Deal set in mortgage firm bankruptcy
New Opportunities’ top two executives to pay $704,180 if judge OKS proposed settlement
The trustee for bankrupt San Antonio mortgage lending firm New Opportunities Inc. — accused of being a Ponzi scheme while incurring more than $25 million in losses — has struck a deal to end litigation with its two principals.
New Opportunities’ Terry A. Cleveland, a certified public accountant who served as president, and James W. Hale, a lawyer and company vice president, have agreed to pay the bankruptcy estate $704,180 as part of the settlement. In exchange, the trustee has agreed to release all claims against the pair.
The deal requires approval from a bankruptcy judge.
It’s possible that creditors in the case — 172 people who invested millions in New Opportunities — could object to the settlement, which represents pennies on the dollar for the $31 million in claims they hold.
A lawyer for 35 of the creditors who have a pending lawsuit against Cleveland and Hale in state District Court couldn’t be reached for comment. Under terms of the settlement, creditors would be prevented from proceeding with their lawsuit.
Among the plaintiffs in that lawsuit are officials with San Antonio’s Pape-dawson Engineers Inc.; CEO Sam Dawson allegedly lost $1.9 million investing with New Opportunities.
Trustee John Patrick “Pat” Lowe declined to comment, referring questions to his lawyer, Kell Mercer, who couldn’t immediately be reached.
At a Monday court hearing, Mercer told U.S. Bankruptcy Judge Michael Parker that some objections to the settlement had been resolved.
“We’ll just have to see,” Mercer said regarding other possible objections. The parties are scheduled to return to court April 1.
Cleveland’s attorney had no comment, and Hale’s lawyer didn’t respond to a request for comment.
Lowe sued Cleveland and Hale two years ago after the alleged financial collapse of New Opportunities, which had been
in business since 1989 before creditors forced it into bankruptcy in 2021. The company listed about $5.4 million in assets and $32.6 million in liabilities.
The duo started the firm to invest in real estate and later got into “equity-based mortgage lending” in San Antonio and the surrounding area. An equity mortgage is made in exchange for a
borrower executing a promissory note pledging to repay the lender at interest rates higher than conventional rates, Lowe said in the lawsuit. Such a loan is secured by a lien on the borrower’s real estate.
“A fundamental issue in this case would be whether or not the Defendants conducted a legitimate business operation or, instead, operated as a fraudulent Ponzi scheme,” Lowe said in his motion for settlement of his lawsuit.
New Opportunities and two other businesses “conducted little or no legitimate business operations,” Lowe concluded.
Cleveland and Hale countered that their businesses were legitimate but failed as the note portfolio balance eroded over time, the trustee said in his motion. The pair also denied that the debtors operated as a Ponzi scheme.
Ponzi scheme is the term for a fraudulent investment arrangement in which earlier investors
are paid with money from later investors.
A forensic accounting firm retained by Lowe “found no clear evidence” of embezzlement, larceny, exorbitant salaries or illegitimate expenses, but it found that the debtors operated at a loss for many years.
New Opportunities had touted in an advertising brochure that it “never lost one cent of principal.”
According to Lowe’s motion, Cleveland and Hale say they
originated “hundreds upon hundreds of loans” and generated “legitimate profits” over their more than 30 years in business.
The two men also say they acted “reasonably, diligently, and prudently as officers, directors and professionals” of bankrupt businesses, the motion said.
Taking the case to trial would cost hundreds of thousands of dollars and would substantially delay Lowe’s ability to make distributions in the case, possibly by years, he said in the court filing.