Portland-based financial consulting company Hamstreet & Associates has filed a lawsuit against Vancouver-based investment firm American Equities and its president, Ross Miles.
The lawsuit also names Miles’ ex-wife, Beverly Miles, American Equities secretary Maureen Wile and Wile’s husband, Robert Wile, as defendants. Ross Miles was not available to comment on the lawsuit Thursday.
Fifteen mortgage investment pools managed by American Equities were declared insolvent in May and placed into receivership. As the court-appointed receiver, Hamstreet was tasked with performing a full accounting of the pools’ assets and selling them off to recoup as much value as possible for the pools’ roughly 250 investors, most of whom live in Clark County or the Portland metro area.
The lawsuit, filed Wednesday in Clark County Superior Court, alleges a yearslong pattern of mismanagement and self-dealing on the part of Ross Miles and Maureen Wile, including lending themselves money from the pools and using new investor money to make scheduled payments to existing investors.
“At all times material, the Pools were operated by the Defendants as part of a Ponzi scheme,” the lawsuit concludes.
The lawsuit marks a turning point in the receivership process, which until now has focused primarily on trying to recoup value from the pools’ assets by auctioning off the real estate.
American Equities and its other funds and assets are not part of the receivership process because the pools were ostensibly operated as separate corporate entities, but the lawsuit indicates that Hamstreet now seeks to go after American Equities to recoup further value for the investors.
American Equities is a valid target, according to Hamstreet, because in practice the pools were not kept separate. The lawsuit alleges that the pools lent a total of $10.7 million to at least 16 “Related Parties,” defined as either family members of Ross Miles and Maureen Wile or business entities connected to them.
The lawsuit does not list a specific sum to be sought in damages, instead requesting that the amount be determined at trial. According to Hamstreet consultant Hannah Schmidt, the financial firm doesn’t yet know what assets exist that can be collected against, or how much they’re worth. Hamstreet expects to uncover that information during discovery.
Miles petitioned the court to have the 15 pools placed in receivership in early May, a few months after two investors filed a breach-of-contract lawsuit against Miles and 10 of the pools. Most other investors found out about the insolvency in a letter from Hamstreet on May 22. An initial estimate found that the pools collectively held roughly $34 million in assets against roughly $77 million in liabilities.
The names of the 15 insolvent mortgage pools are all variations on the phrase “American Eagle Mortgage,” such as American Eagle Mortgage 100, American Eagle Mortgage 200 and American Eagle Mortgage Mexico 100.
All of the pools were operated as investment vehicles in which investor funds would be used to purchase real estate mortgage contracts. The pools were created from 2002 to 2010, according to Hamstreet, and continued operating until May — but they had all been insolvent since at least 2011.
Each of the funds had its own corresponding business entity, and they were all officially managed by American Equities until 2011, and from 2011 onward by a separate entity called American Eagle Mortgage Management, LLC — also a named defendant in the lawsuit.
Hamstreet’s lawsuit alleges that in practice, Miles and Wile controlled American Eagle Mortgage Management and did not meaningfully separate its operations from those of American Equities.
The lawsuit alleges that Miles and Wile repeatedly violated the operating terms that had been presented to potential investors by commingling the pools instead of keeping them segregated, and by conducting financial transactions between the pools and outside entities such as American Equities.
Miles and Wile treated the pools as a single enterprise, Hamstreet alleged, regularly moving cash, assets and investors between pools and making millions of dollars in loans between the pools. They also made millions of dollars in loans from the pools to themselves, family members or related business entities, and used the pools as collateral for additional loans.
Most of those loans have not been repaid, Hamstreet alleged, and many were never even set up with interest or repayment terms. None of the loans were disclosed to pool investors, according to the lawsuit, and Miles and Wile did not keep proper accounting records of the transactions.
The loans to outside parties totaled $10.7 million, according to Hamstreet, and accrued interest would raise that figure by more than 50 percent. The lawsuit states that Miles and Wile never made a serious effort to collect on the loans, nearly all of which are now in default and many of which never received a single payment.
“Self-dealing on the part of the defendants contributed to the pools’ growing insolvency,” the lawsuit states.
The lawsuit also alleges that Miles and Wile attempted to “clean house” by zeroing out the loan balances between the pools just before they were placed in receivership – “a hopeless task that was not successful.”
A mandatory scheduling conference for the case has been set for Aug. 28, with a joint status report due by Aug. 21. A trial date will be set at the hearing.