01 April 2010

Canyon Crest: New Owner, Old Questions, Part 9

February 2004 brought the mighty crash of the conglomerate controlled by C. Paul Sandifur, Jr. and centered on his Metropolitan Mortgage and Securities Company and its sister firm, Summit Holdings, a subsidiary of which was Old Standard Life Insurance Company, now in liquidation but also the owner of the Canyon Crest property proposed for luxury home development in the Brea side of Carbon Canyon.

The $2.5 billion empire that Sandifur built over a dozen years from a conservative regional lender to a regional and national player left thousands of investors with $450 million in Metro/Summit unsecured debentures and preferred stock facing the loss of nearly all of that money.  Many of these investors were elderly people, unschooled in the complexities of modern investing, who had significant portions of their assets tied up in these products and found themselves in ruin.  Because of their age, these people, party to class-action lawsuits that could realistically only seek to recover pennies on the dollar, have dwindled significantly in number.  This led, in turn, to settlements that avoided further delay and the prospect of lengthy appeals, settlements that actually benefit the defendants and their insurers far more than the investors themselves.  In modern America, this is, unfortunately, all too often the case, each time we experience massive financial mismanagement and outright fraud.

One executive in the Metro/Summit galaxy, Thomas Turner, was convicted on federal charges of lying to auditors about the condition of the companies.  Others were subject to class-action litigation with much of these cases settled and some portions still awaiting litigation or, more likely, further settlements.  In the case of Sandifur, who always held controlling interest, both in stock and in the management of the empire, he has ponied up a few hundred thousand dollars to the creditors' trusts that were created in the aftermath of the disintegration of his companies.

Shortly after the bankruptcy was filed, Sandifur, who'd held some $8 to 15 million in company stock, tearfully told the Spokane Spokesman-Review of his embarrassment and regret: "I feel terrible about the small investors.  I feel I wasn't able to carry out the responsibility my father entrusted me with . . . [yet] I did everything in my power to carry it out."  Curiously, though Sandifur retained a position on the board of directors, he noted, "it may be extremely temporary.  It's almost like I'm not here."

Well, it was and he wasn't.  Within months, the disgraced tycoon left Spokane and moved to El Centro, California, out in the desert in southeastern California.  He moved into the home of a friend at a golf course (in the desert, of course) community, received his realtor's license and went to work for The Real Estate Advantage branch in town.  There, his colleagues, according to an October 2005 article in the Spokesman-Review, "call him humble, quiet and kind, a sort of freelancer who rarely comes to the office."

Yet, when his boss learned about Sandifur's past, which, shockingly, he chose to conceal in his employment application, she professed to be astounded.  "Oh my gosh," she exclaimed, "please know that I am so sorry for those investors."  Promising to review Sandifur's role with the company, noting that, in El Centro, trust violated meant that "you can never work there again," she concluded by noting, "he seems like such a nice older gentleman."  It was noted in the article that authorities were pursuing some $7 million in stock redemptions, dividends and salaries, $4 million of it to Sandifur, paid out to family members that held common stock through a trust.

Within ten days, Sandifur was fired from his job, but his attorney, in a piece from the Imperial Valley Press in October 2005, dutifully trotted out an old time-tested line of defense: "he is not a corporate criminal, he is a guy who saw his business go banrupt and now he is trying to do what he an to get out of the poor house."  Perhaps the same one many of his clients at Metro/Summit were thrown into by Sandifur's actions?

In 2006, Metro sued Sandifur family members and former company executives, but notably, not Paul Sandifur.  The suits sought some $9 million, a far cry from the $28 million it originally intended to seek from dividends paid to preferred shareholders, but trustee Maggie Lyons, who now oversees the liquidation of Old Standard Life, indicated that "it would be too expensive and create too much hardship."  Almost a quarter of the funds sought were from Sandifur's ex-wife, Helen, whose divorce settlement in 2002 occurred as the company careened toward capsizing and gave her common stock redeemed in an unusual arrangement.  Other monies were held by a sister, brother, aunt and son, Phillip.

Other attempts at raising cash for creditors included the sale of Western United Life Assurance Company, Metro's main insurance entity, which was dealt to the intriguingly-named Global Life Holdings, which made the $52 million purchase from investment funds, one managed from, that's right, the Cayman Islands.  The deal upset Ms. Lyons because she and her advisers were not informed of the deal, made by Washington sate insurance commissioner Mike Kreidler, until after court paper were filed to get approval.  As Lyons curtly expressed it, "this is not a $52 million sale that will net that kind of cash to my creditors."  The deal also set up a trust to accept $5 million in cash from Global Life, "a $32 million claim for reinsurance payments from Old Standard," and real estate valued at $15 million.  A creditors' attorney called the deal "full of hooks and outs that we don't yet understand," and that's saying something coming from some who deals in corporate law!

As stated in the last post, the latest news from a little over a month ago concerned the proposed $38 million settlement that would clear Ernst and Young, PriceWaterhouseCoopers and Roth Capital from further liability in the Metro/Summit matter.  Claims against Sandifur and other executives are still pending, though it was assumed that these would be settled without much in the way of money being available to creditors.

Sandifur is still said to be living in El Centro.  His wife is engaged to Spokane city council member Steve Corker, a former Metro director (surprise, surprise.)  His son rents small houses and apartments and runs a web site development business in Spokane.  As for the 16,000 investors s$#%^ed by Metro/Summit, Sandifur and a gaggle of executives, directors and sales agents, untold numbers have died, others have lost much if not all their retirement, and some are working far beyond the age they planned to retire.

Among the detritus:  Old Standard's loan of money to William Shopoff for his development project of 166 luxury houses on increasingly scarce open, natural and recreational space and environmentally sensitive land in Carbnon Canyon.  A loan which defaulted and has now passed to OSL, which has paid Shopoff's unpaid bills to the City of Brea.  OSL, therefore, intends to continue the application process for approval of the Canyon Crest project, but surely cannot be the slightest bit interested in actually seeing houses built.  Instead, it stands to reason that OSL wants that approval and the tract map so that the value of the land increases for the benefit of creditors.  The desire to find some compensation for those misled and defrauded by C. Paul Sandifur, Jr. and his ilk is understandable.

At the very least, however, Brea city officials should be aware of the intent with which OSL continues the application process.


datsawman said...

Again, great work, Paul.
I hope you continue your writing about the Shopoff Group and Canyon Crest. You're just getting to the local stuff.
You are much better than I am when it comes to distilling and explaining this complicated information.
Bill Shopoff is a brilliant guy and I give him credit for being able to "make" money. He is a mentor to many in the real estate investment world and is quoted in such publications as, "Rich Man Poor Man." One of his pieces of advice is to "lawyer up." He does that well.
The conflicts of interest are disclosed in the SEC filings for his various entities but it is still pretty amazing how the Shopoff Advisors, L.L.P., Shopoff Group, L.P., Shopoff Properties Trust, L.P., and Shopoff Securities Inc., can shift money from investors into Shopoff's fully owned, created, and controlled subsidiaries like MRF-Carbon Canyon and others and then file bankruptcy for the subsidiaries. All the while the various Shopoff groups charge fees and expenses for the MRF's and the Shopoff family personal assets are sheltered and losses seem to be shifted to reduce profits and taxes on the entities they create that do make money.
The recent bank failures and continued practices such as this don't give me great confidence in SEC regulators.
If you would like to read some interesting stuff just use Google and use the keywords shopoff sec.
The "Carbon Canyon Chronicle" rocks!

Paul said...

Hello Duane, sorry for the late comment. You raise important points about the general problem of creative (and, yes, highly intelligent) "operators" in the real estate (and banking, and investment, and insurance, and oil, and etc.) world who know how to take the best advantage of regulatory loopholes, lax enforcement and other weaknesses in the public sector. For the purposes of this blog, the focus continues with the Canyon, but Shopoff will certainly be followed here by others!