Los Angeles County Superior Court Judge Jerry K. Fields granted a temporary restraining order Wednesday to halt operations of Commercial Acceptance Corp. But he declined to put the so-called personal property broker under receivership without a full hearing.
The order restrains the company, its officers and a business associate, John C. Ellsworth, from violating state securities laws by selling unregistered securities.
Further, the order forbids them from disposing of any assets held on behalf of investors. Joanne Deutch, attorney for Commercial Acceptance, quoted the firm's management as saying that it had not collected any money from investors since last July.
The state Corporations Department filed suit Tuesday alleging misuse of about $60 million invested with Commercial Acceptance by corporate and individual pension funds, which received purportedly insured notes from the defendant company.
Ellsworth, who was not in court, said in a telephone interview Wednesday that his entities had borrowed $13.5 million from Commercial Acceptance, not $23 million as alleged. He acknowledged that he has a criminal record, but said his two grand larceny convictions were more than seven years ago and irrelevant to the present matter. He also asserted that successors to the European firms with which he was an unpaid director still are the insurers of the investors' notes.
The judge, who set a full hearing on the receivership matter for Dec. 8, also set an interim hearing for next Tuesday on questions about foreclosure proceedings on properties posted with a trustee as collateral for the investments.
United Security Trust Co. of Santa Barbara is trustee for the investors, but its attorney has informed the court that it does not have "any duty" to examine or investigate the validity of any of the collateral presented to it by Commercial Acceptance. The attorney said the trust company "is entitled" by terms of its agreement "to rely on the truth and accuracy of the representations" made by Commercial Acceptance.
Fields, in rejecting an immediate receivership, said he had reservations about the Corporations Department's jurisdiction in the case. The state said the company's promissory notes to investors, known as insured collateral trust notes, are not exempt from state securities regulations. The company says they are not securities.
The state had submitted additional supporting documents Wednesday, including declarations from several so-called unsophisticated investors who said they would not have risked their retirement funds if they hadn't been assured that the company's notes were fully insured.
According to filed declarations by investors of as little as $25,000, they were solicited by Commercial Acceptance through officers and persons who said they were its salesmen. One of the larger investors who gave a written statement was a Los Angeles surgeon who said he invested $500,000 of his employees' pension funds and $700,000 of his own funds.