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This undeveloped land on the northwest edge of McMinnville was at the center of Berjac of Oregon's bankruptcy case. The 50-year-old Eugene-based firm took money from investors to support its insurance-premium financing business. Berjac also made real estate loans on projects that lost money or failed. This land is part of 120 acres or so that a developer, using money from Berjac, planned to build on. The plan was foiled.
(Thomas Boyd/The Oregonian/2013)
Berjac of Oregon attracted hundreds of investors through a bread-and-butter business model.
The Eugene-based firm extended short-term loans so small businesses could cover insurance premiums. Investors made money as borrowers paid back those loans with interest.
Stable returns and low risk kept the business going for decades.
But at some point, prosecutors say Berjac began making far riskier bets on real estate. Investors say they had no idea.
By the time Berjac toppled in 2012, prosecutors contend executives had constructed a $40 million Ponzi scheme that hurt more than 400 investors.
Now, four members of Berjac's founding family face dozens of federal criminal charges.
brothers Gary and Michael Holcomb, as well as Michael's daughters Jennifer Chalmers and Kristen Van Breemen, on Nov. 19. They were charged with 24 counts, including conspiracy, mail fraud and money laundering. The brothers, now in their 70s, share two additional charges of bank fraud and money laundering.
"It just feels like they should have to pay a little bit for what they did to all of us," said Kathleen Kiefer, of Bend, who followed in her parents' lead and invested in Berjac.
"It was a shock to find out what they were doing."
Fred "Jack" Holcomb founded Berjac 50 years ago in Eugene. It expanded to multiple satellite offices in Oregon, Colorado and Washington.
Michael Holcomb
His sons became equal partners in the operation in 1998, court documents say. Michael, the older Holcomb brother, oversaw Berjac of Oregon in Eugene. Gary Holcomb operated Berjac of Portland. Michael Holcomb's daughters managed the offices: Chalmers in Eugene and Van Breeman in Portland.
Prosecutors contend that by January 2008, the defendants had started steering investors' money away from the insurance-premium business. They bought a family vacation home and sunk millions of dollars on failed real estate projects. They arranged credit lines and tapped them to bolster the firm's portfolio. And -- in a Ponzi hallmark -- they used money from recent investors to repay earlier ones.
As Berjac's finances began to buckle, investors were apparently kept in the dark. The indictment alleges executives sent out quarterly statements that showed "constant and consistent increases."
"Defendants failed to disclose to investors that Berjac of Oregon and Berjac of Portland were insolvent and acted as a Ponzi scheme -- that is, the insurance premium financing business had not generated sufficient returns from which to pay interest and redemptions to investors," the indictment said.
With Gary Holcomb's assurance, Kiefer said, she deposited an annuity check of more than $90,000 shortly before the firm collapsed. She planned to redistribute most of the money to her daughter's college savings fund. "He said 'Your money is safe with me.'"
Years later, her family is still recovering from the devastating emotional toll of the loss, she said. "This wasn't just a business that went awry. This was people doing bad things for years," Kiefer said.
Court documents show Berjac's underfunded portfolio was worth $1.3 million in 2012. Investors were owed $40 million, or 31 times that.
Berjac's finances finally caved in August 2012. The brothers merged Berjac of Oregon and Berjac of Portland and filed voluntary bankruptcy the last day of the month. Prosecutors contend they kept accepting money from investors in the weeks leading up to the filing.
In fact, two days before Berjac sought Chapter 11 protection, Michael Holcomb and Gary Holcomb secured a $1 million business credit line from Century Bank. Then -- one day before their company filed for bankruptcy -- they withdrew $300,000.
The brothers' bank fraud charge stems from that withdrawal.
Berjac's cozy relationship with several Oregon banks has prompted lawsuits against the institutions in bankruptcy and civil courts. Investors fault lenders for not digging into Berjac's finances and cutting off credit lines that propped up the business' books.
Jack Holcomb is named in a class-action lawsuit, as well as the bank he founded, Pacific Continental Bank. Michael Holcomb sat on the financial institution's board until the Berjac bankruptcy.
It may be years before the bankruptcy proceedings, civil lawsuits and criminal case conclude. "We have an ongoing process of liquidating assets for creditors, and we are making substantial progress," said Thomas Huntsberger, the trustee who is overseeing the bankruptcy case.
Investors have received little recompense. David Mills, the Elmira attorney who represents several people on the creditors' committee, said there is a pending $5 million sale on a swath of property in McMinnville that could result in some payout.
Jennifer Chalmers, 44, of Eugene, was the only defendant who could be reached by The Oregonian/OregonLive on Wednesday. "At this time, I'm not ready to discuss that," she said before she hung up the phone.
No attorney is listed as representing Chalmers or her relatives. Kristen Van Breemen, 42, who also goes by her maiden name of Holcomb, resides in Happy Valley.
Michael Holcomb, 72, and Gary Holcomb, 70, both live in Junction City. Michael Holcomb continues to serve as secretary of the Oregon Air and Space Museum at the Eugene airport.
-- Molly Young
myoung@oregonian.com
503-412-7056
@mollykyoung