Scammed investors question plan in Utah Ponzi scheme
An attorney for investors in what regulators allege was one of Utah's biggest financial scams said Friday his clients are concerned that a plan to sell hundreds of millions of dollars worth of seized properties to a single bidder would turn out to be an insider deal.
Attorney Gregory Hoole, who represents investors in Management Solutions Corp. of Fountain Green, told a federal judge on Friday they are wary the proposal will leave them with millions of dollars less than other sales methods.
The court-appointed receiver for Management Solutions, attorney John Beckstead, has been working on a deal, reportedly with a Denver company, to act as a stalking horse in a bid process for the properties. Beckstead took control after the Securities and Exchange Commission filed suit against Management Solutions and owners Wendell and Allen Jacobson, who have agreed not to contest the allegations.
The lawsuit alleges that Management Solutions, a real estate investment company that took in $200 million from investors, was operated as a Ponzi scheme in which funds with investors were comingled among projects, companies and bank accounts, and were sometimes used to pay off other investors to make it look like certain transactions were profitable.
Beckstead told U.S. District Judge Bruce Jenkins on Friday that he believed the plan he is formulating to lump all properties into one auction would bring in substantial bids and result in a quicker end to the receivership, which would reduce the fees that come out of investor funds. He plans to sell apartment buildings in numerous states, office buildings, a turkey farm and even raw land all together.
"This bulk sale is very efficient and cost effective," he said.
The receivership has run up more than $3.8 million in fees since the lawsuit was filed in December.
The receiver is negotiating with a stalking horse bidder, which is commonly used in bankruptcies where a company solicits a bid for assets from one party in order to ensure it is not left with low bids. Beckstead is reportedly negotiating with a Denver company to be the stalking horse but he declined to identify it.
Investor attorney Hoole said his clients had consulted with real estate experts, who contended that a stalking horse bid would deter parties from bidding on the assets, depressing the sale price.
"They perceive that the stalking horse bidder has an inside track they do not have," Hoole said.
He echoed the concerns of Sam Stricklin, an attorney for Midwest Bank of Kansas City, which has an interest in one of the properties. Stricklin told Jenkins that Beckstead's plan would lump that property into the pool with less-desirable properties and depress its value.
Judge Jenkins said such objections will have to wait until Beckstead actually files a proposal with the court and seeks the judge's approval.
But Jenkins told Beckstead he was not inclined to approve a fee to be paid to the stalking horse bidder for participating in the sale.