EFI financial battle hints at new suspects
March 24, 2009
By KAREN VELIE
A third figure emerged as a possible suspect in fraud precipitating the collapse of hard money lender Estate Financial Inc. (EFI) during yesterday’s courtroom squabble over the remains of the once rich and influential entity.
San Luis Obispo County Superior Court Judge Jac Crawford said questions linger about one-time co-owner Charlie Applebaum’s possible participation in alleged EFI crimes. Crawford also pointedly wondered about the legitimacy of claims put to the court by a gaggle of claimants, including Heritage Oaks Bank.
Karen Guth and Josh Yaguda, the mother-son team that ran EFI, were arrested October 16 on 26 felony counts, after investors lost hundreds of millions of dollars in what is developing as this county’s most extensive financial scandal.
Following the arrests, the San Luis Obispo District Attorney’s office froze the pair’s assets, including the Bay Front Hotel, a gas station in Templeton and one in Morro Bay, the Pasolivio olive ranch, and their commercial property on Ninth Street in Paso Robles.
Applebaum, Guth’s ex-husband and former partner in EFI, bankruptcy trustees, Heritage Oaks Banks, and two creditors were jousting for a secure place in the asset line.
An informed Crawford sharply questioned the validity of allegations contained in the claims, as well as certain claimants’ possible culpability in EFI misdeeds. Crawford noted Applebaum’s failure to file his declaration under oath, his alleged financial interests in the assets, and his possible participation in the crimes of EFI. During a period prosecutors say Guth and Yaguda were committing their crimes – October 2002 through May 2008 – Applebaum was a partner with Guth in EFI. Applebaum lives out-of-state and was not present at the hearing.
“Some of this clearly happened during your client’s time with Estate Financial,” Crawford told Applebaum‘s attorney, Gregory Abel. “I need to determine his interest in assets you’re claiming, and if your client is innocent of the crimes.”
Prior to a February 2003 marital split that included Guth changing the locks on EFI’s offices, the couple had been business partners; Applebaum supervised the loans while Guth solicited investors.
Arguing for Heritage Oaks Bank, attorney and bank Vice President William Raver asserted the bank has rights to the assets due to an outstanding loan for more than $5 million.
Following news reports on this Web site that EFI was in financial difficulties, the bank placed liens on Guth and Yaguda’s personal assets to secure a previously unsecured loan.
Crawford noted the bank loaned Guth $5 million during a time when crimes were being committed. He then questioned bank officials’ motivations for securing the loans when they did.
“You need to prove… that the trust deeds were made in good faith and not in an attempt to get in front of investors,” Crawford added. “I would like to see loan documents, client statements, and when you made it a secured loan ahead of investors. EFI appears in collapse, and suddenly you become secured.”
An attorney representing trustees, Dave Juhnke of Sinsheimer, Juhnke, Lebens and McIvor, claimed that all assets should fall under the control of the bankruptcy court.
Nevertheless, a group of investors concerned with trustees’ charges — more than $20,000 per day against the estate – are planning to ask the courts to transfer the bankruptcy from Chapter 11 to Chapter 7 within the next two weeks. The investors also are concerned by trustee statements that the reorganization could take years. If a chapter transfer does occur, it could result in the removal of the current trustees and those agencies that contract with them.
Jeff Stulberg, an attorney representing investor Peter Behman, explained his client’s financial interests in the Bay Front Hotel in Morro Bay. Guth had defaulted on her mortgage payments to Behman, prior owner of the hotel. Crawford agreed that Behman appeared to be entitled to his claim.
Stephanie Barclay, an attorney with Ogden and Fricks, filed a motion that claims of her client, Consolidated Properties, against Guth and Yaguda should stand ahead of the trustees’ or the people’s claims.
Also, Barclay, Raver, Juhnke, and Deputy District Attorney Steve von Dohlen agreed not to oppose sales of the assets.
“From the people’s standpoint, let the sales go through,” von Dohlen said. “Then the court can sit on the cash while these other parties figure out the issues.”
Crawford delayed a decision regarding assets until Guth and Yaguda’s next arraignment hearing April 1.