Hundreds of L.A. Investors Involved : Key Figure in Slum Suit in Default on Major Loans

An Inglewood lender who is a central figure in a landmark Los Angeles lawsuit aimed at the financiers of some of the city’s worst slums has defaulted on about $90 million in loans from banks and has stopped making payments to investors in his companies, an attorney for the businessman confirmed Friday.

The defaults by Alexander Spitzer have shocked hundreds of private note holders and limited partners, including prominent Jewish scholars, rabbis and Soviet emigres who have deposited savings with Spitzer. Spitzer, 70, is a Holocaust survivor who has been a respected figure in Los Angeles Jewish circles for 30 years, and has recruited most of his investors from the city’s Jewish community.

The attorney estimated the total of private investments in Spitzer’s entities at more than $38 million.

Spitzer was one of 142 defendants in a civil suit brought by the Los Angeles city attorney and public-interest lawyers, which charged racketeering and fraud in the financing of city slum buildings. Last week, Spitzer reached a partial out-of-court settlement with the city attorney, but remains a defendant in a lawsuit.

“This is a remarkably complicated situation,” said Joseph Eisenberg, a bankruptcy attorney who represents Spitzer’s A&B; Loan Co. and two of his other business entities. “I’ve represented New York Stock Exchange companies that have been less complicated and involve less debt than this.”

Still unclear is the cause of Spitzer’s sudden financial setback. Spitzer and his supporters--including many investors whose capital may now be at risk--blame his problems on the filing of the city’s lawsuit on March 28. Others, principally attorneys who have examined his records, are questioning the underlying legitimacy of his many interlocking business entities.

One of Spitzer’s holding companies, Linmark Investments, was forced to seek protection from its creditors in Chapter 11 bankruptcy proceedings in June. In its filing, it listed at least $54 million in debt to Bank of America alone. That figure is now estimated to be higher.

Bankruptcy filings also have been prepared--though not filed--for A&B; Loan Co. and California Pacific Funding Ltd., two of Spitzer’s largest business entities, Eisenberg added. “I hope we don’t have to file them,” he said. “It is Mr. Spitzer’s contention that that doesn’t have to happen.”

Spitzer vowed in a brief interview to make good on debts.

‘Not Going to Lose a Dime’

“Everyone will be paid back,” he said. “They’re not going to lose a dime.”

In one meeting of more than 150 investors Thursday, Eisenberg, who represents Linmark, A&B; Loan Co. and California Pacific Funding Ltd., urged patience by private creditors.

“I’ve not come here to tell you all is well and good, that you’re all going to get your money back,” he said. “There is pessimism here and if you’re not picking it up, you’re not listening.”

He estimated total bank debt at about $90 million.

“The B of A (Bank of America) has decided it has to take a haircut on a roughly $60-million debt,” Eisenberg told the group. Because investors had borrowed from one of Spitzer’s entities in many cases to get money to invest in another, he said, he could not estimate the exact amount of money invested by private individuals.

Investors were encouraged to form private creditor groups to work with Spitzer to avoid what Eisenberg called a “feedfest” for attorneys if investors begin filing lawsuits to recover their money.

Investors Go Along

At the lengthy meeting, most investors appeared willing to go along with Spitzer’s plan. He moved through the crowd easily, shaking hands and reassuring many longtime associates.

“Only one man can bring this back and that is Alex Spitzer,” said Norm Brill, who said he has invested $261,000 with Spitzer’s entities. “He’s still here. He’s not running.”

Spitzer did not address the investors’ group himself. But in a brief interview after the meeting, he blamed his problems “entirely” on the the city of Los Angeles, which in the civil suit accused him and several of his associates and business entities of racketeering in its loan practices on slum buildings. Banks declared him in default on about $90 million in loans in April.

“I guess I’m not surprised that they’re in financial trouble, based on our knowledge of what we alleged to have been their lending practices,” City Atty. James K. Hahn responded Friday. “But I don’t think it was because I sued them. . . . Their lending practices were a prescription for financial trouble.”

Nonetheless, he added, “it was certainly not our intent to have investors lose money.”

Prominent Investors

Among the investors are Dr. Norman Lamm, president of Yeshiva University in New York, and his brother, Maurice, former rabbi of Beverly Hills’ Beth Jacob Congregation and a past president of the Southern California Board of Rabbis, and film critic Michael Medved, president of Pacific Jewish Center, an Orthodox congregation in Venice.

“This has struck Alex Spitzer very hard,” said Rabbi Daniel Lapin of Pacific Jewish Center, where 23 member families are note holders or limited partners in Spitzer entities.

“You’re talking about a broken man, a shadow of his former self. . . . People aren’t panicking because this isn’t a man with flashy offices and flashy cars. This is an honorable man.”

Medved, who has invested more than $100,000 in Spitzer’s First Pacific Loan Co., said in an interview that the city’s lawsuit and the subsequent financial problems have been “shocking,” particularly in Orthodox Jewish communities where Spitzer is best known.

“You have on this (investor) list a blue-ribbon array of some of the most prominent names in local traditional Judaism,” he said.

‘An Honorable Man’

“This has all come as a shock. I believe the charges against him (Spitzer) are probably in error. I maintain a belief to the contrary that Alex--Mr. Spitzer--is an honorable man. . . . I think it is not only right, but prudent, to allow him to work through his current difficulties--with our support.”

Several investors said they were surprised to know that their funds had been used to give money to slum owners. “All we knew is we were investing in short-term trust deeds,” one investor said. “I wouldn’t have invested if I had known they were going to slums.”

Spitzer has denied knowingly investing in slum properties. However, records show that some of his borrowers have been among the city’s most highly publicized slum owners. The March 28 lawsuit accused several of Spitzer’s companies of issuing loans on slum buildings in excess of their true value to reap short-term gains in high loan fees and high interest rates.

The settlement reached July 12 with the city prohibits the signatory companies from giving any loan that would bring the total of all mortgages against slum buildings to over 80% of their value. That value must be determined by an independent appraiser, and credit reviews must be done to determine whether the potential borrower is credit-worthy. Borrowers who refuse to repair substandard buildings must be declared in default under the agreement.

Based in Inglewood

However, Spitzer’s numerous loan companies, based at 160 S. La Brea Ave. in Inglewood, are not currently giving out loans, Eisenberg said. He said he hopes that the companies may resume lending in a year if the current “liquidity problem” is solved.

Lists of investors prepared by California Pacific Funding Ltd. show about $38 million in investor capital as of March 31. Another company, First Pacific Loan Company, showed $10 million in investor capital. There are many others.

“What you have here is a big mess,” said one attorney who asked not to be identified. “Everybody’s afraid the house of cards is going to come down.”

Eisenberg said Friday that an independent accountant has been brought in to analyze records, and a former official specializing in trustee work is now overseeing operations and analyzing the 900 to 1,000 loans that make up the assets of the Spitzer financial groups.

The loans have a face value of $150 million, Eisenberg said in an interview. But, he added, there has been a “certain attrition” of their value since the March 28 suit was filed.

He said banks have “tentatively agreed to forgive interest (and) some are expecting to lose principal.”

Bank Declines Explanation

The Bank of America, the largest creditor, declined to comment on exactly why it had declared Spitzer’s loans in default, how it had monitored its investment, or how it plans to handle the debt.

“At this point, we haven’t received any proposal or business plan,” said bank spokesman Ron Owens. “We are, however, very interested in entertaining any reasonable and prudent plan that will provide an equitable outcome for all parties involved in this situation.”

However, some investor representatives and attorneys were skeptical.

“Where did millions of dollars raised by (these entities) go?” asked attorney Cliff Fridkis, who said his client invested “six figures” in Spitzer companies.

“How does a legitimate real estate business lose millions of dollars in a real estate boom? Why so many intermingled entities? Were state and federal securities laws followed, or was information concerning problems that the companies were having concealed from investors? The initial explanation was that this was all the city’s doing. But they really haven’t given much of an explanation beyond that.”