On the eve of trial, Newport Interstate Properties Inc.--the beleaguered syndicator accused of swindling investors out of almost $1 million--has agreed to voluntary reorganization under federal bankruptcy laws.
The agreement ends two court actions filed 10 days ago ago by 11 Orange County investors to force liquidation of the Newport Beach-based firm. The investors alleged that the petitions were needed because their property was nearing foreclosure and because the company reportedly had refused to account for investments totaling $897,000.
Whether those investors--and perhaps up to 500 more--will ever again see the money they plowed into Newport syndications is unclear.
Under the agreement reached Friday, however, Newport will be allowed to continue operating while it tries to earn enough to repay all its investors, rather than being forced into involuntary liquidation.
The agreement requires that Newport give its investors their money, plus any profits, before the company takes more funds out of the syndication firm.
Trustee Will Govern
The company--which most recently has been syndicating coin laundries--has also agreed to be operated by a trustee who will decide how to maximize Newport's profits and what to do with the syndicated parcels.
Investors had accused Newport Interstate president Richard J. Lorenat and the company of violating federal securities laws by lying to them, diverting and commingling funds and selling properties without their knowledge.
A key part of investors' complaints--and one reason many became suspicious--was that Lorenat recorded land bought with their funds in his own name, rather than deeding the parcels to the syndication partnerships, according to petitions filed in U.S. Bankruptcy Court.
Under the settlement, Lorenat and vice-president Michael Joyce must immediately transfer to Newport all parcels bought with investors' funds that are now recorded in the officers' names. Creditors also get immediate access to Newport's books and records.
The company's books are expected to give some answers to questions lawyers have had about how many investors gave money to Newport and how much may not be accounted for. Jeffrey M. Howard, an investors' lawyer who filed the bankruptcy petitions, has said up to $20 million placed with Newport, by at least 500 investors, is missing. Former investment counselors with Newport estimate that up to $40 million may be at stake.
Newport Interstate officials would not comment on how much was invested and the company's attorney, William N. Lobel, said he does not know.
Lobel, a bankruptcy specialist, declined to discuss the reasons for the settlement Monday, citing a mutual confidentiality agreement.
Howard said the settlement "appeared to be in the best interests of the petitioning creditors. They received the relief they'd sought through the petitions (for involuntary bankruptcy) without substantial delay and expense (of a long trial)."
Howard said investors' claims of being defrauded "will be examined by the trustee."
Lobel said he "doesn't know" whether his client, Newport, violated securities laws.
"One thing is clear," Lobel added. "There is going to be a full disclosure of facts to the creditors, and they're going to be paid first. They'll see the books and can sort it out for themselves."
Even with the settlement, however, Newport's problems appear to be far from over.
The Securities and Exchange Commission has reportedly conducted several investigations into Newport during its almost-six-year history and is believed to be readying a lawsuit against the company and its three top offices.
The agency would not comment, but many investors have been asked by the SEC in recent weeks to sign statements for possible court action.