State takes over LV mortgage firm

CARSON CITY -- The state Division of Financial Institutions said today it is seizing control of Del Mar Mortgage, Inc., and its affiliates in Las Vegas for alleged misconduct, including concealing information from investors.

The order from the division said Del Mar President Michael Shustek must immediately turn over possession of the business to the state, which has appointed Las Vegas certified public accountant George C. Swarts as conservator of the companies.

Deputy Attorney General Doug Walther said, "There is no evidence of fraudulent loans or imminent losses. But there may be losses (to investors) because of nonperforming loans."

Walther said the law prohibits mortgage companies from paying interest to investors on loans that are in default other than from the borrower's payments. In the case of Del Mar, he said, the loans made by the company were in default, but it was using other money to pay its investors.

Investors were kept in the dark about the status of those loans, Walther said.

"There is no commingling between loans that would cause us to think they are going to collapse," Walther said, referring to Del Mar and its affiliates Del Mar Holdings Inc. and Western Funding Investments Plan Inc.

Shustek, president and owner of Del Mar, denied the allegations. "I've done over $800 million of loans. Nobody has ever lost a dime. Everybody has secured deeds of trust. No one has ever missed a payment.

"I have over 160 loans on the books, and only two are not paying and the clients have been notified. That's probably better than any bank. I'm using my own money" to pay those investors, he said.

He said this wasn't like the Harley Harmon Mortgage case, where investors stand to lose millions of dollars.

Assemblyman David Goldwater, D-Las Vegas, said this takeover again illustrates the need for tighter state regulations. He headed a subcommittee that looked into the mortgage industry after the collapse of the Harmon business.

Goldwater said regulations have been "too loose and we have had seniors losing their nest egg and we need to protect them." Hearings in the Legislature start Wednesday on a package of mortgage-company bills drafted by the study committee, he said.

Commissioner Scott Walshaw of the Financial Institutions Division said this case "does not involve the severity of misconduct found in the Harley Harmon Mortgage case, but state law requires this type of action when circumstances warrant."

He said the deficiencies, while serious, can be resolved through proper management.

Walshaw's order said Del Mar solicited investors through unlicensed affiliate companies and failed to keep investors informed of the status of their investments. He said investors will be notified immediately of the change in control.

He said the conservator's first task will be to issue reports to all investors on the status of their money. Under state law, the companies have 60 days to remedy the unsafe conditions that prompted the takeover, or the commissioner may then take the next step and request that a receiver be appointed by the state district court.

Walshaw said Swarts has "years of experience as a receiver and conservator, and I am hopeful he will be able to continue operating the business with as little disruption as possible to existing investors."

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