It has been a year since nearly 800 panicked investors jammed the Town & Country Hotel's main ballroom to hear it from the lips of fellow investors: Pioneer Mortgage, which boasted of never missing a payment, had indeed stopped mailing monthly interest checks.
Although the La Mesa-based mortgage broker faced severe financial troubles, a majority of the frightened investors at that hastily organized meeting were still clinging to the desperate belief that Pioneer president and owner Gary Naiman would somehow right the troubled mortgage banking company.
But, within a week of that frenzied meeting, Naiman pushed his family-owned company into U.S. Bankruptcy Court. And, during the past year, investors' attitudes toward Naiman have changed dramatically.
"Most investors now know that they won't get their money back," said Pioneer creditors committee chairwoman Cynthia Stein, who is in daily contact with Pioneer investors. "Most of them now want their pound of flesh. They want Gary Naiman in jail."
The dramatic change in investor sentiment toward Naiman was driven by the avalanche of bad news that has poured out of bankruptcy court.
Last month, Pioneer executives said borrowers were still making payments on just $50 million of the $200 million in real estate loans the company had arranged for its 2,000 largely elderly investors before declaring bankruptcy.
The company's new management has initiated foreclosure proceedings on 77 delinquent loans valued at about $45 million. In many cases, Pioneer made second or third loans on property that was highly overvalued, leaving investors no way to recoup their funds in the event of foreclosure by primary lenders. Already, those senior lenders have foreclosed on 43 loans valued at $36.5 million.
With each dose of bad news, investors have been forced to scale back their expectations. Investors who at first hoped to recoup all their investments now acknowledge that they will be lucky to receive as much as 20 cents on the dollar when Pioneer finally leaves bankruptcy court.
Naiman isn't the sole target of investors' anger.
Many investors are upset by what they view as a lack of progress in bankruptcy court. "I'm frustrated with the system," said Ted Cashuk, an accountant who lost $361,000 when Pioneer failed. "It inundates us with paperwork. . . . It shouldn't be taking this long."
Bankruptcy attorneys also have come under fire as Pioneer makes its way through a series of complex proceedings.
"Any money that's left is going to be eaten up by the attorneys," complained investor Irving Samit, who was forced out of retirement by Pioneer's bankruptcy. "This has just been a trough for the legal system."
Attorneys working on the complex case note that they've yet to be paid a single dollar for services rendered.
Pioneer President Dennis Schmucker also has come under fire from some Pioneer investors.
Schmucker, who took over after the company declared bankruptcy, recently declined to discuss his salary, but several sources familiar with the case said Schmucker is receiving about $25,000 a month. Pioneer's monthly administrative payroll is $80,656, according to company officials.
Many investors chafe at the thought of Schmucker being paid so much when there is so little remaining value in Pioneer's troubled loan portfolio. Others question why it is taking Schmucker's handpicked team so long to produce a plan of reorganization that will determine how much investors eventually recoup.
Investors are also bitter because, in the year since Pioneer filed for bankruptcy, state and federal officials have yet to initiate criminal proceedings against Naiman. Some bankruptcy officials have responded by cautioning investors against giving up faith in the criminal justice system.
"Don't assume that just because you don't hear things that nothing is being done," U.S. Trustee Sandra Wittman said during a recent hearing. Wittman subsequently declined to comment on whether she was aware of any criminal charges being contemplated by federal or state officials.
Most of the investors' ire, however, is reserved for Naiman, the man who knew most of Pioneer's investors on a first-name basis. Many investors believe that Naiman and his business associates benefited from Pioneer's failure.
"I'm going to sound like (astronomer) Carl Sagan," said Abby Nachman, an investor from Santee. "But (Gary Naiman) has made millions and millions of dollars with our money, . . . (and) somewhere in this world, Gary Naiman has many millions of dollars hidden away." Nachman suggested that authorities "look to Israel," where Naiman's family owns an apartment.
But Schmucker said that a records search has yet to uncover any evidence that Naiman has hidden away investor funds.
Schmucker also is working to complete a settlement agreement between Pioneer and Naiman's family that calls for Naiman to turn over a substantial part of his personal assets, including $1.5 million in cash, to Pioneer. Pioneer would use the cash, which could be turned over to Pioneer early this month, to help pay its operating costs, Schmucker said.
During public hearings, several investors criticized the proposed agreement because it would allow Naiman to keep two homes, an apartment, two Mercedes automobiles and some of his pension fund.
Schmucker has said that Pioneer would be ill-advised to seize Naiman homes in Carlsbad and on Mt. Helix because they are saddled with debt. Schmucker said international law makes it unlikely that Pioneer could seize a Naiman-owned apartment in Israel.
Schmucker maintains that his management team has been saddled with a records' snafu of monumental proportions. "This is an extremely complicated case," Schmucker said. "There is no discernible pattern (of where money was invested) because Mr. Naiman had his own way of doing business."
Based on accounting records, Naiman completed 120,000 transactions during his last 12 months at Pioneer's helm, that, in a startling number of cases, shifted funds without investors' knowledge.
That lack of coherent records has prompted some investors to charge that Naiman made illegal "preference payments" to friends or business associates. Schmucker said Pioneer employees now are trying to determine if people "got something from Gary Naiman that they shouldn't have" before the bankruptcy filing.
But assembling the necessary paper trail has been difficult. It will take investigators 7,000 staff-hours to determine if there are "large items that might have slipped out the back door."
As Schmucker's team works on the portfolio, California's stalled real estate market is turning borderline loans into problem loans.
The bad economy is especially troublesome for Pioneer because, all too often, Naiman was "the lender of last resort," Schmucker said. "People came to him when they had nowhere else to go."
Although the loans were inherently risky, it was the risk that made it possible for Pioneer to pay the dramatically high interest rates that Pioneer investors had grown accustomed to.
Pioneer often charged interest rates that were as much as 6% above the market rate. And, at a time when more credit-worthy S&L; customers were being charged just 1.5 or 2 points, Pioneer was charging as many as 15 points on its loans.
During healthy economic times, that loan scheme worked well. Borrowers paid off their loans by using the increasing value of their real estate as collateral to secure new loans from other lenders. However, when the economy stumbled, banks and other lenders were hesitant to make new real estate loans.
In 1989, the prospects for an economic collapse increased when Pioneer began to arrange riskier loans. Pioneer also began to bundle investors' funds into riskier "collateralized mortgage obligations," often without the knowledge of individual investors.
The complex job of patching together Pioneer's records has been hampered by a lack of operating funds, Schmucker said. During several court hearings earlier this year, Schmucker warned U.S. Bankruptcy Court Judge James Meyers that the company was likely to run out of cash if a new source wasn't forthcoming.
The continuing wave of bad news generated by Pioneer's bankruptcy filing has devastated Pioneer investors. Some investors blame Naiman for their physical woes, such as heart attacks.
The bankruptcy also has weighed heavily upon elderly San Diegans who relied primarily upon their Pioneer investments to remain self-sufficient.
"Some of them have given up hope after a year of no income," Nachman said. "They're giving up and forgetting, . . . and some of them are ill."
"It's a real tragedy," said Scott L. Metzger, an attorney who represents hundreds of investors who have filed suit against Pioneer in Superior Court in San Diego. "For many of these people, (Pioneer) represented their life's savings. They're at an age when they're not in a position to go out and earn it all over again."
Schmucker, who has been involved in several heavily publicized bankruptcy proceedings, acknowledged that it is difficult for investors who are struggling to make ends meet to understand why the case is moving so slowly.
However, he maintained that bankruptcy court is the proper venue for the complex case to be handled.
Bankruptcy court "provides a centralized forum, a central decision-making process that causes all of the parties with their varying interests and objectives to come together before one individual," Schmucker said. "It also forces all of these people with their own agendas and self-serving purposes to recognize that, if they're unable to find a solution . . . then the judge will find it for them."
Stein, the Pioneer creditors committee chairwoman, said the waiting is hardest on older investors who have had little contact with the judicial system. "They think that, in a regular criminal case the guy is quickly sentenced and put in jail," Stein said. "But trials can go on for years. . . . People are just so disappointed that, after a year, almost no funds have been distributed."