Suit filed over Harmon mortgage scandal; another threatened over Interstate takeover

Phil Levine

Monday, Jan. 3, 2000 | 11:33 a.m.

Las Vegas attorney John Netzorg, representing several investors of insolvent Interstate Mortgage Group Inc., plans to file a lawsuit this week against state regulators accusing them of mishandling the matter.

Last week, Netzorg filed a similar suit representing five clients and their entities who were investors in the defunct Harley L. Harmon Mortgage Co.; state regulators seized that mortgage firm in 1998.

Netzorg said it appeared the state was "intent on producing another Harley Harmon" with its handling of the IMG case. He criticized state regulators for not acting promptly on behalf of investors in both cases, and alleged officials did not meet all the legal requirements of placing a company into receivership.

On Dec. 29, the Financial Institutions Division and the Attorney-General's office requested a court to appoint a receiver to liquidate IMG's assets and revoke its mortgage licence.

The move came only weeks after state officials took possession of the company, citing loss of collateral securing $5.7 million in loans.

Netzorg said a court ruling last year granting immunity to regulators over their handling of the Harley Harmon matter did not deter him from suing state financial officials.

"There have been many cases where the (state) Supreme Court has tempered those kind of rulings," he said. "We would like to see the Supreme Court revisit that issue."

In the suit requesting a receiver, Financial Institutions Division Commissioner Scott Walshaw alleged IMG owner David Ferradino "breached his fiduciary obligations ... and has placed investors at risk of losses that may total millions of dollars."

When state regulators took control, IMG had approximately 1,000 investors.

Harley Harmon's several hundred investors had a total of about $23 million invested in the company when regulators assumed control of that company.

Netzorg said IMG investors had trust deeds from the company that meant "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."

Netzorg also said the law required the Financial Institutions Division commissioner act as the receiver in cases such as IMG and Harley Harmon.

"The law simply states that 'after the 60-day period, the commissioner may apply to the court to be appointed a receiver,"' he said.

That's not a view shared by Walshaw or Senior Deputy Attorney General Douglas Walther.

"Our position is obviously different from that of Mr. Netzorg," said Walther. "The commissioner would be an awfully busy person if he had to act as both commissioner and a receiver. We believe that others may also serve as receiver, and the statute contemplates others serving in that role.

"That's been the practice in other cases, such as the Harley Harmon matter."

Walshaw objected to critics comparing the two cases, saying they differed greatly and the state's reaction mirrored those differences.

"We reacted differently in each case based on the information we had available," he said. "In the case of IMG, we had hard and fast evidence, including that of the person's (Ferradino) own statement."

As to the issue of who may serve as IMG receiver, Walshaw echoed Walther's comments.

"I believe Mr. Netzorg tried to make that argument one year ago, and the court ruled against him," he said. "I would also add that I'm not equipped to act in that capacity (as a receiver of the company) and run the office (of the commissioner.)"

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