When Scott Cole, CEO of troubled Mortgage Ltd., one of Arizona’s largest private lenders, committed suicide, it received national attention. Now the Securities and Exchange Commission is investigating the firm, along with the curiously named "Radical Bunny, LLC": [Thanks L!]
Federal and state regulators have opened investigations into the dealings of Mortgages Ltd., Arizona’s biggest private commercial real-estate lender, and the firm called Radical Bunny that lent it almost $200 million.
The U.S. Securities and Exchange Commission and the Securities Division of the Arizona Corporation Commission traditionally do not confirm or deny investigations. The Arizona Republic has confirmed the investigations through attorneys, investors and company insiders.
Under scrutiny in the Mortgages Ltd. and Radical Bunny case, according to investors contacted by regulators, is how investments were solicited, what investors were promised and whether the people leading the firms were licensed to take certain investments.
The SEC and state commission are charged with enforcing securities regulations. They investigate cases of suspected insider trading, the sale of unregistered securities, selling securities without a license, misappropriation of investors’ money and the misrepresentation or withholding of information important to investors.
The securities investigation raises more questions about the business relationship between Radical Bunny and Mortgages Ltd.
Since Mortgages Ltd. was forced into bankruptcy June 23, the status of Radical Bunny’s financing has been the source of heated arguments, lengthy court bankruptcy filings and investor fears of huge losses.
Radical Bunny attorney Shelton Freeman said the company is cooperating with securities regulators and providing them information for their inquiries.
Radical Bunny, led by Valley accountant Tom Hirsch, is Mortgages Ltd.’s biggest creditor. Mortgages Ltd. has 3,000 investors, and Radical Bunny has 900. Investors have not received dividend checks since June.
At question is whether Radical Bunny is a secured or unsecured creditor. An impending court decision on Radical Bunny’s creditor status will have a major impact on how much investors get back.
If Radical Bunny is found to be secured, meaning its loans were backed by Mortgages Ltd.’s assets, the group will be first in line to get a cut of Mortgages Ltd.’s $350 million in assets. If not, the group’s investors will get paid last along with dozens of other unsecured creditors such as office-supply and bottled-water vendors.
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