Creditors left with little in Namvar bankruptcy case
In late January, as the bankruptcy case of convicted Iranian-Jewish businessman Ezri Namvar was coming to a close, a federal court judge granted approximately $65 million in fees to the trustees handling the case. According to reports filed by those trustees with the court, the fees were for work involved in the nearly five years of managing the bankruptcy, fighting the numerous lawsuits revolving around the bankruptcy and liquating the remaining assets of the now-imprisoned 62-year-old Namvar.
And as the case ends, the majority of Namvar’s creditors — local Iranian Jews — collectively are out as much as $500 million and left with no chance of recovering the money they invested with Namvar and his financial company, Namco. Many of the creditors are, not surprisingly, disappointed by how the case was handled.
“The trustees treated this as a liquidation and went against the advice and the demands of the creditors and the committees,” claimed Marc Asheghian, a local Namvar creditor. “They sold assets for a fraction of what they were worth and looted the estate by performing unnecessary work and racking up legal and professional fees.”
In 2008, Namvar was forced into involuntary bankruptcy and accused by investors of creating a Ponzi scheme. In October 2011, Namvar was sentenced in federal criminal court to seven years in prison for stealing $21 million from four clients. He was also ordered by the court to pay back $21 million in restitution to his victims. Creditors said they believe Namvar bilked investors — who put money into his $2.5 billion real estate portfolio before the 2008 market crash — of hundreds of millions of dollars.
R. Todd Neilson, the head trustee for the Namvar estate, declined to comment when contacted by the Journal, however a report recently filed by the trustees with the bankruptcy court outlines the assets they collected from the Namvar estate and the totality of their work on the case.
The trustees, as well as legal and accounting professionals handling both Namvar’s bankruptcy and the bankruptcy case of Namco, worked tens of thousands of hours and generated gross cash receipts of approximately $193 million through liquidation of various assets owned by Namvar or Namco, according to the trustees’ report.
The report also indicates that, after various secured claims were paid off, direct costs for litigations were paid, open mortgages on Namvar’s properties were paid off, and roughly $53 million was paid to professionals handling the multiple cases related to Namvar’s bankruptcy, the estate was left with approximately $18 million in cash reserves. And $13 million of that remaining $18 million remains restricted, because of still-open claims against the estate by third parties, according to the report. The trustees’ report also states that after future litigation is resolved, and Namvar’s remaining assets are sold, the estate may yet recover more than $50 million more in the future.
Many of the Iranian-Jewish Namvar creditors say they believe the trustees unnecessarily sold Namvar’s expensive real estate property holdings at reduced prices instead of managing them for the creditors’ benefit, but, at the same time, held onto some lesser-valued properties partially owned by Namvar.
“This was a Chapter 11 reorganization bankruptcy, and the trustees treated it like a Chapter 7 bankruptcy by selling off the main high-valued properties at bargain prices in 2010, when the market was down,” said Abraham Assil, a local Iranian-Jewish Namvar creditor. “They should have kept and maintained the main assets, like the Wilshire Bundy building that would have increased substantially in value by now. Had those assets been kept, then we would have received back 90 percent of our money.”
Other creditors argued that the trustees mismanaged the Namvar properties and ignored the advice of the creditors, many of whom were seasoned Iranian-Jewish real estate developers and property owners.
“The penthouse floors once occupied by Namco, which sat vacant before the sale of the Wilshire Bundy building, for example, were not leased [by the trustees], yet shortly after the new ownership picked up the asset, it filled that space and many other spaces in the building,” said Ben Efraim, a local Iranian-Jewish businessman whose family members are Namvar creditors. “The trustees gave lots of lip service, but in practice they conducted whatever they or their lawyers wishes, with little or no justification.”
In their report to the court, however, the trustees argued that many of the Namvar properties in the estate were sold off to pay for the expenses of litigation related to the bankruptcy, and, likewise, the trustees’ sales of all the properties were brought first before the bankruptcy judge and approved by the court, after the creditors were offered an opportunity to make their arguments heard.
Still other attorneys representing some Namvar creditors said they believe the creditors’ negative emotions are wrongly directed at the trustees and other professionals hired by the trustees.
“Although the creditors have every right to feel frustrated by the end result, their anger is misplaced,” said A. David Youssefyeh, a Century City Iranian-Jewish attorney who represented Namvar creditors. “Instead of focusing their anger on the professionals, they should direct their anger toward Mr. Namvar, who built an intricate web of companies to hide his assets, and that, combined with his lack of cooperation, is what caused the professionals’ fees to be so high.”
The losses related to the Namvar case and other similar Ponzi schemes have badly shaken Southern California’s tight-knit Iranian-Jewish community, to the point that some friends and family members now find themselves at odds, and the life savings of many seniors in the community — much of it money brought out of Iran with great difficulty — have now disappeared.
“Every morning when I wake up, I curse Ezri Namvar, his children and his entire family for stealing all of my remaining life savings of $300,000 that my husband had left me before he died,” said Esther P., a 72-year-old Iranian-Jewish grandmother, who lives in the Pico-Robertson neighborhood and asked that her full name be withheld. “Now I am penniless and have to live in shame with my hand constantly outstretched to my children or family members for food or just a place to live.”
Yet, there are also a few creditors who do not believe Namvar intended to defraud them.
“I don’t believe Ezri committed any crimes,” creditor Asheghian said. “I do believe that if more time was given to Ezri, he would have returned all of the creditors’ funds, plus interest.”
The Namvar case is not the only fraud scandal that has involved Iranian-Americans in recent years. In March 2013, John Farahi, a popular 56-year-old Iranian-Jewish radio talk-show host and investment adviser, was sentenced by a U.S. District Court to 10 years in federal prison for operating a multimillion-dollar Ponzi scheme against local Iranian-Americans. Farahi was ordered by the court to pay more than $24 million in restitution to close to 60 victims.
The community’s leaders and creditors long have remained quiet about these Ponzi schemes, in keeping with a longstanding taboo within the community against publicly discussing potentially embarrassing incidents. Others have not openly voiced their opinions, perhaps for fear of losing friendships or social status as well as wanting to avoid the sense of shame the community sometimes imposes on victims of financial fraud.
Deceptions in business dealings were rare in Iran prior to the 1979 revolution, elders in the Jewish community say. This is because people who attempted to pass bad checks or failed to repay large debts were put in prison by the government until their families could raise the funds to repay their creditors.
Namvar is currently serving his prison term at the Taft Federal Correction Institution, located about 30 miles southwest of Bakersfield, and is set to be released in January 2018, according to court records. Farahi is also serving his sentence at the Taft Federal Correction Institution.
At the same time, legal problems have been mounting for some of Namvar’s family members. According to Maricopa Superior Court records in Arizona, last October the court issued a judgment for more than $18 million against Ilana Namvar, Ezri Namvar’s wife, in a breach of contract lawsuit filed against her by the Armed Forces Bank, N.A., a Kansas-based bank. The lawsuit states that, in 2005, the bank loaned more than $20 million to the Namvars and their family-owned Arizona company, Kohnam 26 LLC. Yet, in 2008, the Namvars and Kohnam stopped loan payments to the bank in a breach of their contract. After that case was initially dismissed because of Namvar’s bankruptcy, Armed Forces Bank refiled the breach of contract suit against Ilana Namvar and Kohnam.
Assil and other Namvar creditors said they also have potential multimillion-dollar lawsuits pending against Namvar’s siblings and other relatives, who received substantial amounts of money from the convicted businessman prior to the bankruptcy.
Despite being left with very little at the end of the bankruptcy, many creditors said they still do not regret dragging Namvar into bankruptcy because of his intent to defraud them.
“I would do it again, because while we were negotiating to work things out with Ezri out of court, in reality he was just buying time to pass his assets to his family members and friends,” Assil said.
Karmel Melamed writes the Iranian American Jews blog. Read it at jewishjournal.com/iranianamericanjews.com.