O.C. Firm to Pay $4 Million to Settle Investor Complaints : Lawsuit: Newport Beach’s TMI, set up to help teachers save for retirement, was accused of misappropriating funds.
SANTA ANA — Financially troubled Teachers Management & Investment Corp. and its two managers agreed Wednesday to pay investors $4 million in cash to settle accusations that they misappropriated real estate partnership funds and caused more than $200 million in losses.
The settlement, which is subject to court approval, stems from a lawsuit that investors filed last year against the Newport Beach investment company, set up to help teachers throughout the state save money for retirement. TMI hired a few hundred of the 20,000 investors to sell partnership interests to other teachers.
The investors accused TMI operators Maurice B. Shuman and James Martin of siphoning quarterly payments and diverting them to affiliated companies that the TMI managers owned. Shuman and Martin, who didn’t admit any liability in settling the case, have maintained that California’s plummeting real estate values--not fraud--crushed TMI’s portfolio.
TMI’s insurer, National Union Fire Insurance Co. of Pittsburgh, will pay $3.8 million, and TMI will turn over $200,000 in profits and commissions expected in the sale of various properties it still controls.
The teachers, many of whom lost their life savings, will revise their pending lawsuit to name a series of new defendants, said their lawyer, Ron Rus of Rus, Miliband, Williams & Smith in Irvine. They had invested more than $230 million to buy units in 38 ventures, mostly in vacant land.
“What money they took has long been dissipated,†Rus said. “This is a significant recovery on behalf of teachers from individuals who appear to be unable to pay any judgment.â€
Shuman and Martin, however, figure they now have put their troubles behind them.
“TMI and the principals are moving on,†said their lawyer, David C. Grant of Grant & Laubscher in Irvine. “They’re pleased with the settlement, and I hope the plaintiffs are pleased.â€
Since the suit was filed in August, 1994, Grant pointed out, “there hasn’t been one finding against the principals or the company.†National Union will pay less than its policy limits of $5 million to settle the case, Grant said, mainly because the company figured it would end up paying that much or more in attorney fees to fight the lawsuit.
But a court-appointed receiver, Dennis B. Schmucker, has stung TMI and its principals with his reports to the Orange County Superior Court on the 30 partnerships that were put under his control.
Schmucker said that TMI collected $194.5 million from investors but has only $33.3 million in equity remaining and that losses from five inactive partnerships will push total losses beyond $200 million.
“Although it will be years before the actual amount of losses . . . is known, it is clear that only a small portion of the investors’ cash will be returned,†Schmucker said.
TMI, which at one time managed more than $1 billion in assets, will retain control of its subsidiaries and three real estate partnerships, including its management interest in Parducci Winery Ltd. in Mendocino County. A dispute over its role in Parducci, which it is trying to sell, is scheduled to be heard in a Northern California court next month.
Under terms of the settlement, Schmucker will continue to manage 30 remaining real estate partnerships for the benefit of the teachers. TMI will retain an interest of up to $270,000 in properties that Schmucker will liquidate.
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