Spotlight Shifts to Bankruptcies in Namvar Case

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Spotlight Shifts to Bankruptcies in Namvar Case
Ezri Namvar

Last week’s conviction of real estate investor Ezri Namvar on federal wire fraud charges ended one episode in the drama of his fall, but looming battles in bankruptcy court promise more plot twists to come.

Chief among them are a power struggle between trustees and creditors over the reorganization plan of the estates of Namvar and his company Namco Capital Group. Also at stake are claims worth hundreds of millions of dollars against other members of the Namvar family filed by the estates’ trustees.

Namvar and Hamid Tabatabai, an officer at several Namvar companies, were each found guilty by a jury in Federal Court in downtown Los Angeles last week of four counts of wire fraud. Namvar, 59, and Tabatabai, 63, each face a maximum sentence of 80 years in federal prison. Sentencing is scheduled for Aug. 22.

Prosecutors alleged that the pair stole $21 million from four clients who had given money to Namvar’s Namco Financial Exchange company to facilitate a 1031 exchange. That’s a real estate transaction in which property sellers defer paying taxes by parking money from a sale with an intermediary until they find another property to buy. Namvar and Tabatabai then allegedly used the money as a “personal piggybank” to pay off loans at Namvar’s other companies and even gave some to members of Namvar’s family. When the four clients asked for their money back in 2008, they were told most of it was gone.

The Namvar case has been called L.A.’s version of the Bernie Madoff scandal. Many of Namvar’s fellow Jewish refugees from Iran personally handed their money to Namvar. Hundreds of millions of dollars in losses were not insured or otherwise covered.

Many people beyond the four clients in the trial say they lost money after Namvar’s $2.5 billion real estate portfolio collapsed in 2008. Investors quickly suspected he was operating a Ponzi scheme. At least 464 creditors of Namvar and Namco Capital claim they are owed some $866 million. Those cases are still winding their way through bankruptcy court.

R. Todd Neilson, Chapter 11 bankruptcy trustee of Namvar’s estate, said the conviction wouldn’t have much effect on the bankruptcy proceedings. Those are now entangled as trustees and creditors battle for control of any available assets.

An official creditors’ committee recently filed a reorganization plan that would effectively oust the trustees, Neilson said. That plan will be heard by a judge in July. The trustees will file a competing reorganization plan before that date.

“What we’ve had is a fight for control of the bus,” he said.

The trustees have also filed claims seeking repayment of at least $380 million in loans made by Namvar and Namco Capital to members of the Namvar family prior to the bankruptcy. In another claim, trustees want Namvar’s wife, Ilana, to return jewelry worth hundreds of thousand of dollars.

“These matters take years to resolve unless people throw their hands up in the air and say, ‘OK, just take these things,’ which is somewhat unlikely,” Neilson said.

More lawsuits?

Though the deadline to file bankruptcy claims has expired, attorney A. David Youssefyeh, who represents several creditors, said Namvar’s conviction could lead to more fraud lawsuits. He added that the conviction could prevent Namvar from getting a bankruptcy discharge, which would protect him from creditors.

But Dan Schechter, a bankruptcy professor at Loyola Law School, said it was unlikely fraud suits or a bankruptcy discharge would be a factor because of the large amount of money that was lost.

“You can’t squeeze blood out of a debtor,” he said. “The chance that postbankruptcy he’d be able to make good on any of his debts is pretty slim anyway.”

Larry Russ, a local attorney who lost $2 million with his partners, was one of the four alleged victims to take the stand during the criminal trial. Namvar stipulated to a judgment for the full amount early on in the proceedings. Russ acknowledged he probably wouldn’t get any of it because Namvar “probably won’t have any postbankruptcy assets.”

During the trial, Russ testified that he was led to believe his money was being held safely in a bank, and did not authorize it to be moved to other Namvar companies. He also described how he confronted Namvar when the money went missing.

“He said he was sorry, but that he took the money and he couldn’t get it back,” Russ said.

Another defendant, Paul Laska, testified that Namvar offered Persian rugs in lieu of money. Laska, who owned a hardware store for 37 years, lost most of his life savings, like many of Namvar’s other clients.

Defense attorneys acknowledged during the trial that the money was missing, but argued there was no evidence of Namvar’s intent to defraud.

“These customers lost a lot of money,” Namvar attorney Marc Harris acknowledged in closing arguments. “But this isn’t about that. They have to prove that he had evil in his heart.”

Harris said he was extremely disappointed in the verdict.

“But we are confident we will be vindicated on appeal,” he said.

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