The former executives of Property Mortgage Co. were accused of massive fraud and operating the Sherman Oaks-based mortgage broker as a Ponzi scheme by the trustee now running the company.
The allegations were made in a civil suit in U.S. Bankruptcy Court in Los Angeles, where PMC recently underwent a 14-month reorganization. The suit seeks more than $100 million in damages.
A major mortgage broker for 20 years, PMC arranged to lend cash largely to commercial real estate borrowers. The money came from investors and was held chiefly by an affiliate, SLGH Investments Inc., until PMC arranged the loans.
Hundreds of Los Angeles-area investors together had plowed more than $150 million into PMC and SLGH. But on Valentine's Day, 1991, some of PMC's biggest creditors forced the companies into bankruptcy court because the companies were out of cash.
PMC's investors were shocked because, until then, the company had a record of making interest payments to investors on time. But in recent years, that was only because PMC was taking "fresh" cash from new investors to make payments to existing investors--"in effect a classic 'Ponzi vehicle,' " according to the suit filed by R. Todd Neilson, the trustee who has been managing PMC during its Chapter 11 reorganization.
Two months ago, PMC and SLGH emerged from Chapter 11 as a single entity--PMC, which has begun making partial payments to investors. Neilson now plans to liquidate the company.
Among the lawsuit's defendants are PMC's former top two officers, Elliot R. Fine and Stanley Glickman; Fine's wife and their two sons, Steven and Jeffrey, who also held positions at PMC; Mitsui Manufacturers Bank and California United Bank, which provided PMC with credit; Lederman & Zeidler, PMC's outside accountant, and James L. Franklin, whose JL Construction Co. in Carlsbad entered into several development projects with PMC that helped erode the mortgage broker's financial strength.
Lawyers for California United and Lederman & Zeidler said they hadn't seen the suit, so they wouldn't comment. Lawyers for Glickman, Elliot Fine and Mitsui did not return calls. Glickman, Fine and Franklin themselves could not be reached.
Neilson's complaint alleges that PMC/SLGH had been insolvent since 1984 but that the defendants did not make the problems publicly known.
That resulted "in the perpetration of a massive fraud on investors," the suit stated.
PMC's bankers, accountants, lawyers and others aided the fraud by continuing to assist PMC and SLGH even though they knew that the firms were in trouble, according to the suit.