Source says investors, Vestin reach settlement

Vestin Group, the Las Vegas-based hard-money lender led by Mike Shustek, reached a confidential settlement with a group of dissident investors, parties to the lawsuit confirmed on Thursday.

The parties agreed to the settlement after two days of jury selection in Clark County District Court. Plaintiffs’ attorney Ryan Dennett and Vestin spokesman Steve Stern declined to provide any information about the settlement’s terms.

Vestin in February successfully defended itself against a class action lawsuit brought by investors in San Diego, but litigation continues in a third case.

The Las Vegas company is pursuing a federal lawsuit in San Diego against Kenneth Klaas, a California investor who is the lead plaintiff in the lawsuit settled Wednesday.

In the pending federal lawsuit, Klaas is the defendant along with some unknown potential defendants. Vestin’s federal lawsuit said that the company spent more than $20 million developing a list of investors over eight years and argued that the list was a confidential trade secret.

Klaas requested the list so that he could contact other Vestin investors and send them information about the conversion vote; he promised not to use the list in “any venture,” the lawsuit said.

However, the lawsuit says Klaas gave the confidential list to Thomas Frost of Shustak Frost, which unsuccessfully sued Vestin over the conversion to the REIT in San Diego superior court.

The lawsuits stemmed from Vestin Group’s proposal to change private partnerships that held hard-money loans into real estate investment trusts, which traded publicly like common stock.

Vestin suggested the conversion would let investors sell their holdings on the stock market, rather than being delayed by an Internal Revenue Code provision that restricts the sale of partnership interests. The provision requires that no more than 10 percent of total investments of all investors in the private partnership can be withdrawn in any one year.

A majority of the partnership’s members favored the conversion of Vestin Realty Mortgage II into the REIT. Shares started trading on Nasdaq in May 2006.

The market price of shares in REITs declined after the conversion, and the plaintiffs in the lawsuit contended that the partnership agreement with Vestin allowed them to withdraw their interests in the partnership.

Klaas was the lead plaintiff in the Clark County District Court lawsuit filed over that and other allegations against Shustek and Vestin later in 2006.

Shares in Vestin Realty Mortgage II on Thursday declined 1 cent to $1.71 on Nasdaq.

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