Receiver in Land Deal Reckless, Judge Says

More than $1 million meant to help 1,500 mostly low-income people who bought property in the High Desert from accused swindler Marshall Redman was misspent by the original receiver on the case, a Superior Court judge has ruled.

Donald Henry, who has been removed from the case and is believed to be in Australia, made unauthorized payments to himself and others from what remains of Redman’s companies, as part of a receivership estate set up to sort out the land deals and make the purchasers whole, Los Angeles Superior Court Judge Robert O’Brien said in a ruling made public this week.

O’Brien ordered the surety company that bonded Henry’s work to pay $500,000 to the new trustee, attorney Richard Weissman.

“The receivership estate has been significantly harmed by the renegade payments by receiver Henry,� O’Brien wrote in his ruling, dated March 19 and mailed to parties in the case. “He has acted, not only precipitously, but with recklessness and abandonment.�

Jerry Hager, the attorney for the current receiver, said the ruling will help Weissman settle the accounts of people who bought land from Redman.

“It means that there will be that much more money to address the problems in this case,� Hager said.

Since taking over the case last year, Weissman and Hager have won court approval for land sales to 150 customers and made the request to force payment by the bonding company.

But the process has been slow, Hager said, in part because it took time to sift through Henry’s records and renegotiate deals he made.

It has also been difficult because there is little legal precedent for a case like this, Hager said, so O’Brien must be called in to render decision after decision.

In the case of the misspent money, O’Brien has been attempting for months to get Henry to return to court to explain payment he made to creditors and banks, as well as to himself and an associate.

In October 1996 O’Brien held Henry in contempt of court for failing to make a proper accounting of the way he spent the money and for failing to appear at any of the hearings. In February 1997 he issued a bench warrant for the former receiver, who by then was believed to be living in Australia.

The purpose of the receivership in the Redman case was to find a way to use income from Redman’s land deals to pay back victims, rework property sales so they were legal and negotiate deals with creditors. To do that, a receiver must make payments to certain people, including administrative staff, accountants, public agencies, banks and others.

But the payments made by Henry were never authorized by the court, O’Brien wrote, and as such were illegal.

Henry, who was removed from the Redman case after federal bankruptcy officials investigated his handling of several cases as a trustee, paid $326,000 to Redman’s creditors, even though the loans were secured by property worth only $250,000.

He paid $128,000 to himself and charged nearly $300,000 more in other receivership fees.

There is no evidence that Henry siphoned money from the estate, Hager said, but the money he spent was not authorized, and there are questions about whether he spent it wisely.

“The estate has suffered economically,� O’Brien wrote, discounting arguments by the surety company, Fidelity Deposit and Insurance Co. of Maryland, that the unauthorized payments did not harm anyone. “Mr. Henry made improper and harmful payments.�

The receivership was created in 1994 as a result of litigation filed by county and state regulators alleging that Redman had defrauded hundreds of blue-collar investors.

In 1996, Redman was charged with fraud and grand theft in connection with the alleged land swindle. Those criminal charges are pending.