Gold for some: EFI trustees bill estate $4.5 million
March 20, 2009
By KAREN VELIE
While most people touched by the Estate Financial Inc. (EFI) debacle have been monetarily devastated, a select few are in line to do quite well. Trustees and their special attorneys have collected, or are requesting, compensation of $4.5 million for their effort to organize the failed North County lenders’ debts.
Charges includes approximately $4 million for the current trustees and their staff and about $500,000 in charges from two previous trustees. That averages more than $20,000 a day.
Investors and creditors are wondering why the trustees have failed to disburse funds to the investors as properties have been sold, and if trustee fees will devour any remaining assets.
One investor, in an e-mail circulating among the investor community, suggests the only option now available is to convert the Chapter 11 bankruptcy into a Chapter 7 bankruptcy.
“Under current conditions,“ the investor wrote, “most and perhaps all of our assets could quickly dissipate in fees, insurance, property taxes, maintenance and other costs. Not to go unnoticed, most all of the properties are in disarray and deteriorating. And most critical, since the filing of the bankruptcy, the properties that were suppose to secure our investments have depreciated by at least 20 percent, about $60 million.”
Enticed by the promise of 12 percent interest on property-secured investments, approximately 3,400 investors entrusted their nest eggs with EFI owners Karen Guth and Joshua Yaguda. EFI’s portfolio contained more than $317 million in monies owed to investors when the company filed bankruptcy last summer. Of that, only $21,000 was held free and clear.
In June, creditors forced EFI into Chapter 11 bankruptcy and asked the court to appoint a receiver in an attempt to protect their investments. About a week later, Guth and Yaguda voluntarily placed EFI Mortgage Fund into Chapter 11.
In Chapter 7 bankruptcy, assets are liquidated and funds are disbursed to creditors. A Chapter 11 bankruptcy is much more involved than chapter 7 as it allows the company to reorganize its debts and remain a viable corporation.
Within the next two weeks, a group of investors and creditors plans to file a motion for the conversion of the bankruptcy into Chapter 7.
In addition, the group is planning to put their opposition to the current fee request on the record, along with concerns of conflicts of interest regarding attorneys Roger Frederickson’s and David Juhnke’s regarding their tties to Heritage Oaks Bank, during a March 25 fee hearing at the bankruptcy court in Santa Barbara.
Trustees hired Juhnke and Frederickson, of the San Luis Obispo law firm of Sinsheimer Juhnke Lebens & McIvor, LLP, as special counsel for collection and foreclosures; and to investigate third parties in which claims may be rendered.
Frederickson and Juhnke appear to have conflicts of interest regarding third parties who could have culpability with EFI. Even though they repeatedly charge the estate for investigating issues regarding Heritage Oaks Bank, the firm also represents Centennial Livestock LLC.
John Lacey is a principle owner of Centennial Livestock LLC. His wife Dee Lacey sits on the board of Heritage Oaks Bank, which reportedly lent EFI president Karen Guth $20 million, originally unsecured, while Centennial livestock LLC was the largest investor in EFI.
Employees of the law firm and the trustees regularly charge the estate for reading the news, preparing their bills, and repeating the same actions as their fellow attorneys on the case.
In one reported 10 minute telephonic court hearing, the firm charges the estate for one hour and 10 minutes.
The creditors’ committee is in place in part to protect investors and creditors from excessive fees. However, John Lacey, a client of Frederickson’ and Juhnke, is chairman of the investor committee. The committee holds its meeting at the Sinsheimer Juhnke Lebens & McIvor office in San Luis Obispo.
Guth, 65, and Yaguda, 40, were arrested October 16 by a multi-agency task force at their Pasolivo olive ranch. They face 26 fraud charges, and both remain in San Luis Obispo County Jail pending $5 million bail each.