Investor Suit Alleges PMC Ran Ponzi Scheme
An investor in Property Mortgage Co. has filed a lawsuit against the bankrupt mortgage broker’s executives, its banks and its accountants, alleging 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 since February under Chapter 11 of the U.S. bankruptcy laws. 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 among the 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, respectively, and their accounting firm, Lederman & Zeidler in Beverly Hills.
Lawyers for Glickman, Fine, Mitsui and California United either declined to 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.
A major mortgage broker for about 20 years, PMC arranged to lend cash to real estate buyers. The cash came from the investors and was held chiefly by SLGH Investments Inc. until PMC arranged the loans.
Most of the loans were second mortgages, that is, their repayment was subordinate to the property’s first mortgage if the borrower defaulted. In exchange for that risk, the PMC investors were paid relatively high interest rates of 12% or more.
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.
The suit also alleges that the investments sold by PMC’s executives “were not qualified” by the state and amounted to unregistered securities.
