In a 15-minute phone call Tuesday morning, a federal bankruptcy judge ruled that Tacoma real estate developers Tom Price and Hyun Um are frauds and put a trustee in charge of their money.
By making that decision, Judge Paul Snyder agreed with some of their creditors, who made a similar request two years ago. Now the U.S. Trustee’s Office will appoint someone to take the place of Price and Um in all their financial dealings.
As the men listened via teleconference, Snyder said they can’t be trusted to resolve their personal bankruptcies on their own.
He scolded the men for obfuscation and delay that began in August 2010 when they filed for personal bankruptcy protection with more than $300 million in business debt related to Prium Cos., the umbrella company for their multimillion-dollar real estate empire.
“The past three years have been marked by extensive and expensive litigation and spoilation of evidence,” Snyder said. “The debtors’ primary concern seems to be to benefit themselves at expense of others.”
“The evidence of the debtors’ conduct both in and outside of bankruptcy establishes a lack of credibility,” he said, ticking off a list of offenses that included two state judges finding they destroyed evidence and created fraudulent documents.
Price and Um did not respond to requests for comment left at their office and through their attorney.
The appointment of a trustee in a Chapter 11 bankruptcy is rare. Trustees usually handle Chapter 7 bankruptcies, which are liquidations of a person’s estate to satisfy debts. Bankruptcy trustees have enormous power, both to run a debtor’s affairs in the interest of creditors as well as to investigate potential criminal, fraudulent or abusive conduct. Trustees can refer such conduct for federal prosecution.
In the cases of Price and Um, how a trustee will step into their multimillion-dollar real estate business is unclear. The men are 85 percent owners of Prium Cos., with William Stegeman the minority owner who also is designated as the manager. Attorneys for Price, Um and Stegeman have implied that Stegeman will protest any attempt by a trustee to act in Price and Um’s place.
Other companies owned by the men are straightforward. Price and Um are the sole owners of Queen High Full House, the company that owns their waterfront homes and rents them back to the men for $100. A trustee now will be able to decide if that arrangement is in the best interest of creditors.
The U.S. Trustee’s Office in Seattle will decide who to appoint. A representative of that office couldn’t be reached for comment Tuesday. Larry Ream, the attorney representing some of Price and Um’s creditors, said he had spoken to a person in that office and believed the appointment would happen quickly.
Ream also said he believed the Trustee’s Office would appoint just one person, though each man has a separate personal bankruptcy case. They have been handled as a unit from the beginning, Ream said. The trustee can be a lawyer who typically handles Chapter 7 cases, or could be a person from the business community with experience in real estate.
Snyder made clear that Price and Um have not run their business in their creditors’ best interest. He found that under the law, he was required to appoint a trustee because their creditors had proved fraud, dishonesty, incompetence and gross mismanagement. He cited three forensic accountants’ inability to understand Prium’s finances and its web of limited liability companies.
“Almost since the moment of filing, the debtors have fostered mistrust,” he said. Price and Um “have engaged in financial record keeping that is at best unreliable and at worst deliberately false and misleading.”
The judge questioned the men’s personal choices, including their renting waterfront homes for $100 each.
“The debtors have failed to articulate how renting these homes for $200 and living a lavish lifestyle will benefit creditors,” Snyder said.
Finally, Snyder obliquely criticized Price and Um’s penchant for using the courts to wear down opponents. A document filed with the court showed them involved in more than 140 lawsuits since 2008.
The only plan the men offered to reorganize their business envisioned a relatively small payout to creditors while Price and Um each kept their $20,000 monthly salary, control of Prium Cos., and, Snyder said, the ability to “litigate at will” until everyone gives up.Kathleen Cooper: 253-597-8546 kathleen.cooper@ thenewstribune.com