Interstate Mortgage chief given the chance to untangle investment debacle with receiver

Phil Levine

Tuesday, Feb. 8, 2000 | 11:01 a.m.

The president of insolvent Interstate Mortgage Group of Las Vegas will spend the next 60 days working under the supervision of a state-appointed receiver to try and secure investors' funds.

At a court hearing Monday, Chief Clark County District Judge Lee Gates approved an agreement reached between state regulators and IMG president David Ferradino.

Senior Deputy Attorney General Doug Walther said the agreement calls for Ferradino and state-appointed receiver George Swarts to "do what they can to recover investors' money" in two master-planned communities funded by IMG: the Palm City development in Henderson and the Iron Mountain Ranch project in North Las Vegas.

Walther said Swarts will be paid from the company's assets.

During Monday's hearing, the courtroom was standing room only as dozens of IMG investors listened intently to arguments made by lawyers representing the state, investors and Ferradino.

On more than one occasion, Gates warned the boisterous crowd not to voice concerns during the proceedings.

"I'd remind all the people here that this is a court of law," he said.

Representing several IMG investors, attorney John Netzorg argued unsuccessfully that state officials were endangering investors' funds by appointing Swarts as receiver.

"Already about $2 million (in investors' money) has been lost in this matter," he said. "The receiver is a decent man, but he's an accountant and not familiar with real estate."

The Interstate saga began in earnest in November, when state regulators took possession of the company, citing "loss of collateral securing loans in the amount of $5.7 million."

At the time the state assumed control of the company, IMG had approximately 1,000 investors.

In late December, Financial Institutions Division Commissioner Scott Walshaw requested a court order for the liquidation of IMG and revocation of Ferradino's mortgage licence.

Walther said that, for now, Swarts will "not liquidate the (IMG) assets, until there's a decision reached as to the status of Ferradino's mortgage licence."

In a related lawsuit filed in District Court, Walshaw alleged Ferradino "breached his fiduciary obligations of good faith ... and placed his investors at risk of losses that may total millions of dollars."

Netzorg, representing several IMG investors, argued that state law required Walshaw act as the company's receiver.

Netzorg also said IMG investors had trust deeds from the company that mean "they own that property, not IMG. That trust deed is theirs, not IMG's, and the state cannot take private property without just compensation or due process."

The ripple effects of IMG's troubles continue to be felt in Southern Nevada's real estate sector.

Last week, Carson City-based Commerce Associates revealed plans to acquire the 521-acre Palm City project from Las Vegas homebuilder Rhodes Homes.

The deal, which included assumption of debt, is valued at approximately $30 million.

Rhodes' officials said the decision to sell the property was spurred by IMG's insolvency. Company officials said the Palm City development was threatened by IMG's failure to provide $14 million of a $40 million loan as promised.

In December, Iron Mountain Ranch filed for Chapter 11 bankruptcy; Interstate Mortgage was one of the companies financing the project.

For his part, Ferradino told the court Monday he'd already spent about $7.5 million of his own money to try and secure IMG investors' funds.

"I'm not being paid at all by Interstate," he said. "I'd like to take control of the company back, but I need a free hand to succeed."

Walther said the state's move to appoint a receiver was a direct result of previous "bad decisions" made by Ferradino.

"There are things that happen when you make bad loans," he said. "The statute requires that we step in and supervise the situation. It's his (Ferradino's) activity that got us to where we are."

In granting his approval of the agreement, Gates cautioned Ferradino that he was to provide Swarts with all the information he requires.

"You're to give him anything he wants," he said. "And if he doesn't comply, Mr. Swarts, I expect you to let me know."

After the hearing, Walther said he was happy with the judge's decision.

"In the end, we essentially got what we had asked for," he said.

However, Netzorg said he planned to appeal the judge's decision to the state Supreme Court.

"The money being used to pay the receiver is coming out of the pockets of Interstate investors," he said. "It's really a cruel joke on those people."

State officials are to report back to Gates within 60 days about the progress of their efforts to recover investors' funds.

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