Tacoma real estate developers Tom Price and Hyun Um are liars who refuse to play fair, their creditors say, and it’s time for a judge to put someone in charge of their business and settle their debts.
Price and Um’s creditors made the same request two years ago and were denied. Back then, they didn’t have nearly the laundry list they offered in arguments and documents Tuesday.
• Three forensic accountants, including one former criminal investigator for the IRS, can’t reliably estimate how much money is earned through Price and Um’s byzantine business structure known as Prium.
• Prium’s own accountant notes that their records contain some “departures from accounting principles.”
• A Pierce County judge ruled last fall that they committed fraud by falsifying documents.
• A King County judge ruled this summer that they deliberately destroyed evidence.
Price and Um filed for bankruptcy three years ago with $350 million in debt related to their business — mostly commercial office buildings held through dozens of limited liability companies. On Tuesday, lawyers representing creditors told Judge Paul Snyder it’s impossible to know how much money they have.
The men have offered a repayment plan that offers creditors $10,000 a month. Creditors call that a “pittance” since the men will continue to draw $20,000 monthly salaries and live in million-dollar houses they rent from themselves for $100.
“A trustee ought to be appointed in this case,” Larry Ream, an attorney representing the unsecured creditors committee, told the judge. “It’s been long enough. As you’ve said once, it needs a fresh set of eyes. Another judge has said it needs adult supervision.”
The supervision could only be temporary. A trustee can resolve the debts, then hand control of the company back to its owners. A trustee also has the power to investigate criminal, fraudulent or abusive conduct for possible civil or criminal prosecution.
Price and Um’s attorney countered that this is all much ado about nothing.
“The debtors are doing what they’re supposed to be doing,” Todd Tracy told the judge. They’re settling debts, subsidiary by subsidiary.
‘WE WANTED A RESOLUTION’
The hearing Tuesday morning took a little more than an hour in a windowless courtroom at Tacoma’s federal courthouse. Price sat in the back row, next to Prium minority owner William Stegeman. Um stayed in the hall.
Snyder said he’d given them extra time, because Prium is so complicated. Despite that, the men still have offered no reasonable repayment plan, he said.
The latest creditor to emerge is James Rigby, the bankruptcy trustee trying to settle the books of disgraced Seattle real estate mogul Michael Mastro. Rigby said Price and Um owe Mastro $15 million.
That’s not nothing, Snyder said. And then there’s the lawsuits, which are costing Price and Um a lot of money.
“I looked at the number of lawsuits these guys have been involved in, and they’re keeping the courts busy by themselves,” Snyder said. “We’re talking about 40 lawsuits.”
A list of lawsuits filed with the court actually lists 10 times that many, most since 2008.
“We wanted a resolution via mediation,” Tracy said. “That’s what I wanted. That’s what you wanted. It didn’t happen.”
Tracy blamed the creditors for taking too much time.
“The issue is they don’t have any confidence in your clients’ business records,” Snyder said.
The latest accountant was supposed to figure out each subsidiary’s cash flows and didn’t, Tracy said.
“She couldn’t,” Snyder said, pointing out that the first accountant couldn’t either.
Tracy countered that Prium’s accountant had no trouble. Snyder reminded him that the accountant made several disclaimers and warned of omissions.
“Has he done a full audit?” Tracy responded. “No. But if everyone is mistrusting us ” he stopped, then started again. “Do people not trust us? I guess that’s today’s understatement.”
In documents, Price and Um say Rigby is the only creditor complaining. They’re negotiating or have settled with everyone else.
Two creditors responded in documents: Not so fast.
East West Bank, owed $6 million, has spent a lot of money to cut through Price’s lies, an attorney for the bank told the court.
“The debtors are dishonest and entirely untrustworthy, and they have no compunction about making misrepresentations to the court if it advances their agenda,” the lawyer wrote.
Onyx Capital, a holding company for a former bank’s debt, said Price and Um are paying it now but don’t paint “an accurate picture of what is happening.”
Meanwhile in King County, a nasty dispute between Price and Um and some former business partners is playing out in court. Prium sued a group of Seattle investors led by Agnes Kwan over the ownership structure of the Rock Pointe Corporate Center in Spokane. The investors counter-sued, alleging Prium defrauded the project by siphoning millions meant to pay the mortgage.
In Kwan, Price and Um may have met someone willing to pay to fight. She’s spent $475,000 so far just to force the men to turn over records.
They trashed many of them before she, or anyone else, could see them. In June, Judge Julie Spector ruled that the men had purposely deleted emails, overwritten backup data tapes and shredded documents. She found that the behavior started in December 2010, just months after the men filed for personal bankruptcy, and continued until January.
Judge Snyder had ordered the men to preserve documents, too — in April 2011.
Kwan also hired a forensic accountant to analyze the Rock Pointe records. John Keller, a CPA and certified fraud investigator, offered up a summary of the men’s operations.
“In all the years I have been involved in criminal financial investigations and similar pursuits, I cannot recall a single instance where I have witnessed a more egregious abandonment of fiduciary financial accountability by a management overseer,” he wrote in a document filed with King County Superior Court. “There appeared to me to be a brazen arrogance by the principals at Prium in the way they selfishly accessed and utilized the tenant revenues of Rock Pointe Holdings for their own benefit.”
Keller points to Prium’s intercompany accounts as the key. As The News Tribune explained in an in-depth report in 2011, Price and Um use intercompany accounts to move money between their entities. They say the money is used for legitimate business purposes. Creditors say it’s a shell game.
Keller is the third accountant to try to look at Prium’s books. The other two, Daniel Harper and Anita Eixenberger, were appointed by the bankruptcy court. None can make heads or tails of where some of the money goes once it leaves an entity through the intercompany account.
Eixenberger noted $3.2 million she couldn’t account for. She also noted that she was midway through her analysis when she discovered 14 additional businesses related to Prium that the men had not told her about. She even asked the men for basic information about their company: a list of building addresses, what’s leased or available for lease, and the number of tenants. They didn’t provide it.
Keller says there’s no way the company’s approach to responding to questions about their business would fly with the IRS. He should know. He was an IRS investigator for 25 years. In documents, he says the men use deliberately confusing accounting entries to disguise theft.
CLOSE TO $1 MILLION IN ADMINISTRATIVE COSTS
At the end of Tuesday’s hearing, an attorney representing Stegeman told Snyder that the bankruptcies were heading toward $1 million in administrative expenses, and that a trustee would just cost more.
“The debtors and the (creditors) committee have been at loggerheads since day one,” Mark Waldron said. “A trustee would come into this and start in a hole. That would just lead to more litigation.”
Holding only the creditors responsible for any dispute is inaccurate, said Manish Borde, the attorney representing the Mastro trustee.
“Maybe I’ve been watching too much ‘Dancing with the Stars,’ but it takes two to tango,” Borde said.
Arguments and rebuttals went on for another few minutes. Snyder thanked the half-dozen lawyers in front of him and said he’d issue his oral decision on Sept. 24.
“I won’t be taking arguments,” he said. “We’ve already had enough arguments.”Kathleen Cooper: 253-597-8546 kathleen.cooper@ thenewstribune.com @KCooperTNT