Property Mortgage Ran Ponzi Scheme, Suit Claims
An investor in Property Mortgage Co. has filed a lawsuit against the bankrupt mortgage broker’s executives, its banks and its accountants, alleging that they conspired to help the Sherman Oaks concern operate a Ponzi scheme and sell unregistered securities that defrauded the company’s several hundred investors.
The suit, filed last week in Los Angeles Superior Court by investor Alan Gore of Los Angeles, seeks to be a class action representing all of PMC’s investors and seeks recovery of their combined $100-million investment in PMC and its affiliate, SLGH Investments Inc.
That money is now frozen because both companies have been in reorganization under Chapter 11 of the U.S. Bankruptcy Code since last Valentine’s Day. Under Chapter 11, the companies and their major creditors are trying to work out a plan for the investors to recover at least a portion of their cash.
Chapter 11 also shields a company from creditor lawsuits while it works on reorganizing. But the suit by Gore, who invested $38,000 in PMC, lists as defendants the principals of PMC and SLGH--Stanley Glickman, Eliott Fine and Fine’s two sons--the firms’ former and current banks, Mitsui Manufacturers Bank and California United Bank, and their accounting firm, Lederman & Zeidler in Beverly Hills, among others.
Lawyers for Glickman, Fine, Mitsui and California United either declined comment on the suit or did not respond to requests for comment. James Bianchi, a lawyer for Lederman & Zeidler, said the accountants “deny the allegations . . . and stand by the accuracy of their audit reports sent to the Department of Real Estate.”
The suit mirrors a bankruptcy court examiner’s report, issued Aug. 22, that said PMC was insolvent for years before it filed for Chapter 11. The report also criticized PMC’s management for not disclosing the company’s problems to its investors.
The suit alleges that PMC’s executives misrepresented PMC as “a safe investment plan for elderly and retired individuals” when in fact the company was insolvent and was therefore being operated as a Ponzi scheme, in which PMC merely used cash from new investors to make interest payments to existing investors.
