A few years ago, Tom Price and Hyun Um – founders of Prium – looked like heroes of urban renewal in Tacoma.
Prium seemed to be launching (or at least announcing) big condominium projects right and left. It had partnered with the City of Tacoma to renovate the sadly dilapidated Winthrop Apartments, a once-glorious hotel that had become a downtown blight.
How the mighty have fallen.
Price and Um are now in bankruptcy, as are many of the 60-plus companies they created to run their bafflingly complex real estate empire. Projects have collapsed; the city may lose the $2 million it lent Prium for the Winthrop.
The business failures – by themselves – don’t make Price and Um bad guys. Lots of real estate enterprises have gone bust in this economy. But The News Tribune’s Kathleen Cooper reported a far more shocking story Sunday after an exhaustive examination of Prium’s operations.
It turns out that Price and Um bought luxury automobiles and rented mansions from their companies for $100 a month – as Prium defaulted on creditors and refused to pay contractors for jobs completed. They lived like kings as their empire lurched into one of the largest bankruptcies the state has ever seen, involving as much as $350 million.
If only their self-dealing were the worst of it. More appalling are practices that – with hundreds of millions of dollars at stake – violated some of the most fundamental standards of business ethics. They may not have intended to con anyone, but the victims of their fast-and-loose style could be forgiven for thinking otherwise.
There’s nothing inherently wrong with a company spinning off dozens of limited liability companies to segregate and protect multiple enterprises. But the managers of LLCs have a fiduciary responsibility to watch out for the independent interests of each company and its investors. At a minimum, there should be rules, records and other safeguards against exploitation.
The idea of financial safeguards seems to have been foreign to Price and Um. Court records indicate that they shifted money from one LLC to another and drew money out without any real controls. They employed no chief financial officer bound by professional ethics – just a bookkeeper who took orders from Price.
The corporate structure itself – all those loosely run LLCs – was so baroque that the accounting professors Cooper consulted with couldn’t make heads or tails of it. Nor could the bankruptcy judge; he appointed an independent financial manager to unravel Prium’s mysteries.
This was a staggeringly irresponsible way to manage roughly a third of a billion dollars. Prium’s collapse devastated a long list of investors and contractors, sending a ripple of hurt through the economy.
The public has been harmed directly. Taxpayers may lose the $2 million loan to the Winthrop project. State agencies – which lease many offices from Prium – are stuck in buildings that are sliding into disrepair as promised maintenance isn’t done.
It’s telling that Price and Um somehow managed to lavish mansions, Bentleys and other luxuries on themselves as the cash flow sputtered and the list of victims grew longer. That may tell you all you need to know about how Prium did so much damage to so many people.
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