"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.