State allows Shustek back into offices at Del Mar

Wednesday, Feb. 17, 1999 | 11:16 a.m.

Del Mar Mortgage President Michael Shustek was back in his office today, assisting a conservator appointed by the state to investigate alleged misconduct by the company.

The state Division of Financial Institutions and Del Mar reached an agreement this morning that allows Shustek to be present in the office under the supervision of the conservator, Las Vegas certified public accountant George Swarts.

Del Mar was seized by state regulators last week after they alleged misconduct, including concealing information from investors. Shustek went to court on Tuesday seeking a restraining order that would allow him access to his office.

Shustek was concerned that without his presence in the office he would not be able to generate revenue to keep the business afloat.

Deputy Attorney General Terri Williams and Shustek's attorney, Noel Gage, huddled on Tuesday after Senior District Court Judge James Brennan recessed a court hearing in which Shustek sought to force the state to let him return. Now that Shustek has regained access to his office, the court matters are expected to be dismissed.

Today's agreement ended a six-day roller-coaster ride for Shustek and Del Mar's investors.

The Division of Financial Institutions on Thursday ordered Shustek, president of Del Mar Mortgage and the affiliated Del Mar Holdings Inc., out of the office when it seized control for the alleged misconduct. The state turned control of the office over to Swarts at that time.

State and court documents say Del Mar oversees $160 million in high-risk loans for 3,500 investors.

Shustek said from a parking lot on Friday that all his investors' money was safe and that he felt the state was overreacting to minor administrative problems.

Financial Institutions Commissioner Scott Walshaw acknowledged in a statement issued Friday that Del Mar's problems weren't as severe as those in a notorious case involving Harley L. Harmon Mortgage Co. In December 1997, the Financial Institutions Division closed down Harmon in a case in which investors stand to lose millions of dollars.

Del Mar investors had a three-day weekend to fret over the status of their money. As soon as Del Mar opened its doors Tuesday morning with Swarts at the helm, investors poured into the office and received assurances that the state was investigating every account.

The phone at the Las Vegas office of the Division of Financial Institutions was busy most of the day as Deputy Commissioner Lyndon Evans responded to every call from worried investors.

While Swarts and the state offices were fielding phone calls, Shustek was preparing a lawsuit.

Shustek's suit named the Division of Financial Institutions and three of its employees, Walshaw, Evans and Doug Calder. In addition to seeking an injunction, the suit contained some fireworks of its own: allegations of sexual harassment by Financial Institutions auditors toward female Del Mar employees.

Four women who worked for Del Mar during the state's audit -- including one who resigned after an alleged run-in with an auditor -- filed affidavits with the suit.

Although all four of the women described what they considered inappropriate behavior by auditors in their statements, only one of them reported an incident to a superior at the time it occurred.

Also introduced as evidence in the suit was a copy of an agreement between the state and Del Mar -- an agreement the state says Del Mar violated, leading to the seizure action. The agreement describes a $100,000 fine Del Mar was ordered to pay -- although the order never calls it a fine and the suit says the division "extorted and coerced Del Mar into" paying it.

The agreement, signed Nov. 9 by Shustek, said Del Mar agreed to pay $10,000 in 10 monthly installments, provided "that such payment is in lieu of formal disciplinary action." The agreement said the disciplinary action was for violations disclosed in a June 30, 1997, examination report.

Shustek's suit sought in excess of $10,000 in damages for breach of contract, infliction of emotional distress, taking of property without due process, attorney's fees and compensatory and punitive damages.

At the same time Shustek was preparing his suit, a group of investors was filing a similar suit in Clark County District Court against the division and Walshaw.

Charles and Doris Evans, Paul Connaghan, Dr. Bernard Greenblatt, Dr. Steven and Cynthia Kozmary, Don Matz, Jerry Moreo, William Stanley, Marv and Rhoda Starker, Clifford and Cherye Wangerin and Henry Young were listed as plaintiffs in the suit.

The suit, which also sought an injunction against the state, accused the Division of jeopardizing the plaintiffs' investments with Del Mar. It asked that the state relinquish control of Del Mar.