Judge Denies Bid to Merge Real Estate Partnerships

A federal judge Friday denied a motion by the receiver of American Principals Holdings to consolidate 44 real estate partnerships worth about $66 million. Receiver Ashley Orr had asked for the consolidation because, he said, the partnerships were so mismanaged and commingled that it is almost impossible to trace most investors’ funds.

But U.S. District Judge Leland C. Nielsen denied Orr’s motion, telling a packed courthouse that he didn’t have the authorization to order the consolidation. The denial means that five partnerships with a value of about $30 million will immediately be spun off.

Friday’s decision leaves Orr with few options other than filing for liquidation or reorganization under the U.S. Bankruptcy Code, according to attorneys close to the case.

Orr, however, declined to detail his next step. “It’s too early to tell what it’s going to mean,” he said. “We’re a little surprised (by the decision).”

Had the consolidation been approved, investors would have received between 57% and 91% of their original investments, according to Orr’s previous estimates. Those figures now will be substantially reduced, he said.

More than 30 attorneys representing the partnerships argued earlier this week against the consolidation, believing that their clients could make claims against the Del Mar-based real estate investment firm.

Between 1977 and March, 1984, American Principals Holdings and its affiliated companies raised about $90 million from about 3,000 investors. Its managed assets have been valued at about $250 million, although most were highly leveraged. Nielsen did approve Orr’s request to spin off 27 American Principals Holdings limited partnerships involving equipment leasing and research and development. They were not included in the consolidation request, and Orr has said the partnerships have no estimated value.

The firm has been sued by several former investors as well as by the Securities and Exchange Commission. Federal prosecutors in San Diego are also investigating the firm; Assistant U.S. Atty. Herbert Hoffman attended Friday’s court hearing.

Controversy has followed thefirm since March, 1984, when an internal company investigation unearthed various “financial and operating irregularities.”