Hill Williams Development Liquidators Scratch for Coins : Bankruptcy: The $90 million raised from 5,000 mostly elderly investors for a real estate development scheme appears to be mostly gone. Trustees have uncovered no hidden pot of money.
Bankruptcy trustees assigned to pick the remains of Hill Williams Development Corp. are literally looking beneath sofa cushions for small change.
In his notice of intent to release a would-be housing development from the estate, trustee Theodor Albert draws one exception: The request to “abandon” the burdensome property does not include the furniture inside four model homes.
“At some point, we’ll auction the furniture,” said William Burd, Albert’s attorney. “It’s nothing to get excited about, but we take what we can get.”
Chairs and a few end tables make unimpressive collateral for the $90 million Hill Williams raised over three years from about 5,000 investors, who were told that their money would be used to build houses. Most of those investors are elderly people on fixed incomes who were attracted to the promise of a 15% annual return on their money.
Last January, the company’s president, Donald Hill Williams Jr., announced the suspension of monthly distribution checks to investors. From that point on, things quickly snowballed. Investors filed lawsuits. Hill Williams and its four fund-raising partnerships, called “income funds,” filed for Chapter 7 liquidation.
And the coup de grace came in March, when the California Department of Corporations accused Hill Williams of operating a Ponzi scheme whereby new investor dollars were used to pay earlier investors.
The U.S. Postal Inspection Service and the Orange County district attorney’s office are conducting a joint criminal investigation of the Anaheim Hills company.
For the past two months, bankruptcy trustees--court-appointed representatives of the bankrupt estates--have been studying Hill Williams’ ledgers to determine how much money can be recovered for creditors. Unfortunately, they say, there is no offshore bank account where the company stashed away millions.
“We haven’t found a hidden pot of money,” Burd said. “The company simply ate it up.” Hill Williams had about $120,000 in its coffers when it filed for bankruptcy.
By the time it collapsed, Hill Williams was sending out $1.1 million a month in checks to investors, according to bankruptcy documents. An additional $480,000 a month went toward servicing the company’s debt to institutional lenders and other creditors.
“You have $90 million, then you take 10% off the top for the broker-dealers’ commissions,” said Ronald Rus, attorney for the trustee of the partnerships’ estate. “Then you figure in the gigantic cost of running this operation, and there’s not a lot left over.”
Apparently, much of the money that did not go toward supporting the partnership’s fund-raising efforts was frittered away on company cars, bad loans and gifts to members of Williams’ family:
* Records show that the company lent Williams’ sister, Victoria Williams, $152,000 to start a florist shop that never got off the ground. She received an additional $52,000 in a personal loan from Hill Williams. Neither loan has been repaid. In a meeting of creditors last week, Williams said his sister has put her Yorba Linda house on the market in an effort to resolve her debt to the company.
* The company listed 15 corporate cars as assets in its bankruptcy filing--a sizable number considering Hill Williams employed only about 35 people. Some of the cars, which included everything from Lincoln Continentals to Ford Escorts, are in the possession of various family members in Utah and Southern California--although the cars “won’t be staying there,” Burd remarked.
* In 1990, Hill Williams lent a company called Diamond Petro Chemical Recycling Inc. $150,000 that was never recouped. Williams said in a meeting of creditors that he knows nothing about the company, which had a mailing address in Yorba Linda trustees haven’t looked into , and that another Hill Williams officer handled the loan. “I would characterize that as sloppy business,” Burd said.
None of these transactions would be improper had they come out of company profits, Burd said. “If I have a net worth of $2 million and I want to give $100,000 to my sister, so what?” he said. “But if I owe a bank $3 million and give away $100,000 to someone else, it’s a big deal. He was acting as though he had profits, but he wasn’t spending profits.”
Two weeks before filing for bankruptcy, Hill Williams transferred $137,000 to one of its divisions, Westcorp Properties--a unit formed last year that never actually did any business, Williams said in a meeting of creditors. He claimed that he was not knowledgeable about the transfer. “We want to find out what became of that money,” Burd said.
Furniture in model homes, family loans, last-minute transfers of cash--they’re all a small portion of the millions of dollars the company raised from investors. “The real estate is the estate’s major asset,” Burd said.
Yet much of that real estate is so encumbered with liens that it has no equity. Already Albert has filed a notice of intent to abandon five of the 26 properties bought while Hill Williams was raising money and plans to dump seven others as well.
If approved by the court, abandonment would relieve the estate of any tax liabilities for properties foreclosed on by lenders.
The development side of Hill Williams secured loans it made to itself from the fund-raising partnerships with second deeds of trust--often using inflated appraisals to justify the liens, trustees say.
For example, in March of 1992 Hill Williams bought about 30 acres of land in San Bernardino County for $2.2 million with a down payment of $50,000 to the seller. Within weeks, the company had the land appraised for $4 million to $6 million, according to the bankruptcy filing, and attached a second deed of trust for $2.2 million to provide “collateral” for that much investor money borrowed from the partnership side of the company.
“It is our view that the appraisals made by Hill Williams could win a Pulitzer in the fiction category,” Burd said.
The trustees’ massive undertaking is made all the more complex by the fact that it involves two estates--the company’s and the fund-raising partnerships’. And their interests are not always mutual.
One of the first issues the bankruptcy judge might have to decide is the validity of the second deeds of trust. On one side, the company’s trustee argues that the deeds were misrepresentations from the start rather than legitimate symbols of an ownership stake.
“It appears the deeds were recorded after funds were advanced,” Burd said. “If the liens are not valid, and I don’t think they are, the partnerships become general unsecured creditors.”
In other words, after the estate pays off the principal mortgage lenders on the properties, any remaining money would be divvied up not just among investors but among all unsecured creditors.
But the trustee of the partnerships’ estate says his counterpart is nit-picking over technicalities. “In the big picture, what difference does it make whether or not the second trust deeds are valid?” Rus said. “The investors are still creditors of the estate.”
Even if the second trust deeds were deemed invalid, the partnerships by far would be the biggest unsecured creditors. Hill Williams lists about $2.2 million in general unsecured debt in its bankruptcy filing. Delinquent taxes account for half of that, owed to Orange, San Diego, Riverside and San Bernardino counties--where the company owned real estate. Other unsecured creditors include a landscaping company and a courier service.
Charles Daff, the trustee for the partnerships’ estate who hired Rus, also disagrees with Albert about some of the properties slated for abandonment, Rus said.
Despite those disputes, the trustees “recognize that we should diminish conflicts,” Rus said. To save time and expense, the trustees have agreed to share information such as land appraisals.
The amount of money that eventually will be recovered for investors remains a question mark. Trustees say they are considering suing some of the businesses that worked for Hill Williams, such as appraisers and accounting firms, for damages.
Daff suggests that one of the best ways to make the properties pay off is to carry out Hill Williams’ alleged goal: develop them.
“Some of these properties are good pieces of land that could be made profitable,” Rus said. “We are talking to some well-regarded developers who have expressed interest in a joint venture with the estate. It would require someone with significant financial abilities.”
Rus said the trustee should know within the next two months whether that scenario is viable, adding that it may be investors’ only hope:
“If the plan doesn’t come together, it is not likely we will realize much of anything from the real estate.”
