Dozens of former clients of disgraced financial adviser Gary Armitage packed a tiny bankruptcy court hearing room Wednesday in search of elusive answers from the man they say defrauded them out of millions.
Some hoped to learn if there was any chance they might recover some of their losses through the bankruptcy process.
Others sought to untangle the web of interrelated investment companies they say Armitage used to hide his schemes.
And still others just wanted to vent their frustration and ask how the millions of dollars in commissions Armitage made off them could have disappeared.
"You bragged about making $1 million a year for the past 10 years," said investor Susan Nowacki of Santa Rosa, one of many investors who had the opportunity to question Armitage directly. "Where did it all go?"
Armitage, who sat with his wife, Nell, before a bankruptcy trustee, stammered and seemed taken aback by the simplicity of the question.
"Taxes. Operating expenses. I don't know," said Armitage, a 57-year-old Healdsburg resident who co-owned AGA Financial in Santa Rosa from 1996 until its collapse in September as the lawsuits mounted.
"Fishing trips to Canada!" one person in the crowd offered.
The high-profile nature of the case and sheer number of investors who claim they were victimized by Armitage's schemes turned what is typically a routine meeting of creditors into a two-hour-long drama that was by turns tedious and tense.
Armitage is one of a group of men under investigation by the Department of Justice for running what investors say is a massive Ponzi scheme, a form of financial fraud that takes money from new investors to pay returns to earlier investors.
Justice Department officials say they have received more than 2,000 complaints from investors claiming to have lost more than $200 million in the scheme.
Armitage has not been arrested or charged with any crime.
U.S. Bankruptcy Court Trustee Andrea Wirum at times struggled to keep angry investors focused on the task at hand, which was supposed to be an opportunity for creditors to question Armitage about his bankruptcy filing.
"I know that this is really frustrating for everyone," Wirum said to a standing-room-only crowd of about 50 people, mostly senior citizens.
Armitage last month filed Chapter 7 bankruptcy protection, listing assets of $4.5 million and liabilities of $33 million, most of which stem from pending investor lawsuits.
When Armitage and his wife first entered the court building in Santa Rosa shortly after 2:30p.m., they were greeted by the glares of dozens of former clients waiting to attend the hearing.
As investors began crowding around him, Nell Armitage took her husband by the hand and whisked him toward the hearing room. As he tried to enter, Armitage was served with yet another lawsuit, this one by Santa Rosa attorney Roxanne Davis Jones.
Jones said she lost her $200,000 in a senior center called Newhall that was foreclosed upon because it was mismanaged.
Borrowing from family
Early in the hearing, Armitage and his wife described just how destitute they have become. They said have had to borrow money from family members just to pay their living expenses.
"We're not paying for gas," Armitage said. "We're borrowing money from my daughter."
Armitage's attorney, Russell Marne, filed court papers Feb.23 suggesting that Armitage planned to keep his $2.5 million Healdsburg home and a castle - a bed-and-breakfast inn he co-owns outside Redding - valued at $1.7 million.
But when attorney Martin Malkin, who represents a number of investors, asked how Armitage planned to afford the homes, Marne quickly changed course.
"They will be surrendered," he said.
Later in the hearing, individual creditors were allowed to ask questions of Armitage, but only if they dealt with his personal finances.
Investor Jack Pardella became upset when Armitage tried to distance himself from a company called Asset Real Estate and Investment, the Redding-based real estate firm that put together many of the land deals in which Armitage invested his clients.
AREI was founded by James Koenig, a convicted felon who served time in federal prison for a 1980s gold scam.
"Did you or did you not act as a consultant for AREI?" Pardella bellowed.
Under questioning from Pardella and others, Armitage acknowledged he did get paid as a consultant for AREI. The issue is a key one because investors have claimed that Armitage had numerous conflicts of interest because of his close relationships or ownership of the investments he steered his clients toward.
Armitage also for the first time acknowledged that he knew Koenig had a felony fraud conviction. But he claimed that after he became aware of the conviction, that information was included in investment documents from that point forward.
While he did act as a consultant for AREI and was a director, Armitage claimed he and partner Jeff Guidi never became owners of the company, as some lawsuits have claimed.
In 2006, they planned to take a 10 percent equity stake in AREI, but the transaction was never consummated.
"The deal got rescinded," Armitage said, without elaborating.
No clear picture
Such partial answers to many of the questions left many investors annoyed that a clearer picture didn't emerge about how investments Armitage promised them were perfectly safe could have imploded so completely.
"I thought it was a waste of my time," said Jeanne Maniscalco, who, along with her husband, Larry, are unable to retrieve their $225,000 from a sub-prime mortgage fund called MKA.
Maniscalco took issue with Armitage's efforts to distance himself from the management of AREI.
"He was the Big Kahuna," she said.
Bill Kelly drove up from Campbell to make sure that his mother, Callie Edwards, was listed as one of the creditors in the case.
Edwards lost her house in Brentwood to foreclosure after Armitage encouraged her to roll all of her assets, $210,000 worth, into AREI investments that have since evaporated. Edwards, 75, was forced to move to Colorado to live near her daughter.
"He's butchered a lot of people," Kelly said.
You can reach Staff Writer Kevin McCallum at 521-5207 or [email protected]