For Victims, a Broken Trust : Pioneer Investors Look Forward to Trial of Gary Naiman

Sy Brenner cannot afford to travel to Normandy for a D-day reunion as he had hoped, or pay for his grandchildren’s college education. He and his wife, Resa, do not even have the money to paint their house.

But the Brenners and hundreds of other investors in failed Pioneer Mortgage got a boost to their collective morale last week when Pioneer President Gary Naiman was arrested on charges of mail fraud and laundering.

“The courtroom will be full (during the trial), I guarantee you,” said Brenner, 72.

The Brenners were among 2,300 Pioneer investors, most of them retirees, who lost more than $200 million when Naiman’s mortgage brokerage and investment firm collapsed three years ago, sending shock waves throughout this city. Investors are expected to get back less than 20 cents on the dollar once assets are fully liquidated.

Authorities say more charges in the Pioneer case will be filed soon. Naiman, 56, who was released on $400,000 bond last Thursday, was not available for comment. His attorney, Robert Rose of San Diego, did not return telephone calls.

Pioneer’s failure is another example of the hazards of trust deed (or junior mortgage) investments, a lightly regulated industry that has been plagued by fraud and abuse for years in California. These investments proved particularly risky in the late 1980s and early 1990s, when the state’s real estate market was severely depressed.

Many Pioneer investors have had to sell their houses, move in with relatives, return to work or cut back on medical care to make ends meet. The collapse proved particularly devastating to the city’s Jewish community because most of the investors were Jewish.

Several synagogues in the San Diego area are now in serious financial trouble because so many of their members suffered heavy financial losses, said Shelley Berman, president of Congregation Beth Tefilah. Jewish outreach and charitable activities have been curtailed as a result, he said.

The failure of Pioneer Mortgage has attracted little attention outside of San Diego, yet it ranks as one of the largest mortgage investment failures in the state’s history--a list that includes such well-known cases as Universal Mortgage of San Bernardino, Property Mortgage in Los Angeles and Golden Plan of California in Sacramento.

A common thread running through the failures is unscrupulous operators who are given “unbridled, unrestricted authority” over investor funds, said Robin Wilson, general counsel of the California Department of Real Estate, the agency charged with regulating these mortgage investments.

Founded in 1946 by Naiman’s uncle, Pioneer initially prospered by promising investors steady annual returns of as much as 12%. Until shortly before Pioneer went bankrupt in January, 1991, investors said they received their monthly interest payments like clockwork.

Pioneer made good on the promises by lending investor funds back to borrowers at high rates. The borrowers were willing to pay the high rates because they typically could not get loans elsewhere.

Most of Pioneer’s loans were secured by second and third mortgages, a strategy that worked well when real estate prices were rising. But it proved disastrous when prices began falling at the end of the 1980s and troubled borrowers began to default.

Pioneer, which started with home mortgage loans only, saw its problems escalate after it began making riskier loans involving troubled commercial and hotel properties. In case after case, as real estate prices fell, there wasn’t enough value left in the underlying properties to pay off first mortgages, much less the junior loans arranged by Pioneer.

In the end, according to the indictment filed last week in U.S. District Court, Naiman was simply using new investor funds to pay off debts to previous investors. The charges capped a three-year federal investigation.

Naiman “got into trouble because he was out of his element,” said Dennis Schmucker, who took over as Pioneer’s chief executive after the firm went into bankruptcy. “He didn’t have the sophistication or managerial abilities to handle this type of operation. . . . Investors were throwing more money at him than he could use.”

Investors are still waiting to find out how much of their investments they will recoup. Civil lawsuits have generated about $20 million in awards from Pioneer-related businesses, but it will be several years before the task of selling Pioneer’s remaining assets and making distributions to investors is complete.

Naiman, described as charming and low-key, gained a high profile by making donations to various synagogues and the United Jewish Federation and by being active in the Israeli bond sales campaign.

“All our friends thought the world of Gary Naiman, so we started out small and kept giving him more and more,” said retiree Desda Abild of Coronado.

She and her husband, Robert, ended up investing hundreds of thousands of dollars they made from the sale of their clothing manufacturing firm in 1974.

But Pioneer’s failure forced the Abilds to sell their condominium on Coronado’s oceanfront and radically change their lifestyle. They still need financial help from friends and family to rent an apartment in Coronado.

The Abilds have learned to cope with their reduced circumstances, but like other investors, they are looking forward to Naiman’s upcoming trial.

“In my mind, I’ve killed him many times, many ways, slowly and painfully,” Robert Abild said, laughing slightly.

Many investigators have been frustrated because of the three-year lag between bankruptcy and the filing of criminal charges. And those charges have accused Naiman of defrauding only one couple, though additional charges are expected.

“Agents of the FBI and the IRS have been interviewing hundreds of people in the San Diego area,” said Ted Kashuk, one Pioneer investor. “But to have waited 3 1/2 years for (the indictment) is absolutely distasteful to us. We’re outraged that it took this long.”

Assistant U.S. Atty. Patrick Brady said the investigation took so long because of the complexity of the alleged crime and because of Naiman’s shrewdness. “You don’t get people to trust you with $200 million of their money unless you’re pretty sharp,” Brady said.