point here, the two people being appointed by the trustee are not coming in to reorganize the company and keep it running. They are coming to make heads or tails out of the mass, liquidate the assets and closed the company.


Who do you think will be paying the enormous salaries of these people, if you think it's the federal government or the taxpayers you have another think coming, they will be paying themselves and all the office expense out of the sales proceeds off the top! Before we ever get our part so the longer it takes to get the job done the more of our investments will be lost.

By: Anonymous on 7/27/08

Aren't they working for us? says:


Aren't the trustees supposed to be working for the best outcome for the investors? If this


You arejumping the gun. This is a Chapter 11 not Chaper 7. Give the Trustee(s) a chance to asses the situation.

They were selected on Friday and have not yet received the Court's blessing.

We all mut be on top of it so keep following the case.

By: Anonymous on 7/27/08

These are both Chapter 11 cases, meaning they are for reorganzation, not liquidation. Selling off property will only be done if it's in the best interest of the estate. It's pretty complicated when you start talking about reorganizing a fund, but as far as a corporation like EFI is concerned, it's pretty straightforward, I guess. Anyway, I don't think there's a presumption that things will automatically get sold, particularly if it's not in the best interests of the estate. Of course if either of the cases is converted into a liquidation, then you'll see all the properties sold off, even the offices. As far as personal assets are concerned, you are probably looking at years of litigation. And everybody should consider going after insurance dollars as well as personal assets — there's probably a lot more insurance dollars than there is value in personal assets. So, those are claims of incompetence, and negligence not malfeasance and fraud. Not trying to start a fight, just my observations.

By: Anonymous on 7/27/08

Anonymous


If the properties have engineering that adds value to the property and you have a right to that engineering then that can be addressed with a sale by noting the value of the engineering to potential buyers. It's doubtfull getting yourself into the construction/development business will bring any great rewards. If you think so why not just buy the property when it comes up for sale and just make yourself a sh@t load of money player.

By: Anonymous on 7/27/08

Aren't the trustees supposed to be working for the best outcome for the investors? If this is true, then liquidating everything at once would not be in the investors best interests. Some undeveloped property should be held on to til the market turns around, some should have LLC's formed to complete them and those that are already complete and that Karen has been collecting rent on instead of selling should have reasonable prices put on them and sold. All of Karen's properties that she took our money to fund and defaulted on years ago must be taken away from her either through foreclosure procedeedings or deeds in lieu. Then the trustees must initiate actions to strip Karen and Josh of their personal assets. This should all be evident when they finish their investigation.

By: Anonymous on 7/27/08

Anonymous says:


Did Ron Cooper recommend Jeremiassen? Why would the court take his recommendation


The trustee had wide range of choice. The one name provided by Ron Cooper did not get the job. Besides, why are you so much trying to implicate Ron in anyting. You are stil mssing the point. He didn't cause the fiasco, but was instrumental bringing it to light. Without him, Karen would be still in charge taking all the money from liqudating proceeds. Investors were clearly informed of it on her own information website. Unless you are Josh or one of her previous beneficiary, your accusations and innuendo has credibility problem.


Stefan

By: Anonymous on 7/27/08

Did Ron Cooper recommend Jeremiassen? Why would the court take his recommendation?

By: Anonymous on 7/27/08

As usual, Insider doesn't know squat or his agenda won't allow him/her to spout the complete facts. Most of the raw land held by EFI has engineering costs associated with it as well as purchase. These costs can be enormous and would be lost in a garage sale scenario. The only way to not loose the engineering expanse is to keep the project going forward as intended…that's not going to happen with these trustees. OUCH!

By: Anonymous on 7/26/08

I’ve done extensive research on each of the loans I am involved including visits and photographs of each site. In almost every case all CONSTRUCTION MONEY IS GONE and there is only totally undeveloped land. That being the case, an outcome of 25 to 30 cents on the dollar would be a great outcome. Ten to 20 cents on the dollar is, unfortunately, more realistic.

By: Anonymous on 7/26/08

What everyone needs to realize is the reason no one will get much back on the dollar is because you loaned money for a complete construction project the money is gone and there is either no construction or what there is needs to be torn down and started over. Its just the land. Don't blame the liquidation for the mismanagement of the original investment. Ask EFI where the money went. Just because you invested in a proposed project the liquidator can't sell a proposal only the asset that remains.

By: Anonymous on 7/26/08

I've done some checking on Bradely Sharp, and talked with my personal attorney down here in Santa Barbara to see if he has heard of him and indeed he has he said his nickname among his friends is the liquidator from what I understand he is a professional at getting the job done quickly not getting the most back for the investors.


I also looked up Thomas Jeremiassen his resume states he worked for Arthur Andersen isn't this the group of accountants who turned their backs on the Enron deal.


Looks like maybe our great savior had other motives may be getting his project at 25 or $.30 on the dollar


I hope I'm wrong but it looks like we're up the creek without even a boat and our money is sinking fast isn't this what we were afraid of being liquidated and here we are.

By: Anonymous on 7/25/08

Anonymous says:


Karen has no heart. And her son has been trained to be the same way. It's sad. Imagine


Yes they have learned from this.

Should have run sooner.

Now they are being watched by the authorities. She knows it and thats why she already hired an (criminal) attorney with money in his trust account for bail and defense. If they are found guilty (I presume they will be) it will still not bring our lives back the way it was. The damage is done and we all have to live with it.

We all must move on!