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New Chief to Stay at Helm of Pioneer, for Now : Ruling: Bankruptcy judge sees no immediate need to replace businessman Dennis Schmucker. But attorneys representing investors in the failed mortgage investment company prefer court-appointed trustee.


SAN DIEGO — U.S. Bankruptcy Court Judge James W. Meyers on Tuesday indicated that he would allow San Diego businessman Dennis Schmucker to remain at the helm of Pioneer Mortgage, the La Mesa-based investment firm that earlier this month filed for protection under Chapter 11 of the U.S. bankruptcy code.

The action disappointed attorneys for Pioneer investors who allege fraudulent activities by the mortgage investment firm's former managers. The attorneys had asked that Schmucker be replaced by an independent, court-appointed trustee, who, they argued, would have no connection to Gary Naiman, whose family controls Pioneer and several other related businesses.

Naiman resigned as chief executive of Pioneer and appointed Schmucker to replace him Jan. 10, just one day after seeking bankruptcy court protection for six companies that operate as Pioneer. Tuesday's court hearing focused on the role that Schmucker will play at Pioneer as the company struggles to reorganize and return investors' funds.

During Tuesday's tense, three-hour meeting that drew more than 100 Pioneer investors, Meyers said that he saw no immediate need to turn control of Pioneer and several related companies over to a court-appointed trustee. Meyers, however, reserved the right to appoint a trustee if new evidence supports the need for one.

Meyers said he plans to direct the Office of the U.S. Trustee to appoint a court-approved examiner who, although lacking a trustee's power, would be charged with completing an in-depth report on the company's financial problems.

Ted Cashuk, chairman of a group of disgruntled Pioneer investors, applauded Meyers' preliminary rulings. "I think we got 90% of what we wanted today," said Cashuk, whose group earlier this month sponsored a meeting at a Mission Valley hotel that drew more than 600 investors.

Lee McElravy, Cashuk's attorney, said investors reached their "primary goal" of ensuring that Naiman and his family would "give up any legal control over the debtor estate."

Naiman, in a deposition submitted to Meyers late last week, said he would not "interfere" with Pioneer's business without first seeking court approval.

McElravy said that Cashuk's investor group also won an important victory when Meyers directed the U.S. trustee's office to include representatives of the group on a creditors' committee, which will be appointed soon. Creditors' committees, with their special powers, play important roles in bankruptcy proceedings, McElravy said.

Meyers at the outset ordered the hearing delayed for several minutes until court personnel located a larger courtroom. And, at the end of Tuesday's session, Meyers took the unusual step of trying to calm the large number of investors who filled the courtroom.

Meyers cautioned investors that they probably won't see any of the funds that they invested through Pioneer "in the foreseeable future." But, despite Pioneer's past financial woes, Meyers said, the company "is (now) in skilled and independent hands" and under the direct supervision of the court.

Meyers noted that, during 15 years on the bench, he has rarely seen "this large a number of investors or creditors who have so much individually at risk." According to figures supplied earlier this month by Naiman, Pioneer has invested about $230 million from about 2,500 investors.

Meyers told investors that the complicated bankruptcy proceeding now under way was designed to "ensure the maximum return to investors" and that "things, presumably, are not going to get much worse."

Schmucker drew praise from Raymond F. Burg, an attorney with the state Department of Corporations, which is auditing several of the companies that operate as Pioneer.

Burg, during an interview, said that the department "is not in court to oppose or support" the appointment of Schmucker. However, Burg said the department has "great respect for Mr. Schmucker's abilities."

Schmucker evidently will earn $25,000 a month, in addition to various perquisites and "the possibility of a bonus," according to William Wilson, an attorney who spoke on behalf of Pioneer during Tuesday's meeting.

Schmucker's salary, Wilson said, would be "modest" compared to the salary that a court-appointed trustee would demand. Based upon Pioneer's total assets, a trustee could earn as much as $7.3 million from the case, Wilson speculated.

Since taking control, Schmucker has barred Naiman from the company's offices, made copies of accounting records and set up a "hot line" designed to let investors know the exact status of their loans.

In a deposition, Schmucker said that Naiman, Pioneer's chief executive officer since 1975, has agreed not to become involved in the company's daily business except as a consultant reporting directly to Schmucker.

Tim Cohelan, one of several attorneys who represents investors who have alleged fraudulent activity at Pioneer, said that his clients "still want a trustee. . . . We don't care if he's appointed today or a week from today. . . . We've got to get to the bottom of (Pioneer's problems) and an examiner just doesn't have the kind of investigatory ability that a trustee does."

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