Gary Naiman, president and chief executive of Pioneer Mortgage, told investors Thursday that he might turn control of his financially troubled mortgage investment firm over to a new chief executive to help restore investor confidence.
Naiman's proposal surfaced during a tense, two-hour meeting at the Town & Country Hotel that attracted more than 600 Pioneer Mortgage investors who account for about $100 million of the estimated $200 million in investments controlled by the firm.
Cynthia Stein, an El Cajon investor who helped to organize the meeting, said she is receiving up to 300 calls daily from people worried that their investments--in many cases, their life's savings--might be lost.
Investors, many of them retirees, expressed growing concern, fear and anger over their inability to get information about the safety of investments made through Naiman and Pioneer Mortgage. Stein urged her fellow investors to "stay calm" and carefully plot possible legal strategies.
In a related action Thursday, three San Diego law firms filed a class-action suit in U.S. District Court in San Diego against Pioneer Mortgage on behalf of nearly 2-dozen investors. The suit alleges that the investors were misled, and that their investments were commingled with other investors' funds.
Naiman, who has acknowledged that Pioneer had "run out of money," did not attend the meeting and was not available for comment. However, Naiman evidently believes that new leadership might help Pioneer regain the trust of concerned investors.
Theodore Cashuk, an accountant and a Pioneer investor who helped arrange the session, read a letter from Naiman suggesting that a new chief executive might provide "third-party leadership" needed to regain control of the El Cajon-based company.
Investors complained Thursday that Pioneer had stopped making interest payments to more than 2,000 investors in December. They also said that Naiman is unable or unwilling to say when payments might resume.
Most of the investments made through Pioneer are in the form of loans made to borrowers who, after putting up real estate as security, agree to pay interest rates of 14% or more. Pioneer Mortgage, founded in 1945, matches potential borrowers with lenders. It also acts as the broker and service agent on the loans.
According to Naiman's letter, Pioneer executives were to meet Thursday with attorneys to "discuss three possible work-out solutions" that would allow the troubled firm to reorganize outside of a bankruptcy court's jurisdiction.
But Naiman and Pioneer might be running out of time, based upon sentiment voiced repeatedly during the meeting by a majority of investors who appeared ready to force the company into involuntary bankruptcy proceedings.
Attorneys representing some of Pioneer's investors have indicated that they soon might try to force the company into involuntary bankruptcy because some investors have received trust deeds for their loans, while others haven't.
In a straw vote during the two-hour meeting, a proposal to push the firm into bankruptcy proceedings won by a 266-162 margin. Although the vote was not binding, it provided a strong indication of how worried investors are, said W. Lee McElravy, an attorney who has been advising an "investor steering committee" that includes Cashuk and Stein.
During the meeting and in subsequent interviews, investors repeatedly said they feared their investments would be lost unless immediate legal action is initiated.
One investor, Barbara Hoffer, said she had conducted a title search to determine the status of a property that secured a loan she had made through Pioneer Mortgage. "Folks, it doesn't look good," Hoffer said.
Hoffer said that investments made during the early 1980s through the fraud-riddled J. David & Co. investment firm taught her that immediate legal action is probably the best course for Pioneer investors.
Hoffer said legal action brought by investors forced J. David (Jerry) Dominelli, who eventually went to prison, to turn the company's remaining assets over to a court-appointed receiver. Hoffer said she was eventually able to "get every penny back" from the J. David & Co. investment firm.
Several investors demanded that Naiman step down as Pioneer's president.
"Personally, I think Gary (Naiman) is going to pull out" and relinquish control of the company, said Al Wald, who has "a little over a quarter of a million bucks" invested through Pioneer Mortgage.
The meeting produced "no new news" for Robert J. Berton, a San Diego attorney whose firm is representing a group of about 100 trust deed holders who have invested more than $50 million with Pioneer.
Berton suggested that the meeting will prove valuable if it helps persuade Naiman that "it's perhaps in the best interest of him and investors if he were to file voluntarily" for Chapter 11 bankruptcy protection.
Before the Thursday meeting, Naiman indicated that he might seek voluntary bankruptcy if investors show that they are dead set on initiating proceedings.
However, Cashuk and several other investors said Thursday that voluntary Chapter 11 proceedings initiated by Naiman would be acceptable only if Naiman turns over control to a court-appointed trustee.
In addition to the civil suit filed Thursday and possible bankruptcy proceedings, Pioneer faces increased scrutiny from state regulators, who earlier in the week acknowledged that they are conducting a formal investigation of the company.
The class-action suit contains 20 specific allegations of improprieties by Pioneer Mortgage, according to Pat Myers, one of the attorneys who filed the suit. The suit alleges, among other things, that Naiman and Pioneer Mortgage improperly used funds for the personal benefit of company executives.