World Collapses for Pioneer’s Elderly Investors
The plaintive letters and telephone calls from elderly men and women who stand to lose their life’s savings overflow with pain and suffering.
“We are devastated,” wrote one 85-year-old woman who early this year was forced to move a close relative from a well-appointed nursing home after financially troubled Pioneer Mortgage stopped forwarding monthly interest checks.
“I’m a one-eyed, crippled geezer,” wrote a 75-year-old woman who, in the wake of Pioneer’s collapse in late 1990, has been unable to provide adequate care for her husband, a victim of Alzheimer’s disease.
“We are old and sick,” wrote a 70-year-old woman who used her monthly Pioneer investment check to care for her 81-year-old husband. “We desperately need money for everyday living and medical expenses.”
The hundreds of sorrowful pleas from elderly and, in many cases, infirm, Pioneer investors are directed to members of the Pioneer creditor committee, which was formed in the spring, shortly after the La Mesa-based company entered Chapter 11 proceedings in U.S. Bankruptcy Court in San Diego.
But members of the committee, who represent Pioneer investors in the slow-moving attempt to fashion a court-approved reorganization plan, say that they are ill-equipped to help.
All funds invested in Pioneer are frozen in the meantime. The chances are slim that these investors will recoup all their money, since most of the real estate loans arranged by Pioneer have failed.
Still, investors are bombarding the creditor committee with questions about their individual investments.
Those aren’t the kind of questions that generally face the business people who become members of creditor committees. Typically, a failed business’ creditors are “people who . . . accept bankruptcies as one cost of doing business,” said Ali Mojdehi, an attorney who represents the Pioneer creditors committee.
But the Pioneer bankruptcy case, which has generated hundreds of individual lawsuits against Gary Naiman, the company’s former president and owner, has proved anything but typical. And many of the elderly investors who wait for the wheels of justice to finish grinding can ill afford to lose any of their investments.
The uncertainty is perhaps the greatest weight on the Pioneer investment community, where the average age is estimated at 70 years or more, according to Cynthia Stein, a Pioneer investor and chairwoman of the creditor committee.
Since Pioneer failed, more than 10 investors have suffered fatal heart attacks. Stein stops short of blaming Pioneer’s collapse for the deaths, but she maintains that “there are people with medical needs that are not being met. . . . (Pioneer investments) supported their medical needs. They’re not getting adequate medical care because their funds are being restricted.”
The stress is ruining the health of many elderly investors, a handful of whom express such depths of depression that Stein and others fear they are contemplating suicide.
“They lie awake at night, and it’s all they can think about,” Stein said. “It’s ruining their health.”
Because of the investors’ advanced age, attorneys representing individual investors in lawsuits against the company and Naiman have asked judges to use special rules to speed the trial.
Many of Pioneer’s elderly investors have tied their life savings to Pioneer, particularly to Naiman, whose family had operated the La Mesa-based mortgage brokering firm for more than 45 years.
Before running into severe financial difficulties, Naiman had invested more than $200 million on behalf of 2,500 investors. Pioneer specialized in the risky, but potentially lucrative, business of arranging loans that were backed by California real estate.
For most of its 45 years, Pioneer successfully rode a wave of prosperity that pushed California real estate values skyward. When real estate values escalated, Pioneer was able to reward its investors with above-average returns.
Over the decades, Pioneer investors developed an unflagging trust in Naiman. They willingly spread the word of his investment prowess, making it all the easier for Pioneer to attract new investors.
As a result, few investors worried during the late 1980s, when California real estate values began to cool off. And, even as Pioneer slipped deeper into financial difficulties, few investors doubted that their investments were safe with Naiman.
Even with Pioneer dead in the water, most investors continued to trust Naiman.
A straw poll of Pioneer investors conducted during a mass meeting at a Mission Valley hotel in late 1990 found a majority unwilling to force Pioneer into bankruptcy. Within weeks of the meeting, the financially troubled company was in bankruptcy court.
When Pioneer entered bankruptcy, many investors who had implicitly trusted Naiman were “thrown into a tailspin . . . into depression,” Stein said. “The people who had been with Pioneer for (decades) have been the hardest hit.”
The pain is particularly intense for older investors who are unable to return to work in an attempt to restore their incomes, Stein said.
At each important juncture in the bankruptcy case, committee members are swamped with telephone calls and letters from hundreds of aging and ill investors who desperately need information about investments that were supposed to pay for basic necessities, including food, shelter and medical care.
Irving Samitz, a Pioneer investor and a member of the creditors committee, has heard first-hand from investors who use a hot line to make desperate calls for information about their investments.
“I just talked to one guy who can’t afford his dialysis any more,” Samitz said of the man’s kidney treatments. “Another guy in Florida just lost his home. One investor told me that his father died the day after they took him out of a nursing home in El Cajon. . . . They just couldn’t afford the payments any more.”
Committee members are hard-pressed to tell investors when--or even if--they will see their funds again.
Part of the problem is that the company’s new managers are still trying to decipher the tangled records that Naiman left behind when he resigned in early January. Dennis Schmucker, Pioneer’s new court-approved president, is trying to get Naiman, who still lives in San Diego, to turn over some of his personal cash and assets to Pioneer in an attempt to resuscitate the company and safeguard investors’ funds.
Frustrated investors express almost universal disdain for the bankruptcy proceedings and the dozens of lawyers now involved.
“These are hard-working law-abiding people, and they’ve never before come to face our justice system,” Samitz said. “And they’re learning that it’s slow and controlled by the lawyers.”
Some Pioneer investors believe that U.S. Bankruptcy Judge James W. Meyers, who is overseeing the bankruptcy proceeding, has been overly cautious.
Meyers, who has said that “we’re dealing here with an elderly group of people . . . who desperately need the money,” also has cautioned investors that Pioneer’s failure will generate “endless years of litigation.”
Time is one thing that many elderly investors don’t have.
“These people just can’t wait,” Samitz said. “We’re well over six months into (the bankruptcy proceedings) and that’s, maybe, 25% of the time that some of these (elderly) people have left on Earth . . . the courts and judges are dragging their feet.”
Meanwhile, the letters and telephone calls keep coming in, providing poignant evidence that time does weigh heavily on the older investors.
“I’m 81 years old and don’t have the time left to wait out a long lawsuit,” wrote one woman who has used income generated by her Pioneer investments to pay day-to-day costs of living.
“I still have a roof over my head, food in the fridge and booze in the locker,” one investor said. “And I’m not going naked.” But the looming threat of personal bankruptcy lingers. “If the state has to care for me later, OK,” the woman wrote. “I’ve been paying for the care of others for many years.”
Abby and Jack Nachman, who retired to San Diego in 1976 and later invested much of their life’s savings with Pioneer, believe they will run out of money in a year unless their funds are returned.
The Nachmans, who had expected to live off of the interest generated by their Pioneer investment, have “scrimped and saved” during the past eight months since their investment checks stopped.
They have “dropped the bowling league, we don’t go out, and we’ve asked our friends to stop inviting us over (for dinner) because we can’t ask them back,” Nachman said. “We’ve managed to pay the mortgage for the past eight months since the checks stopped.”
Government assistance programs are not designed to replace the monthly income that Pioneer investors are in danger of losing. And older citizens who have never before sought public assistance find the bureaucracy confusing and their situation embarrassing, said Pam Smith, a district manager for Social Security in San Diego County.
The health and transportation problems shared by many elderly people make the bureaucratic barriers even tougher.
Pioneer’s collapse also has created severe emotional and psychological problems for some elderly investors.
“There’s not just 2,500 investors involved, but 8,000 people, including husbands, wives and children,” Stein said.
Some investors have yet to tell their children about their financial setbacks.
“They don’t know how to tell their kids because of the fear issue.” Many are simply ashamed to admit that they have lost their life savings, Stein said.
“There’s one investor with a million dollars (at risk), who’s yet to tell the children,” Stein said. “It’s the shame issue, the fear issue, the not knowing what’s going to happen . . . who’s going to take care of them.”
The Nachmans have already taken the tough step of telling their children about their Pioneer investment. “I had to call our kids and tell them that their inheritance is gone,” Abby Nachman said. “That bothered me.”
Rather than sit at home and fret about her financial difficulties, the 65-year-old woman has begun a campaign to alert local, state and national leaders of the Pioneer investment community’s plight. The Santee housewife has gathered nearly 200 signatures from investors on petitions that urge law-enforcement officials to prosecute Naiman on criminal charges.
Abby Nachman said she gathered the signatures as much to retain her physical and mental well-being as to gain retribution against Naiman.
“If I let myself get sick, you can say ‘goodby Abby,’ ” she said. “I feel that many of my friends (who invested through Pioneer) are doing the wrong thing by sitting at home and holding their breath. If I just sat home and cried about things, I’d be dead.”
