Law firm conflict of interest contributes to high cost of recouping funds in Lane County’s largest Ponzi scheme.
The money to be used for compensation in Berjac of Oregon’s alleged Ponzi scheme is dwindling due to high attorney fees that must be paid before hundreds of investors receive payouts. Over $1.22 million in expenses is being billed by a Portland firm hired by the trustee – a firm that was ultimately dropped from the case when it was revealed to have a conflict of interest involving Umpqua Bank. The hunt for compensation cash now has narrowed to whether two Oregon banks and a Eugene accounting firm are proved partly liable for Eugene-based Berjac’s activities. The U.S. Bankruptcy Court trustee overseeing the liquidation of Berjac’s assets has collected about $11 million by selling Berjac-linked real estate and recovering money from Berjac co-owners Michael and Gary Holcomb and other beneficiaries of the alleged rip-off. But from that amount must be paid the trustee’s legal and other bills, which total several million dollars. After that, the roughly 375 investors — many of them from Lane County — receive payouts. Those investors are owed about $40 million by Berjac, said Thomas Gerber, an attorney who works for the trustee. The two banks — Eugene-based Pacific Continental Bank and Portland-based Umpqua Bank, and the Eugene-based accountant, Jones & Roth — are the last remaining big potential sources of compensation. Some investors despair of getting much back. Eugene resident Sally Piernick, 63, in December wrote to the bankruptcy judge complaining about the high trustee attorney fees and her low chances of recouping much of the roughly $171,000 she had with Berjac when it went under. “Many of us … mentally let go of ever getting our money back,” she wrote. “The loss of (my) money affected my life severely then and continues three-plus years later.” In the years leading to its collapse in 2012, Berjac used investors’ cash to pay interest to other investors, pay Holcomb family members extra-high interest rates on their investments in Berjac, buy luxury items, and delve into speculative real estate projects that flopped in the Great Recession, bankruptcy records show. Investors had thought they were putting their money into Berjac’s insurance-premium financing business. Berjac typically paid investors 4 percent to 5 percent annual interest, often for several years. But investors lost all their principal — in many cases hundreds of thousands of dollars per person — when the firm went bankrupt in August 2012. It’s Lane County’s biggest alleged Ponzi scheme ever. Now, one of the last questions centers on whether Jones & Roth — for auditing Berjac’s books — and the two banks — for lending money to and receiving payments from Berjac over many years — were culpable for helping prop up the scheme. “The next big thing is what will happen with the banks” and the accounting firm, Gerber said. In theory, the three could be found liable for the $30 million or more it would take to repay investors in full, he said. But the trustee’s lawsuit in U.S. District Court in Eugene against the banks and Jones & Roth still is in its early stages. The three firms dispute that they bear any blame. They have tried, unsuccessfully, to get the federal case dismissed. They declined to comment to The Register-Guard. Investors are frustrated by the slow and expensive legal process. Springfield attorney Thomas Huntsberger, the trustee appointed by the Bankruptcy Court, and the attorneys and accountants working for him, have run up large bills trying to retrieve money for investors. That retrieved money is used to pay the legal bills. Portland law firm Bullivant Houser Bailey, hired by Huntsberger to work on the case from 2012 to May 2014, is in a deepening fight over the $1.22 million bill it submitted to the trustee. While Bullivant worked for Huntsberger — trying to recoup money from Umpqua Bank and others — it was using Umpqua as its business lender, taking loans from the bank. Bullivant did not tell Huntsberger about this potential law firm conflict of interest until late May 2014, court records show. On May 29, 2014, Huntsberger dropped Bullivant. Huntsberger then had to rapidly assemble a new legal team to pick up Bullivant’s work. The new team had just three months to file claims against entities and people potentially liable for Berjac’s debts before the Aug. 31, 2014, Bankruptcy Court deadline for those submittals. Bullivant asserts it did quality work for the trustee and that its relationship with Umpqua presented no conflict. However, Bullivant admitted in a letter to Huntsberger that the Bullivant-Umpqua business relationship might make it “appear that our firm was not completely zealous in its evaluation and pursuit of any claims against Umpqua.” Portland residents George and Melissa Rex, who lost $450,000 they had invested with Berjac, said in a December letter to the court that Bullivant’s conflict of interest and its legal bill are “absolutely outrageous and on the surface appears to be gouging and tantamount to victimizing us creditors yet a second time.” Eugene resident David Barjas also is angry about Bullivant’s bill. Barjas wrote to the court that his investment with Berjac was $106,266 — about 60 percent of his net worth. A company that buys high-risk debt recently offered him $4,250 for his bankruptcy claim, the disillusioned Barjas told the court. With the legal costs and Berjac’s lack of assets, retired Eugene attorney John Cox, who had $443,000 invested with Berjac when it folded, said that unless Umpqua, Pacific Continental and Jones & Roth are found liable, he’d be surprised if investors get back 15 cents on the dollar of what they are owed. A version of this content was originally posted by Christian Wihtol on The Register Guard online. Law Firm Conflict of Interest Representation – Ball & Bonholtzer Trial Attorney – Los Angeles