Investors seek state liability in Westhaven fraud

8/15/2007

Attorneys for several investors defrauded by John Ulmer's now-defunct Westhaven Group want a Lucas County Common Pleas Court judge to order the state of Ohio to cover costs related to liquidating the company's real estate.

Thomas Pigott, who represents the investors, argued before Judge Gene Zmuda yesterday that the state failed in its obligation to protect the residents of the state. In particular, Mr. Pigott said, the state had initiated an investigation of Westhaven in 1999 but let the company continue to operate until 2005.

He also argued that once a receiver was appointed to oversee Westhaven's dismantling, the state failed to negotiate reasonable hourly fees. He did not say how much he believes the state is liable for.

"To me it is unconscionable that the state of Ohio, having known fully what John Ulmer had done in 1999, sanctioned him and since that time, never came back to Toledo," Mr. Pigott said during the short hearing yesterday.

The motion was one of several heard by Judge Zmuda yesterday. Still pending are several questions that have arisen since an order of distribution was created Dec. 15. The order, issued by former Common Pleas Judge Thomas Osowik, outlined how Westhaven's $16 million in assets was to be distributed among the banks, creditors, and as many as 280 investors who are owed $28 million.

Westhaven - which bought, repaired, and resold blighted houses - committed securities fraud by failing to match several investments with any property or mortgages of equal value.

Yesterday, attorneys for several of the investors said that the state could have stopped the company long before investors stopped receiving returns on money they turned over to the company.

Matt Lampke, an attorney for the state, said that when investigators identify misconduct, they act quickly and do not seek bids from potential receivers, but ask the court to appoint one that has a good reputation. He also added that since 1999 the state has been compiling evidence against Westhaven.

"I understand the argument but I just don't think the state has any liability," he said. "It has limited resources. It generally acts on complaints. When the [securities] division came to court in 2005, it presented substantial evidence and so a receiver was appointed."

Contact Erica Blake at:

eblake@theblade.com

or 419-213-2134.