EFI trustees: Piggys at the trough?

September 5, 2008

By KAREN VELIE and DANIEL BLACKBURN

Trustees working the Estate Financial Inc. (EFI) collapse – including a pair retained by the failed lender – want nearly a quarter-million dollars for their efforts during the past month and a half.

That includes $10,400 for two round trips by car from San Francisco to Paso Robles.

Creditors and investors in the bankrupt Paso Robles firm are disputing a significant portion of trustees’ initial charges, which now total $243,000, to a federal judge. If there is a piece of the EFI pie left, it’s rapidly disappearing.

More than 3,000 investors, primarily seniors, trusted their nest eggs with EFI.

Formal objections to the ejected trustees’ requests for compensation have been filed with the court. U.S. Bankruptcy Judge Robin Riblet who must approve charges prior to the disbursement of funds

FTI Senior Managing Director Freddie Reiss, FTI, and Reiss’ attorneys want the largest serving of the current bill. Appointed by EFI principal Karen Guth and subsequently dismissed by the U.S. court, Reiss submitted personal bills of $35,953. Accountants at FTI want more than $114,000. And attorneys Beall and Burkhardt of Santa Barbara have their eye on $23,947.

Reiss’s crew charged $15,315 for preparing and submitting their bills. FTI Managing Director Michele Lee claims travel time and mileage costs of more than $5,000 for each of two round trip drives from the Bay Area.

“She could have flown for a fraction of the cost,” EFI investor Sherri Bell said in a formal objection to the bankruptcy court.

Reiss claimed in his billing request that his hourly rate of $715 is “ordinary compensation for a person acting as a court appointed trustee.”

Nevertheless, former EFI Mortgage Fund trustee David Gould, current EFI trustee Thomas Jeremiassen, and EFI Mortgage Fund Trustee Bradley Sharp list charges of between $450 and $495 an hour.

In June, creditors forced EFI into Chapter 11 bankruptcy and asked the courts to appoint a receiver in an attempt to protect their investments. About a week later, EFI owners Karen Guth and Joshua Yaguda voluntarily placed EFI Mortgage Fund into Chapter 11. They then assigned Reiss to manage EFI, and Gould to oversee the mortgage fund.

Judge Riblet rejected Guth’s appointments, citing allegations of fraud and mismanagement made by the California Department of Real Estate against EFI as compelling reasons to prohibit those “tainted” by Guth from having authority over EFI. Riblet then appointed Jeremiassen as the EFI trustee, and Sharp to watch over the EFI Mortgage Fund.

At the onset of the bankruptcy, EFI’s portfolio consisted of 500 active loans and more than $317 million in unpaid principle. Only $21,000 was held free and clear, according to court documents.

Jeremiassen and Sharp lead a small army of accountants, attorneys, and assistants. The group continues to pore over EFI records in an attempt to trace the money trail, analyze investments, and help creditors and investors to recover monies. The process is expected to take many months.

Due to the lack of available revenue, the trustees and their staff are considered “at risk.” This means they may not be compensated for their work. EFI Mortgage Fund’s current trustee, Sharp, leads the top 20 unsecured creditors’ list with a claim of at least $39 million, according to court records.

Tags:, district attorney, EFI, Estate Financial, Paso Robles


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3 Comments

  1. ccn_debate says:

    Member Opinions:
    By: Mary_Baker on 10/9/08
    I received a disturbing phone call today. The call was from a woman, age 50-65, with a husky, silky voice. The caller, an EF investor, revealed that after the last trustee meeting, some investors met for dinner, and decided to make some phone calls to the community.

    This was the first I had heard of the EF tragedy. My heart goes out to those investors who believed in EF and thought their future was secure. I have spent the last few hours reading the news stories, blogs and comments. I read about Judith Baron, among others, and when I tried to contact her at the Judith Baron Interiors phone number, it was disconnected.

    As a local business we like to refer our customers to other community supporters. We sometimes hear complaints about businesses first-hand from friends, associates and customers. We consider those complaints seriously and we take them personally, as we are staunch supporters of the Paso Robles region and wine appellation.

    This call, however, was disturbing—and not for the reasons you might think.

    1. The caller was ill-prepared, scattered, distracted by my fax’s ringtone. Not a problem, it happens to me all the time. But it signifies a high degree of uncertainty and nervousness.
    2. The caller did not identify herself. A sure sign of a salesman and not a good way to begin a discussion.
    3. The caller insisted on speaking with the “owner”. I said I could help, and finally had to identify myself as a partner. I get really tired of these calls during crush because so many salesmen only want to talk to a man, so I admit was I pretty short. I was thinking, “get to the point!”
    4. The caller started talking about our “affiliation” with Pasolivo, and how detrimental and shocking that was. Whoa! What affiliation? And what was shocking??? There was clearly a lot of anger here, and I had no clue what this person was talking about. The caller insisted our business was “affiliated” on the Pasolivo website, on our own website, and on Google, but could not specify web addresses, nor did she offer to send a link.
    5. When I said I didn’t know what the EF story was, the caller expressed disbelief. “Don’t you read your local community news? How can you NOT know about this?” I handle my personal finances—nationally-traded stocks and funds—online, I do not invest in real estate and would have no reason to personally follow that type of news. After 15 years of donating time, money, and product to local fundraisers, I resent the implication that because I don’t know about brewing financial trouble on one front that I am somehow remiss in my responsibilities.
    6. Again, the caller made accusations about Karen Guth, whom I have never met, and claimed that we were somehow personally affiliated.
    7. The caller stated that she has a friend who buys and enjoys our product. She also stated that we are “highly regarded” in the community. Well, I could be flattered into believing that—until the caller said she “is concerned for us.” And the reason would be?
    8. The caller said that someone else, a male relative, would also be calling me with his concerns.
    9. I asked the caller for online confirmation of her accusations, and she directed me here. She refused to give her name or any contact information.

    Now, I enjoy the Pasolivo olive oils. In fact, I’m probably addicted to the tangerine oil. I took some guests to the facility for a tour of olive oil production and posted it on our winery blog. We frequently refer visitors to Pasolivo to taste the oils and sample local wines. We have done the same for other local businesses like the Ocean Rose abalone farm in Cayucos, Windrose Farms for fresh tomatoes and produce, and to other local wineries who are actually our competitors. I don’t think that supporting local agriculture qualifies us for a campaign of threats.

    I am never ashamed to sign my name or introduce myself, and I believe that most of the investors in EF are the same. If you—the investors—are going to do community activism, then you should have a clear cut goal, and positive reasons for your actions. If you want to talk to us about what our business can do to help, then please talk to me as a person with a name and a face. Thank you.

    Mary Baker
    Dover Canyon Winery
    By: Paso_Guy on 9/11/08
    Ok…who else got the BK claim letter and what is your take on it?
    By: Nameless on 9/7/08
    AuntMillie;

    I am confident they will notbe awarded their claim. There will be a hearing on September 17 th. in Santa Barbara.

    Only one property was sold so far and the proceeds are in a segregated account before distribution.

    No one has a pitty on any one in particular regardless of personal circumstances. The Judge and the Trustee will do what the LAW demands, nothing more nothing less.

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  2. ccn_debate says:

    By: Nameless on 9/7/08
    We fought to have the previous team ousted and suceeded. Now the truth comes out how much they were representing us. But hold on!!! we put a new team to guard the chikecn scoope. Lets see how many chickens disapear through their guardianship. So far $162,000.00 a week not including lawyesr fees and other minor costs. Wait till the firworks begin when they file claims against each other (EFI vs. EFMF and creditors, debtors, claimants etc.) all in the name of fairness. We all must be vigilant and watch the guards before they gobble up the top. Anyone thinking Chapter 7 yet?
    By: TheWeighmaster on 9/7/08
    Your articles concerning EFI and Hurst are painful examples of the greed that has overtaken SLO County. Little has been done to impede the dishonest practices that have allowed so many to have been taken advantage of, particularly the investors who are elderly and vunerable.

    I can think of nothing more treacherous than duping older folks.

    Has the DA or Grand Jury sat by idely as these events unfolded? I know that there have been investors who have sought our local government's help. These events did not happen overnight. They have been going on for a long time and the appearance is that certain parts of our local government have been sitting on their hands and looking the other way.

    Finally these investment schemes can no longer fly under the radar and the house of cards is wobbling.

    I hope CalCoast News continues to report updates on the players thus holding their feet to the fire.
    By: Vagabond on 9/5/08
    California GOLD…
    Whooee what a pig through!
    By: Rose on 9/5/08
    Did I read this right? Did someone charge us $10,000 for two trips from the Bay area? What does she expect us to do, pay off her car loan? I'm sorry. I just can't believe that this is going on. It is making me sick.
    By: Rose on 9/5/08
    Good reporting, Chuck Desmond, but I've got to ask – how the heck can the accounting and staff people that they have brought in charge between $125 and $450 an hour? What qualifies them to charge as much as another attorney for Pete's sake? We've got to get a handle on this. Why can't they hire a local firm? In my wildest dreams I can imagine any staff members charging such outrageous fees. I hesitate to call anyone to even ask a question after hearing what they all charge. We can't afford it. Why are the trustees meeting with individuals and small groups? How about including others in these meetings? Better yet, how about they put some information on their new website explaining a few things – like are properties being sold and who is in line to get paid first and when and did they file an objection to that outrageous bill that Karen's appointees filed with the court? Who the heck is minding the store? We get a bill for over $15,000 to pay them for MAKING OUT THEIR OWN BILL? A secretary can type out a bill on the computer and even if she charged $450 an hour it wouldn't take her over 33 hours to type it!!! I thought the court and the trustees were supposed to be looking out for us – we might as well have stuck with the former managment that was accused of fraud by the DOC.

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  3. ccn_debate says:

    By: beaucoup on 9/5/08
    Karen and Josh have a new beach trough in Cayucos, address 38-7th. we wonder who paid for that?
    Trustees, are you reading this?
    By: Rose on 9/5/08
    What does the $39 Million unsecured claim by Sharp represent? Is this a claim for the Mortgage Fund Investors? Does this mean that the Mortgage Fund investors are CREDITORS? If so, doesn't this mean that the Mortgage Fund investors/creditors will receive their piece of the pie before all others, including the trustees, attorneys and staff, and the first trust deed holders? We need some information here. Does anyone know what the order is for payoff? Has anyone actually spoken to the new trustees? Talk about lack of communication.
    By: CarolAnnRiley on 9/5/08
    Did I read this story right? Did this firm charge 15K to prepare their invoices? They actually charge $15,000 to inform everyone how much they were charging for a 5-6 week stint?
    So they charge $715 per hour for their services and then they charge 15K to figure out how much they want for whatever they did.
    Hummmm – Yup it's time for the attorney jokes.

    By: Cindy on 9/5/08

    This is certainly a disturbing article. Since when are attorney's and accountants time worth $715.00 an hour? That sounds like "highway robbery" but the real "highway robbery" is the person that had the nerve to charge $5,000. each time that she drove round trip from SF to PR (just for drive time and road expense) !!
    This reminds me of an attorney who I did accounting work for back in the early 80's. He had a trust account with approximately 300K in it that he was holding on behalf of an estate. He did no work for them other than to hold the funds and roll over a CD every six months. Back then a CD earned 9% and the estate CD had accumulated 75K in interest. He told me his plan was to request that the court award him all the interest "he had earned" for his Trustee fees. I was up hauled and guess what?
    The court granted him all the interest!
    No wonder there are so many attorney jokes, none the less, I have known some very honest, sincere and good attorneys.

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