A federal judge yesterday ordered the two former top officials of the EPIC real estate empire to turn over records about their foreign bank accounts to creditors searching for millions of dollars the creditors say was diverted from the EPIC companies.
U.S. Bankruptcy Judge Martin V. B. Bostetter granted the creditors' request for the documents over the objections of lawyers for Tom J. Billman, EPIC's founder, and Clayton C. McCuistion, the former president of Community Savings & Loan, the Bethesda thrift affiliated with EPIC.
Lawyers representing the two EPIC executives denied all allegations of diversion of funds. While acknowledging the existence of foreign accounts, McCuistion's attorney said the accounts were simply used to collect dividends from a Bermuda insurance company controlled by their clients.
Charles M. Darling, an attorney for McCuistion, said that he could not give the exact sums in the accounts, but added, "You're not talking about millions of dollars, I can tell you that."
"It is no secret that there was an offshore subsidiary called First Investors Surety, and that's where the foreign bank accounts come from," Darling added, referring to a previously disclosed company that provided insurance for the rental houses owned by EPIC's tax shelters.
"There was no secretion of funds out of this country," he added.
Darling and other lawyers also contended that they have provided all the documents the creditors need to proceed with their lawsuit against Billman, McCuistion and other EPIC affiliates. Mark H. Tuohey, who represents McCuistion, said after a court hearing yesterday that the allegations by the creditors' lawyers were another in a series of "cheap shots" against his clients.
But lawyers for the creditors said they have come up with further evidence of what one said were "very suspicious transfers of cash" between various EPIC entities and officials. They told the judge that recent documents they have obtained show that $60 million in dividends was paid to Billman, McCuistion and other owners of the EPIC companies in 1984 and 1985 -- when the EPIC system began falling apart.
"We'd like to know where some of those funds are," Robert J. Plotkin, a lawyer for National Bank of Washington, told the judge in asking for the bank records. NBW is the trustee for about 50 savings institutions holding mortgage-backed securities issued by EPIC.
Lawyers for NBW and First National Bank of Maryland, the other trustee, sought the bank records as part of their continuing investigation into the financial affairs of EPIC's centerpiece, Equity Programs Investment Corp., and its affiliated companies.
Equity Programs set up real estate partnerships that bought single-family homes around the country as tax shelters for their investors. Last fall, the partnerships defaulted on $1.4 million in mortgages, triggering their filing for bankruptcy, the collapse of Community, and a full-scale legal brawl for EPIC's and Community's assets.
Both the trustees and the state of Maryland have filed multimillion-dollar lawsuits against Billman, McCuistion and other EPIC principals, accusing them of diverting EPIC funds for their personal use. The defendants steadfastly have denied these charges, and the lawsuits are at the stage where attorneys seek more information for their cases.
Lawyers for the EPIC companies and executives have furnished much of the information and documents sought by the trustees' lawyers, but they have balked at providing the foreign banking records, which would include not only the amount of money in such accounts, but also when deposits and withdrawals were made.
Plotkin told Bostetter the foreign banking records would give him valuable information needed to prepare his case against Billman and McCuistion. To the extent there was any diversion of funds from the EPIC operations, "The foreign bank accounts would be the most likely repository of funds," he said.
Plotkin and Warren L. Dennis, a lawyer for First National Bank of Maryland, the other trustee, said recent documents obtained from EPIC affiliates, raised further suspicions about the possible diversion of funds.
Dennis, for instance, said that one EPIC affiliate wrote a $2.5 million check in September with funds provided by Billman and McCuistion. At that time, Dennis noted, creditors' lawyers were seeking a court order to freeze some of EPIC's assets.
"It is this type of gerrymandering of money that is endemic to this case," Dennis said.
Darling said lawyers and accountants for the creditors have had ample opportunity to go through EPIC records, but have found no evidence of any wrongdoing.
"It's almost humorous to hear their claims when their own accounting firms were given time to go through the books and records and could find no smoking gun," Darling added.
During the hearing, lawyers for Billman and McCuistion said they were willing to identify the foreign bank accounts held by their clients and how much was in them, but that disclosure of further information and records was unwarranted.