Investors seek to force Carinalli bankruptcy

<p>EDITORS NOTE: A response from Blakeslee & Crain Vineyard Advisors is attached to the bottom of this story.</p><p>A group of investors, including former Santa Rosa Symphony conductor Corrick Brown, is trying to force troubled real estate tycoon Clem Carinalli into bankruptcy in an effort to ensure all his creditors are treated equally.</p><p>Five investors, who say they are owed a total of nearly $1 million, on Monday petitioned the U.S. Bankruptcy Court in Santa Rosa to declare Carinalli bankrupt and open a Chapter 7 case on his behalf. </p><p>The filing, called an involuntary bankruptcy, all but assures that Carinalli’s efforts to privately negotiate agreements to repay $150 million in debts on his own timetable will be taken out of his control and supervised by the court. </p><p>“This is what I have feared, that someone would do this,” Carinalli said Monday. “Now it’ll be handled by the lawyers.” </p><p>Carinalli said he hopes to convince the court to convert the case to a Chapter 11, or a reorganization case, to avoid an immediate liquidation of his assets, which he said would be a “total disaster.”</p><p>Four of the investors are members of the Brown family and owed a total of $550,000. Corrick and Norma Brown are owed the most, $450,000. Son Ryan Brown and his wife, L. Christine Healey of Washington, D.C., claim they are owed $50,000. Norma Brown’s sister, Naomi Reddert of Carmel, also claims to be owed $50,000. </p><p>The other investor is Walter Middleton O’Brien, a retired Santa Rosa executive and friend of the Browns, who says he is owed $376,000. </p><p>Corrick and Norma Brown said they decided to force Carinalli’s hand after learning that smaller investors were being treated unequally. They also grew concerned after learning their money was loaned to a Lake County development firm run by Jay Soderling, who served time in prison in a 1980s savings and loan scandal. But perhaps most important, the couple felt the stress of the whole affair was becoming more than they could handle. </p><p>“We just simply can’t physically withstand the onslaught of the stress anymore,” Norma Brown said. </p><p>Corrick Brown said he had been investing successfully with Carinalli for about a decade, and eventually convinced family members to do the same. Some members are owed money but have yet to file, including his son Keven, who runs the family’s downtown gift store, Corrick’s.</p><p>In 2007, Corrick Brown said he rolled some money with Carinalli into a loan with a Lake County development company called Ripp It Inc. </p><p>“All I knew then was that it was a construction loan,” he said.</p><p>Ripp It’s sole director is Jay Soderling, who, along with his older brother, Leif, pleaded guilty in 1987 to bank fraud based on his role as an officer and director of Golden Pacific Savings of Santa Rosa. They were sentenced to seven years in prison, served eight months, but were sent back for six years after they were accused of hiding $800,000. </p><p>Carinalli put together a deal to loan Soderling $4.5 million. Half of the money came from Carinalli and half from other investors, Carinalli said. The property securing the loan was appraised at $8.2 million, but that appraisal is “highly suspect,” according to Doug Provencher, the Browns’ attorney. </p><p>Carinalli had no comment on the appraisal, which he said was done by Blakeslee & Crain Vineyard Advisors of Sonoma.</p><p>Carinalli’s company, Sonoma Mortgage & Investment Co., was paid a $44,500 commission on the loan, Provencher said.</p><p>The property is 500 acres of bare land around Borax Lake, northwest of Clearlake. The area once was home to several mines, including borax, sulfur and mercury, Provencher said. The appraisal assumed the property could one day have 820 home sites on it, which Provencher said was a highly speculative assumption, especially given its mining history. </p><p>In addition, there were already plenty of signs in 2007 that the real estate bubble had burst, Provencher said.</p><p>“I cannot imagine a savvy real estate investor lending $4.5 million to a company owned by Jay Soderling in 2007 on bare land in Lake County,” Provencher said. </p><p>Carinalli said he made the 9 percent loan to Soderling, with whom he had worked in the past, to help him pay off some other loans on the property. </p><p>Soderling had a development plan for the ranch, but it didn’t work out, Carinalli said. Carinalli repossessed the property in April, put it on the market at $4.5 million, and got no offers. He dropped the price to $2.5 million, got an offer, but that deal recently fell through, he said. </p><p>Provencher said his clients were astounded to learn who was behind Ripp It and would never have invested had they known, he said. They weren’t the original investors on the loan, but rather their money was used later in 2007 to replace the original investors, Provencher said. </p><p>Carinalli said he couldn’t recall how much information the Browns or others were given about the Soderling loan. Soderling could not be reached for comment. </p><p>Provencher said his clients also were concerned about disclosures in the media that Carinalli was paying back some large investors, including banks, while opting not to immediately repay smaller investors. </p><p>That struck his clients as unfair and put them at an information disadvantage, he said. </p><p>“He can’t buy a pack of gum without the banks’ approval, but my clients don’t have that ability,” Provencher said. </p><p>There is also no way for the smaller investor to know whether Carinalli is transferring any money around to the detriment of the smaller investors, Provencher said. </p><p>His clients recently read, for example, that Carinalli had chosen to use some money to pay off one loan made by the Sonoma State University Academic Foundation. </p><p>Carinalli repaid one $232,500 loan in July and offered the foundation a 10-acre property outside Windsor to satisfy the other $1.25 million debt.</p><p>Under the private repayment plan Carinalli had proposed, creditors have no say or visibility into who gets repaid how much or when. But the bankruptcy court has rules that allow the court to look back to past transfers, and, if appropriate, require that money to be put back into the bankruptcy estate to ensure everyone gets an equal share, Provencher said. </p><p>Corrick Brown said he “took no pleasure” in steering Carinalli into bankruptcy, but felt he had no choice. </p><p>“We feel an obligation to try to protect the interests of all debtors, including our family,” he said.</p><p>While it is not their entire life savings, the Browns had counted on income from the investments to fund their retirement, Norma Brown said. Carinalli’s inability to repay them has taken a significant toll, she said.</p><p>“It’s cut our income enormously,” she said. “We’ve changed our lifestyle because of this.”</p><p>Clarification published on Sept. 19, 2009:</p><p>A story on Page A1 Tuesday about a 2007 Lake County land deal involving financier Clem Carinalli failed to include a response from the appraiser, Blakeslee & Crain Vineyard Advisors. </p><p>The firm’s president, Michael Crain, said the appraisal was performed in April 2005 and accurately reflected land values at that time.</p><p>He disagreed with a characterization by the creditors’ attorney, who said the development plans underlying the appraisal were highly speculative. Crain said the 500-acre property was zoned for up to 2,200 lots. He said the appraiser conservatively assumed 850 homes could be built after conversations with the director of community development for Clearlake, project engineers and surveyors.</p>