Revelations on Summit have to wait

By Jeff Manning
The Oregonian

December 10, 2009

When the trustee for bankrupt Summit Accomodators filed a report on the company's demise last week, investors and others were hoping to learn more about his explosive allegations of wrongdoing by Summit and Portland-based Umpqua Bank.

But the 83-page report and its 15 exhibits submitted to the court Friday remain under wraps.

Trustee's reports are typically open to the public in U.S. Bankruptcy Court. Umpqua, however, maintains the documents included as exhibits in Summit trustee Kevin Padrick's report are confidential internal documents and subject to a protective order issued months ago by U.S. Bankruptcy Court Judge Randall Dunn.

The exact nature of the relationship between Bend-based Summit and Umpqua became of great interest in June when Padrick sued Umpqua. He claimed that the largest Oregon-based bank had aided and abetted a conspiracy by Summit's former executives to embezzle millions of dollars from their clients.

Umpqua officials immediately rejected that claim, arguing that Padrick's charges are little more than a "shakedown" to get more money for Summit clients and creditors.

The long-anticipated report was to flesh out Padrick's allegations. But so far, it remains under lock and key.

Dunn declined to comment. A representative of his office referred calls to Padrick.

"Umpqua had confidentiality concerns about the docs that they were producing," Padrick said. "I do not believe that any of the documents are confidential." He said that he intends to seek a court order making his report public.

Banks are normally precluded by law from releasing information about their borrowers. But in this case, Padrick contends that as the trustee in charge of the Summit estate, he essentially is the borrower. And if he wants the report made public, the bank should not try to block its release.

Steve Philpott, general counsel at Umpqua Bank, said that the bank has not seen Padrick's report and did not object to its release. It has sought to keep the attachments, which are said to include numerous bank e-mails, from being made public. Some of the documents Padrick has attached to his report reference other bank customers unrelated to Summit, Philpott said.

Padrick said he was forced to file his report under seal in order to avoid violating the court protective order. The report is rife with references to and excerpts from the attachments.

Summit was a so-called facilitator of 1031 tax-free exchanges, a hugely popular tax avoidance strategy that allowed qualifying real estate sellers to defer their capital gains taxes as long as they invested in another qualifying property.

Summit's role was simply to hold clients' money while they concluded their property exchanges. But company executives allegedly began lending clients' money to companies they controlled, which then made investments, mostly in the central Oregon real estate market.

Padrick alleges Summit's co-founders Mark Neuman and Brian Stevens began taking their clients' money as early as 1995.

Summit crashed hard in the real estate collapse of 2008. It filed for bankruptcy Dec. 19, 2008.

Customer losses reached $29 million.

Padrick contends that Umpqua knew Summit was using its clients' money for their private gain and lent money to Summit-related entities and Summit executives.

Three days after Summit filed bankruptcy, Padrick, of Bend-based Obsidian Finance, was appointed trustee. His task is to liquidate the firm's assets and make whole Summit's creditors and clients.

Through the sale of assets, Padrick has managed to return to customers about 40 percent of their money, he said.

Copyright 2009