Two Novato real estate investment companies under federal investigation for suspected financial misconduct have filed for bankruptcy.
Professional Financial Investors Inc. and its primary fund, Professional Investors Security Fund Inc., sought Chapter 11 protection in the U.S. District Court of Northern California on Sunday.
In a declaration to the court, Michael Hogan — a corporate restructuring officer hired by the companies’ legal team in June — summarized what he described as a three-decade-old “Ponzi scheme-like operation” by the two companies and its late owner, Kenneth Casey. Hogan said hundreds of millions of dollars loaned to the company by investors “were used to service the debt owed to existing investors and to personally enrich Mr. Casey himself.”
“Others associated with the Companies also appear to have been involved and benefitted from the scheme, and this investigation is ongoing,” Hogan wrote.
The filing states estimated there are about 1,000 victims and about 500 investors whose investments were “co-mingled with potential ill-gotten gains.”
Without further investments and loans being made, the two companies are unable to meet their monthly interest obligations to the various types of investors, Hogan wrote.
The U.S. Securities and Exchange Commission started investigating both companies after Casey’s death in May. A law firm managing the post-death transition reported financial irregularities to the SEC that month.
Casey had previously pleaded guilty in federal court to multiple counts of fraud and tax evasion in the late 1990s, a fact many investors were unaware of.
Three officers for the company resigned in June, including former CEO Lewis Wallach. Wallach could not be reached for comment.
Charlene Albanese, Casey’s ex-wife and representative of Casey’s estate, also resigned as a board director for Professional Financial Investors earlier this month, according to Hogan.
The companies were marketed as a leading commercial real estate owner in Marin County, with nearly 600,000 square feet of commercial warehouse and office space and 1,000 apartments across 28 properties in Marin and Sonoma counties. The total estimated value for the properties is about $550 million, according to Hogan. The companies have about $400 million in outstanding debt and owe an additional $250 million to investors.
The bankruptcy filing was submitted 10 days after a group of investors petitioned the district court to forcibly initiate bankruptcy proceedings against Professional Investors Security Fund in an effort to recover millions in frozen investments. Hogan said the company is consenting to this petition and seeks to combine the two cases.
Debra Grassgreen, an attorney representing the investors seeking bankruptcy proceedings, declined comment.
In a letter to the companies’ more than 1,000 investors on Sunday, Hogan said seeking bankruptcy relief was determined to be in the best interests of the companies.
“As you know, we have been determining for several weeks the best process with which to manage the recovery of investor funds,” Hogan wrote. “We appreciate your patience as we conducted this analysis, as we know this is a difficult time for you as an investor in PFI and PISF.”
Reached for comment on Tuesday, a representative for Hogan referred to the letter to investors.