Thursday, May 8, 2008
A class-action lawsuit that seeks more than $15 million in damages from real estate investment firm Cedar Funding was filed Wednesday, May 7. According to the lawsuit, Catherine Lau, a 71-year-old widow, invested $885,000 in Cedar Funding by taking out equity loans against her own home. Lau invested $535,000 in a loan to Lake Elizabeth Properties LLC and Brett Robinson, former owner of a Los Angeles County golf and country club, the lawsuit says. The lawsuit alleges that defendants Cedar Funding and owner David Nilsen didn’t inform Lau when the borrowers defaulted on the loan and represented that payments were current. Defendants also never assigned the deed of trust on the country club property to investors, the lawsuit says, but instead recorded the loan in Cedar Funding’s name. Like previous lawsuits, the complaint says Cedar Funding operates a Ponzi-like scheme by making interest payments to Lau and other investors from funds received from new investors. The lawsuit asks for an equitable lien or a constructive trust on the Southern California property in the amount of $535,000. If the case is certified for a class action, the complaint requests about $15.3 million. Monterey-based attorney Allen Kaplan is representing Lau and advertising for more investors. The class-action lawsuit adds another strike against Cedar Funding, which, as first reported May 1 at www.montereycountyweekly.com, is the subject of an investigation by the Monterey County District Attorney’s office, a state enforcement action and a civil lawsuit. Other attorneys also are considering class-action lawsuits against Cedar Funding. Carmel lawyer Larry Lichtenegger says he is preparing to file a class-action suit accusing Cedar Funding and Nilsen of violating securities laws. Lichtenegger says he will seek federal jurisdiction because the company violated the Securities Act of 1933. “The evidence discloses that [Nilsen] is misrepresenting the investments to his investors,” Lichtenegger says. “He is telling them that they are secured by land and he is recording deeds of trust in his own name.” Monterey lawyer Neil Shapiro says he and a San Francisco law firm are waiting to see what happens with a lawsuit that seeks receivership before they take legal steps, such as a class-action suit. “It’s going to take some time to figure out exactly what steps, if any, make sense to the investors,” Shapiro says. “The last thing we would want to do is act in haste and make the situation worse.” In all, Cedar Funding has an estimated $160 million in loans funded by about 1,500 investors, most of them local. While a previous lawsuit targeted the company’s mortgage fund, Lichtenegger is representing investors who have stake in fractionalized deeds of trust on specific properties. On Monday, May 5, Lichtenegger filed a lawsuit on behalf of Monterey dentist Stanley Post, alleging Nilsen deeded a Pasadera home’s title to Cedar Funding after Kavanaugh Development Co. Inc., defaulted on the $450,000 loan. Cedar Funding, through the company’s PR firm, Armanasco Public Relations, declined to comment on the lawsuits. Lichtenegger says he filed the lawsuit to catch the property before it is sold and Nilsen walks away with the money. But the civil complaint alleging fraud could be the least of Nilsen’s worries. Monterey Police Lt. Leslie Sonne says investors complained to her department a few weeks ago. Now police and the district attorney are investigating the company. Neither Sonne nor Annie Michaels, managing deputy district attorney in the consumer protection unit, would disclose details. On April 30, the California Department of Corporations suspended Cedar Funding’s state permit. The permit suspension will bar the company from raising more money, but it doesn’t mean they can’t service old loans. The Department of Corporations alleges that the mortgage fund disbursed $8.5 million in loans not recorded by deeds of trust and made “excessive loans to the fund manager and affiliates.” Referencing a June 2007 letter from Cedar Funding’s auditor, the complaint says $9.8 million in loans were made to the funds manager, Cedar Funding Inc., which violates the fund’s offering circular, a legal document that outlines investment terms. The Department of Corporations also alleges that the mortgage fund made a single loan exceeding $5 million, which is in violation of the fund’s diversification clause. The state Department of Real Estate also could take action soon against Cedar Funding. The department recently conducted a follow-up audit of the real estate broker’s finances. Armanasco provided a written statement downplaying the Department of Corporations action. Cedar Funding, the statement says, will vigorously defend itself against the accusations. An April 24 civil suit against Cedar Funding and affiliates accuses the hard-money broker of running a Ponzi scheme and demands a receiver take over the unraveling mortgage fund. On Tuesday, May 6, Judge Robert O’Farrell granted a motion to get Cedar Funding to open up its books and give a list of the fund’s loans.