Problems continue to mount for Brea-based mortgage lender Fremont General Corp. as regulators monitoring its bankruptcy proceedings watch every asset being sold,even the art from its office walls.
The state’s insurance commissioner is challenging the sale of $4 million worth of Ansel Adams prints from the subprime lender, saying they belonged to its discontinued insurance business, Fremont Indemnity.
“We had no idea the prints existed until they were sold,” said Scott Pearce, a senior estate trust officer with the insurance commissioner’s office.
Insurance Commissioner Steve Poizner, who took over an insolvent Fremont Indemnity in 2003, is suing Fremont General and several executives for the money.
Fremont General auctioned off the prints through London-based Christie’s International PLC as an unidentified California-based company, which raised flags with the insurance commissioner, according to the lawsuit.
Others have argued Fremont may have wanted to keep its tarnished name as a bankrupt subprime lender concealed from potential buyers out of fear it would devalue the prints.
Fremont General once was one of the country’s largest subprime mortgage lenders. It packaged its loans into bonds and sold them to Wall Street.
But when the loans began to go bad, Fremont General was forced to buy them back, which ended up crushing the business.
The sale of the prints happened earlier in the year, when Fremont General was facing pressure from regulators and selling off assets to raise cash.
The Ansel Adams collection was said to be one of the largest in private hands, containing 120 silver-gelatin prints and 23 mural-sized prints that sold for $3.8 million.
The cash from the sale, as well as an estimated $200,000 worth of prints that didn’t sell, are being held in escrow, according to the insurance commissioner’s office.
The suit, filed on behalf of the insurance commissioner’s conservation and liquidation office, also accuses Fremont General of allegedly devaluing the prints by flooding the market with them.
When asked for proof of ownership of the prints, Fremont General sent boxes of documents that the commissioner claims proved the majority belonged to Fremont Indemnity.
The Insurance Commissioner believes Fremont Indemnity owned around 70% of the collection.
Fremont General, which now is under the control of federal trustees, declined to comment for this story.
The prints were acquired by Fremont Indemnity when Ansel Adams and the company’s then vice president David McIntyre worked together to decorate its offices.
When James McIntyre took over as chairman from his brother in 1989, the prints were transferred to Fremont General without being paid for, according to the insurance commissioner’s office.
But those are the least of Fremont General’s problems.
Financial Woes
Last year, the company racked up more than $1 billion in losses as the subprime mortgage market imploded.
In early 2007 it was ordered by the Federal Deposit Insurance Corp. to stop making loans. It began selling off key assets then.
Last fall, Orange County’s Stephen Gordon was hired to take over as chief executive.
Gordon brought with him a team of executives from Commercial Capital Bancorp Inc., a company he cofounded in Irvine in 1999 and then sold to Seattle-based Washington Mutual Inc. for nearly $1 billion in 2006.
He initially hinted that Fremont could be transformed into a community bank after the subprime problems had cleared.
But that’s no longer the case.
Sorting out the losses and moving through bankruptcy proceedings are its only activity these days.
Fremont General recently got regulatory approval to sell its primary business, Fremont Investment & Loan, to Maryland’s Capital- Source Inc. for $198 million.
CapitalSource said it would create a new bank with Fremont’s $5.6 billion in deposits and 22 branches.
Fremont General also recently reported to the court that it had assets of $362 million and debt of $326.5 million.
It hasn’t listed other liabilities, which include hundreds of millions in losses associated with Fremont Indemnity as well as its ongoing subprime-related losses, according to Pearce.
“It’s a big mess getting bigger,” he said.
Former officers and directors also are filing suit with the company over stock tied to their retirement plans.
In the end, Fremont’s creditors, such as Los Angeles-based Tennenbaum Capital Partners LLC, probably won’t get their money back, Pearce said.
It could be another 10 years until it’s all said and done with, he said.
“The only ones who will come out of this well will be the lawyers,” Pearce said.
