An Inglewood lender who is a central figure in a landmark Los Angeles lawsuit aimed at the financiers of some of the city's worst slums has defaulted on about $90 million in loans from banks and has stopped making payments to investors in his companies, an attorney for the businessman confirmed Friday.
The defaults by Alexander Spitzer have shocked hundreds of private note holders and limited partners, including prominent Jewish scholars, rabbis and Soviet emigres who have deposited savings with Spitzer. Spitzer, 70, is a Holocaust survivor who has been a respected figure in Los Angeles Jewish circles for 30 years, and has recruited most of his investors from the city's Jewish community.
The attorney estimated the total of private investments in Spitzer's entities at more than $38 million.
Spitzer was one of 142 defendants in a civil suit brought by the Los Angeles city attorney and public-interest lawyers, which charged racketeering and fraud in the financing of city slum buildings. Last week, Spitzer reached a partial out-of-court settlement with the city attorney, but remains a defendant in a lawsuit.
"This is a remarkably complicated situation," said Joseph Eisenberg, a bankruptcy attorney who represents Spitzer's A&B Loan Co. and two of his other business entities. "I've represented New York Stock Exchange companies that have been less complicated and involve less debt than this."
Still unclear is the cause of Spitzer's sudden financial setback. Spitzer and his supporters--including many investors whose capital may now be at risk--blame his problems on the filing of the city's lawsuit on March 28. Others, principally attorneys who have examined his records, are questioning the underlying legitimacy of his many interlocking business entities.
One of Spitzer's holding companies, Linmark Investments, was forced to seek protection from its creditors in Chapter 11 bankruptcy proceedings in June. In its filing, it listed at least $54 million in debt to Bank of America alone. That figure is now estimated to be higher.
Bankruptcy filings also have been prepared--though not filed--for A&B Loan Co. and California Pacific Funding Ltd., two of Spitzer's largest business entities, Eisenberg added. "I hope we don't have to file them," he said. "It is Mr. Spitzer's contention that that doesn't have to happen."
Spitzer vowed in a brief interview to make good on debts.
'Not Going to Lose a Dime'
"Everyone will be paid back," he said. "They're not going to lose a dime."
In one meeting of more than 150 investors Thursday, Eisenberg, who represents Linmark, A&B Loan Co. and California Pacific Funding Ltd., urged patience by private creditors.
"I've not come here to tell you all is well and good, that you're all going to get your money back," he said. "There is pessimism here and if you're not picking it up, you're not listening."
He estimated total bank debt at about $90 million.
"The B of A (Bank of America) has decided it has to take a haircut on a roughly $60-million debt," Eisenberg told the group. Because investors had borrowed from one of Spitzer's entities in many cases to get money to invest in another, he said, he could not estimate the exact amount of money invested by private individuals.
Investors were encouraged to form private creditor groups to work with Spitzer to avoid what Eisenberg called a "feedfest" for attorneys if investors begin filing lawsuits to recover their money.
Investors Go Along
At the lengthy meeting, most investors appeared willing to go along with Spitzer's plan. He moved through the crowd easily, shaking hands and reassuring many longtime associates.
"Only one man can bring this back and that is Alex Spitzer," said Norm Brill, who said he has invested $261,000 with Spitzer's entities. "He's still here. He's not running."
Spitzer did not address the investors' group himself. But in a brief interview after the meeting, he blamed his problems "entirely" on the the city of Los Angeles, which in the civil suit accused him and several of his associates and business entities of racketeering in its loan practices on slum buildings. Banks declared him in default on about $90 million in loans in April.
"I guess I'm not surprised that they're in financial trouble, based on our knowledge of what we alleged to have been their lending practices," City Atty. James K. Hahn responded Friday. "But I don't think it was because I sued them. . . . Their lending practices were a prescription for financial trouble."
Nonetheless, he added, "it was certainly not our intent to have investors lose money."
Among the investors are Dr. Norman Lamm, president of Yeshiva University in New York, and his brother, Maurice, former rabbi of Beverly Hills' Beth Jacob Congregation and a past president of the Southern California Board of Rabbis, and film critic Michael Medved, president of Pacific Jewish Center, an Orthodox congregation in Venice.