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TMI Owners Answer Allegations : Q&A: They say recession, not fraud, has depressed the value of the real estate syndicate's holdings but that the firm is profitable.

August 29, 1994|DEBORA VRANA | TIMES STAFF WRITER

NEWPORT BEACH — The owners of Teachers Management & Investment Corp., the Newport Beach company that raised as much as $1 billion from California educators, said Sunday that they inherited most of their troubled company's problems and are doing their best to steer one of the nation's oldest real estate syndicates out of one of California's worst recessions.

In an interview with The Times, the two men responded in detail to a lawsuit filed Aug. 22 against them and their company. James R. Martin, 55, and Maurice Shuman, 56, both of Newport Beach, said the lawsuit's allegations that they lost $100 million of clients' retirement money through fraud and racketeering are simply not true.

TMI's partnerships may have declined in value by as much as $100 million, the owners said, but that is because of the state's real estate downturn, not fraud.

According to the lawsuit, filed by four investors, the 26-year-old fund marketed by teachers for teachers across the state is insolvent. The suit seeks immediate appointment of a receiver to take over management of the company and whatever assets are left.

Martin and Shuman insisted that their company is not insolvent. Rather, they said, TMI is profitable, though it is struggling to overcome not only declining property values but also what the two men characterized as poor investment decisions made by the company's former owners.

And they said the amount raised from real estate partnership investors is closer to $500 million than the $1 billion estimated in the lawsuit.

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

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

While the state's real estate market was booming during the 1970s and '80s, TMI investors often saw annual returns of more than 30%. But when the market skidded in the late 1980s, those handsome returns ended.

In an interview at TMI's Newport Beach headquarters, Martin maintained that TMI's "heart is with the teachers." He and Shuman also answered specific questions about the company's history and current status.

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Question: Is $100 million of investors' funds missing?

Answer: (Martin) Absolutely not. I think those kinds of statements are completely irresponsible.

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Q: Is TMI about to file for bankruptcy?

A: (Martin) We are profitable. I cannot release the numbers. But we have absolutely no plans to file bankruptcy.

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Q: The suit alleges that there was fraud at your company--an "undisclosed pattern of self-dealing"--that the management was siphoning off millions of dollars of investors' funds to affiliated companies that you controlled. How do you respond?

A: (Martin) I want you to remember one thing. All these partnerships were audited by (KPMG) Peat Marwick. It's pretty simple to follow the dollars here. This is not a maze. Every dollar we get is specifically set out in footnotes in the partnership reports, so every partner knows where the dollars went--whether it's to TMI or an affiliate. There are no secrets. There is no hiding anything. It's just a ludicrous statement that anyone is hiding anything. Now, you could argue over whether it was proper or not.

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Q: Was it proper?

A: (Martin) Obviously, these people (the investors) believe that nothing should be spent on entitlements (permits or approvals to sell a property). And that's absurd.

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Q: You mentioned the Peat Marwick reports. Why did Peat Marwick say in its latest statements that it couldn't issue an opinion, saying no current appraisal on your property values was available?

A: (Martin) I can't answer for them. But I think anyone is concerned in this real estate market. Everyone is scared and cautious in this market. We certainly are.

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Q: How did you decide to buy TMI in 1987?

A: (Martin) It was very exciting. TMI had the capability of doing a lot of positive things. They had an excellent rapport with the educator world. They had made a tremendous track record with investments with very high-yielding returns. They made a lot of people's lives better. So that was the appeal. They had the portfolio and the track record in the past, and the marketplace still looked very. . . . It was a different picture then.

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Q: You mentioned one of the things that attracted you to the company was its sales force: teachers. Wasn't this the classic example of an affinity group that is marketed to people from their peers, or people they trust?

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