Pasadena Developer Leaves a Trail of Debts : Sirotin Inquiry in Fourth Year

When Los Angeles attorney Al Kaufer was shown a letter in 1980 from Pasadena developer Stanley S. Sirotin, he thought it contained an offer that was too good to pass up.

Sirotin was seeking investors for The Commons, a mix of upscale specialty shops, restaurants and offices that he planned to build in downtown Pasadena, where redevelopment and private projects were beginning to change the area’s ambiance from seedy to chic.

In his solicitation letter, Sirotin said that he had obtained an $8.5-million construction loan from Bank of America, engaged the services of a well-known general contractor, and presold all of the office space as condominiums at an average price of $150 per square foot.

Kaufer had made successful real estate investments before and was so impressed with Sirotin’s letter that he and his brother, Max, each invested $50,000 as limited partners. It is a decision they have come to regret.

No Condominiums Sold

What Al Kaufer did not know at the time was that there was no construction loan from the bank, according to Bank of America officials. The contractor had not yet agreed to build the project, nor were any condominiums ever sold, the project’s leasing agent said.

“If everything that was said in the letter was truthful,” Kaufer said recently, “it would have been a very reasonable investment. But if the guy walks away with the money, then everything goes to hell.”

Kaufer, like many other investors, claims not only that Sirotin walked away with the money, but that he lied to them from the beginning about his developments and himself.

By the time Sirotin left the country for England in 1984, asserting in court documents that he was broke and in ill health and was traveling to Britain to obtain cardiac treatment not available in the United States, The Commons was bankrupt, his two other Pasadena projects were in financial trouble, and dozens of investors had gone to court charging that he had defrauded them of millions of dollars.

Embezzlement Investigation

Sirotin, who apparently has never returned to the United States, also had become the focus of a joint investigaton by the state Department of Corporations and the Los Angeles County district attorney’s office for possible embezzlement of funds invested in his projects.

“I believe there was embezzlement of funds,” said investigator Al Lomas, who heads the state’s probe of Sirotin. “I believe at one point in time that Sirotin knew things were not right and didn’t tell the investors.”

According to an affidavit Lomas filed in Los Angeles Municipal Court late last year seeking a search warrant to seize bank records, the investors’ funds “were commingled and were used apparently for Sirotin’s personal use and other unlawful purposes.”

Lomas and investigators from the district attorney’s Major Fraud Division have worked on the case for nearly four years. They have not filed criminal charges against Sirotin but say that they are still pursuing the investigation.

Deputy Dist. Atty. Tim Brown, who is conducting the district attorney’s investigation, declined to discuss his findings, saying only that “there was some pretty substantial misbehavior” by Sirotin.

10 Civil Suits Pending

While the investigation continues, 10 civil suits against Sirotin filed on behalf of 70 investors and creditors are moving through Pasadena Superior Court and Los Angeles Federal Court and Superior Court, seeking a total of about $134.4 million for alleged acts of fraud, racketeering and nonpayment of fees.

Many of the suits, including one filed in Los Angeles Federal Court by Kaufer and 24 other investors in The Commons, contain similar complaints that Sirotin:

- “Embarked on a scheme designed to defraud plaintiffs of their money.”

- “Made untrue statements of material fact.”

- “Sold securities . . . without proper compliance to state and federal laws.”

In court documents and in newspaper interviews published before his departure for England, Sirotin consistently denied any wrongdoing concerning his Pasadena projects. Efforts by The Times over several months to reach Sirotin by telephone at his home in England were unsuccessful.

Judgments totaling more than $5.5 million already have been awarded in eight other suits against Sirotin, almost all of them brought by creditors, including Weston-Lusk, the general contractor for all three of Sirotin’s developments, for nonpayment of fees.

Last year, a London law firm representing Weston-Lusk obtained a court order freezing Swiss, French and English bank accounts belonging to Sirotin.

The contractor is seeking to recover about $2 million in unpaid construction fees for The Commons, as well as about $2.3 million in previously awarded civil suit judgments. According to Peggy Gerber, a Santa Monica attorney representing the contractor, no money has been recovered under the London court order.

Long Legal Battle

None of the other plaintiffs in the settled suits have been able to collect a penny from Sirotin, according to their attorneys. And now, more than six years after Sirotin first offered investment opportunities in his Pasadena projects, several of those who invested in them and provided services to them are wearily fighting an extended legal battle to recover their losses.

In their suits, the investors contend that Sirotin never repaid their investments, nor did he ever pay the returns of up to 60% he promised on those investments. They also allege that Sirotin’s three Pasadena projects were built while Sirotin was commingling and pocketing a substantial portion of the projects’ funds. State investigator Lomas, in the affidavit filed last year, concurred with the investors. Lomas said in the affidavit that “some of the investors’ funds were commingled and were used apparently for Sirotin’s personal use and other unlawful purposes.”

For those who have won judgments, the victory is hollow. Except for his abandoned Malibu home, posted in 1983 by Los Angeles County as unsafe because it is in the Big Rock Mesa slide area, Sirotin has no identifiable assets in this country, attorneys involved in the settled suits said. Because of that, there is nothing to attach for payment of the judgments.

On April 16, the Malibu home was sold for $1,000 to a Sirotin creditor who had a lien on the property. The creditor, D & R Project VII, is a Los Angeles limited partnership that was awarded a $56,500 civil suit judgment against Sirotin for fraud and breach of contract in 1983. The partnership had sued Sirotin in Los Angeles Superior Court over a 1975 film deal in which Sirotin allegedly sold the partnership a motion picture that he did not own, according to Jerome Weinstein, the attorney representing D & R Project VII.

Weinstein said that his client hopes to sell or lease the house after making a few “minor repairs.” Any proceeds will be used to satisfy his client’s judgment, which now totals about $70,000, including interest, he said. “This was the only asset that hadn’t been picked over,” Weinstein said. “We’ve had investigators and investigators and investigators (looking into Sirotin’s assets), and there’s nothing left in this country.”

Living in England

For now, the 61-year-old developer born in New Jersey is not actively fighting his legal battles here. According to Weston-Lusk’s attorney Gerber, Sirotin is living in a mansion near Crowhurst in East Sussex in England, drives a Mercedes and is putting together real estate developments.

Many of the investors who are currently involved in litigation against Sirotin are looking to the joint investigation by the state and the district attorney’s office as their best hope. They theorize that if the state can amass a strong enough case to get Sirotin extradited, it may then be possible to seize his foreign assets.

Whether that will happen is unclear. What is clear, however, is that this is not the first time that the entrepreneur has been accused of financial wrongdoing. Interviews with former business associates and reviews of court documents revealed that Sirotin has a history of financial troubles that dates back almost 20 years, a period marked by dozens of civil suit judgments against him in California and Wisconsin.

But no one in Pasadena was aware of that when Sirotin first came to the city.

From 1978 to 1984, Sirotin was one of the city’s premier developers, building The Commons at 142 S. Lake Ave.; the Burlington Arcade, a two-story retail complex at 382 S. Lake that was modeled after the London landmark of the same name, and Les Bureaux, a nine-story office building at Hudson Street and Colorado Boulevard.

Two Smaller Land Deals

During that time, Sirotin also bought and sold at least two other properties, one in South Pasadena and the other in Pasadena, but they were not related to his three larger development projects.

Presenting himself as a cosmopolitan world traveler, he ate at the finest restaurants, drove a Rolls-Royce, lived in his hilltop Malibu home, and promised community leaders that his projects would transform not only the look of the city, but the life styles of its inhabitants as well.

“He was kind of like the Music Man,” said Daniel Hayes of Hayes & Co., a commercial brokerage firm in Pasadena hired by Sirotin to find tenants for his developments. Hayes is also one of the creditors who has filed suit against the developer, claiming that Sirotin owes him more than $200,000 in fees.

“He all of a sudden appeared in Pasadena and he had a sales pitch on all the good things he expected for Pasadena,” Hayes said. “He was saying that Pasadena is ripe for development. . . . It just needs somebody to promote it.”

When Sirotin began promoting his Pasadena development plans, much was written about him and his wife, Beryl.

Columnist Approached

In an article in The Times’ Home magazine in 1979, he told of playing backgammon with syndicated bridge columnist Alfred Sheinwold, of building the first bowling alleys in Europe, of television productions, and of erecting office buildings in Madison, Wis.

Sheinwold, reached at his Los Angeles home, said he met Sirotin about 16 years ago, when Sirotin approached him with a business proposition.

At that time, Sirotin, who was living on Bel-Air Road in Los Angeles, managed a Southern California business called Flight Center, a company that taught flying and other skills by using audio-visual equipment. Sirotin wanted Sheinwold to set up a program to teach bridge using the equipment, Sheinwold said.

“It was a spectacularly unsuccessful project,” Sheinwold said. Sirotin paid him $2,500 for his work, then promptly borrowed the same amount from him. “He borrowed ($2,500) from me to save his house,” Sheinwold said. The money was never repaid and Sirotin lost his home to foreclosure in November, 1970, according to court documents.

Except for the unsuccessful bridge program, Sheinwold said his relationship with Sirotin was social. “He was immensely amusing, very lively, very quick-witted,” Sheinwold said. “I didn’t know then and I don’t know now what happened to his real estate dealings in Pasadena.”

No Record of Law Degree

According to articles that appeared in The Times in 1979, Sirotin graduated from the University of North Carolina and earned a law degree from Columbia University by attending night classes for seven years.

But there is no record of Sirotin receiving a law degree from Columbia, nor has the university’s law school ever offered night classes, said Assistant Dean Carolyn Wood of the office of student services at the law school. Alumni records at the main campus of the University of North Carolina at Chapel Hill show that Sirotin was enrolled there in 1942, but there is no record indicating that he received a diploma, said Wes Lefler, a university spokesman.

Little could be learned about Sirotin’s actions between his discharge from the Navy in 1946 and his appearance in Madison, Wis., in 1964.

In Madison, Sirotin is alleged to have played a role that is similar to the one he is accused of in Pasadena.

According to former business associates in Madison, Sirotin left behind two financially troubled office buildings and a half-finished luxury hotel on the shores of Lake Michigan. He also left behind judgments in 16 civil suits that resulted in awards of $179,903 against him, according to court records. Most of the suits stemmed from claims of unpaid loans.

Not Able to Collect

“He left here and ran to California, where he . . . filed bankruptcy,” said Charles Bylsma, executive director of the Mental Health Assn. of Wisconsin. Bylsma said he lent Sirotin $10,000 for one of the Madison buildings, but has never been able to collect the debt or the civil suit judgment of $13,123 he was awarded for it in 1968.

Although Bylsma had his judgment transferred to California courts, he said he has never been able to collect because Sirotin filed for bankruptcy in 1971.

“I was a sucker,” Bylsma said. “I had a mortgage on the land as collateral. The collateral he was giving out was no good. He had deeded the title over to another company.”

Sirotin also left behind two unpaid bank loans totaling $17,100, according to a Madison bank official. “He just took off like a big bird,” said Robert Paunack, former president of the Commercial State Bank of Madison. “He never paid back either loan.”

Paunack said the bank granted Sirotin a $4,500 personal loan and a $12,600 business loan for 30 on the Square, a 10-story office building Sirotin erected in Madison. The bank sued over the loans, Paunack said, and was awarded a judgment of $15,981. “We transferred the judgment to California, but never pursued it,” he said.

Left Wisconsin in 1968

Sirotin left Madison in 1968, according to court documents. Three years later he filed for personal bankruptcy in Los Angeles.

In Sirotin’s bankruptcy filing, he and his wife listed 165 creditors and debts of $536,892. The oldest debt listed was a 1964 loan from the Bank of Miami Beach for $2,191. Other debts included the Wisconsin civil suit judgments, a $100,000 corporate loan with an option to buy Leisure Learning Corp., the holding company for Flight Center, and a $400 bounced check written for his son’s tuition at Fernald School, which is affiliated with the psychology department at UCLA.

According to the Home magazine interview, Sirotin also tried his hand at television production from 1968 to 1974. “I was an absolute failure,” he said in the interview. From there, he and Beryl ventured into celebrity management, with equally disastrous results, Sirotin said in the interview.

Little else could be uncovered about Sirotin’s activities during that period, but one court suit showed that Sirotin again was involved in allegations of financial misconduct.

In the mid 1970s, Sirotin operated the D’Blity Companies in Beverly Hills, an entity that he used to acquire and sell films. He sold a ballet film in 1975 called “The Wonderful World of Dr. Coppellius” to D & R Project VII, a limited partnership that distributes motion pictures.

Memo to Partner

“He sold my client a picture that he didn’t own,” said attorney Weinstein, who filed the fraud suit against Sirotin on behalf of D & R in 1983.

Weinstein said he introduced in court a memo written by Sirotin to his business partner in the film deal. In the memo, Sirotin told his partner to write a letter saying that the film had never been owned by other companies.

“I assume, of course, that there never was a sale,” said the memo, a copy of which was obtained by The Times. “Even if there was, lie about it and I will take it from there.” It was signed, “Love, Stan.”

In 1978, when Sirotin brought his development plans to Pasadena, he hired Beverly Hills real estate agent Fred Gottfurcht to solicit investors for his projects. Gottfurcht drew upon longtime clients to contribute capital, according to affidavits filed in court by the state.

In court documents and interviews with The Times, many investors said they got involved in the projects through Gottfurcht, who showed them letters from Sirotin that offered investment opportunities as lenders or limited partners in The Commons, Les Bureaux and the Burlington Arcade.

Broker Also a Defendant

Gottfurcht, who is named as a co-defendant in three of the investors’ suits, was the exclusive broker for Sirotin’s projects, according to Sirotin’s testimony in a 1983 deposition taken for a federal court suit filed against him and Gottfurcht by Harry Maron and two other plaintiffs who invested in The Commons and the Burlington Arcade. That action was later dropped in favor of a Los Angeles Superior Court suit, representing the same plaintiffs, that seeks $482,500 from Sirotin and Gottfurcht involving allegations including fraud and breach of contract.

The suits that name Gottfurcht as a co-defendant claim that the real estate broker knowingly conveyed false information about Sirotin’s projects. Gottfurcht’s attorney, Henry Rossbacher, denied those claims.

“Fred got taken just as everybody else did,” Rossbacher said. “You’re dealing with very sophisticated investors and banks, who were all fooled by Sirotin. Fred did not know that the representations made by Sirotin were false.”

Rossbacher said Gottfurcht was in Florida undergoing cancer treatments and was unavailable for comment.

Gottfurcht, who sued Sirotin over unpaid commissions and his own investments in the projects, was awarded a $2.39-million judgment against Sirotin in 1984, the largest settlement thus far. Like everyone else in the settled suits, Gottfurcht has not been able to collect a penny from Sirotin, Rossbacher said.

Settled Out of Court

In February, a suit filed against the Bank of America by Gottfurcht on behalf of between 60 and 70 investors in The Commons was settled out of court for about $1.8 million, according to Al Bunnage, the attorney representing Gottfurcht in that matter.

The suit sought to recoup $3 million loaned to Sirotin by the investors. Gottfurcht was the trustee for the loan, which was partially secured by an assignment of a portion of the Bank of America construction loan for The Commons.

The out-of-court settlement has been distributed among the 60 to 70 investors, who have received from one-third to three-fourths of their original investment, Bunnage said.

In interviews with The Times, investors admitted that they took Sirotin at his word, checking neither his background nor the collateral offered as security for their investments. “If we had just taken a little time to check him out before,” manufacturing executive Bill Axelrod said, “no one would have invested a dime in him.”

Axelrod invested $200,000 in Les Bureaux, based on a letter Sirotin wrote to solicit investors in 1979. As did Kaufer, Axelrod considered himself a knowledgeable real estate investor and he remembers thinking at the time that Sirotin was “a marvelous human being” who “wanted to make Pasadena a highlight of California.”

Two Investment Plans

There were two ways of investing in a Sirotin project, according to the investors and Sirotin’s sworn testimony in the 1983 federal court depostition. Some investors contributed money and became limited partners in the project, with their investment secured by a percentage interest in the building. Others loaned money, with their loans secured by trust deeds on the property.

State and county investigators say that based on limited partnership agreements filed with the county, more than 100 people became limited partners in Sirotin’s three projects. They say they have no estimate on the number of lenders nor have they been able to determine how much money went into the projects.

In Pasadena, city officials say that Sirotin’s name has become synonymous with bad business. “The city needs to be very careful that it doesn’t have another occurrence of the Stanley Sirotin type of development,” City Director Bill Thomson said at a Board of City Directors meeting last year.

Sirotin’s three commercial centers are still praised by city officials as beautiful examples of architecture, but the financial security of the structures had been rocky at best.

Les Bureaux was sold to Equitable Life Assurance Society in 1982 for about $15.8 million. In his prospectus letters, Sirotin had told investors that the building was presold to Equitable for $16.5 million.

All Offices Were Leased

Les Bureaux was the only project intended solely as an office building. Its tenants include Bank of America and Security Pacific Finance Corp. Les Bureaux also was the only development that was fully leased at the time it was sold, although its investors took a heavy loss, court documents show.

According to an affidavit filed by the state seeking Sirotin’s banking records, an examiner from the state Department of Corporations determined in 1983 that the Les Bureaux investors lost more than $3.4 million in the project while Sirotin benefited by more than $1.8 million.

The Burlington Arcade, more than $3 million in debt and half empty, was sold to Orange County developer Gayle Post in July, 1984. It took almost a year for escrow to close, Post said, because of liens against the property. Post said the arcade is still operating in the red, but is slowly recovering.

Of the arcade’s 14 spaces, 13 have been leased, Post said. The Burlington Arcade’s tenants now include an optician, a Japanese importer, an art gallery, a tanning salon and a jeweler.

Sirotin designed the arcade as a replica of the Burlington Arcade in London, a landmark built in 1819 and known as the longest shopping arcade in the world.

No Upper Entrances

The Pasadena arcade was originally planned to house both offices and retail shops, Post said, but the building’s architectural design made it impractical to do so. The new owner said the two-story, 15,000-square-foot building was constructed without separate entrances for second-floor tenants, and that not all tenants wanted to lease both levels.

He has since divided the upstairs and downstairs spaces and rents most of them separately, Post said.

Meanwhile, state investigator Lomas and Deputy Dist. Atty. Brown say they are steadfastly pursuing the Sirotin investigation despite its complicated and confusing aspects.

“This is my most difficult case,” Lomas said. “It’s getting on my nerves.”

Brown agrees. “It’s just hard to put together,” he said. “There are so many parties involved.”

The joint investigation is also hampered by Sirotin’s fragmented financial records, which “look like someone put a bunch of checks in a bag and shook them all up,” said one investigator from the district attorney’s Major Fraud Division.

MAJOR ACTIVE SUITS AGAINST SIROTIN

INVESTORS’ SUITS

Litigants William and Phyllis Axelrod, et al. vs. Stanley Sirotin, Fred Gottfurcht, et al. Date filed Oct. 15, 1982 Complaint Includes violation of securities laws, fraud, unjust enrichment, negligent breach of fiduciary duty. Amount Sought $3.65 million general damages; $100 million punitive damages

Litigants Harry Maron, et al. vs. Stanley Sirotin and Fred Gottfurcht Date filed Feb. 3, 1983 Complaint Includes breach of contract and fraud Amount Sought $482,500

Litigants Al Kaufer, et al. v. Stanley Sirotin, Fred Gottfurcht, et al. Date filed May 16, 1984 Complaint Includes racketeering, fraud, breach of contract, sale of unqualified securities Amount Sought $1 million punitive damages

Litigants Kermit and Anita Baumoel vs. Stanley Sirotin, et al. Date filed April 11, 1985 Complaint Includes failure to comply with securities law, fraud and deceit, unjust enrichment Amount Sought $20 million punitive damages

Litigants Marvin and Debra Dayan vs. Stanley Sirotin, Fred Gottfurcht, et al. Date filed Sep. 26, 1985 Complaint Includes fraud and negligence Amount Sought $700,000 general damages; $6 million punitive damages

CREDITORS’ SUITS

Litigants Jay Property Systems Inc., hired by Sirotin to operate, manage and supervise Les Bureaux Date filed July 27, 1983 Complaint Breach of contract Amount Sought $135,000

Litigants Marjorie Nicholas Date filed Nov. 1, 1983 Complaint Unpaid legal fees Amount Sought $26,124

Litigants Daniel Hayes Co. Inc. Date filed June 6, 1984 Complaint Unpaid leasing fees Amount Sought $203,921

Litigants Consolidated suit on behalf of four creditors for nonpayment of fees associated with The Commons Date filed Sep. 28, 1984 Amount Sought Langdon & Wilson, architects: $178,000. Symonds Feola, architects: $25,431. Twining Labs, structural inspection and testing services: $23,399. Weston-Lusk, contractor: $2 million

Litigants Stanley Zipser, attorney Date filed Feb. 13, 1985 Complaint Unpaid legal fees Amount Sought $17,076

COURT-ORDERED JUDGMENTS AGAINST SIROTIN

Awardee Center Financial Group Inc., a licensed real estate broker. Date Feb. 14, l983 Description Suit for breach of contract. CFG claimed that Sirotin contracted with Center Financial to find lender for The Commons project. Amount $30,411

Awardee JPS Construction Date Jan. 3, 1984 Description Suit for foreclosure of mechanic’s lien stemming from unpaid fees for interior finishing work done at the Burlington Arcade. Amount $22,312

Awardee Weston-Lusk, contractor. Date Oct. 15, 1984 Description Suit for unpaid construction fees from The Commons. Amount $2,052,145

Awardee Weston-Lusk, contractor. Date Oct. 17, 1984 Description Suit for unpaid construction fees from Les Bureaux. Amount $61,101

Awardee Weston-Lusk, contractor. Date Oct. 18, 1984 Description Suit for unpaid loan from Weston-Lusk to Stanley Sirotin for The Commons project. Amount $178,368

Awardee Frank Youngblood, investor in The Commons. Date Oct. 25, 1984 Amount $220,228

Awardee Fred Gottfurcht, exclusive real estate broker for Sirotin’s projects. Date Jan. 7, 1985 Description Suit for breach of contract over unpaid commissions and investments made in Sirotin’s projects. Amount $2,399,636

Awardee Imperial Bank Date Feb. 26, 1985 Description Suit for unpaid loan. Amount $582,906