Kaua‘i resident James Lull could find only one term to explain what motivated him to try to satisfy three creditors with promises of the same asset in less than 10 days: “Scrambling.”
The former branch manager at U.S. Financial Mortgage Corp. racked up more than $31 million in liabilities, telling creditors in a bankruptcy proceeding yesterday that their investment money had been used in a financial juggling act that saw new loans pay down old debt.
“A long time ago the money that I borrowed was used for what I said,” he told creditors who gathered in Honolulu and via teleconference on Kaua‘i. “And down the road it wasn’t.”
Lull filed bankruptcy in December, halting about a dozen legal disputes and leaving a trustee to decide how to divide a little more than $6.6 million between a growing list of more than 30 creditors, many of whom reside on Kaua‘i.
Those creditors include everyone from business associates to Stephanie and William Britt, Kaua‘i residents who loaned Lull $500,000 from the sale of their home and later filed suit when Lull failed to pay the notes.
“I told them I was going to put the money into short-term loans, but I didn’t,” Lull said yesterday.
The Britt’s case alleged that Lull interested the couple in investing in two high-yield “bridge loans” that would help with the acquisition of a property on Maui and with the completion of a Kaua‘i residence on Kahiliholo Road.
The same short-term Kahiliholo Road investment also attracted Jeanette Pheasant, a Kaua‘i resident who has also filed suit and to whom Lull acknowledged a $600,000 debt.
In actuality, Lull said he was in no position to grant a mortgage interest on the Kahiliholo property. Instead he spread the money across old debts — the same thing he did with money from other creditors, he said.
“I think I was just buying time,” Lull said, when asked how he had planned to repay a November loan of $725,000 from a Kapa‘a resident. “I don’t think I had a way. I was just scrambling.”
He did have hopes that two development projects would help him pay back some of the debts, he said.
“I had a plan, but it didn’t work,” he said of his dealings with the Britts. “I thought I would have enough proceeds coming from one of the entities to pay the Britts back.”
Those entities include the Kulana and the former Kulana Kai, now Kapa‘a Highlands, land development projects, he said.
Kulana, a 96-parcel property on Olohena Road, is the key project of Kapa‘a 382, a limited liability corporation of which Kaua‘i Lease and Loan is a managing partner. Lull, vice president of KLL says he holds 50 percent of KLL’s shares, he said.
Lull also reported an 18 percent share in Kapa‘a Highlands, which sits across the road from Kulana.
Both companies have distanced themselves from Lull during the past year. Kapa‘a 382 filed suit in October, alleging that he had defaulted on a loan.
“He’s a debtor in default with Kaua‘i Lease and Loan’s biggest investment,” said William Hancock, president of KLL, who described Lull as a vice president with no authority.
In August 2006 state business records show that Lull ceased to be an officer at The Three Stooges, the limited liability corporation registered in 2003, which is involved in the Kapaa Highlands development project.
Lull’s bankruptcy proceeding includes a tangle of LLCs, lawsuits, properties, business associates and loans — a jumble that Ronald K. Kotoshirodo, the Honolulu-based trustee, must sort out without the aid of financial records that Lull said were destroyed in a flood at his home.
“I’ll do the best I can,” Kotoshirodo said after the proceeding. “I need to get an idea of what’s there.”
Creditors expressed doubt that such a large sum of money could have disappeared.
“Where is it?” Hancock said days before the creditor’s meeting. “That’s the question on everybody’s mind. It has to be some place.”
Lull told creditors yesterday that the money went to debts, interest payments, a coin collection, and expenses for Kaua‘i Lease and Loan, Garden Island Billiards and other investments.
“The last seven and a half years have been really brutal,” Lull said. “It just snowballed.”
The creditors meeting will resume on Feb. 8 at 1:30 p.m., Kotoshirodo said. Creditors who seek to have their loans classified as non-dischargeable must file by March 27.
