ESTATE FINANCIAL UPDATE: Conflicts of interest?
January 11, 2009
Cattle are becoming major players in bankruptcy proceedings for hard money lender EFI.
By KAREN VELIE
Several key players in a hard money lender’s federal bankruptcy proceedings have apparent conflicts of interest, a situation which may further complicate investors’ efforts to recover hundreds of millions of dollars in lost assets.
Trustees appointed by the Santa Barbara bankruptcy court are trying to sort out the convoluted financial dealings of Estate Financial Inc. (EFI) and EFI Mortgage Fund of Paso Robles with the assistance of an investor committee chaired by John Lacey. Roger Frederickson, of the San Luis Obispo law firm of Sinsheimer Juhnke Lebens & McIvor, LLP, and Santa Barbara attorney Peter Susi represent Centennial Livestock LLC, according to court records.
John Lacey is a principal owner of Centennial Livestock LLC and the single largest investor in EFI with more than $3 million placed in EFI’s Mortgage Fund.
Yet Lacey and his livestock LLC’s attorneys, Frederickson and Susi, apparently did not disclose that John’s wife, Dee Lacey, sits on the board of directors of Heritage Oaks Bank, which reportedly lent EFI president Karen Guth $5 million, originally unsecured. A county prosecutor has suggested Heritage Oaks Bank may have “dirty hands” regarding its financial dealings with EFI principles.
Dee and John Lacey did not return requests for comment.
The bankruptcy court recently appointed John Lacey chairman of the investor committee. His attorneys, Frederickson and Susi, have become involved with the bankruptcy court through the livestock LLC.
In July, creditors forced EFI into involuntary Chapter 11 bankruptcy proceedings. Shortly thereafter, Guth and Yaguda voluntarily placed EFI Mortgage Fund into Chapter 11. On October 16, Guth and Yaguda were arrested and accused of 26 felonies. They remain in county jail with bail set at $5 million each.
Susi was approved as the attorney for the Committee of Equity Investors following a recommendation to the courts by Frederickson, sources said. Frederickson handles foreclosures and litigation against borrowers to enforce personal guarantees for the unsecured creditor committee.
All bank accounts listed on the EFI Mortgage Fund bankruptcy statement of financial affairs are with Heritage Oaks Bank. In addition to the Livestock investment, Dee Lacey invested $30,000 in her name and then another $62,000 along with her husband, with EFI, according to bankruptcy exhibit 21b.
In the end, cattle may play a prominent role in EFI's bankruptcy proceedings.
Federal banking rules prohibit board members from voting on companies or individuals where they have conflicts of interest.
A small group of investors originally hired Frederickson to help recover monies lent to EFI. Those investors would later be told by Frederickson that Centennial Livestock would assume any subsequent cost of the case, sources said. However, they were not informed of Centennial’s connection to Heritage Oaks Bank.
According to the California Rules of Professional Conduct for members of the state bar, a “member shall not, without the informed written consent of each client, accept representation of more than one client in a matter in which the interests of the clients potentially conflict….”
Frederickson said he was not aware of his clients’ ties to Heritage Oaks Bank and that he did not find Dee Lacey’s position on the bank board to be relevant. He said local prosecutors have told him Heritage Oaks Bank is not being investigated. Fredrickson further said he was appointed by the Bankruptcy Court to investigate fraud. He asked a CalCoastNews reporter to provide for him any documentation of misdeeds by the bank. The reporter declined.
Sources claim the bankruptcy court did not appoint Fredrickson to investigate fraud. Bankruptcy trustees did not return requests for comment.
Susi contacted a CalCoastNews reporter shortly before publication of this article, at the request of Frederickson, Susi said. He asked the reporter to kill the story because it would adversely affect investors. He voiced admiration for John Lacey and worried that the story could result in a change of leadership in the investor committee.
“I am not an attorney for John Lacey,” Susi added. “I was appointed by the bankruptcy court. I researched Lacey and he is a well-liked, upstanding person.”
Court documents show that Susi was an attorney for Centennial Livestock LLC, and thus John Lacey, prior to Susi’s approval by the court to represent the investor committee.
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