DA’s office in secret deal to sell Pasolivo

September 13, 2011

Victims of the Estate Financial fraud are questioning the San Luis Obispo County District Attorney’s office’s handling of the sale of property intended to help repay investors in a more than $300 million fraud

EDITOR’S NOTE: See The Number’s Game: a list of the different values attributed to the Pasolivo Olive ranch; a copy of the receiver’s initial offering; and Records Requests and the Government Code, an accounting of the district attorney’s office responses to records requests.

By KAREN VELIE

The San Luis Obispo County District Attorney’s office is close to finalizing a deal to sell the Pasolivo Ranch property, which is to be used to reimburse victims of the Estate Financial investment fraud.

But Deputy District Attorney Steve von Dohlen has used a secret process that has kept potential buyers from learning about the sale or bidding up the price of the property.

It is the latest twist in the case of Karen Guth and Joshua Yaguda, principals in Estate Financial Inc., who were convicted for defrauding more than 3,000 investors of more than $300 million. In many cases, the money was the lifetime savings of the victims.

Colleen and John Childers were defrauded of $735,000 by Guth and Yaguda. As a result, they have lost their home and their ability to travel in their retirement years.

“We would like the maximum price we can get for Guth and Yaguda’s properties,” Colleen Childers said. “It should have been advertised so we can get more money and they should have notified interested parties. We know several who were not notified about the sale.”

Guth and Yaguda fraudulently sold securities without the proper licenses, lied to investors, and operated a Ponzi scheme as they took more than $300 million from people, companies and non-profits such as Meals on Wheels.

The fraud was uncovered, the two were arrested and eventually pled guilty. Part of the process in Judge Jac Crawford’s court was to look for and recover money and other assets that could be used to reimburse the victims.

Guth and Yaguda’s most valuable personal asset was the property that includes the Pasolivo olive oil business, its surrounding 131 acres, 34 acres planted in mature olive trees, four homes (one is listed as an apartment and garage), a tasting room, and a barn on Vineyard Drive in Paso Robles. While the sale of the property wouldn’t begin to restore the money the investors lost, it was the biggest chunk of change the victims likely would ever see from the pair’s personal assets.

Von Dohlen said he chose not to advertise the sale of the property because advertising would be costly for the investors. Instead, von Dohlen said, he and Andrew Feola, the receiver for the property chosen by the district attorney’s office, used e-mails and telephone calls to notify potential buyers.

“The expenditure to advertise, I don’t agree would get us more money,” von Dohlen said. “We are doing a better job in the way we have marketed this. We are trying to maximize the value for the investors and shorten the time.”

Employees from several real estate offices in Paso Robles and Atascadero including Peabody and Plum, Country Real Estate, ReMax and Prudential told CalCoastNews they were not informed by phone or email that the property was up for bid. Not one real estate office’s employee contacted by CalCoastNews said they remember receiving an email or a call informing them of the upcoming auction.

Broker of Peabody and Plum, one of the largest real estate offices in North County, Michael Sherer, said he had spoken to the trustee in Los Angeles prior to the decision to auction the property and had been told he would be listing Guth’s former business and home through his office in Atascadero. When selling seized property, laws permit an auction or a sale through a broker with a list of requirements to be followed in both scenarios.

Nevertheless, Sherer said the district attorney’s office and the receiver had a change of plans.

“I called and said I had a couple of very interested people and asked when they were planning to put it on the market,” Sherer said. ‘The attorney for the trustee said they were not going to put it on the market because they already had a couple of people who were going to make offers.”

California law requires openness in the sale of the property including mailing letters to all interested parties and advertising, according to several California codes.

Government code section 6060 says that notice of an auction or sale is to be “published in a newspaper of general circulation,” and that the “notice include official advertising.”

In addition, according to California law, the district attorney or the receiver are also required to provide written notice “to every person who may have an interest in the property specified in the petition.”

“Throughout the course we have tried to keep track (of interested parties),” von Dolhen said. “As folks have contacted us, Andrew Feola has kept track. He sent requests for bids.”

California Code of Civil Procedure Section 701.550(a) says, “In addition to the notice of sale required by this article, the levying officer shall…, mail notice of sale to any person who has requested notice of the sale pursuant to this section.”

Several people who said they told the district attorney’s office they were interested in purchasing the property said they were never informed of the auction.

“I never got a letter or a call that it was for sale,” EFI victim John Childers said. “I never got anything. I had told Steve von Dohlen I was interested in purchasing Pasolivo.”

Feola, a vice president at Beverly Hills-based Geringer Capital and the receiver chosen by the district attorney’s office, agreed with von Dohlen that they were not required to do official advertising.

“We told the greater population of interested parties in your area through emails and phone calls,” Feola said and claimed the calls and emails satisfy the advertising requirement. “I don’t believe (government code) 186.11 requires the purchase of advertising.”

Government Code 186.11 relates to property seized because of criminal acts and does not specifically require official advertising. However, a Fourth District Court of Appeal decision in 2005 said that laws governing sales by receivers appointed in civil actions, which do require official advertising, “also govern sales by receivers pursuant to section 186.11.”

“It appears to me that under the People versus Stark the laws governing sales by receivers appointed in civil actions should also govern sales by receivers appointed under penal code 186.11,” said San Luis Obispo attorney Paul Ready. “However, I have never served as a receiver in a criminal action.”

Ready said when he sells property through a civil action he hires an agent to sell the property who also advertises the property. After a buyer makes an offer, he sets the sale for a hearing, advertises again to attract over-bidders, and then advertises by legal notice at confirmation of the sale.

There also are questions about whether a commercial appraisal of the property was performed.

When first asked a few weeks ago, von Dohlen said he and Feola did not conduct an appraisal of the property to maximize the proceeds for the investors. There was no need to have an appraisal, von Dohlen said.

“Having what a property is worth and what the market will pay is irrelevant if no one is willing to pay it,” von Dohlen said. “Even if you have it, at the end of the day that just gives you a guidepost of what you could expect to receive.”

In a second interview a few days later, von Dohlen said he and Feola had ordered an appraisal. Von Dohlen said it might not be a commercial appraisal.

In any event, von Dohlen claims the names of bidders, bid amounts and the appraisal are protected by privacy laws.

Ironically, the owners of both Estate Financial and Hurst Financial, two companies with owners charged with real estate investment fraud, were able to manipulate property values by not using the services of licensed commercial appraisers allowing them to defraud investors by manipulating property values, according to investment records.

When first asked on Friday, Feola said he ordered a personal property appraisal and later said it was actually a commercial property appraisal along with a business appraisal. He, however, also refused to provide a copy of the appraisal.

Von Dohlen said he expects to bring an offer to purchase the property before a San Luis Obispo Superior Court judge for approval within the next few weeks. However, instead of concluding the sale through a hearing, von Dohlen is planning to petition the court to sign off on the sale, according to the court administration.

Generally, during a hearing to approve the purchase of property in the hands of a receiver, advertising is done to entice over-bidders to the court in an attempt to maximize reimbursement to the victims.

CalCoastNews requested the documents from several of Guth’s property sales from the court file. In each case, the sale was not approved during a hearing with others permitted to bid, but instead was approved through a petition from the district attorney’s office signed by Judge Jac Crawford.

If Judge Crawford approves the sale of Pasolivo ranch and business without getting all possible bids, it might be reversible.

In the 2005 appellate court ruling People versus Stark, it was determined reversal of a court ordered sale should only occur “after concluding the trial court abused its discretion by confirming a fraudulent, unfair, or oppressive sale; if no good reason appears for refusing to confirm a receiver’s sale, such as chilling of bids or other misconduct or gross inadequacy of price, the sale should be confirmed.”

 

The numbers game

These are the figures obtained to date on the values that Deputy District Attorney Steve von Dohlen, Joeli Yaguda, the wife of Joshua Yaguda and others have provided for the value of the property.

                        District attorney                  Joeli Yaguda                   Others

8,000
mature
olive trees   trees have no value             (no valuation given)          $400,000 to $500,000 a year

Olive press   little value                            it has no value                    bought for $500,000

Business       more than $64,000              $64,000                              (no firm estimate)
in 2009          in 2009

Property
without
business      several million                       (no valuation given)            $5.7 million

Shortly after the district attorney’s office filed 26 felony charges of fraud against Estate Financial leaders Joshua Yaguda and Karen Guth, they froze the pair’s personal assets and put Yaguda’s wife in charge of the Pasolivo olive ranch. That has some investors and creditors questioning the level of involvement the Yaguda family has been permitted to keep and raised suspicions about some of the values that have been placed on the business.

An examination of different statements made by Joeli Yaguda, the district attorney’s office and area businesspeople has produced significantly varied estimates of the value of the property and business.

The district attorney’s office/Deputy District Attorney Steve von Dohlen’s current and initial offering for the property indicated the olive trees have no real value.

“The listing indicates no significant value contribution for the olive trees,” the listing says. “Production of olive oil in San Luis Obispo County is a fairly new agricultural enterprise in comparison to the North Coast and counties like Tulare.”

Clotil and Yves de Juuen, the owners of Olea Olive Oil Farm in Templeton and victims of Guth and Yaguda, disagree with the view that the trees have no value and said that the fruit of 8,000 olive trees made into oil should gross the farm from $400,000 to $500,000 per year.

Joeli Yaguda has repeatedly claimed Pasolivo has little or no value in several attempts to gain ownership.

In March 2009, when Joeli Yaguda filed an application with Judge Crawford’s court to buy the ranch, she presented an appraisal, prepared by Colorado-based Nationwide Valuations, which valued the olive oil business at $64,000.

But investors and von Dohlen argued then that the ranch was worth far more than Joeli Yaguda’s appraisal.

“We know the business is worth significantly more than what it was valued at,” von Dohlen said in 2009.

Crawford rejected Joeli Yaguda’s request to purchase the ranch in 2009.

In April 2009, a month after she tried to buy the property for $64,000, Joeli Yaguda asked Judge Crawford to declare that she owned 30 percent of the ranch. That claim was based not on any documents but rather assertions that she, Guth and Joshua Yaguda made.

Joeli Yaguda’s claim was part of an effort to buy the ranch for $18,000 plus owed expenses she said she had incurred. The asset value of the business includes furniture, supplies, leased equipment and lease improvements with a total value of about $11,000, according to her appraisal.

Even though the 2009 appraisal is based on a limited set of assets, the accompanying purchase offer, which is based on the appraisal, included additional assets such as more than 8,000 olive trees, tractors and production facilities.

The appraisal stated that the mill, purchased a few years before for approximately $500,000 had no value.

Joeli Yaguda said in her declaration that the mill was worthless because it is “severely damaged.”

Coltilde and Yves Julien, the owners of Olea Olive Oil Farm in Templeton, disagree with Joeli Yaguda’s allegations that the mill, with a purchase price of close to $500,000, has no value.

Currently, the mill is broken for a second time with a cost of between $5,000 and $25,000 to fix the problem caused by running it incorrectly, von Dohlen said.

Last week, several local brokers put the value of the land, olive trees and structures at about $6 million. Without an accounting of the business, they were unable to put a likely value on the olive oil business and its equipment.

In December 2009, the district attorney’s office announced that following the sentencing that month of Guth and Yaguda, the olive ranch would be sold to the highest bidder.

However, it took a year and a half before the preliminary offering materials were made available to an unknown group of interested parties who were given less than a month to put in offers for the real estate portion of the property.

No matter what the property sells for, investors may not receive all of the purchase price. Before the investors receive any compensation, the court is required to reimburse the receiver for his years of management charges.

In addition, von Dohlen told CalCoastNews in 2009 that most of the Guth and Yaguda properties were over-encumbered and as such held very little value to investors looking for compensation for their losses.

“I was told (recently) by von Dohlen there would be very little money left for the investors,” EFI victim Bob Carlson said mentioning a large loan Heritage Oaks Bank had placed on the property.

Heritage Oaks Bank had secured a previously unsecured $5 million loan against the olive ranch at a time EFI’s troubles were becoming public. Judge Crawford noted the bank loaned Guth the money during a time when crimes were being committed and rejected their claim to the property. Crawford denied a Heritage Oaks Bank appeal earlier this month.

 

Initial offering

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Records requests and the government code

Ironically, district attorney’s offices are responsible for prosecuting government agencies that fail to follow freedom of information laws and government codes. Even so, the San Luis Obispo County District Attorney’s office regularly refuses to give CalCoastNews press releases along with other public documents.

Following the City of Bell scandal, the Los Angeles District Attorney said that city officials’ failures to follow freedom of information laws helped them facilitate their fraudulent acts.

In response to a public records request for the names of any bidders on the Pasolivo property and business, the amount of the bids and any appraisals ordered, von Dohlen sent back a list of government codes he said allowed him not to provide the requested information.

“These materials fall under several exemptions from disclosure pursuant to California Government Code section 6254,” von Dohlen said. “These include real estate appraisals and evaluations relative to the acquisition of property 6254(h); privileged work product 6254(k); and records and information gathered as part of and related to the criminal law enforcement case of People v. Guth & Yaguda  6254(f), which exemption applies beyond the conclusion of a case as well.”

However, 6254(h) refers to appraisals for property that the agency is acquiring. Here, the agency is not acquiring the property but rather is selling it so that provision does not seem to apply.

According to 6254(k), public agencies do not have to disclose documents that are privileged because of the evidence code. It does not appear that real estate records in a non-criminal sale are protected as privileged work product.

Lastly, 6254(f) allows information that pertains to a criminal investigation to be privileged. The sale of the property does not appear to be under a criminal investigation.