Newport Interstate Investors Irked : Bankruptcy Judge Refuses to Tie Up Firm’s Assets
Despite investors’ allegations of “rampant fraud” by Newport Interstate Properties Inc., a federal bankruptcy judge refused Thursday to tie up the records and assets of the syndicator by placing it under the control of a temporary trustee.
But Judge John E. Ryan did prohibit the company from transfering property or funds “other than in the ordinary course of business.” The order came after the investors’ lawyer, Jeffrey M. Howard, voiced concern that Newport Interstate’s records might be destroyed.
The judge also scheduled a trial for Wednesday to decide whether Newport Interstate should be forced into involuntary bankruptcy. Ordinarily, such a trial would not be held for at least several weeks.
Eleven Orange County investors filed petitions last week stating that they had invested almost $1 million with Newport Interstate and alleging that the company would not return their funds. The investors asked that the real estate syndication company be forced into liquidation.
On Thursday, Howard sought the temporary bankruptcy trustee and early trial date because, he said, Newport Interstate “has a history of misappropriating assets.” He said he believes that up to $20 million pumped into 24 partnerships by at least 500 investors is missing.
In papers filed in court, investors alleged that the company and its president, Richard J. Lorenat, violated federal securities law by lying to them and misappropriating their assets. Lorenat also recorded land bought with investors’ funds in his own name, the investors contend.
During Thursday’s session in Santa Ana, however, Newport Interstate attorney William N. Lobel sharply disputed investors’ accusations.
According to Lobel, the Securities & Exchange Commission looked into Newport Interstate’s limited partnerships last summer and “they were found to be clean.”
Lobel later said he believes that because the SEC did not seek a cease-and-desist order, what Newport has been doing “is probably OK.”
In a courtroom crowded with a score of worried investors, Lobel, a bankruptcy specialist, said: “There are explanations for what happened, and nobody really asked.”
Land bought by investment partnerships was placed in Lorenat’s name, for example, to make it easier to obtain loans and process the sales transactions.
Real estate brokers from several major firms said Thursday that while it is not illegal to use a name other than the syndicate’s, it is not a widely accepted practice because of the potential for fraud.
