Millions May Be Missing From First Pension Corp.

Authorities investigating the bankruptcy of an Orange County pension management firm are looking into whether as much as $100 million in client funds may have been lost or misappropriated, according to law enforcement sources and others close to the case.

The firm is Irvine-based First Pension Corp., which filed for liquidation under Chapter 7 of the U.S. Bankruptcy Code on April 22. That happened as scores of the firm’s estimated 8,000 clients--individuals and small-business operators from across Southern California--discovered that large sums were missing from their accounts or that interest or dividend checks they were expecting from the firm were overdue, according to clients, employees and lawyers close to the case.

Some checks mailed by clients to First Pension may have been cashed illicitly by people connected with the firm and the money misappropriated, investigators said. Money belonging to investors may also have been spirited overseas, they added.

“We don’t know where a substantial amount of cash is presently located,” said Andrew C. Snyder, a court-appointed receiver for Summit Trust Co., a Colorado firm affiliated with First Pension that functioned as custodian of money sent by clients to the Irvine firm. Summit Trust was seized by Colorado regulators and its accounts were frozen a day before First Pension’s bankruptcy filing.

First Pension was one of several companies jointly owned by William E. Cooper, a politically well-connected Orange County real estate investor, and two associates, Valerie Jensen and Robert Lindley.

None could be reached for comment, but their lawyers said each was intent on cooperating with the authorities investigating the case.

Since First Pension’s bankruptcy filing, the FBI and the U.S. Securities and Exchange Commission have opened investigations of the firm and the three owners.

First Pension served its clients by handling the administration of retirement accounts, including Individual Retirement Accounts and Keogh accounts through which they could make their own investment choices instead of leaving the management to banks or mutual funds.

In practice, many of First Pension’s clients ended up placing their money in real estate investment pools offered by its sister companies. Cooper, Jensen, and Lindley were also principals of Summit Trust, which handled the cash that First Pension clients were funneling into their retirement accounts.

That means that First Pension was the conduit for the money coming in from investors as well as going out to them--that is, money they were investing in their retirement as well as income from some of the same investments.

Snyder said questions exist over the fate of as much as $35 million held by Summit Trust on behalf of First Pension clients. A significant portion of that sum remains unaccounted for, he said.

Other authorities are investigating whether as much as $25 million of the money may have gone astray as early as December, when First Pension transferred its custodial accounts--money being held for clients pending their investment decisions--to the newly established Summit Trust from a number of Orange County banks. Investigators are looking into whether the accounting of the transfer might have masked fund diversions for months.

Questions also exist over the real value of more than $62 million in investments made by First Pension clients in real estate mortgage pools offered by the sister firms, according to officials investigating the company.

“A number of these were put into second or third trust deeds (mortgages),” said an attorney close to the case. “With the beating in the real estate market going back to the 1980s, underlying mortgages and financial instruments started to weaken. Loans went into default, so the value of the partnerships declined.”

The FBI and SEC are investigating whether the money may have been diverted from the accounts to maintain dividend payments to investors in the real estate pools. Such diversions might have been aimed at covering up extensive defaults among the mortgages making up the pools, one lawyer close to the case said.

Although Cooper, Jensen, and Lindley were all unavailable for comment on the allegations, Milan Smith, an attorney for First Pension, acknowledged that cash-flow problems developed among the trust deed pools.

“What was done to deal with the cash-flow problem is enough of a concern that all three principals (of First Pension) have retained criminal counsel,” he said.

Another attorney close to the case, who wished to remain unidentified, confirmed that “the root of the problem was the declining real estate market and the deteriorating portfolio of loans. There was a shortfall of funds. Once there’s a shortfall, errors of judgment can be made that compound the problem.”

Smith said the three principals maintain that the amount of money missing is considerably less than $100 million--and even less than the $10 million that Snyder initially contended was missing. He also said they vehemently deny that any money was sent overseas, as Snyder also contended.

Lawyers for all three principals said they are intent on cooperating with authorities to maximize the recovery of funds to the customers.

Investigators and the court-appointed receivers for Summit Trust and First Pension also emphasized that a conclusive loss figure must await thorough audits of the complex network of firms and investment partnerships involved. The actual loss may prove to be substantially less than the $100 million at risk, they said.

“It’s a rather complicated situation,” said Smith, who added that “all the firm’s records are intact and in the hands of the SEC or the FBI.”

Snyder and others noted that many of First Pension’s clients funneled their money into garden-variety certificates of deposit, mutual funds or securities investments. That money, the receivers say, appears to be intact, although the accounts will remain frozen until completion of an audit. The total amount of investor funds is roughly $350 million.

First Pension’s bankruptcy capped a bizarre sequence of events that began April 5 with the abrupt resignation of Jensen as president and her replacement by Cooper, who previously had rarely appeared at the firm’s office.

Before that point, there had been few, if any, evident problems with First Pension’s accounting. But about that time--a period when tax deadlines mean that the flow of money into retirement accounts is at its peak for the year--several clients complained that money they sent to First Pension had not been credited to their accounts.

The discovery often came only when they asked to have specific cash sums transferred from a custodial account at the firm to a final investment and were informed that insufficient funds existed to make the transfer. In some cases, according to clients, employees and investigators, checks mailed by clients and made out to Summit Trust were cashed and deposited in bank accounts elsewhere.

One such client was Bruce Nelson, a Mission Viejo insurance agent who on March 30 mailed a check for $20,000 to Summit Trust to fund his Keogh account, which already held more than $5,000.

On April 4, he wrote First Pension to direct that the combined sum be transferred to his brokerage account at Fidelity Investments. About a week later, he said, a First Pension representative called back to tell him the firm had never received the $20,000 check.

“I called my bank to see what happened and they sent a copy of the check showing it had been cashed,” Nelson said. The check had an endorsement indicating that it had been deposited not at Summit Trust, but in an account at Home Bank in Irvine.

Home Bank officers confirm that the Irvine branch held an account in the name of Summit Trust, but would not comment further.

Nelson said that he was subsequently assured by First Pension that his money would be transferred to Fidelity. The firm sent Fidelity a check for $25,011 on April 25, but it bounced, he said.

Nelson’s queries about his check eventually made their way to officers of Summit Trust, along with similar complaints from other customers.

“That raised our concern,” said Snyder, the Summit receiver. He said First Interstate Bank, which held Summit’s deposits, also notified Summit that checks drawn on the trust company’s account were being issued suspiciously out of sequence. Snyder said there were also indications that a signature stamp used to endorse Summit transactions “was being used without our authorization.”

All of the questions together “led us to take certain actions that led to the downfall of First Pension,” he said.

Those actions included Summit’s alerting Colorado banking authorities that money under its custodianship might have been misappropriated. The state responded by seizing Summit and freezing its assets on April 21.

One day later First Pension filed for bankruptcy.

Times staff writer James S. Granelli in Orange County contributed to this story.

Where to Write for Pension Information

Clients of First Pension Corp. wanting information about cash balances in their accounts held at Summit Trust Services of Colorado should write to:

Andrew C. Snyder, receiver

c/o Summit Trust

P.O. Box 6504

Englewood, CO 80155-6504

They should include a copy of their adoption agreement with First Pension, or any other agreement they executed, as well as copies of the front and backs of any checks showing sums they deposited in their First Pension accounts, statements they received from the firm, and a cover letter giving any other potentially relevant information.