Creditors question Carinalli about debts

Clem Carinalli and his wife Anne Marie were peppered with questions Friday by creditors anxious to learn how they will be repaid as the couple works through the largest bankruptcy in Sonoma County history.

The meeting, which was moved to Odd Fellows Hall in Santa Rosa to accommodate the crowd of 100 creditors, provided lenders with their first opportunity to question Carinalli under oath about the state of his finances.

Sitting on a stage, Carinalli calmly answered detailed questions for two hours from the group of longtime business associates and the federal trustee assigned to oversee his case. He vowed to work with a committee created to represent creditors and said he was ready to go all the way to pay people back.

“Everything we have is for sale. We’re going to sell our house,” he said. “I’m going to do whatever the committee says to do.”

While the mood of the meeting was friendly — even jovial at times — Carinalli stunned some creditors when he disclosed that he had repaid one lender in July while halting payments to others ahead in line.

Carinalli paid off a $232,500 unsecured loan he received from the Sonoma State University Academic Foundation. At that time, Carinalli said he was not making any payments to unsecured creditors whose loans were not backed by property used as collateral.

Carinalli’s attorney, Merle Meyers, said the payment to Sonoma State was “inadvertent.”

“It’s complicated, but it has to do with county records,” Meyers said after the hearing, declining to elaborate.

Carinalli’s statements Friday also contradicted SSU executives who had previously stated that all seven loans made to Carinalli were secured with property, including the two that were outstanding as of this spring.

When contacted late Friday night, a spokeswoman for the university said executives initially thought the loan was secured but discovered sometime between June 30 and July 9 that it was not.

“We were surprised,” Susan Kashack said. “As soon as we discovered that, we contacted Mr. Carinalli. He subsequently paid off the loan.”

University executives believe the loan was initially backed by a Carinalli property when it was made in 1997 and don’t know how the collateral was removed from the loan, Kashack said.

Under bankruptcy law, the foundation might be required to return the $232,500 if it is determined that it received preferential treatment. If so, it might have to take out a loan to come up with the money that would go back into Carinalli’s bankrupt estate, Kashack said.

She said the university was not pursuing why the loan was unsecured.

“We don’t have any plans to pursue legal actions against Mr. Carinalli,” she said.

Following Friday’s meeting, Carinalli declined comment.

“We’ve already answered a lot of questions today,” Anne Marie Carinalli said.

Friday’s mandatory hearing was triggered by a small group of investors who pushed Carinalli into court by filing an involuntary bankruptcy because they felt he was providing preferential treatment to some creditors at the expense of others.

“Many people have called me and told me I did the right thing,” said Corrick Brown, one of those creditors and the former director of the Santa Rosa Symphony. “That’s all I want to say now.”

The bankruptcy case has divided Carinalli’s business associates into factions. Brown continues to feel resentment from some creditors who didn’t want to see Carinalli pushed into bankruptcy, he said.

Many of the creditors at the meeting were supportive of Carinalli.

Bob Oliver, a retired Santa Rosa dentist, joked with Carinalli and his attorney as he asked questions, including how fraud might impact the bankruptcy proceedings.

“If there are any allegations of fraud, the Carinallis would deny them,” Meyers said.

Oliver replied, “I don’t think there is any fraud either.”

Other creditors said they still had lingering concerns about Carinalli’s business.

Joe Mattos, who sold Sonoma Mortgage & Investment to Carinalli in the late 1990s and has since loaned him money, said he was surprised and angered that Carinalli repaid the unsecured loan from the SSU foundation. He said it raises further questions about Carinalli’s business practices.

“I have a lot of suspicions,” Mattos said. “I’m going to leave it at that.”

Carinalli used Sonoma Mortgage & Investment to broker the loans he arranged, packaging money from the SSU foundation and other investors and loaning it out to developers, including himself.

Mary Oliver, who attended the meeting as a representative for her 92-year-old mother, said she was also surprised to hear that Sonoma State was repaid. She said her mother, who requires 24-hour care, needs the money she loaned Carinalli.

“It’s a real concern for us and others,” she said. “His creditors are old.”

Carinalli amended his bankruptcy documents on Friday morning to indicate he has $196 million in assets, an increase of $12 million from the original amount filed in documents last week. He also subtracted $5 million from his total debts, now at $191 million.

On Friday morning before the creditors hearing began, Carinalli received approval to sell two assets for a combined $3.45 million at a hearing in U.S. Bankruptcy Court.

One is a property located at 2425 Mendocino Ave. that houses City Life Community Center. Carinalli wanted to sell the property for $2.75 million, with some of that money going to pay the real estate broker and a bank that loaned money on the property.

Judge Alan Jaroslovsky, who presides over U.S. Bankruptcy Court in Santa Rosa, approved the sale.

The judge also approved Carinalli’s request to sell a 50 percent stake in the vineyard land and buildings that house De La Montanya Winery, priced at $700,000.

Carinalli is expected in court again on Nov. 23 for a hearing on he plans to use cash received from his rental properties.