Trustees Criticize Namvar Conduct

0

A report by the trustees handling the bankruptcies of Ezri Namvar and his investment company portrays the Brentwood businessman as running a slipshod operation that acquired hundreds of millions of dollars of property with little or no due diligence while treating investors’ money as his “personal family piggy bank.”

Even as the portfolio of Namvar and his Namco Capital Group Inc. became increasingly complex and grew to billions of dollars, the report notes that accounting was done with QuickBooks, software designed for small businesses – and he often mixed investors’ money with that of his family.

What’s more, Namvar – whose experience lay in hard-money lending – had a habit of taking little advice and “jealously guarded all decision making.” The trustees said that “incredibly” they couldn’t find a single market or feasibility study on a property acquisition. Instead Namvar was swayed by “brokers or finders with a vested interest” in selling properties.

The result was that Namvar made unwise residential and commercial property investments, loaded up on debt and overleveraged properties to buy even more real estate – causing his enterprise to begin losing money as early as 2006 and hemorrhaging it later.

“The story concerning Namco is one of faulty judgments of monumental proportions mingled with greed and self interest,” states the Feb. 26 report by Namvar trustee R. Todd Neilson and Namco trustee Bradley Sharp. “This headlong fall has decimated the lives of hundreds of creditors/investors, some of whom find that their entire life savings has evaporated in this nightmarish experience.”

The bankruptcy case has been closely followed because Namvar, 58, was a respected member of the Persian-American immigrant community centered in Beverly Hills and personally raised much of his investment money from its members. He did not take money from institutional investors.

The report is the first financial accounting issued by the trustees as part of the December 2008 bankruptcies of Namvar and Namco, which followed a deluge of lawsuits from investors seeking millions of dollars in repayments as the business failed.

Some creditors and lawsuits accuse Namvar and Namco of essentially operating a Ponzi scheme, and he is under federal investigation but no criminal charges have been brought.

The 70-page report confirms much of what the Business Journal has previously reported about Namvar in a series of articles over the last two years, while also providing more detail on his practices.

Among the major conclusions:

• A total of $5.9 billion in transactions were handled by Namvar and Namco, including both investment funds handed to him, properties acquired and disbursements made.

• Namvar operated his business through a “dizzying array” of more than 400 limited liability companies interconnected through a “labyrinth” of complex ownership structures.

• The operation had vast family involvement, with relatives taking ownership positions in many properties largely purchased with investors’ money.

• Namvar tried to make favored creditors whole in the months before the bankruptcies in a series of questionable transactions.

• Since the bankruptcies, lenders have foreclosed on $424 million worth of property, with $130 million more in danger. That raises the possibility of highly diminished returns for creditors.

Namvar declined to be interviewed for this article, but he did issue a statement to the Business Journal saying the report contained “numerous factual inaccuracies and unfair personal attacks.” He also stressed his cooperation with the trustees through voluntarily turning over to them any limited liability company in which he, his wife or children had a personal interest.

“I have ceded control of the LLC(s) to the trustees at this time, even though those assets might arguably be outside the bankruptcy estate,” said Namvar in the statement.

Big business

An immigrant from Iran, Namvar amassed a real estate empire of more than 100 properties that he valued at as much as $2.43 billion in July 2008, according to documents obtained by the Business Journal and published last year. The investments included the Los Angeles Marriott Downtown hotel and the Cal Neva Resort at Lake Tahoe, both since lost to foreclosure.

The report does not provide a further tally of the total size of the portfolio, but does add details to how Namvar was able to build up such substantial property holdings.

Namvar told the trustees that his father, a well-established hard-money lender in Iran, became the country’s largest Jewish landowner before his property was seized during the 1979 Islamic revolution, prompting the family to immigrate to the United States. Hard-money lenders charge a high interest rate to borrowers who often are unable to secure bank financing.

Namvar built his own hard-money lending business by capitalizing on the family’s reputation in what the report called the “less restrictive” and “fertile ground” of the Iranian Jewish community of the Westside of Los Angeles. Namco generated what the report called “moderate returns” on the difference between the interest paid to its investors and the interest charged to borrowers.

In 1997, Namvar began making direct real estate investments and turned larger profits on several properties. He began to accept investors’ money to buy property – a business model that had greater potential for profits.

But while Namvar had a reputation for being a real estate expert, the report paints a different picture. It notes he went on a buying spree from 2004 to 2008 – acquiring everything from raw development land in Arizona to shopping centers across the nation – without feasibility studies and with “a wanton disregard for the underlying economics of the financial viability” of the real estate.

“Ezri Namvar is clearly a highly intelligent person with an ability to keep prodigious amounts of numbers in his personal memory bank. It is further incontrovertible that he has substantial expertise in the area of hard-money lending. However, his venture into the larger arena of property development, banking and hotels portended financial disaster,” the report states.

Although Namvar declined to comment in detail for this article, he did address some of these issues at a Feb. 26 meeting in West Los Angeles held by the trustees to share their findings with creditors.

During the meeting, Namvar disagreed with the trustees’ assertion that he did not carry out due diligence on properties he purchased and made imprudent business decisions. He highlighted his purchase of the downtown L.A. Marriott, arguing that other companies, such as Oak Tree Capital Management, had attempted to buy the property before he closed the deal for $109 million in 2007.

Family involvement

The report outlines the extent to which Namvar’s business also involved his family. It notes that four of his brothers, his three sisters and three of his children held shares in Security Pacific Bank, a West L.A. institution in whose predecessor Namvar bought a majority share in 1997. The bank was closed by regulators in November 2008. The trustees’ review of the limited liability companies related to the business indicated that Namvar and family members comprised 80 percent of their ownership.

It was that ownership structure, the report notes, that led Namvar to treat millions of dollars of investor money as his “piggy bank,” allowing family members to put up “little or no initial capital” to secure their interests in property and minimize any personal losses if a deal went bad.

In fact, the report states that Mousa Namvar, a brother of the businessman, owes Namco $16.3 million largely stemming from loans he received from the business – money that could go to creditors.

However, Mousa Namvar disagreed with the findings in the report that relate to him, saying his books and records show that the company owes him money. He said the report links him to limited liability companies he is not a member of and noted other inaccuracies.

In 2008, as the real estate market was collapsing and Ezri Namvar was under legal assault, he made at least 13 transactions that may have favored some creditors ahead of others. In some cases, the report is definitive in noting that some of the transfers, assignments or sales should be negated.

In one example, a San Vicente Boulevard property in Brentwood was sold to a creditor and the amount owed by Namco to the creditor was reduced. In another instance, apartment properties in Venice owned by Namvar were assigned to a creditor in order to pay back that individual.

However, the report notes that with lenders already foreclosing on $424 million of property and $130 million more in danger of being foreclosed on, much of the valuable real estate that could have been used to pay back investors has been lost.

Among the bigger properties in the process of foreclosure is the Crowne Plaza Hotel Niagara Falls in upstate New York that was purchased for $28 million in 2005, using a $13.5 million investment from Namvar. The report states there is little to no equity left.

Another troubled property is the RiverWinds mixed-used development project in West Deptford, N.J. The reports states it was purchased for $5.25 million “without any meaningful due diligence.” A development agreement with West Deptford is now in default and the city has sued for $600,000.

The response to the report has been pure fury among some creditors, many of whom attended the Feb. 26 meeting during which it was unveiled.

However, creditor Benjamin Efraim said there was little new in the report and believes the questionable transactions to creditors are “just the tip of the iceberg,” because the trustees took a conservative approach.

Trustee Sharp said the report should not be read as an “all-inclusive” document. The trustees have not yet totaled what is owed in the two bankruptcies since a deadline passed late last year for creditors to submit official claims.

(According to court filings and other documents from early 2009, Namvar and Namco in total owe at least $866 million to 639 creditors.)

A. David Youssefyeh, an attorney representing several creditors, said perhaps the most irksome finding in the report is that Namco and at least five LLCs paid for $205,571 of the expenses for the wedding of Ramin Namvar, the businessman’s brother.

“(Creditors) are just shocked at how Namco was treated as the Namvars’ personal piggy bank,” he said. “No one was giving him money to spend on his brother’s wedding. People are just very mad about that.”

However, Christopher Reeder, an attorney who represents three of Namvar’s brothers – Sean, Ramin and Tony – said that once a “final accounting” is done, records will show that the wedding was not paid for with “investors’ money.”

He said that he and his clients will work with the trustees to resolve the matter and other accounting issues that show some of the brothers owe Namco money.

As the bankruptcies continue, the trustees will look to resolve issues surrounding the potential preferential transfers. Neilson said that he and Sharp will begin sending letters to people involved in such matters in the next 30 days in order to resolve the issues.

While the trustees have done accountings of Namvar’s brothers’ and sisters’ business with Namco, they have not completed their analysis of records on Namvar and his children. However, the report indicates Namvar and his children will owe Namco more than $250 million. That money would then presumably be disbursed to creditors.

Namvar did not specifically address that matter in his statement.

No posts to display