April 30, 2012 Update
The Receiver's First Quarterly Status Report as of March 31, 2012 has been filed with the Court and is available under the Significant Pleadings Tab of this website. As ordered by the Court, these reports will be filed within 30 days of the end of each calendar quarter.
March 12, 2012 Update
The Liquidation Plan of Receiver was filed with the Court on this date and is available under the Significant Pleadings Tab. This plan is required by the Order appointing the Receiver. Attached to the Liquidation Plan is a list of the assests of the receiver identified at this time, excluding potential claims which are under investigation.
January 26, 2012 Update
The operations of the receivership are gradually transitioning from an “all hands on deck” crisis mode to a more structured, effective operation. This transition will continue for some period of time. The Receiver continues to find assets that were not previously known.
Operating cash flow is becoming more predictable but the numbers are still not firm. Operating cash flow refers to income received from apartments, offices, retail properties and other sources and expenses incurred to operate and maintain those properties, pay employees, and other expenses. Some properties are profitable and a few are losing money. Some properties, such as undeveloped land, generate expenses such as mortgage payments and taxes but no income. In accordance with receivership principles, all income and all expenses are being consolidated into a common pool. On a consolidated basis, the margin of income over expenses is very small and there may be a loss some months.
The Receiver has found that many bills and obligations of companies placed in receivership were seriously delinquent when the receiver took over. Generally, obligations incurred prior to appointment of the receivership are not being paid and those creditors will have an opportunity to submit a claim for payment of pre-appointment obligations as part of the Liquidation Plan. The amount of unpaid pre-appointment obligations identified to date that are not being paid exceed $500,000. Pre-appointment obligations of certain critical vendors, such as utility companies, and mortgages, have been paid.
No payments have been made to investors, to the Receiver, or to professionals engaged by the Receiver. The operating cash flow report does not include any of these obligations.
On a positive note, preliminary indications are that many of the properties have significant equity. This is encouraging for future payments to investors and creditors but distributions of these payments will not occur until some of these properties are sold. Distributions to investors and creditors will be made periodically whenever sufficient funds are available, rather than waiting until all properties have been sold.
The Receiver has identified several Jacobson family members who received a salary and insurance benefits from a receivership company but had no job. These persons have been terminated, along with other persons whose jobs have been eliminated. This has resulted in a reduction of the monthly payroll of about $50,000.
The Receiver has been able to seize funds in transit and from other transactions, as well as funds in bank accounts, that would not have been available to investors and creditors if a receivership was not in place. The total of these funds is in the range of $2.5 million.
With approval of the Court, the Receiver has engaged Deloitte Financial Advisory Services as forensic accountants to investigate the assets and operations of the companies and persons in the receivership. The primary responsibilities of Deloitte are to locate assets, trace the status and disposition of those assets, prepare an inventory of assets, identify potential claims that could be asserted by the Receiver to recover assets, and prepare a record of funds paid in by investors and funds paid out to investors. This is a massive job that will take some time to complete.
The Receiver has engaged Cottonwood Residential, a professional property management company, to take over management of the multi-family residential properties. This will be effective February 1, 2012. This was done for several reasons, including to improve the efficiency and costs of operating these properties, to provide a reliable accounting record for potential purchasers, and to comply with the requests of investors and lenders.
The Receivership has only been in place for six weeks but, as you can see, it has been an extremely busy and intense six weeks. Much has been accomplished but much, much more remains to be done.
December 31, 2011 Update
The first priority of the Receiver has been to identify, seize and secure the Receivership Assets. The Receivership Assets are varied and widespread. There are about 43 large apartment complexes located in 11 states with about 7,645 units, a residential subdivision under development in Texas, office buildings, retail shopping centers, a turkey and cattle ranch, several residences, raw land, ownership interests in other businesses, and contracts to manage income properties. Over 650 bank accounts have been identified. Records concerning these assets fill several rooms. The Receiver has not been able to locate a central accounting system providing consolidated financial information on all of the assets. It has been a massive task to identify and secure these assets. This has been the primary focus of the receivership for the first two weeks and will be ongoing for some time.
A second priority has been to insure the day-to-day property management functions continue without interruption. The on-site management of the income properties has been left intact and most of the supervisors remain in place.
The SEC actions froze many of the bank accounts of the Receivership Parties. While this action was prudent and necessary, it left the Receiver without funds to operate the properties, meet payroll (which was due two days after the Receiver was appointed), and pay mortgages. Retrieving funds from these accounts has been complicated and slow, requiring involvement of the legal departments at numerous banks. This was further complicated by bank personnel not being available during the holidays. Operational obligations are being met as necessary but cash flow remains difficult until the issues with frozen bank accounts are resolved. Preliminary indications are that cash flow going forward will be tight.
The receivership is now transitioning from professionals on the receivership team overseeing day-to-day operations to employees resuming those oversight functions. This involves an assessment of the qualifications of the supervisory employees, their involvement, if any, in the alleged misconduct and fraud, and their willingness to cooperate and work with the receivership team. The Receiver has also determined that some positions are not necessary. Six employees have been terminated and additional positions are being reviewed.
The next priorities of the Receiver will be to identify unprofitable properties and develop a strategy to stop the cash flow losses from those properties and to further streamline the operations and financial reporting. Valuations of the other properties will be obtained and a strategy developed for liquidation of those properties.