State regulators on Friday fined two Oregon real-estate lenders $900,000, saying that 275 investors might have lost up to $35 million making risky loans to the men’s firms.
The firms in question, Berjac of Oregon and Berjac of Portland, filed for Chapter 11 bankruptcy protection Friday in U.S. Bankruptcy Court in Eugene. The petition, listing more than $17.6 million in unsecured claims, was signed by Michael S. Holcomb of Eugene, who owns the Berjac partnerships with his brother Gary Holcomb
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State regulators on Friday fined two Oregon real-estate lenders $900,000, saying that 275 investors might have lost up to $35 million making risky loans to the men’s firms.
The firms in question, Berjac of Oregon and Berjac of Portland, filed for Chapter 11 bankruptcy protection Friday in U.S. Bankruptcy Court in Eugene. The petition, listing more than $17.6 million in unsecured claims, was signed by Michael S. Holcomb of Eugene, who owns the Berjac partnerships with his brother Gary Holcomb of Lake Oswego.
In light of the bankruptcy, state officials moved quickly late Friday to issue a press release before the Labor Day weekend to warn other investors of the firm’s alleged illegal scheme and apparent financial woes.
“Investor interests may be eroding as we speak,” said Van Pounds, securities enforcement chief for the Oregon Division of Finance and Corporate Securities.
“In the interest of protecting investors … it’s important to try to get the information out there as soon as possible,” Pounds said.
He said he knew of no criminal investigation in the case.
Calls to Berjac’s offices in Clackamas and Eugene and to the homes of the Holcomb brothers were not returned. Their bankruptcy attorney, Keith Boyd of Medford, did not respond to an e-mail seeking comment.
It’s the second time Berjac and the Holcombs have run afoul of Oregon securities regulators.
In 1996, the state fined them $5,000 after the Holcombs admitted to violating state securities laws. Berjac and the Holcombs failed to disclose to investors that Berjac had bought and remodeled an oceanfront home that the Holcombs later purchased for their personal use, according to the 1996 state order.
The new allegations are more serious.
In its cease-and-desist orders signed Thursday and mailed today, the division accused Berjac and the Holcomb brothers of violating Oregon securities laws. The orders allege the Holcombs sold unsecured notes to investors without registering them, getting a license or offering investors a detailed prospectus.
For five decades, Berjac has loaned businesses money to buy business-related casualty insurance policies, state officials said. The Holcombs front the large insurance premiums for businesses, which then repay them over time with interest.
They also loaned real estate developers money. Among their most recent debtors were VJ-2 Construction Inc. of Salem and Windridge Homes Inc. of Scappoose, Pounds said.
To finance some real-estate deals, Pounds said, the Holcombs sold unsecured promissory notes to Oregon residents offering returns of 5.5 percent a year. Relatives of the Holcombs were told they’d get even higher returns — between 10 and 12 percent a year — the orders say.
They sold the “Berjac Notes” largely by word of mouth and at public functions, such as the Eugene Executives’ Association, according to the state’s orders. Most investors are in the Eugene and Portland area, Pounds said.
“All the investors were promised a pretty good deal,” Pounds said. “But if you were related, you were promised an even better deal.”
But the Holcombs sold the notes with no prospectus or written description of Berjac’s financial condition, the state’s orders said. They also failed to register with the division to sell them legally, the orders said.
The housing and financial crisis appear to have taken a toll on the Berjac companies.
Its revenues suffered during the economic downturn as small businesses folded and stopped paying premiums, according to the state’s orders.
In 2010, Windridge Homes owner Fred A. Ball filed for bankruptcy, owing Berjac $8.7 million, the state alleges in one of the orders. Ball’s bankruptcy petition, however, listed Berjac of Portland as an unsecured creditor and characterized the business debt as a personal guarantee worth no current value.
Ball also did business as Fishback Creek Homeowners Association and McDonald Woods Homeowners Association, both in the Portland area.
Berjac’s bankruptcy petition lists between $10 million and $50 million in assets and liabilities.
Its list of creditors with the 20 largest unsecured claims are mostly from the Eugene area, though two are from Texas and Colorado.
Among them are loans totaling $3 million from Eugene motorcycle dealership Ramsey-Waite Co. and its president Mike Karotko, $2.8 million from a living trust overseen by Albert and Connie Broughton of Roseberg, and $1.65 million owed Robert Shelton of Sisters.
— Brent Hunsberger; 503-221-8359, @onlymoney; oregonlive.com/itsonlymoney