Pioneer Payment Plan Irks Some Investors : Finance: But Dennis B. Schmucker, the firm’s chief executive, says $7-million distribution would help most investors in the ailing mortgage company.

A quick glance at the resume of Dennis B. Schmucker, the newly named chief executive of troubled Pioneer Mortgage, shows that the San Diego businessman is no stranger to picking up the pieces of bankrupt companies.

Schmucker has served as the court-approved trustee, receiver or consultant in connection with half a dozen or more highly publicized bankruptcies. Often the cases involved high-flying investment firms, rancorous investors and, in some cases, jail terms for the executives who preceded Schmucker.

Schmucker played a pivotal role in the reorganization of U.S. Financial Corp., the San Diego-based real estate development and financial services company listed on the New York Stock Exchange that entered bankruptcy in 1975.

He honed his skills as trustee of American Home Mortgage Corp, a fraud-ridden Orange County firm that entered bankruptcy in 1982. The case resulted in a jail sentence for John Rinaldo, the company’s founder.

During the late 1980s, Schmucker served as the trustee during a reorganizations of Taylor Bus Service, one of the state’s largest privately owned bus companies. Schmucker was recently a consultant in the financial reorganization of Southmark Corp., a Texas-based company.

Schmucker took over as Pioneer’s chief executive on Jan. 10 at the request of Gary Naiman, the La Mesa-based mortgage lending company’s principal owner. A day earlier, Naiman had placed the company into Chapter 11 bankruptcy proceedings. Naiman was under pressure from many of Pioneer’s 2,000 investors who hadn’t received payments for several months.

Pioneer’s investors in effect made high-interest loans to borrowers who put up California real estate as collateral for the loans. Pioneer, which acted as a broker for the loans, has run into problems in recent months as real estate values have deteriorated.

Schmucker’s appointment irritated some investors, who, despite Schmucker’s claim to be an independent manager, wanted the company to be managed by an executive with no ties to Naiman.

During an interview, Schmucker acknowledged that it is difficult to please the thousands of individual investors who become involved in complex bankruptcy cases such as Pioneer, U.S. Financial and American Home Mortgage.

“You’re never going to make all of these (investors) happy in a case like this, but somebody has to fight for them, as hokey as that sounds,” Schmucker said. “Someone has to try and represent them.”

Those who know Schmucker, a former certified public accountant, describe him as a hard-nosed businessman who isn’t afraid to tangle with those who oppose his prescriptions for financially ailing companies.

That willingness to directly engage opponents was evident Friday when Schmucker asked U.S. Bankruptcy Court Judge James Meyers for permission to distribute to investors about $7 million collected from borrowers who are ready to pay off 14 loans that were arranged by Pioneer.

The speed of that unexpected request surprised attorneys who are familiar with the case because it came just three days after Meyers agreed to allow Schmucker to remain at Pioneer’s helm. The proposed distribution also drew opposition from some Pioneer investors, as well as attorneys who represent Pioneer investors who allege that Naiman engaged in fraudulent activity while at Pioneer.

Some investors believe that the planned distribution would benefit investors whose loans are secured by high-quality trust deeds--a kind of lien on real estate--but run counter to the best interests of investors who, because of mismanagement or fraud on Pioneer’s behalf, hold relatively worthless trust deeds.

Those investors have suggested that proceeds of all loans brokered by Pioneer be pooled, and that payments be made through the pool in accordance with a formula that mirrors an investor’s individual loan portfolio.

“I think (an immediate) distribution would be highly premature,” said one investor, who asked that his name not be used. “I don’t think there should be any payments until after there’s a complete audit by the examiner.”

The proposed payment could decrease the supply of funds that would otherwise be available to pay off remaining investors who “are at the end of the (distribution) line,” the investor said. “You have to wonder if there are preferential payments being made . . . (and) once you do this kind of thing it’s very hard to undo it.”

Tim Cohelan, an attorney who represents Pioneer investors who allege fraudulent activity by Naiman, on Monday claimed that the proposed distribution was “premature” because Schmucker hasn’t had time to delve into the company’s books.

Cohelan predicted that an upcoming report by a court-approved examiner will lead to the appointment of a court-approved trustee who will have the wide-ranging powers needed to make sense of Pioneer’s “incredibly” tangled books.

“I don’t see that Mr. Schmucker has completed the intense review of operating history . . . that would allow him to do this kind of distribution,” Cohelan said.

“He’s trying to create the impression that there’s more money than there really is,” said Michael Aguirre, another attorney involved in the fraud suit. “But it’s more important for investors to look at the overall picture.”

Schmucker, however, argued that pooling the loans would be unfair to investors “who carefully researched and monitored their investments.” And he characterized the proposed $7-million distribution as the first shot in a tough campaign that will define the “threshold” issue of who owns the loans--Pioneer or its investors.

If authorized by Meyers, Schmucker said, the initial distribution would define the loans as the property of investors and set precedent for similar payments. That would “avoid litigation over whether or not Pioneer or the investors are entitled to the proceeds of these loans,” Schmucker said.

As important, Schmucker said, the $7-million distribution would signal the intent to distribute “as much money as soon as possible to investors.”

The payments would also generate loan-servicing fees and cash.

But Schmucker also wants to deduct a 10% “contribution” from the proceeds of loans distributed to investors and use the funds to hire “top-flight professionals” to safeguard remaining investor funds.

About the only point of agreement between Schmucker and opposing attorneys is that Meyers eventually must determine whether the proceeds from investors’ loans are to be pooled or handled through individual payments.

“That is the $64 question,” said one attorney who is familiar with the case. “He’s definitely saying very early what direction he intends to go in,” said another attorney.