Former top officers of Equity Programs Investment Corp. (EPIC) have denied allegations that they violated a federal court order by systematically diverting property and rental income away from their creditors.
In their first extensive reply to numerous charges of wrongdoing made in a multimillion-dollar lawsuit, the EPIC executives insist in court papers filed this week that they have complied with a court order freezing the assets of an affiliate of the moribund real estate syndication company.
Trustees for holders of mortgage-backed securities issued by EPIC have claimed that EPIC's assets were drained away by company executives including Tom J. Billman, EPIC's founder, Clayton L. McCuistion, former president of EPIC's parent Community Savings & Loan, and Barbara A. McKinney, another high EPIC official.
McCuistion's lawyers replied that the trustees "like Cinderella's stepsisters struggling to slip into the glass slipper, are twisting and contorting the Sept. 4 order in a desperate attempt to reach parties and entities" not covered by the ruling.
In pleadings filed in Federal Court in Alexandria, attorneys for the officers and several EPIC-affiliated companies raised a host of procedural, jurisdictional and factual defenses with the lawsuit.
The lawyers urged U.S. District Judge Claude M. Hilton to dismiss the lawsuit or to refer it to the bankruptcy court overseeing the reorganization of more than 350 bankrupt real estate partnerships established by EPIC.
The lawsuit was originally brought in September against EPIC's mortgage banking affiliate, EPIC Mortgage Inc. The company's default on more than $1 billion worth of these securities and other mortgage debt precipitated the bankruptcy of the real estate investment partnerships established by EPIC.
All the defendants in the lawsuit filed replies to the allegations this week, except for Billman, who has been described as the mastermind behind EPIC's meteoric rise as a real estate syndicator. Billman's attorney, John R. Forniciari, yesterday said Billman is planning to file court papers shortly. Forniciari refused to discuss either the allegations in the trustees suit or those made in a lawsuit recently brought against Billman and other officers by the state of Maryland, the court-appointed conservator of both EPIC and Community.
While the pleadings filed this week mostly addressed procedural defenses against the lawsuit, they deny charges that McCuistion and McKinney circumvented Hilton's Sept. 4 order freezing rental income from EPIC properties held by EPIC Mortgage.
After that order was issued, a number of EPIC partnerships, owning about 4,000 houses around the country, were taken out of control of EPIC and put in the hands of another EPIC company outside of the bankruptcy proceedings involving most of the EPIC partnerships. The trustees alleged this move was part of a scheme to transfer assets away from EPIC's creditors and said that it also put McCuistion and McKinney in contempt of Hilton's order.
However, McCuistion's attorneys argued that Hilton's order applied only to EPIC Mortgage Inc. and that this firm has complied fully with the judge's command, escrowing all mortgage payments. A similar argument was presented by McKinney's attorneys, who noted that their client is not an officer of EPIC Mortgage and thus is not subject to the court's order.
As part of the filings, the lawyers for the officers and companies also argue that the lawsuit raises issues of law and fact that are "inextricably intertwined" with issues now before the bankruptcy judge overseeing the bankrupt EPIC partnerships.