Fraud accusation » Twin Peaks Financial Services never was solvent.
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The owners of Twin Peaks Financial Services of Riverton operated a Ponzi scheme that now owes 90 investors at least $21 million, according to a report filed Monday in bankruptcy court.
Twin Peaks Financial Services, pushed into bankruptcy court by creditors, raised as much as $150 million supposedly for real estate investments with the promise of a return of at least 21 percent, according to attorney Duane Gillman.
Gillman, who is the trustee overseeing the company in federal bankruptcy court, has filed about 180 lawsuits in the past few weeks that seek the return of millions of dollars with which he hopes to repay investors still owed $21 million.
Twin Peaks Financial Services and a sister company, MNK Investments, which is also in bankruptcy, were operated by Kenneth C. (K.C.) Tebbs of Bluffdale and Chad Palmer of South Jordan.
The two solicited loans that were to go into real estate investments, but most of the money went to repay earlier investors, making it appear the companies were solvent, the trustee said.
But Gillman said in the report to the court that because of the high interest rates it paid out and the nature of its borrowing, Twin Peaks never had sufficient income from investments to cover its debts. Rather, 50 percent to 75 percent of the money that went to pay its debts, including to investors, came from other investors -- and the company never used more than 41 percent of its receipts to purchase investment properties.
"It is the trustee's belief, based on the foregoing, that the debtor's business at all time constituted a Ponzi scheme," Gillman told the court. "In essence, without new investment, the debtor would have been unable to service its debt on an ongoing basis."
Gillman said the companies kept no books and that a forensic accountant had to reconstruct the companies' finances from bank account records.
A message left for Tebbs seeking comment on the allegations was not returned on Monday. A message seeking comment from Palmer's attorney also was not returned.
In depositions for the bankruptcy case, Tebbs and Palmer both asserted their constitutional rights and declined to answer questions.
"They have not cooperated in any way other than turning over documents," said Penrod Keith, an attorney assisting Gillman.
Lawsuits from creditors claim that investors were promised that their money would be secured with first deeds of trust on properties, meaning they would be in a position to foreclose and recoup their funds if the company was unable to pay. But those properties actually had liens on them from other lenders that accounted for the total value of the real estate or exceeded it, said J. David Milliner, an attorney who represents two investors.
"It appears the majority of the properties that were actually owned by one of the companies already had first deed interests superior to any of our people and most of those properties have been foreclosed on by the holder of the first position," Milliner said.
Gillman said the 180 lawsuits he filed represent about $16.5 million that he hopes to recover. They are aimed at people who received money in excess of what they invested, he said.
Gillman also said he was sending out letters to those he sued, asking if they can show they lost money rather than profited from their investments. If so, he said he will move to dismiss them from the lawsuits.