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Debt Doesn’t Pay
By Don Bauder | Published Wednesday, June 25, 2008
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"Live well. Retire rich.” That was the proverb that Dan Holbrook preached over radio and TV, as he exhorted San Diegans to take on debt and pour the proceeds into real estate investments. “Real estate is an asset that you can leverage ten to one and still sleep at night,” effervesced Holbrook. This month, his empire collapsed into Chapter 7 liquidation bankruptcy, as unpaid investors who had plunked money into his enterprises finally could take no more sleepless nights.
Attorney Erwin Shustak, representing people who had been promised 11 percent annual returns in Holbrook’s trust deed operation, filed to put Holbrook personally, his Atvantage Group, and its multivarious subsidiaries into involuntary Chapter 7. “I had planned to contest the involuntary bankruptcy,” says Holbrook, claiming that he could have dug out of his hole. “I had hoped to be able to work through the [bad] market…and pay my creditors.… I had tried for months to avoid bankruptcy.… I have been advised that it would be better to just let the process proceed.”
“He has broken with reality,” responds Shustak, who believes that Holbrook originally may have intended to run an honest operation. But the real estate market turned south severely, and Holbrook had no chance to pull himself and his investors out, despite his alleged claims that the subprime calamity would not crimp his ability to pay. Investors and creditors examined Holbrook under oath on June 9. A bankruptcy trustee has been appointed.
One irony is that Holbrook, who proselytized for folks buying real estate with borrowed money, is now counseling people on the short sale, or a borrower’s attempt to avoid foreclosure by convincing a bank to accept less than is owed on a loan. Hmmm.
In his bountiful days, Holbrook was busy. In the morning, he would name his “Top 6 on Fox 6,” real estate tips on the local Fox TV outlet, XETV. Holbrook “paid for time on the morning show,” says Chuck Dunning, manager of the station. Then Fox would frequently quote him when it did real estate stories. He didn’t pay for the privilege of being interviewed. He hosted a talk radio show from 6:00 p.m. to 7:00 p.m. on KCEO (1000 AM), called “Real Money Real Estate.” He paid for that too, says Peri Corso, vice president and general manager of Astor Broadcast Group, which owns the station. For a while, Holbrook had a similar two-hour show on KSDO radio, 1130 AM.
On his shows, he touted his seminars, at which he peddled his various investment schemes.
His business was diversified. His Atvantage Group had offices in Carlsbad and Mission Valley. He and a large staff did mortgage brokerage, real estate sales, escrow services, reverse mortgages, residential development and lending, property management, custom home construction, and trust deed investing, sometimes called hard money lending. This last business has an ugly history in San Diego. In the inflationary 1970s and 1980s, the company Boileau and Johnson paid very high yields to mainly elderly clients. The business failed, and in 1982, Paul Boileau took the Fifth Amendment behind a bulletproof shield while his elderly victims glowered in the courtroom. He was sentenced to nine years and eight months in state prison. Stephen Lochmiller pulled the same stunt and went to prison. In the 1990s, Gary Naiman had one of the larger trust deed operations in the United States. He wound up in the slammer too. Through the years, several other such operations failed ignominiously.
In the trust deed business, people who cannot get loans through conventional sources — usually because of poor credit ratings or unverifiable income — put up collateral and get high-interest-rate loans. Their collateral is backed up by deeds of trust on the property pledged — hence the name “trust deed investing.” Holbrook’s borrowers were paying 10 to 15 percent interest during a period when the general level of interest rates was low. Investors provided the capital for the loans, and they were promised very high yields — initially 12 percent, and later 11 percent. Holbrook boasted that every property he took as collateral had 30 to 35 percent equity. And, he claimed, he would not lend out any more than 65 to 70 percent of the fair market value of the collateral.
But as the diversified enterprise came asunder, says Shustak, “the money did not go where it was supposed to go.” Shustak says that Holbrook told him that he took in $4 million to $5 million in trust deed investments; one time he said that $165,000 actually went into the trust deed operation. A second time, it was $600,000, according to Shustak. In either case, it was very little, says Shustak. “The rest of the money was diverted into other deals.” I put the question of where the money went to Holbrook, his bankruptcy attorney Judith Descalso, and his litigation attorney Louis Galuppo and got no answers. Holbrook says he would “like to address and refute the false allegations being made against me.”
In one case, Shustak represented Diana and Paul Chernofsky. In a superior court suit, Holbrook and his companies were charged with securities fraud, fraudulent misrepresentation, and breach of contract, among many things. The suit was settled on confidential terms. According to the suit, Holbrook promised the couple 11 percent a year interest on their $200,000 investment. This income would permit them to service the debt on their planned retirement home. However, according to the suit, the Chernofskys received “only one full interest payment and one partial payment” and were then told that “returns on their investment would be suspended indefinitely,” despite Holbrook’s earlier assurance that the subprime crisis would not affect the business. Holbrook knew all along that his company “was essentially imploding and in fact was never able to execute the promises of returns,” according to the suit.
The Chernofskys were told that the trust deeds backing the collateral would be in first position, but in fact, the secured liens on the borrowers’ pledged collateral “were junior to at least one other enormous deed or mortgage encumbrance on the secured property, thus making a return on the [Chernofskys’] investment highly unlikely,” according to the suit. Holbrook told the couple that he had not been sued by clients, according to the suit. Actually, Holbrook and his companies “have been named by defendants in multiple lawsuits since 2000.” Holbrook settles them out of court, says Shustak.
The trust deed offerings were securities, but they weren’t registered with the Securities and Exchange Commission or the California Department of Corporations, charged the suit.
A number of people who have not been paid have joined in the involuntary bankruptcy filing. When he lines up others he knows about, their losses may be above $2.5 million, says Shustak.
Galuppo, Holbrook’s litigation attorney, says, “When his business fell apart, he asked me to intervene and help him to do workouts with existing lenders. His entire business operations have fallen apart. He is continuing to do real estate brokerage and short sales. He lost a few homes to foreclosure. Some homes he built — some subdivisions, other things — he couldn’t keep up the payments on. He is having difficulties throughout the entire organization. Homes and developments got in trouble in this market.” Galuppo says he doesn’t know where all the money went, “but Shustak doesn’t have enough information to make the statements he is making.” There are other creditors, such as banks, Galuppo says.
So what does Shustak say? Holbrook “commingled all the money that came in from these other investments. At most, maybe 10 percent [of the money Holbrook took in] went where it was supposed to go.”
As Holbrook himself says, the bankruptcy court will have to straighten all this out.
Trust Deeds are pure scams in San Diego, and anyone targeting the elderly should be prosecuted for elder financial abuse.
Don, was Gary Naiman the guy that ran Pioneer????? That was a petty big scam, and after the BK attorneys looted the remaining funds the investors only received like 7 cents on the dollar.
By JohnnyVegas 11:01 p.m., Jun 25, 2008 > Report it
Response to post #1: Yes, Gary Naiman was the one who ran Pioneer. He spent his prison time at a Vegas air field in a trailer off base -- a la John Alessio many years before at a different location. Naiman is reportedly now in Orange County. And, yes, the Pioneer attorneys took a bundle on that one. I wrote a lot on that, both for the U-T and the Reader. Finally, the bk judge replaced them. Since the Naiman episode, there have been several other trust deed scams in San Diego. Best, Don Bauder
By dbauder 6:39 a.m., Jun 26, 2008 > Report it
Don, many of the names in your article read like a 'Who's Who' of swindlers and San Diego is a world class city of swindlers and scam artists.
-Jim Fawcett
By qqqqqjim 2:12 p.m., Jun 26, 2008 > Report it
Response to post #3: Yes, as you say, "San Diego is a world class city of swindlers and scam artists," and all too many of them hold elective office, or work for somebody in high elective office. Best, Don Bauder
By dbauder 3:29 p.m., Jun 26, 2008 > Report it
Holbrook is a putz. When i first moved to San Diego he showed my wife and i around and constantly left his keys in sellers homes, was late to appointments, misplaced his Real Estate access super key,...a total bumble****. Finally, we decided on a house after endless visits and late appointments. We get down to the negotiations and Holbrook leave town with an offer pending, telling no one, including us and his own staff. I fired him and bought the home by making my own offer and saving over $30k in fees. Thanks Dan!!
By magnus 10:09 a.m., Jun 27, 2008 > Report it
Response to post #5: You're very fortunate. You saved $30,000. Look at all the people who LOST much, much more than that. Best, Don Bauder
By dbauder 3:35 p.m., Jun 27, 2008 > Report it
I'm surprised Holbrook didn't take off like Walter Wencke and Foto-Mat founder Clifford Graham. He's a fool for sticking around.
By Burwell 9:13 a.m., Jun 29, 2008 > Report it
Response to post #7: Wencke and Graham: there were two characters in SD history. Wencke never showed up on the day he was to be sent to prison. Graham disappeared and nobody knows where he is. He had a gold scam, Au Magnetics, as well as Foto-Mat and others. Best, Don Bauder
By dbauder 12:30 p.m., Jun 29, 2008 > Report it
Wencke, a democrat, was apparently at one time Sol Price's law partner. He ran against Bob Wilson as a democrat and was defeated for a seat in Congress. Wencke was born in 1926. He is either dead, or close to dead. I wonder what will happen to his embezzled millions when he dies. Will his children obtain access to the money? Will they control the money through an offshore entity? Many unanswered questions.
By Burwell 4:27 p.m., Jun 29, 2008 > Report it
Response to post #9: I have followed that Wencke tale through the years, as both editor and writer, and never heard that he had been Sol Price's law partner. I remember that his wife, who was in the business with him, had to take her punishment, but he vanished. Through the years, people would report having seen him -- sometimes offshore -- but he was never identified and nabbed. I doubt if his children will have any legal call on his money. He may have set up something illegally, however. Best, Don Bauder
By dbauder 7:56 p.m., Jun 29, 2008 > Report it
I never knew Sol Price was a lawyer!!
I think he may have claim to being the oldest, living, licensed lawyer in California.
http://members.calbar.ca.gov/search/memb...
By JohnnyVegas 3:43 p.m., Jun 30, 2008 > Report it
Response to post #11: Oh yes -- a lawyer and entrepreneur. Best, Don Bauder
By dbauder 5:23 p.m., Jun 30, 2008 > Report it
Sol and his shareholders got taken to the cleaners when that German investor bought Fed-Mart for next to nothing. Fed-Mart owned the large shopping center at Balboa and Genessee where Home Depot and Target is located, and the massive shopping center on Sports Arena Blvd., among other valuable properties that were underutilized. Sol was not aware that the land under Fed-Mart's stores alone was worth far more than what the German paid for Fed-Mart's stock. About a year after the German bought Fed-Mart, after he had run it into the ground, he shuttered the stores, subleased Fed-Mart's empty stores to Target, and crammed the shopping centers with more space for big box outfits like Home Depot. Sol got taken big time.
By Burwell 7:21 p.m., Jun 30, 2008 > Report it
Hugo Mann was the German investor who bought Fed-Mart.
By Burwell 8:03 p.m., Jun 30, 2008 > Report it
Sol Price was admitted to the Bar in 1938.
By Burwell 8:05 p.m., Jun 30, 2008 > Report it
Sol has to be the oldest living lawyer in CA- I have never seen anyone who had a valid law license for 70 years.
Sol must be working out with fitness guru Jack LaLanne who turned 94 last month, and is in better condition than I am.
By JohnnyVegas 10:16 p.m., Jun 30, 2008 > Report it
Response to post #13: The German Fed-Mart management was berated for mismanaging Fed-Mart. Sol Price once told me that the German fumbling would make a great case study for Harvard Business School. If, indeed, Hugo Mann did that well on the underlying real estate -- and I believe he did -- then both sides came out well. The Prices founded Price Company and the warehouse concept. However, Price management faltered, and when the company merged with Costco, the headquarters wound up in Washington State without the Prices in charge. But at least the family and some executives got very rich. I always thought the Germans bought out minority Fed-Mart shareholders at a low price. Best, Don Bauder
By dbauder 10:22 p.m., Jun 30, 2008 > Report it
Response to post #14: Yes, Hugo Mann was the major German shareholder in Fed-Mart. He and Sol Price could not get along. Best, Don Bauder
By dbauder 10:25 p.m., Jun 30, 2008 > Report it
Response to post #15: Sounds like a long time ago. Best, Don Bauder
By dbauder 10:26 p.m., Jun 30, 2008 > Report it
Response to post #16: Is Sol still practicing law? He has been involved in some civic projects in recent years. Best, Don Bauder
By dbauder 10:28 p.m., Jun 30, 2008 > Report it
The funny thing about Costco is that it was a former Price Club employee that stated Costco with venture capital.
Then they did a better job of running their stores, using the Price Club concept.
Irony!
Sol Price's law license is inactive, so he is not curently practicing (and why would he with his success), but I do find it amazing he has had a license that long (and that he is still alive at his age).
By JohnnyVegas 9:14 a.m., Jul 1, 2008 > Report it
Response to post #21: Yes, Jim Sinegal, CEO of Costco, is one of the best around. He pays good wages and fringes. He himself takes a very low salary and doesn't get filthy rich on stock options. He did work for Sol Price at one time: I believe it was when Sinegal was in college and worked for Fed-Mart, but I would have to check that. He is a remarkable CEO and Costco's success proves it. Best, Don Bauder
By dbauder 4:45 p.m., Jul 1, 2008 > Report it
Sol Price has retail in his blood... Jim Sinegal is also a very hard working and incredible retail brain... after studying under Price he teamed up with Jeff Brotman of Seattle to start the first Costco. Jeff Brotman is like a Seattle version of Sol Price. He also had retail stores and investments. They recruited a lot of the Price Club people in their early days and many of the Costco employees are old Price Club veterans.
By Ponzi 8:08 p.m., Jul 1, 2008 > Report it
Response to post #23: Sinegal is a great success story. The fact that he was paid a sane salary while succeeding brilliantly should make him a model for all industry. Unfortunately, it won't. Sinegal is probably a pariah among other CEOs for refusing to fleece shareholders. Best, Don Bauder
By dbauder 7:06 a.m., Jul 2, 2008 > Report it