EFI victims question attorney’s actions
February 4, 2009
By KAREN VELIE and DANIEL BLACKBURN
An attorney with a prominent San Luis Obispo law firm who injected himself into the ongoing hard money lending scandal has assembled a group of investor clients with apparently competing interests.
Roger Frederickson of the Sinsheimer Juhnke Lebens & McIvor (SJL&M) firm was retained in March 2008 by nine investors who lost money in the collapse of Estate Financial Inc. (EFI). Frederickson was to probe aspects of the lenders’ allegedly fraudulent activities and practices.
At least two of the clients asked Frederickson to examine Heritage Oaks Bank as a possible third party and determine if bank officials had a too-cozy relationship with EFI, or failed to sufficiently scrutinize the hard money lender for any appearance of fraud.
(As the economy has slipped deeper into a recession, numerous lenders involved in frauds such as Ponzi schemes have been exposed, and an army of attorneys and investors are looking toward banks as a source of financial restitution.)
In mid April, the law firm began drafting a subpoena to request information from Heritage Oaks Bank, according to a billing notice from SJL&M.
Later that same month, state investigative agencies announced allegations of fraud against EFI and began sanctions. Meanwhile, EFI was assigning 13 property deeds to Heritage Oaks Bank.
In June, the SJL&M firm billed investors for searching San Luis Obispo County Clerk-Recorder files for trust deeds between Estate Financial and Heritage Oaks Bank.
Shortly thereafter, Frederickson told his small group of investors that another investor with deep pockets had agreed to join their action and cover the entire remaining cost. He also sent an e-mail informing them they were required to relinquish control of all legal actions to the big, new client.
“I wanted to let you know that Centennial Livestock has retained us to pursue a receiver action. However, it will only do so provided you are also named as plaintiffs and on the condition that it, not you, [will] control the litigation,” Frederickson wrote in the e-mail.
Than he added: “Please be aware that this information is highly confidential, constitutes an attorney-client communication, and must not be shared with anyone else.” Attorney-client privilege, in fact, applies only to the attorney. It protects clients’ information, but clients are free to discuss their issue with whomever they wish.
That new, well-endowed investor was Centennial Livestock LLC, of which John Lacey of Paso Robles is a principal owner. Centennial Livestock LLC is the single largest investor in EFI, with more than $3 million placed in EFI’s Mortgage Fund and now in significant jeopardy.
John Lacey’s wife, Dee Lacey, is a shareholder and sits on the board of directors of Heritage Oaks Bank.
“The nine of us hired Frederickson to do an investigation and to advise us,” said one of the original investors who asked to remain unnamed. “I asked Frederickson when he first brought the cattlemen in, if there was a conflict, because he knew Dee Lacey was on the [bank] board. He said, ‘We don’t think so.’ Frederickson told me if it did, Dee Lacey would resign from the board. Everyone’s always got a double agenda.”
A former federal bank examiner said that federal banking rules prohibit board members from voting to lend monies to companies in which they are invested in, or in some cases investing in companies in which the bank is involved.
Heritage Oaks Bank reportedly lent EFI principals $20 million unsecured. Following reports of possible fraud by EFI on this Web site, the bank placed liens on numerous properties, collateralizing their loans to Guth and Yaguda.
An ex-employee of EFI has now alleged that Guth and Yaguda used the bank loan to fund escrows, and to make interest payments to extend the life of what now appears to be a Ponzi scheme.
Some of the original investors report Frederickson knew of the Laceys’ involvement with Heritage Oaks Bank; others claim they were not informed.
Attorneys in California are required by rules of professional conduct to inform clients in writing, then receive from each a signed waiver before bringing in an entity that may pose a potential conflict of interest. An attorney found in breach of a fiduciary duty to his client faces not only disciplinary action from the California Bar, but also is subject to lawsuits for malpractice and may be forced to return fees, said Diane Karpman, a Beverly Hills-based legal ethics expert recommended to CalCoastNews by a state bar official.
Shortly before the October 2008 arrest and jailing of Guth and Yaguda on multiple fraud charges, Frederickson told a CalCoastNews reporter and another attorney, “I don’t know why the investors keep throwing their money away; I have not been able to find fraud.”
Investors claim, however, that during that same period, Frederickson was continuing to woo clients with assertions he was the only local attorney who had been able to uncover fraud perpetrated by the EFI mother-son duo.
In an interview just last month with a CalCoastNews reporter, Frederickson claimed he was unaware of his client’s ties to Heritage Oaks Bank, nor did he find Dee Lacey’s position on the bank board to be relevant. He went on to assert that he had been hired by the bankruptcy court to investigate fraud.
The bankruptcy trustees had in fact assigned Frederickson to handle foreclosures and litigation against borrowers, and to enforce personal guarantees for the bankruptcy court’s unsecured creditor committee. John Lacey is the chairman of the bankruptcy court’s trustee committee.
Neither Frederickson nor senior partner Warren A. Sinsheimer responded to telephone calls, e-mails, or detailed voice messages from CalCoastNews reporters. Frederickson recently was made a full partner in the law firm.
Meanwhile, attorneys worldwide are focusing on banks for Ponzi victim relief. Casualties of an Internet Ponzi scheme filed a lawsuit last month against Bank of America for not reporting signs of possible fraud. A group of Bernard Madoff investors filed a similar action in January against Spain’s largest bank alleging it failed to properly scrutinize investments made with the disgraced financier.
In Southern California, a bank paid investors 80 cents on the dollar due to the bank’s failure to report signs of fraud regarding an investment firm with which it dealt. A few years ago, Union Bank of California doled out $26.5 million in a court-approved settlement for “lending an aura of legitimacy” to Santa Barbara’s Reed Slatkin while he perpetrated a Ponzi scheme.