Following the death of her husband, Gloria Morrison had the painstaking task of sorting through the financial details of the mortgage company he founded. But what she found led her to send the company into receivership.
Losses at Brasota Mortgage Co. of Bradenton, Fla., a residential and commercial mortgage broker and lender that offered investments backed by mortgage loan real estate collateral, could exceed $20 million, according to court records Manatee County.
A judge has placed Brasota Mortgage in receivership and an auditor who has studied the financial operation of the company has described in court papers what sounds like a classic Ponzi scheme — old investors being paid off with money put up by new investors.
“We have concluded that assets are insufficient to meet obligations of the company in excess of $20 million,” accountant Rene Zarate wrote in an affidavit that was included in a lawsuit that placed the company in a court-ordered receivership.
“We are unable to conclude that any assets have been misappropriated, but it appears that new note holders have been paying the agreed upon return for existing note holders.” Zarate said. “In other words, it appears new note holders have been funding the operating deficits on a monthly basis for an indeterminate amount of time.”
State regulators are now looking into what happened at the company.
But investors could be out some or all of their money.
The Bradenton Herald reported that when investors recently arrived at Brasota’s offices, they were greeted with a sign that read, “Placed in receivership by the Circuit Court in Manatee County.”
“No one is going to come out 100 percent,” Tom Breiter of Breiter Capital Investment reportedly told the paper.
Problems were first uncovered in January by Gloria Morrison, the president of Brasota. She took over the company in October after the death of husband, company founder William Morrison.
In court papers, Morrison said she and Robert Coey, the company’s executive vice president, “discovered in January 2005 that the partnership financial condition appeared to be out of balance.”
To protect investors, Morrison and Corey filed suit and asked that the company be placed into receivership.
“The appointment of a receiver is necessary to prevent financial harm to (Morrison and Coey) and all other investors/note holders” in the company, according to the court papers. “A less drastic remedy is not available, and the appointment of a receiver will do more good than harm in these circumstances.”
The court agreed and appointed Avidity Partners LLC of Wheaton, Ill., as the receiver. The company comes with high-profile credentials and experience. It oversaw the liquidation of assets of Enron, the scandal-plagued Texas energy company, and worked on other notable bankruptcies and liquidations, including Fruit of the Loom, Burlington Industries and Nexell Therapeutic.
Brasota was known for making high-risk mortgages and delivering up to 11 percent to investors.
But establishing a proper paper trail of the company’s activities and operations has been difficult, according to Zarate’s audit.
“Funding for (Brasota) was primarily provided by individuals or entities that loaned money to (Brasota) for a fixed rate of return and a collateral assignment of a mortgage,” Zarate said. “Therefore, the true stakeholders…are the individual note holders who are largely unrelated to partners of the partnership.
“We were not provided any evidence that (Brasota) has provided the note holders with an accounting of the partnership, nor notified the note holders of its financial condition,” Zarate said.
