Authorities Confirm State’s Criminal Probe of Newport-Based TMI

The state attorney general’s criminal division has been investigating the operations of the troubled Teachers Management & Investment Corp., which lost more than $100 million in investor money.

The criminal investigation, confirmed by authorities Monday, continues as investors and a court-appointed receiver pursue civil fraud allegations against the company, its principals and its advisors.

The state agency has contacted some of the 20,000 teachers who invested in the company’s real estate partnerships and has talked to their lawyers, according to letters sent to investors by the Orange County district attorney’s office.

The letters from Deputy Dist. Atty. Robert C. Gannon Jr. state that he has “received confirmation” from the attorney general’s office that it is investigating the Newport Beach company.

Gannon, head of the county prosecutor’s major fraud unit, said in an interview Monday that the state first told him last spring that it was looking into the activities of TMI and its operators, Maurice B. Shuman and James R. Martin.

“We started getting letters from investors within the last month inquiring about the status of the investigation,” Gannon said. “We contacted the attorney general, and they indicated they still had the matter under investigation.”

Because the state started investigating, the county decided not to duplicate the efforts, he said.

Deputy Atty. Gen. Ronald D. Smetana, a veteran financial crimes prosecutor in the state agency’s criminal division, would not comment on the existence of any investigation.

“We have not heard anything about this,” said David C. Grant in Irvine, a lawyer for TMI, Shuman and Martin. “Frankly, I’m real surprised.”

Grant denied that his clients, who once managed $1 billion in assets, committed any criminal acts in operating about three dozen real estate partnerships, many of which owned vacant land that lost value in the recession.

Since teachers--many of whom lost their life savings--accused the operators in a lawsuit 18 months ago of diverting investor money for their own use, Shuman and Martin have maintained that plummeting real estate values, not fraud, hurt TMI’s portfolio.

Shuman, Martin and TMI tentatively agreed in September to settle the lawsuit by paying $4 million and turning over rights to assets that could give investors $6 million more. A court-appointed receiver for 30 partnerships also has sued the company and its operators.

“When class plaintiffs and lawyers keep trying to bring other agencies in, it could impact our ability to settle the civil case,” Grant said.

He said that news of the criminal investigation could cause TMI’s insurance carrier to back out of its agreement to pay $3.8 million of the settlement.

Ronald Rus of Irvine, a lawyer for investors, said that the state attorney general’s office contacted him “early last year” to discuss TMI. He said he hasn’t talked about the company with anyone from the agency since.

Rus blamed defendants for the delay in reaching a final settlement in the civil case. He said Shuman and Martin have insisted on various changes. Only last week, he said, they dropped their demand that Metrobank in Los Angeles, which acquired the bank TMI used, be dismissed as a defendant.