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Judge Stops Short of Naming TMI Receiver : Finance: He says funds were improperly commingled but orders parties in lawsuit to negotiate an alternative.


SANTA ANA — Saying that some money was improperly transferred without investors' knowledge, a judge decided Monday that the remaining retirement funds invested with Teachers Management & Investment Corp. may need protection from current management but stopped short of appointing a receiver at the Newport Beach financial company.

TMI, which has raised as much as $1 billion from 60,000 California educators since 1968, was sued Aug. 23 by four investors who allege that the firm lost more than $100 million through fraud. Company owners deny the charges.

"I have evidence of commingling of funds and conflict of interest here," said Orange County Superior Court Judge Francisco F. Firmat. "The issue is do I use a sledgehammer and appoint a receiver or a surgical knife and issue some type of restraining order?"

The 26-year-old company, which hired teachers to help sell its more than 40 real estate partnerships to other teachers, is insolvent, according to the lawsuit. It seeks immediate appointment of a receiver to take over management of the company and its assets.

Though he has the power to appoint a receiver, Firmat, citing concerns about the cost to investors, told lawyers for both TMI and the four investors to draft a compromise plan to be presented to him today.

Arguing that a receiver should be appointed, Ron Rus, attorney for the investors, told the court that TMI was "caught with its hand in the cookie jar," by commingling investors' money from some partnerships into others. He said TMI management could not be trusted to report to the court on the status of company accounts.

Commingling is "a huge breach of fiduciary duty which in and of itself calls for appointment of a receiver," Rus said. The plaintiffs have asked the court to select Dennis B. Schmucker, a San Diego bankruptcy expert, as receiver.

Arguing against the appointment, TMI's attorney, David Grant, said TMI's management could still make "proper business judgments," adding that "a blunderbuss receiver will have a drastic effect on the company and there's no need for it."

Grant was hopeful that a compromise plan could be reached and said it is possible an official from the Koll Co., a Newport Beach real estate developer, could work with TMI to review its books. Grant said the Koll Co. is interested in buying TMI.

"We're certainly interested in somehow being involved in the partnerships," said Harold Hofer, president of Koll General Partners Services, a division of the Koll Co.

Hofer said that Koll would consider helping the company if asked by the court. "We're interested in getting involved," he said.

Investors in each partnership should get to vote on whether they want a receiver or want TMI to remain as general partner, Grant said.

TMI's owners, Maurice Shuman, 56, and James R. Martin, 55, both of Newport Beach, admit the company has lost more than $100 million in the past seven years, but they blame the real estate downturn and deny allegations that they lost the mostly retirement money through any type of criminal activity.

Instead, they maintain that the real estate recession hammered values in some of its 40 partnerships, reducing assets by more than 50% in some cases and forcing at least five partnerships into bankruptcy. The two men said they are just trying to turn around troubled hotel and raw land properties they inherited when they bought the company in 1987.

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