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TMI Blames Real Estate Crash for Losses : Investments: Clients' lawsuit alleges mismanagement and a cover-up. It seeks to place the fund in receivership.

August 25, 1994|DEBORA VRANA | TIMES STAFF WRITER

NEWPORT BEACH — Operators of Teachers Management & Investment Inc., accused in a lawsuit of mishandling tens of millions of dollars in teacher retirement funds, said Wednesday they "absolutely deny" the allegations and vowed to fight them in court.

TMI, which raised perhaps $1 billion from 60,000 teachers, blamed the fund's losses on the collapse of the real estate market in California.

The lawsuit, filed by four investors Tuesday in Orange County Superior Court, alleges that the fund may have lost $100 million and is insolvent. It seeks immediate appointment of a receiver to take over TMI.

In their statement Wednesday, company owners James R. Martin and Maurice Shuman described the plaintiffs as "dissident investors" and said they would "vigorously defend" TMI and each of its dozens of real estate partnerships.

"The real problem that our investors have faced is the substantially changed and depressed California real estate market," the statement said. "Although we have made headway in overcoming a great number of market-occasioned problems, we still have a large job to complete."

The lawsuit alleges that TMI officials lost millions of dollars of investors' money in a "systematic and increasingly sophisticated pattern of prohibited activity" undertaken to cover losses in its real estate partnerships.

That activity, the suit states, included "co-mingling of funds and payments made out of trust, amounting in the end to a Ponzi scheme undermining the security of possibly as much as $1 billion in retirement funds."

Ron Rus, the plaintiffs' lawyer, filed a request Wednesday for a temporary restraining order that would prohibit TMI's officers from altering or destroying documents. A hearing on the request is scheduled for today.

Teachers and others who invested thousands of dollars of their retirement funds in TMI hailed the news that legal action was being taken.

"For the last two years we thought we'd just have to kiss that money good-bye," said Betty Gorelick, a former Los Angeles elementary school teacher who invested about $15,000 in two TMI partnerships that later filed for bankruptcy. "But with the suit, maybe there is a glimmer of hope yet."

Formed in 1968 by a group of educators and real estate specialists, privately owned TMI has been a vehicle by which teachers and school administrators could sweeten their retirement funds.

Over the years, TMI through its limited partnerships has owned a number of commercial properties, including hotels in Northern California, office complexes, the Parducci Winery lands in Mendocino County and thousands of acres of undeveloped property.

While California's real estate market was booming during the 1970s and '80s, TMI investors saw handsome profits. That ended when the market collapsed in the late 1980s.

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