Divorce allows peek between EFI’s sheets
August 16, 2008
By DANIEL BLACKBURN and KAREN VELIE
It took an acrimonious divorce and a protracted asset scrap to finally address the big question for investors in Paso Robles’ Estate Financial Inc.: Where did their money go?
Now, EFI principal Karen Guth has answered at least part of that question in the midst of her contentious court battle over marital assets with ex-husband and former partner, Charlie Applebaum. By her own admission, Guth utilized hundreds of thousands of dollars in investor money to capitalize her personal holdings.
Guth disclosed to the courts that she spent EFI funds to cover expenses for at least two family businesses over a period of at least three years, according to court documents.
Utilizing a number of hard money strategies, EFI principals Guth and her son, Joshua Yaguda, enticed more than 3,000 investors to place more than $300 million with the promise of high interest through secured construction investments. But for months, numerous sources have been alleging that Guth utilized funds for project construction to pay for a number of outside business interests she operated while at the helm of EFI.
The Guth-Applebaum drama continued recently when the pair engaged in a litigious battle over a $100,000 reimbursement check from the state for chemical cleanup of two service stations known as Templeton Products Inc. Guth told the court she wanted to use the check to cover some of the $760,000 in “advances” EFI has made to fund the service stations.
Templeton Products still owes $300,000 to $550,000 to EFI for those advances. Guth acknowledged June 24 in papers submitted to San Luis Obispo Superior Court that she made the cash advances between 2004 and 2007. By designating the monetary payments from EFI to Templeton Products “advances,” they became, in effect, non-interest-bearing loans.
“As is her style, she runs Templeton Products any way she sees fit, regardless of formalities and corporate law,” Applebaum claimed in sworn testimony.
Investigations by UncoveredSLO.com suggest that Guth wrote checks from EFI accounts for insurance payments, merchandise, and employees’ salaries for her Pasolivo Olive company.
The Guth court papers also put the spotlight on a practice of many local banks, that of loaning millions of dollars to local hard money lenders without securing the debt with borrowers’ assets.
Guth employed Templeton Products to secure a previously unsecured $5 million Heritage Oaks Bank loan, according to court records.
“Incredibly… she mortgaged both properties to the hilt,” Applebaum reported in sworn testimony. “By placing these liens against the gas stations, the gas stations are now grossly over encumbered.”
Applebaum claims officials at Heritage Oaks Bank authorized the loaning of millions of dollars to his ex-wife on property he owns without his knowledge or consent.
“The transaction came as a complete shock to me as I was in direct communication with Heritage Oaks Bank,” Applebaum asserted in sworn testimony.”
Heritage Oak Bank officials did not respond to numerous requests for comment.
“The bank is saying, as long as it is a corporate resolution, the lien is good,” said Gregory Abel, Applebaum’s attorney. “Hopefully, we have found responsible people at Heritage Oaks Bank willing to work together so that Mr. Applebaum is not personally adversely affected by the liens.”
Guth claimed she agreed to place the lien on her portion of Templeton Products following a request from Heritage Oaks Bank to secure an already funded personal loan. Applebaum’s interest in the property is not impacted by the agreement, she told the court.
Heritage Oaks Bank has doled out at least $15 million in loans to Guth. The bank secured a loan for $4.8 million through a lien on a Guth and Applebaum commercial property on Ninth Street in Paso Robles; and a second lien for $5.9 million on Guth and Yaguda’s Pasolivo olive ranch.
Applebaum and Guth purchased the Paso Robles hard money lending company in 1994 and divorced in 2004. Their bitter battle over personal assets became public when the company fell on hard times, along with 3,000 of its investors and a legion of creditors. EFI now finds itself in bankruptcy and its remaining officers, Guth and her son, Joshua Yaguda, under the critical gaze of regulators.
Early in June, creditors forced EFI into involuntary Chapter 11 bankruptcy proceedings. About a week later, EFI owners Karen Guth and Joshua Yaguda voluntarily placed EFI’s mortgage fund into Chapter 11. The state Department of Real Estate (DRE) has suspended EFI’s permits and has publicly alleged that many of EFI’s practices were fraudulent. Guth and Yaguda are being investigated by a host of state agencies and federal and local law enforcement.
Even as the lending business began to self-destruct under pressure from worried investors and a legion of creditors, and with bankruptcy actions proceeding, Guth appeared to be transferring properties and other assets in a helter-skelter fashion.
Concern by investors and creditors now may have been partially addressed by state actions which have had the effect of icing any business that can be conducted by EFI.