Desert Capital decides not to fight bankruptcy proceedings
Attorney Gerald Gordon on Thursday told bankruptcy Judge Linda Riegle that Desert Capital Real Estate Investment Trust was withdrawing its objection to involuntary bankruptcy.
The Henderson-based company will continue operations while the bankruptcy case proceeds under Chapter 11.
The company was formed in 2003 and made loans to developers with real estate collateral. Like other private lenders, it has been losing money in recent years as the value of Nevada real estate collapsed and development all but ceased.
Todd Parriott resigned as chief executive officer of Desert Capital effective May 31. The company agreed to contract with Morris Anderson & Associates of Chicago for management.
Desert Capital is affiliated with CM Capital Services, which made hard-money loans to developers with money solicited from investors.
CM Capital investors held fractional interests in the loans, which were secured by real estate and paid double-digit interest rates. Desert Capital, however, pooled investor money for a portfolio of hard-money loans. It files reports with the Securities and Exchange Commission but doesn't have publicly traded shares.
Desert Capital reported $25 million in assets and $56 million in liabilities as of March 31. It reported a first-quarter net loss of $2 million, down from a $3 million loss a year ago, and stated substantial doubt about its ability to continue as a going concern.
The Securities and Exchange Commission in October served Desert Capital with a subpoena for documents relating to payments and transactions with CM Capital. A spokeswoman for the SEC said the federal agency couldn't confirm or deny an investigation.
In late April, Desert Capital creditors with claims totaling $43.7 million petitioned to put the company in involuntary bankruptcy. The creditors include Taberna Preferred Funding VI, Taberna Preferred Funding VIII and Sage Trust.
In an interview Tuesday, Parriott said he intends to focus on winding down operations of CM Capital Services, which paid a $200,000 fine, $15,000 in fees and surrendered its license this year.
CM Capital agreed to pay the fine and fees because of unidentified issues that arose in the division's January 2009 examination of the company's records.
The settlement didn't specify any regulatory violations but it ordered CM Capital to satisfy several requirements in the future.
The firm was prohibited from making loans that were not fully funded, was ordered to obtain approval from investors controlling 51 percent of a loan for key decisions and directed not to make false statements to investors in advertisements.
CM Capital was ordered to supply information to the division about its solvency. Acting Commissioner Nancy Corbin in March notified the company of her intent to revoke its license because of insolvency. CM Capital surrendered its license after receiving the notice.
Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.
