Questions swirl following collapse of Warren Capital Corp.

Local investors who lost millions in an alleged Ponzi scheme revealed by the collapse of Warren Capital Corp. elected three people to represent their interests last week as questions continue to swirl about how many people were involved in the apparent fraud and how much money is left for investors to recover.

The four-hour meeting at a San Rafael hotel was convened by the court-appointed receiver who took over the affairs of the company after Warren Capital founder Clay Stephens, 72, died of an apparent heart attack at his Bennett Valley home Nov. 10.

A subsequent forensic audit of his Novato-based alternative financing company revealed that a subsidiary operated by Stephens, Warren Equipment Finance, owed $23 million to more than 100 mostly local investors.

Auditors discovered the promissory notes were not backed up by equipment leases, which investors believed had protected their notes. Instead of using their money to fund new leases to business borrowers, the company was taking money from investors and using it to make interest payments to other investors, according to people who were briefed on the company’s finances by the court-?appointed receiver.

Many of those investors came together Wednesday to learn more about efforts by the receiver, accountant Michael Kasolas, to investigate the company’s collapse and recover as much of their money as possible.

A key purpose of the meeting was to appoint three investors to a so-called “noteholders committee” to represent their interests, including whether to reach a settlement; sue the company or Stephens’ estate; or steer the case into bankruptcy.

At the meeting, several investors reportedly expressed their strong belief that Stephens had intentionally bilked them out of their investments, that additional funds must be available to recover, and that others at the small company must have been aware of the fraud, according to people present at the meeting.

Several investors speculated that Warren Capital’s former chief operating officer, Scott Shapiro, knew or should have known what Stephens was doing with their money.

But Shapiro, 35, insisted Friday that he had no role in managing the subsidiary and did not know it was misusing investors’ money. He, too, lost money invested with the subsidiary when Warren Capital collapsed, Shapiro said.

While he worked for Warren Capital for 14 years, Shapiro said he had served only four months as the company’s COO when Stephens died, and that he had limited insight into and no control over its private investment arm, Warren Equipment Finance.

“I was as blindsided as everybody else was,” Shapiro said.

Shapiro, who lives in Sonoma, was senior vice president at Warren Capital for eight years before his promotion to COO in June. He described himself as a “worker bee” at Warren Capital who made a modest salary plus commissions he earned whenever he helped clients secure financing provided by third-party lenders.

He pointed to a $2.5 million equipment loan to a trucking company in Central Oregon, a $625,000 financing deal he did for a semiconductor processor in San Jose and funding for local restaurateurs Mark and Terri Stark as examples of the types of deals he arranged for clients.

Shapiro, who like the handful of other people who worked at the company was laid off Nov. 30, called the company’s collapse an “awful situation.” He said everyone at Warren Capital was aware of the existence of Warren Equipment Finance. Shapiro’s parents had been investors with Stephens before Shapiro went to work for him, and Shapiro himself later invested money with Stephens, he said. He declined to say how much, but said the amount “wasn’t insignificant.”

Shapiro said his only connection between the two companies was passing leads to Stephens when he discovered borrowers needing loans that required high enough interest rates to support the 8 to 10 percent annual returns that Stephens paid investors in Warren Equipment Finance.

He said he didn’t know until after Stephens died how big the operation was.

“I had no clue that the investor group was the size that it was,” Shapiro said.

Stephens’ family members have said they were equally ignorant of his activities. His home was heavily mortgaged, he faced six-figure credit card debt, and two of his sons had invested a total of more than $1 million, including $100,000 as recently as this summer, according to people familiar with the case.

The family is now in private discussions with the receiver and the noteholders committee about resolving the matter, according to family attorney Scott Palmer.

“The family is committed to working with the receiver and the noteholder committee towards a transparent resolution,” Palmer said in a statement. “I expect that any resolution will ultimately require court approval, after notice to all parties.”

Steve Bledsoe, an attorney representing Kasolas, said the receiver would be confining his comments to court filings.

A review of land records seems to support the claim that Stephens’ hillside home was mortgaged to the hilt. They show Stephens and his first wife, Millicent, purchased the Rollo Road property in 1980 with a $178,000 loan.

Over the next 35 years, Stephens would refinance the property more than a dozen times, replacing old loans and equity lines of credit on the property with new, larger ones as the property’s value increased, according to public records.

For example, in 2003 Stephens replaced the $775,000 Chase Manhattan Mortgage Corp. mortgage he took out on the property in 2001 with a $892,500 mortgage and $98,500 equity line of credit from local lender Investors Trust Mortgage, which closed in 2008.

In 2004, Stephens refinanced again, going back to tap Chase for a $900,000 mortgage and $100,000 credit line. In 2006, Chase granted an equity line increase to $200,000, and then in 2007 upped the limit again to $275,000.

It was the last refinancing on the home, according to land records. In 2011, Stephens transferred ownership of the home from his own name to himself as the trustee of the Warren C. Family Trust.

You can reach Staff Writer Kevin McCallum at 521-5207 or On Twitter @srcitybeat.

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