Federal Judge Freezes Doerring Assets

A federal court judge on Thursday froze the assets of Doerring & Associates, the financially strapped real estate investment firm that has been accused by regulators of fraud and securities violations.

U.S. District Judge Edward J. Schwartz, overseeing a standing-room-only, 5 1/2-hour hearing that at times wastension-packed but in the end uneventful, also continued a stay on the operations of Doerring’s 80 limited partnerships. Those partnerships attracted more than 800 investors, including hundreds of prominent San Diegans who pumped in more than $65 million in capital to buy real estate in California, Arizona, Colorado and Texas.

Schwartz, in an apparent attempt to ease investors’ fears, said he did not believe that the Doerring & Associates’ operation was a “Ponzi” scheme, where new investor funds are used to pay off existing clients.

Despite allegations by the SEC that Doerring & Associates siphoned off up to $4 million in partnership trust funds, Schwartz described the company as “a business structure that had been devised in good faith . . . with viable activities and expectations. It simply fell on hard times.”

‘Innocently Used’

He acknowledged, however, that the trust fund--known as Doerring Investment Reserve Trust, or DIRT--may have been “innocently used.”

Earlier in Thursday’s court hearing, SEC attorney Robert D. LaFramenta said that his agency “doesn’t bring these cases lightly. We feel that . . . the defendants were selling securities in violation” of the law (and) we feel strongly that there was a misappropriation of funds.”

The San Diego County district attorney’s office is also investigating the company, although no county prosecutor was visible in the courtroom Thursday, according to attorneys close to the case.

Disbursing agent Thomas Lennon, calmly answering questions from a handful of attorneys representing Doerring limited partners as well as his own attorney, said that he has not investigated any corporate expenditures prior to his appointment last Dec. 17.

That includes not examining a $960,000 distribution last year to Doerring’s seven shareholders--who collectively served as general partners of the limited partnerships, according to Richard Annen, Doerring’s former general counsel.

It was Annen’s declaration in November, alleging that the shareholders used funds from the partnerships for non-partnership purposes, that prompted the SEC lawsuit.

In court, with nearly 100 attorneys and investors looking on, Annen said the payment “looked like a means of stripping equity value (from the) assets. I’m concerned that there has been no activity to determine if those monies went to any individuals at Doerring.”

Shareholder Kirk Doerring said after the hearing that the funds were generated from refinancing proceeds of one of their development projects, with half the money going to a joint-venture partner and the remainder used for company operating expenses.

Attorney Robert D. Rose, representing four of the five shareholders sued by the SEC, said in the hearing that the fund withdrawal was “not a case of Doerring shareholders sucking equity out--it’s not even close to that.”

Rose also argued against freezing the assets.

“The sale of one or two of these properties would solve many of the problems,” he said. “The defendants are actively looking for buyers for the properties. Maybe it’s not as bad as it looks; patience is a virtue here. My clients are here, they didn’t flee to Montserrat and they’re willing to help.”

Indeed, Schwartz approved Lennon’s request to hire two Doerring shareholders--Kirk Doerring and Paul Donndelinger--to assist him in administering the company’s operations. They will be paid $25,000 each over the next six months.

Lennon said he was looking for a “blue chip” type of company to take over the Doerring properties as general partner.

“I wouldn’t recommend that each partnership go its own way with different general partners,” Lennon said. With some investors participating in six or seven or more limited partnerships, “the costs are greatly reduced” with just one general partner, he added.

Lennon said he was “impressed with the quality” of the properties that the company had purchased, but that many of them had deteriorated because of lack of operating funds. In addition, at least one property in Texas may face foreclosure, despite a stay on such actions, and that could force that particular partnership into bankruptcy, he said.

Lennon said he had locked up Doerring’s investor list but said he would release it to limited partners who wanted to organize partnership meetings.

“Some limited partners want Doerring to just give up its interest” in a property, Lennon said. “But I don’t see my position as overseeing the great American giveaway.”

Doerring’s investors include dozens of area business leaders, lawyers and pension funds of local companies.

According to an investor list obtained by The Times, Doerring investors included Gordon Luce, chairman of Great American First Savings Bank; Robert Adellizi, president of Home Federal Savings & Loan Assn.; Tom Page, chairman and president of San Diego Gas & Electric Co.; insurance executive Bruce Moore; Intermark chairman Charles (Red) Scott; architect Frank Hope; jeweler George Jessop; public relations agency owner Tom Gable; former Pacific Telephone regional manager Lincoln Ward; San Diego Chargers place kicker Rolf Benirschke and television sportscaster Jim Laslavic.

In addition, more than two dozen attorneys with the law firm of Gray, Cary, Ames & Frye, as well as at least two prosecutors in the U.S. attorney’s office, were investors.

Pension funds of several companies also invested in the company, including Bay City Television, owners of Channel 6, University Industries and a portion of John Burnham & Co.’s pension fund.

Burnham, interestingly, has made two offers to buy parts of Doerring, both of which were rejected by Lennon, according to Burnham general counsel Ronald S. Hrusoff.

Burnham made a “substantial” cash offer to take over the general partnerships of four partnerships in California and another to buy all of Doerring’s general partnership portfolio for a small amount of cash and a “work-out position” that would complete payment at a later date, Hrusoff said.

Under the latter scenario, 11 of the properties would immediately be thrown into bankruptcy, Hrusoff added.

Despite the rejections, Hrusoff told Schwartz that “we’d like our position considered.”

Donald McGrath, Lennon’s attorney, said he has received a handful of “serious” offers from other interested buyers.

Schwartz scheduled another hearing for March 24, at which he will consider Lennon’s request that his “temporary disbursing agent” title be changed to SEC receiver.

To date, legal and related fees to administer Doerring total $110,874, said Schwartz, adding that he “hopes these fees will decline.”