Where did Obsidian Go?

Obsidian: Where did they go? What were they doing?

By Summit 1031 Bankruptcy

May 2009

Obsidian’s contract with Summit 1031 stated Obsidian would provide the following services to Summit 1031:

Evaluating the assets and liabilities of the Company;
Analyzing and reviewing the financial and operating statements of the Company;
Analyzing the business plans and forecasts of the Company;
Development of restructuring alternatives including tax aspects and implications on various constituents;
Review and discussion of the potential risks and benefits of various alternatives;
Development of strategies to mitigate the potential damages arising from incomplete IRS Section 1031 exchanges for Company customers;
Identification of alternatives to optimize liquidation of real estate which we understand will be available to satisfy potential claims in the bankruptcy;
Implementing critical restructuring alternatives;
Preparation, analysis and explanation of the Plan of Reorganization and Disclosure Statement to various constituencies; and
Other tasks that are necessary or appropriate as requested by the Company in connection with the Chapter 11 bankruptcy case.

Padrick may finally be providing the above services, but in no way did he provide these services to Summit 1031 in the beginning. Instead, he waited until he was in control of the assets. Only now is Obsidian providing these services to Padrick as trustee of the bankruptcy estate.

Padrick initially told the principals he would assess the whole situation and come up with a plan of liquidation as well as a plan of how to get the exchanges completed in a timely fashion in order to avoid additional liability (i.e. bringing in his financing friends, etc). However, there was no word from Obsidian once they left with all the information. For the next 2 months, the only thing Obsidian accomplished was to give a presentation in front of the creditors’ committee. Padrick used the property spreadsheet provided by Tim Larkin with a few changes to impress the committee. Next thing you know, the creditors’ committee wanted Terry Vance to be removed as CRO and asked the court to appoint Kevin Padrick as the new CRO. Seems questionable as to who Obsidian was working for, doesn’t it?

The principals also got word that Padrick had convinced the creditors’ committee to pay Obsidian Finance 15% compensation for whatever cash they produce from the assets. What kind of “help” did Padrick tell them he was going to give for 15% of their money?

The principals had big doubts about Padrick. They hadn’t seen him since that first meeting. And why was he giving presentations to the creditors’ committee? Hadn’t Summit 1031 hired him? All the principals knew was that Obsidian was paid $100,000 and no one had seen Kevin Padrick since he sold them on the job.

The principals grew concerned about Padrick’s motivations and why Padrick hadn’t been communicating with them. On February 11, 2009, I went to a court hearing on the principals’ behalf to discuss the possible appointment of Padrick as the new CRO. I told the judge that the principals hadn’t even seen the presentation that Padrick had given to the creditors. The judge decided he wasn’t going to appoint anyone CRO, but that he just wanted to appoint a trustee for the bankruptcy. I requested that Padrick meet with the principals and share the presentation to put them at ease.

“Click here to listen to the audio of the communication between Judge Dunn and me” [ http://www.summit1031bkjustice.com/wp-content/uploads/2009/05/stephanie-tiny4.mp3 ]

This hearing occurred on February 11, 2009. I went to the hearing because my dad was not getting a voice in the courtroom due to the gag order placed on them by their criminal attorneys. Since nobody had placed a gag order on me, I decided to attempt to be his voice in the courtroom. My voice was a bit shaky and I stuttered a little. I was nervous…I was all of a sudden speaking in front of a judge and a room full of intimidating folks. They were all dressed in suits while I was wearing casual airplane clothes. I was a ball of nerves walking up to the podium. I prayed that God help me do some good here, so I felt I could make my way through it. I did get a few things accomplished and I got a sense of how the court works. I would like to clarify a couple items discussed at this hearing.

At this hearing, the creditors’ committee and their counsel were pushing to replace Terry Vance as CRO. During the early discussions at this hearing, it was decided that a bankruptcy trustee would be appointed. This was a new development in the case. When the court decided that a bankruptcy trustee would be appointed, I turned to my dad’s attorney and asked him what this meant. He said it meant Padrick would be in control of the estate. I could not understand why Terry Vance was going to be replaced. He was doing great work and making great progress. I asked dad’s attorney if someone like Terry could be named trustee. He said that anyone who puts his or her name in the hat can be trustee.

I wanted to find out what Obsidian’s plans were to create value and get money to the exchangers in a quick manner. How would they be able to get more money to you than Terry Vance, when their compensation was so much higher?

I tried to tell the court that it was the principals’ intention to give everything they have to pay back the creditors (you exchangers). I also tried to point out that Terry Vance was already making great progress and he already had a wealth of knowledge on the intricacies of the Summit Accommodators, Inc., Inland Capital Corp (the lending company), and the personal investments of the principals. I did not know it at the time, but Vance had already accepted two large cash offers. He was already working with the innocent LLC members in some of these investments and was making progress.

Susan Ford from Sussman Shank told the court that…

1. Since Day 1 the principals wanted to assign their interest in various investments to the estate.

2. Obsidian’s role from the beginning was supposed to be the financial consultant for Summit 1031 (the corporation).

3. Terry Vance had extensive knowledge on the situation and was fantastic at communicating with the various constituencies.

4. Vance was keeping everyone calm.

Judge Dunn agreed.

I tried to tell the court that there would be many innocent parties that could be harmed by the blanket transfer of the principals’ interest in these companies and a devaluation of the estate. The judge told me that unfortunately, those special purpose entities were not in his jurisdiction. Judge Dunn believes everything is out of his jurisdiction except for what occurs within Summit Accommodators Inc. However, he knows that all of these other entities are going to be transferred to the bankruptcy estate in the bankruptcy plan. Even though they are not a part of Inland or Summit, they are all affected by Summit 1031’s bankruptcy and the choices of the bankruptcy court. I don’t understand how the court can hand over power to one man (Padrick), just because he used Tim Larkin’s spreadsheet to “wow” the creditors’ committee. While at the same time, the court would have no jurisdiction in regards to the harm Padrick is bringing to the members of our community who have invested their hard earned money in Central Oregon business and real estate for the past decade. The power the court gave Padrick allows him to reject offers that are reasonable in this economy, thereby forcing people to foreclose, resulting in a loss of investment and a big ding on personal credit records. We are all at the mercy of Padrick because the court gave him the power and yet has no jurisdiction. So in effect, Padrick has more power than the judge does?

I think the judge was confused because he began talking about the special purpose entities (SPE’s) in Three Sisters. “Click here for an explanation of SPE’s” [ http://www.summit1031bkjustice.com/?page_id=994 ]

The LLC’s I was referring to are the businesses that have other investors who put their hard earned money, time, and hearts into their projects. They don’t deserve to lose their money too. They have nothing to do with Summit 1031 or Inland. If any of the entities ever borrowed from Inland, they paid their Inland loans back with interest. None of my LLC’s owe Inland any money. Inland owes one of my LLC’s $584,000 because Mark and Brian took their portion of sale proceeds from the partial sale of the property involved, to pay down Inland loans back in August of 2008. At that time, the Summit principals did not know what was lying ahead of them, or I doubt they would have done this deal. They were supposed to keep this money in reserves because it would make the LLC run a negative cash flow of $80K per year. I am now left with a 69 year old man who will lose all of this money if he doesn’t work for deferred compensation and foregoes all distributions from his share of the profits. If we default on the loan, he loses his money. Padrick knows about this, but will not release us from the bankruptcy. This 69 year old man bought 20% of the property for $900K cash, and is now faced with losing all of it because of this situation. I see him 2 to 3 times a day. He is working very hard to keep his investment. I did not have anything to do with this sale and where the money went, but now he is my partner and I want to do all that I can to help him keep his interest in the property so that one day he may get some of his money back.

After the hearing, I scheduled a presentation with Kevin Padrick for the next morning at 9 a.m. This meeting was supposed to be Obsidian’s presentation that Padrick gave to the creditors’ committee. Although I tried to get Obsidian to start their presentation, I could not stop the principals from asking Padrick questions about what he had been doing for the past 2 months and who told him to give a presentation to the creditors’ committee. Padrick repeatedly said that someone at Sussman Shank was telling him to, “Stop and go and stop and go.” Padrick also said that someone at Sussman Shank told him to go make a presentation to the creditors’ committee. However, he did not go through all of his emails and reports, so he was not able to tell us who this someone was. We did find out that Terry Vance, who was technically Obsidian’s boss at the time, did not tell him to give the presentation to the creditors’ committee. Vance heard through the attorney grapevine after the fact that Padrick gave a presentation. The principals asked many other questions. It was a two hour meeting, but I don’t think we actually got answers to questions. Padrick is very skilled at using many words without answering any questions.

[ http://www.youtube.com/v/7-xt6FLCpE0 ]