Page 1 of40 CLASS ACTION COMPLAINT FOR ORS …media.oregonlive.com/business_impact/other/Berjac Class Action... · CLASS ACTION COMPLAINT FOR OREGON SECURITIES LAW DAMAGES UNDER ORS

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10 IN THE CIRCUIT COURT OF THE STATE OF OREGON

11 FOR THE COUNTY OF MULTNOMAH

12 CHARLENE SUE COX, TRUSTEE OF ) CHARLENE SUE COX REVOCABLE TRUST )

13 DATED 10-9-08; ROSE E. HUTCHINSON; ) TIMOTHY A. HUTCHINSON; LESLIE )

14 HUTCHINSON; NICOLAS HUTCHINSON; ) GEORGE BURTON REX; MELISSA RAE )

15 REX; ROBERT SHELTON; EDITH ) SHELTON; EDITH SHELTON as custodian for)

16 AMY SHELTON; and WILDISH STANDARD ) PAVING CO., )

17 ) Plaintiffs, )

18 ) v. )

19 ) HOLCOMB FAMILY LIMITED )

20 PARTNERSHIP, an Oregon limited partnership; ) FRED "JACK" W. HOLCOMB, individually and)

21 inhis capacity as Trustee of the HOLCOMB ) FAMILY TRUST; JONES & ROTH, P.C., an )

22 Oregon professional corporation; PACIFIC ) CONTINENTAL BANK; and UMPQUA BANK, )

23 ) Defendants. )

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Case No.

CLASS ACTION COMPLAINT FOR OREGON SECURITIES LAW DAMAGES UNDER ORS 59.115 AND 59.137, AND AIDING BREACH OF FIDUCIARY DUTY

CLAIM NOT SUBJECT TO MANDATORY ARBITRATION

Filed Under ORS 21.160(1)(e) Claim More Than $10,000,000

Jury Trial Demanded

Page 1 of40 CLASS ACTION COMPLAINT FOR ORS 59.115 AND 59.137 DAMAGES, AND AIDING BREACH OF FIDUCIARY DUTY

ESLER, STEPHENS & BUCKLEY, LLP Attorneys at Law 888 S.W. Fifth Avenue, Suite 700 Portland, Oregon 97204-2021 Telephone: (503) 223-1510 Facsimile: (503) 294-3995

1 Individual and Representative Plaintiffs Charlene Sue Cox, Trustee of Charlene Sue Cox

2 Revocable Trust Dated 10-9-08; Rose E. Hutchinson; Timothy A. Hutchinson; Leslie Hutchinson;

3 Nicolas Hutchinson; George Burton Rex; Melissa Rae Rex; Robert Shelton; Edith Shelton, Edith

4 Shelton as custodian for Amy Shelton; and Wildish Standard Paving Co., on behalf of themselves

5 and on behalf of all others similarly situated, allege:

6 INTRODUCTION

7 1.

8 Plaintiffs and the class members are victims of a Ponzi scheme conducted by defendant Fred

9 "Jack" Holcomb, Michael S. Holcomb, Gary L. Holcomb, Berjac of Oregon, an Oregon general

10 partnership, and Berjac of Portland, an Oregon general partnership. The scheme began in Eugene in

11 or before the 1980s, and ended on August 31, 2012, when after first merging, Berjac of Oregon and

12 Berjac of Portland filed a bankruptcy petition. Until the 2000s, there were multiple affiliated Berjac

13 offices, with one in Denver, another in Seattle, a third in Portland, and a fourth in Eugene. This

14 case involves the Portland (Berjac of Portland) and Eugene (Berjac of Oregon) operations. Berjac

15 of Oregon, Berjac of Portland, Michael S. Holcomb, and Gary L. Holcomb are not defendants in

16 this case because they are in bankruptcy.

17 2.

18 Berjac of Portland and Berjac of Oregon raised and held over $43 million in investor funds

19 by the time they ceased operations and declared bankruptcy in August 2012. From no later than the

20 1980s, the Holcomb family (Fred, Robert, Michael, and Gary) sold securities, each security

21 consisting of an unsecured demand note payable by Berjac of Oregon or Berjac of Portland ("Berjac

22 Note"), together with the contract ofBerjac of Oregon or Berjac of Portland that each investor could

23 increase the amount of his investment at any time by depositing money into his Berjac account

24 without the inconvenience of Berjac preparing new documents to reflect each additional investment,


ESLER, STEPHENS & BUCKLEY, LLP Attorneys at Law 888 S.w. Fifth Avenue, Suite 700 Portland, Oregon 97204-2021 Telephone: ·(503) 223-1510 Facsimile: (503) 294-3995

1 and that the return on the purchaser's investment would be paid each month or quarter to the

2 purchaser based on the cumulative amount of his investment on the last day ofthe month or quarter.

3 These securities are referred to in this complaint as the "Berjac Securities," and they were sold to

4 investors, most of whom lived in the Eugene area, by means of brochures, a web site, and face-to-

5 face meetings. Each deposit into a Beljac account was a separate sale of a Berjac Security. The

6 Berjac Securities are not "covered securities" as defmed in 15 USC § 77r(b).

7 3.

8 Plaintiffs Charlene Sue Cox as Trustee of Charlene Sue Cox Revocable Trust dated 10-0-08,

9 Rose E. Hutchinson, Timothy A. Hutchinson, Leslie Hutchinson, Nicolas Hutchinson, Robert

10 Shelton, Edith Shelton, Edith Shelton as Custodian for Amy Shelton, and Wildish Standard Paving

11 Co. purchased Beljac Securities during the period beginning on January 1, 1992, and ending in mid-

12 2009. Plaintiffs Charlene Sue Cox as Trustee of Charlene Sue Cox Revocable Trust dated 10-0-08,

13 Rose E. Hutchinson, Timothy A. Hutchinson, Leslie Hutchinson, Nicolas Hutchinson, George

14 Burton Rex, and Melissa Rae Rex purchased Beljac Securities during the period beginning in mid-

15 2009 and ending on August 31, 2012.

16 4.

17 The scheme was accomplished with, and required the complicit assistance of, defendant

18 Pacific Continental Bank ("Pacific"), Century Bank ("Century") (predecessor by merger into

19 Pacific, and defendant Umpqua Bank ("Umpqua") (collectively "the Banks") and defendant Jones

20 & Roth, P.C. ("Jones & Roth"), an accounting firm. Without the Banks and Jones & Roth, Beljac

21 of Oregon and Beljac of Portland could not have maintained their Ponzi scheme.

22 5.

23 Investors were told that Beljac of Oregon and Beljac of Portland were involved in a safe and

24 secure business, i. e., insurance premium fmancing, and that investors could add to and withdraw

Page 30[40 CLASS ACTION COMPLAINT FOR ORS 59.115 AND 59.137 DAMAGES, AND AIDING BREACH OF FIDUCIARY DUTY


1 their money at any time, on demand. However, the insurance premium financing business was just

2 a front. The Holcomb Family secretly commingled funds invested in Betjac of Oregon and Betjac

3 of Portland, used virtually none ofthe funds for the insurance financing business, and used most of

4 the funds raised from investors to pay other investors who had requested a return of their money, to

5 pay returns to other investors, to pay interest and principal on various loans, to pay themselves and

6 other Holcomb Family members, to purchase real estate for the benefit of the Holcomb Family, and

7 to speculate in real estate development projects. Little, if any, of investor funds were actually used

8 in the insurance premium financing business, which was declining throughout the period and never

9 very profitable.

10 6.

11 By the time oftheir bankruptcy, Berjac of Oregon and Betjac of Portland had approximately

12 $1.3 million in insurance premium financing business, direct and indirect Bank loans of more than

13 $3 million, and liabilities to investors of more than $43 million on their books.

14 7.

15 The Bank loans were generally lines of credit, and were either made directly to Berjac of

16 Oregon or Betjac of Portland, or were made to other entities controlled by the Holcomb Family or

17 to one or more Holcomb Family members, and then funneled to Betjac of Oregon or Betjac of

18 Portland with the knowledge and acquiescence of the Banks. Although it is not a fact that plaintiffs

19 are required to prove, internal bank records show that the Banks knew, or had reason to know, that

20 the investors were in an extremely risky position because of Betjac of Oregon's and Betjac of

21 Portland's speculative real estate investments, and that Betj ac of Oregon or Berj ac of Portland were

22 using new investor funds to pay the Banks and prior investors.

23 8.

24 In 1996, the Holcomb Family sold a majority interest in its Denver, Colorado, operation



1 (BeIjac of Colorado, LLC) to Michael Tumock. For a period of time thereafter, Gary Holcomb

2 continued as a co-owner. In 2004, Tumock purchased the remainder of BeIjac of Colorado. BeIjac

3 of Colorado operated substantially the same as BeIjac of Oregon and BeIjac of Portland. Within a

4 few years of the sale by the Holcomb Family, Berjac of Colorado (renamed Bridge Premium

5 Finance, LLC) was shut down by the SEC, and Tumock was convicted for substantially the same

6 conduct that the Holcomb Family has engaged in with respect to BeIjac of Oregon or BeIjac of

7 Portland.

8 9.

9 Defendants Holcomb Family Limited Partnership ("HFLP"), the Holcomb Family Trust

1 0 ("HFT"), Jones & Roth, Century, Pacific, and Umpqua participated in and materially aided the

11 perpetuation ofthe BeIjac Ponzi Scheme and the sales ofBeIjac Securities in the ways described in

12 this complaint.

13 10.

14 Plaintiffs seek to recover the damages they and the class members sustained as a result of

15 the BeIjac Ponzi Scheme.

16 CLASS ACTION ALLEGATIONS

17 11.

18 Pursuant to ORCP 32, plaintiffs bring the claims alleged in this complaint on behalf of

19 themselves and on behalf of members of the following classes of persons:

20 (a) All persons who were sold BeIjac Securities during the period from January 1, 1992,

21 to August 31, 2012, by means of at least one of the misleading statements alleged in

22 paragraphs 48 and 49 of this complaint, which statements were misleading because of the

23 omission to state a material fact necessary in order to make the statements made, in light of

24 the circumstances under which they were made, not misleading; who did not know of the

Page 5 0[40 CLASS ACTION COMPLAINT FOR ORS 59.115 AND 59.137 DAMAGES, AND AIDING BREACH OF FIDUCIARY DUTY


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omission; who were not members of the Holcomb Family or employees of Berjac of Oregon

or BeIjac of Portland; and whose account balances resulting from purchase ofBerjac

Securities have not been fully paid ("the BeIjac Class");

(b) All persons who were sold BeIjac Securities during the period from January 1, 1992,

to mid-2009, by means of at least one of the misleading statements alleged in paragraphs 48

and 49 of this complaint, which statements were misleading because of the omission to state

a material fact necessary in order to make the statements made, in light of the circumstances

under which they were made, not misleading; who did not know of the omission; who were

not members of the Holcomb Family or employees ofBeIjac of Oregon or BeIjac of

Portland; and whose account balances resulting from purchase of BeIjac Securities have not

been fully paid ("the Umpqua Subclass");

(c) All persons who were sold BeIjac Securities during the period from mid-2009 to

August 31, 2012, by means of at least one of the misleading statements alleged in

paragraphs 48 and 49 ofthis complaint, which statements were misleading because of the

omission to state a material fact necessary in order to make the statements made, in light of

the circumstances under which they were made, not misleading; who did not know of the

omission; who were not members of the Holcomb Family or employees ofBeIjac of Oregon

or BeIjac of Portland; and whose account balances resulting from purchase ofBerjac

Securities have not been fully paid ("the Pacific-Century Subclass"); and

(d) All persons to whom Fred ("Jack") Holcomb directly or indirectly sold or

successfully solicited the sale ofBerjac Securities during the period from January 1, 1992 to

August 31, 2012, by means of at least one of the misleading statements alleged in

paragraphs 48 and 49 of this complaint, which statements were misleading because of the

omission to state a material fact necessary in order to make the statements made, in light of



1 the circumstances under which they were made, not misleading; who did not know of the

2 omission; who were not members of the Holcomb Family or employees of BeIjac of Oregon

3 or BeIjac of Portland; and whose account balances resulting from purchase ofBeIjac

4 Securities have not been fully paid ("the Fred Holcomb Subclass").

5 12.

6 This action is brought, and may properly be maintained, as a class action because:

7 (a) the class is so numerous that joinder of all members is impracticable;

8 (b) there are questions of law or fact common to the class, and those questions

9 predominate over questions that affect only individual members;

10 (c) the claims of the representative parties are typical of the claims of the class;

11 (d) the representative parties will fairly and adequately protect the interests of the class;

12 and

13 (e) the representative parties have complied with the pre litigation notice provisions of

14 ORCP 32H.

15 13.

16 Plaintiffs estimate that there are more than 400 class members, making individual joinder of

17 all members impractical under the circumstances of this case.

18 14.

19 The common questions oflaw or fact at issue in this case include:

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(a) Whether the BeIjac Securities that were issued to plaintiffs and the class members

by BeIjac of Oregon, an Oregon general partnership, or BeIjac of Portland, an Oregon

general partnership (the "BeIjac Securities") are "securities."

(b) Whether sales ofthe BeIjac Securities to plaintiffs and the class members are

governed by the Oregon Securities Law.


ESLER, STEPHENS & BUCKLEY, LLP Attorneys at Law 888 SW. Fifth Avenue, Suite 700 Portland, Oregon 97204-2021 Telephone: (503) 223-15 \0 Facsimile: (503) 294-3995

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(c) Whether Berjac of Oregon and Berjac of Portland operated a Ponzi scheme financed

by means of the sales ofBerjac Securities.

(d) Whether the Berjac Securities were sold to plaintiffs and the class members by

means of at least one ofthe misleading statements alleged in paragraphs 48 and 49 ofthis

complaint, which statements were misleading because of the omission to state a material

fact necessary in order to make the statements made, in light of the circumstances under

which they were made, not misleading.

(e) Whether the insurance premium fmancing business of Berjac of Oregon and Berjac

of Portland was, in fact, a small part of their business operations.

(f) Whether making speculative and risky loans for the development of real estate was a

large part of the business operations ofBerjac of Oregon and Berjac of Portland.

(g) Whether purchasers of Berjac Securities were not told the true nature of the business

ofBerjac of Oregon and Berjac of Portland.

(h) Whether Umpqua Bank materially aided and participated in the sales ofBerjac

Securities to plaintiffs and the class members.

(i) Whether Century Bank materially aided and participated in the sales ofBerjac


Whether Pacific materially aided and participated in the sales of Berjac Securities to

plaintiffs and the class members.

(k) Whether the Banks had an essential role in perpetuating the Berjac Ponzi Scheme.

(1) Whether the Banks made concealment of the Berjac Ponzi Scheme possible.

(m) Whether the Holcomb Family Limited Partnership materially aided and participated

in the sales ofBerjac Securities to plaintiffs and the class members.

(n)

Page 8 of40

Whether the Holcomb Family Trust materially aided and participated in the sales of

CLASS ACTION COMPLAINT FOR ORS 59.115 AND 59.137 DAMAGES, AND AIDING BREACH OF FIDUCIARY DUTY


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Berjac Securities to plaintiffs and the class members.

(0) Whether Fred ("Jack") Holcomb directly or indirectly controlled Betjac of Oregon

and Betjac of Portland.

(P) Whether Jones & Roth, P.c., materially aided and participated in the sales ofBetjac


(q) Whether Betjac of Oregon and Betjac of Portland were conducting a securities

business.

(r) Whether, in connection with the conduct of a securities business, Betjac of Oregon

and Betjac of Portland employed a device, scheme, or artifice to defraud.

(s) Wh~ther, in connection with the conduct of a securities business, Betjac of Oregon

and Betjac of Portland engaged in an act, practice, or course of business that operated or

would have operated as a fraud or deceit upon any person.

(t) Whether Fred ("Jack") Holcomb, Holcomb Family Limited Partnership, Holcomb

Family Trust, Jones & Roth, and the Banks materially aided persons who violated ORS

59.135(1), (2), and (3).

(u) Whether Betjac of Oregon and Betjac of Portland owed duties to plaintiffs and the

class members.

(v) Whether each of the defendants knew that Betjac of Oregon and Betjac of Portland

owed duties to plaintiffs and the class members that were being breached and gave

substantial assistance or encouragement to Betjac of Oregon and Betjac of Portland to

breach duties owed to plaintiffs and the class members.

(w)

(x)

(y)

Page 90[40

The proper measure of damages for the ORS 59.115 securities claims.

The proper measure of damages for the ORS 59.137 securities claims.

The proper measure of damages for aiding breach of duty claims.



1 15.

2 Plaintiffs' claims are typical of the claims of the other class members. Plaintiffs and the

3 other class members are victims of the BeIjac Ponzi Scheme. Plaintiffs and the other class members

4 were sold BeIjac Securities by means ofthe same misleading statements, and plaintiffs and the other

5 class members did not know that the statements made were misleading because of the omission to

6 state a material fact necessary in order to make the statements made, in light of the circumstances

7 under which they were made, not misleading.

8 16.

9 Plaintiffs will fairly and adequately protect the interests ofthe class members. Plaintiffs

10 have retained lawyers who are cotp.petent and experienced in complex securities litigation on behalf

11 of investors.

12 17.

13 The nature of this action and the nature of the law available to plaintiffs and the class

14 members make the use of the class action procedure a particularly efficient and appropriate

15 mechanism to afford relief to plaintiffs and the class members because:

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(a) The individual amounts of damages involved, while not insubstantial, are such that

individual actions or other individual remedies for many of the investors are impracticable,

and litigation of many of the individual actions would be too costly and burdensome.

(b) The case involves a large number of investors with relatively small claims that have

common issues of law and fact in common claims against a small number of defendants.

(c) If each member of the class were required to file an individual lawsuit, the

defendants would necessarily gain an unconscionable advantage because they would be able

to exploit and overwhelm the limited resources of each member of the class.

(d)

Page 100[40

Multiple individual investor lawsuits claims would unnecessarily burden the court



1 system and would create the possibility of inconsistent results.

2 FIRST CLAIM

3 (Oregon Securities Law - ORS 59.115(1), (2), and (3) v. All Defendants)

4 18.

5 Plaintiffs reallege the preceding paragraphs.

6 The Securities

7 19.

8 This case arises from sales of Berjac Securities to plaintiffs and the class members, each

9 security consisting of an unsecured demand note payable by Berjac of Oregon or Berjac of

10 Portland ("Berjac Note"), together with the c~ntract of Berjac of Oregon or Berjac of Portland

11 that each investor could increase the amount of his investment at any time by depositing money

12 to his Berjac account without the inconvenience of Berjac preparing new documents to reflect

13 each additional investment, and that the return on the purchaser's investment would be paid each

14 month or quarter to the purchaser based on the cumulative amount of his investment on the last

15 day of the month or quarter. Each deposit into a Berjac account was a separate sale of a Berjac

16 Security. The names of the plaintiffs and the amounts owed on the Berjac Securities they

17 purchased as of August 3 1, 2012, are set forth in the attached Exhibit A. All of the plaintiffs are

18 citizens of Oregon, and more than 75% of the class members are citizens of Oregon.

19 Berjac of Oregon, Berjac of Portland, and the Holcomb Family

20 20.

21 In 2012, Berjac of Oregon and Berjac of Portland were merged, and Berjac of Oregon

22 was the surviving entity. (Berjac of Oregon, Berjac of Portland, and the Holcomb Family are

23 collectively referred to in this complaint as "the Berjac Enterprise.") Before they merged, Berjac

24 of Oregon and Berjac of Portland each maintained a single operating bank account, each of them



1 used the funds in the other's bank account when needed, and their operations and funds were

2 commingled. Shortly after the merger, Berjac of Oregon filed a voluntary Chapter 11

3 bankruptcy petition on August 31, 2012.

4 21.

5 Michael S. Holcomb ("Michael") and Gary L. Holcomb ("Gary") were general partners

6 in the Berj ac Enterprise, at least up to the bankruptcy filing, for at least the ten years before the

7 merger. Berjac of Oregon and Berjac of Portland were alter egos of each other and of Michael

8 and Gary. Involuntary bankruptcy petitions were granted against Michael and Gary in 2013, and

9 an automatic bankruptcy stay is in place that prevents civil litigation against them and Berjac of

10 Oregon. Michael and Gary sold Berjac Securities to plaintiffs and the class members. Michael

11 was on the board of directors of Pacific. Michael and Gary are members of the Holcomb Family.

12 22.

13 Defendant Fred "Jack" W. Holcomb ("Fred") is Michael's and Gary's father, and Trustee

14 ofthe Holcomb Family Trust ("HFT"). He and his brother Robert H. Holcomb founded the

15 Berjac Enterprise in 1963. At all times material, Fred was a person who directly or indirectly

16 controlled the Berjac Enterprise and HFT. He supposedly retired in the early 1990s, but he

17 remained in direct or indirect control of the Berjac Enterprise with Michael and Gary. Fred is a

18 member ofthe Holcomb Family. HFT is part of the Holcomb Family. Fred sold or successfully

19 solicited the sale of Berjac Securities to plaintiff Charlene Sue Cox as Trustee of Charlene Sue

20 Cox Revocable Trust dated 10-0-08 and class members. He participated in, and materially aided,

21 the sales of Berjac Securities to plaintiffs and the class members by developing and structuring

22 the Berjac Enterprise's business plan, an integral part of which involved raising money from

23 investors by means of one or more of the misleading statements described below. He

24 participated in the sales of Berjac Securities to plaintiffs and class members by receiving


ESLER, STEPHENS & BUCKLEY, LLP Attorneys at Law 888 SW. Fifth Avenue, Suite 700 Portland, Oregon 97204-2021 Telephone: (503) 223-1510 Facsimile: (503) 294-3995

1 proceeds of sales of Berjac Securities in the fonn of distributions and payments. Fred also was a

2 founder of defendant Pacific, and for many years was its Chainnan of the Board of Directors.

3 23.

4 At all times material, defendant Holcomb Family Limited Partnership ("HFLP") was an

5 Oregon limited partnership, and Michael and Gary were its general partners and controlled it.

6 The limited partners in HFLP are all directly related to Michael, Gary, and Fred. HFLP is part of

7 the Holcomb Family. Together, Michael and Gary, or their bankruptcy estates, own

8 approximately 75% ofHFLP's beneficial interests.

9 24.

10 HFLP and HFT materially aided and participated in the sales ofB~rjac Securities by

11 applying for and obtaining lines of credit from Umpqua and Century for the benefit of the Berjac

12 Enterprise, and pledging Pacific shares of stock it owned to secure lines of credit and other loans

13 for the benefit of the Berjac Enterprise, to obtain funds to operate the Berjac Ponzi Scheme that

14 the Berjac Enterprise could not obtain on its own, and by providing a conduit for Umpqua's and

15 Century's loaned funds that (a) allowed the Berjac Enterprise to conduct the Berjac Ponzi

16 Scheme, and (b) perpetuated the Berjac Ponzi Scheme. The funds HFLP obtained from the

17 Banks were used by the Holcomb Family and the Berjac Enterprise to operate the Berjac Ponzi

18 Scheme. HFLP also participated in the Berjac Enterprise by receiving the benefit of investors'

19 investments through repayment of its loans. Payments to repay the money that HFLP borrowed

20 for the benefit ofthe Berjac Enterprise were made directly by the Berjac Enterprise from the

21 proceeds of the sale of Berjac Securities. HFLP's sole business activity was to hold Pacific stock

22 for Holcomb Family members and to materially aid and perpetuate the Berjac Ponzi Scheme.

23 HFT participated in the sales ofBerjac Securities to plaintiffs and class members by receiving

24 proceeds of sales of Berjac Securities in the fonn of distributions and payments.


ESLER, STEPHENS & BUCKLEY, LLP Attorneys at Law 888 S.w. Fifth Avenue, Suite 700 Portland, Oregon 97204-2021 Telephone: (503) 223-1510 Facsimile: (503) 294-3995

1 Jones & Roth

2 25.

3 Defendant Jones & Roth, P.C. ("Jones & Roth"), is an Oregon professional corporation.

4 It or its predecessor provided certified public accounting, consulting, and advisory services to the

5 Berjac Enterprise from January 1, 1992, to August 31,2012. Although financial statements that

6 Jones & Roth or its predecessor prepared for the Berjac Enterprise were not given to investors,

7 those financial statements and the tax returns it or its predecessor prepared were essential for the

8 maintenance and operation of the Berjac Enterprise because the Banks insisted on having these

9 documents in their loan files.

10 26.

11 Jones & Roth participated in and materially aided the sale of Berjac Securities (a) by

12 providing certified public accounting, consulting, and business advisory services to the Berjac

13 Enterprise that allowed the Berjac Enterprise to conduct its Ponzi scheme; (b) by creating or

14 materially aiding the creation of the misleading appearance that the Berjac Enterprise was a

15 legitimate, trustworthy, and financially responsible and viable business that was trusted by, and

16 merited the confidence of, an established and reputable public accounting firm; and.(c) by being

17 paid from money invested by plaintiffs and class members.

18 The Banks

19 27.

20 Defendant Pacific Continental Bank ("Pacific") was founded in 1972 in Eugene, Oregon.

21 It is headquartered in Eugene, and has 15 offices in Oregon and Washington. In 2012-13, its

22 holding company, Pacific Continental Corporation, acquired Century Bank ("Century").

23 Subsequently, Century's single location became aPCB office. Pacific is the successor by merger

24 of Century, and is liable to plaintiffs and the class members for Century's torts. At all times



1 relevant, a member of the Holcomb Family was on Pacific's Board of Directors.

2 28.

3 Defendant Umpqua Bank ("Umpqua") is headquartered in Portland, Oregon, and has 200

4 offices in Oregon, Washington, California, and Nevada.

5 29.

6 A key part of the Berjac Ponzi Scheme was that the Berjac Enterprise paid investors

7 interest on the amounts they invested monthly or quarterly, and told investors that they could

8 withdraw money they invested any time they wanted. They were told that Berjac accounts were

9 like bank accounts except that there was no FDIC insurance, but that FDIC insurance was

10 unnecessary because of the particular way the insurance premium financing loans were secured.

11 Accordingly, the Berjac Enterprise held itself out as a bank that paid higher interest rates, and

12 although it was not FDIC insured, it was in such a safe and conservative business (insurance

13 premium financing) that investors' money would be safe and secure.

14 30.

15 Umpqua, Pacific, and Century had an essential rol~ in the Berjac Enterprise and Ponzi

16 Scheme. To keep the Berjac Ponzi Scheme concealed from past and future investors, the Berjac

17 Enterprise had to have the ability (a) to timely pay interest promised to investors, and (b) to

18 promptly pay any investor's demand for partial or full repayment. When, as frequently

19 happened, new investor funds and the revenues from the insurance premium financing business

20 were insufficient for the Berjac Enterprise to timely pay the promised interest to existing

21 investors or to promptly pay demands from existing investors for partial or full repayment,

22 Umpqua, Pacific, and Century provided the cash to pay the investors through direct and indirect

23 lines of credit to the Berjac Enterprise. The lines of credit were not necessary for the insurance

24 premium financing business that the Berjac Enterprise operated. As new investor money was



1 received, the Berjac Enterprise used that money to repay advances from the direct and indirect

2 lines of credit that Umpqua, Pacific, and Century provided.

3 31.

4 Umpqua materially aided and participated in the Berjac Ponzi Scheme by providing

5 direct and indirect lines of credit to the Berjac Enterprise from approximately 1992 (when the

6 lines of credit were provided by a predecessor) until mid-2009, thereby enabling the Berjac

7 Enterprise to conceal the Berjac Ponzi Scheme, and by receiving repayment of the loans it made

8 to the Berjac Enterprise from money paid by new investors who did not know that the Berjac

9 Enterprise was operating the Berjac Ponzi Scheme. Umpqua's credit reports show that Umpqua

10 knew that revenues from the Berjac Enterprise's insurance premium financing business were

11 insufficient to timely pay its obligations to its investors and to Umpqua itself, and that at least

12 part of the funds that Umpqua advanced through its lines of credit was being used to pay the

13 Berjac Enterprise's obligations to its investors. Umpqua's direct and indirect lines of credit

14 ranged between $3,000,000 and $4,000,000. In 2008, the Berjac Enterprise paid Umpqua more

15 than $5,900,000, most, ifnot all of which, was from investor money. In 2009, Umpqua agreed to

16 delay requiring its lines of credit to be paid off in order to permit the Berjac Enterprise to obtain

17 additional investor funds and to borrow money from other banks (such as Century) to repay its

18 obligations to Umpqua. Doing so enabled Umpqua to be repaid, and enabled the Berjac

19 Enterprise to continue to operate the Berjac Ponzi Scheme without a delay in payments to

20 investors during a period of high withdrawals.

21 32.

22 When Umpqua told Michael and Gary that they had to find a new bank to provide the aid

23 and assistance that Umpqua had been providing, the Berjac Enterprise turned to Century and

24 Pacific. Before providing aid and assistance like that provided by Umpqua, Century and Pacific



1 investigated the business of the Berjac Enterprise and asked Michael (then a Pacific Board

2 member) questions. Their investigation disclosed that the operations of the insurance premium

3 finance business were a small part of the overall operations ofthe Berjac Enterprise and that

4 revenues from the Berjac Enterprise's insurance premium financing business were insufficient to

5 timely pay its obligations to its investors and the Banks. Despite their investigation, Pacific and

6 Century agreed to provide lines of credit and loans to HFLP, HFT, one or more members ofthe

7 Holcomb Family, and the Berjac Enterprise that were used to make interest payments to

8 investors and to cover withdrawals by these investors. The Berjac Enterprise then made

9 payments directly to Pacific and Century Banks from investor funds to pay down the lines of

10 credit and loans even though the lines of credit and loans were borrowed in the names of other

11 members of the Holcomb Family, including Michael, HFLP, and HFT.

12 33.

13 In 2010 and 2011, the Berjac Enterprise paid Pacific more than $820,000 and $45,000,

14 respectively, most if not all of which was from investor money. In 2010 and 2011, the Berjac

15 Enterprise paid Century more than $1,900,000 and $4,700,000, respectively, most if not all of

16 which was from investor money.

17 34.

18 Indirect lines of credit for the benefit of the Berjac Enterprise were provided by Pacific

19 and Century through HFLP and HFT from mid-2009 to August 31, 2012. The general partners

20 ofHFLP, and Fred as Trustee ofHFT, obtained secured lines of credit from Pacific, and Century,

21 which were used to provide additional short-term cash advances to the Berjac Enterprise in

22 amounts that the Berjac Enterprise could not obtain on its own from Pacific and Century because

23 of lending limits that restricted additional unsecured loans to the Berjac Enterprise. The lines of

24 credit were secured by pledges of shares of Pacific stock. HFLP and HFT provided the collateral



1 and lines of credit so that the Berjac Enterprise could continue to conduct its Ponzi scheme and

2 sell Berjac Securities to plaintiffs and the class members. One credit officer at Century termed

3 its HFLP line of credit as "the loan oflast resort." The Berjac Enterprise always tried to pay

4 down the HFLP and HFT lines of credit and loans from the first money received from new

5 investors so that the lines of credit would be available in case of need in the future.

6 35.

7 Pacific and Century materially aided and participated in the Berjac Ponzi Scheme by

8 providing direct and indirect lines of credit to the Berjac Enterprise from mid-2009 until August

9 31,2012, thereby enabling the Berjac Enterprise to conceal the Berjac Ponzi Scheme, and by

10 receiving repayment ofthe loans it made to the Berjac Enterprise from money paid by new

11 investors who did not know that the Berjac Enterprise was operating the Berjac Ponzi Scheme.

12 36.

13 Umpqua, Pacific, and Century participated in and materially aided the sale ofBerjac

14 Securities (a) by providing the assistance needed to permit the Berjac Enterprise to function

15 without pause when withdrawals and interest payments exceeded new investor deposits; (b) by

16 providing funds and related banking services to the Berjac Enterprise that allowed the Berjac

17 Enterprise to conduct its Ponzi scheme; (c) by perpetuating the Berjac Ponzi Scheme by

18 providing the funds necessary to pay interest promised to investors on time and to pay promptly

19 demands of Berjac investors for full or partial payment of their notes by means of direct and

20 indirect lines of credit, thereby creating or materially aiding the creation of the misleading

21 appearance that the Berjac Enterprise was a legitimate, trustworthy, and financially responsible

22 and viable business that was trusted by, and had lines of credit from, established and reputable

23 banks; (d) in the case of Umpqua, by perpetuating the Berjac Ponzi Scheme by providing loan

24 extensions to the Berjac Enterprise after it knew that the Berjac Enterprise had no legitimate



1 business that could support timely payment of the Berjac Enterprise's obligations to its investors;

2 and ( e) by being paid from money invested by plaintiffs and the class members. Umpqua

3 participated in and materially aided the sale of Berjac Securities from 1992 to mid-2009. Pacific

4 and Century participated in and materially aided the sale of Berjac Securities 'from mid-2009 to

5 August 31, 2012.

6 The Securities Were Unlawfully Sold to Plaintiffs

7 37.

8 The Berjac Securities were offered and sold to plaintiffs and the class members in Oregon

9 in that the offers originated from Oregon, and plaintiffs' and the class members' offers to

10 purchase the Berjac Securities were accepted in Oregon, and the sales were completed in

11 Oregon.

12 38.

13 Throughout the period that the Berjac Enterprise sold the Berjac Securities, whether by

14 means of prospectuses or other promotional material and advertisements or by oral presentations,

15 the Berjac Enterprise described its business as short-term insurance premium financing to

16 insureds in the Western United States, including Colorado and Alaska. The Berjac Enterprise

17 told prospective investors that each office kept separate books and accounts, and did not

18 comingle funds, and that Berjac obtained the funds for making insurance premium financing

19 primarily from investors like themselves who purchased Berjac Securities. The Berjac

20 Enterprise described its Securities as safe, conservative investments comparable to money

21 market investments and certificates of deposit, but offering higher rates of interest, and

22 represented that the Berjac Enterprise earned enough interest on its insurance premium financing

23 loans that it could pay higher rates of interest to its investors than conventional banks paid.

24 These representations and statements or substantially similar representations and statements were



1 made to all prospective investors through August 2012.

2 39.

3 In fact, the Berjacinsurance premium financing business generally operated at a loss, and

4 was a front for the Berjac Ponzi Scheme. By the time the Berjac Enterprise collapsed in August

5 2012, its entire insurance premium financing receivables were only about $1,300,000, many of

6 which were uncollectible or in default, while the unpaid balances owed to plaintiffs and the class

7 members on Berjac Securities totaled more than $43,000,000, and the unpaid balances owed on

8 Bank lines of credit totaled more than $3,000,000.

9 40.

10 Beginning sometime before 2000, an economically much more significant aspect of the

11 Berjac Enterprise's business was using investor money to make loans for real estate development

12 and construction. The Berjac Enterprise obtained the funds for making the loans primarily from

13 investors who purchased Berjac Securities.

14 41.

15 Until 1996, the Berjac Enterprise registered its Notes with the Oregon Department of

16 Consumer and Business Affairs ("the Department"). In June 1996, the Department issued an

17 Order to Cease and Desist further violations of the Oregon Securities Laws to Berjac of Oregon,

18 Michael, and Gary. The Order recited that they had sold Berjac Securities unlawfully because

19 the Berjac Enterprise's application for registration described the Berjac Enterprise's primary

20 business as the financing of insurance premiums and did not disclose that the Berjac Enterprise

21 was engaging in the purchase, remodeling, and resale of an oceanfront house near Gold Beach to

22 the Holcomb Family. Thereafter, instead of making the required disclosures regarding its real

23 estate development business, its business in areas other than insurance premium financing, and

24 the insider transactions between the Berjac Enterprise and the Holcomb Family, the Berjac



1 Enterprise continued to sell Berjac Securities to plaintiffs and the class members without

2 registration and without the disclosures and audited financial statements that the registration

3 regulations required.

4 42.

5 Before and after the Cease and Desist Order, to induce investors to purchase Berjac

6 Securities, the Berjac Enterprise told investors that the Securities were extremely safe because of

7 the way the Berjac Enterprise's short-term insurance premium financing business works. The

8 Berjac Enterprise explained that some insureds borrowed money to pay the annual premium for

9 the insured's casualty insurance. To do so, the insured would enter into a premium finance

10 agreement with the Berjac Enterprise whereby the insured made a down payment toward the

11 premium, and the Berjac Enterprise would loan the balance of the premium. The Berjac

12 Enterprise told investors that advances that the Berjac Enterprise made to insureds were short-

13 term, averaging about seven months, that repayment provisions in the premium finance

14 agreement permitted the Berj ac Enterprise to recover from the insured or the insurance agent on

15 their signatures and guarantee, that absolute or maximal security for the premium loan by the

16 Berjac Enterprise was provided by a power of attorney that the insured gave to the Berjac

17 Enterprise that would permit the Enterprise to cancel the insurance in the event of a default by

18 the insured and to recover unearned premiums due back to the insured from the insurance

19 company issuing the policy, and that because policy fees and premiums must be remitted to the

20 insurance company in advance, the value of the unearned premium after the down payment

21 normally would exceed the amount due the Berjac Enterprise for monies advanced for the

22 premIUm.

23 43.

24 The Berjac Securities were sold to a relatively close knit group of investors centered in



1 Eugene. Because the Berjac Enterprise, with defendants' material aid and participation,

2 established its reputation as a safe, legitimate, trustworthy, and financially responsible local

3 company that provided conservative, liquid investments, funds from plaintiffs and the class

4 members were invested in the BerjacEnterprise on a fr~quent basis, and were placed in the

5 Berjac Enterprise's bank accounts. Because investors were told that they could add to, or

6 withdraw from, the money they invested any time they wanted, they were encouraged to use, and

7 did in fact use, the Berjac Enterprise in the same way they would have used a savings account at

8 a bank, i. e., depositing and withdrawing money at will. Funds received from loan repayments

9 from insureds were also deposited in the Berjac Enterprise's bank accounts. Some investors,

10 particularly ~usiness investors, opened accounts at Umpqua and Century so that they could

11 transfer funds to and from the Berjac Enterprise more easily.

12 44.

13 In order to keep the Berjac Ponzi Scheme from collapsing and to prevent a run on the

14 Berjac Enterprise, it was absolutely essential that the Berjac Enterprise promptly pay interest

15 payments when due and pay every investor who requested a return of all or part of his or her

16 investment money. Prompt repayment built trust, encouraged investors to invest more money,

17 and provided the foundation for the false impression that the Berjac Enterprise was a good

18 alternative to a bank account. The Berjac Enterprise's reputation was key to the continuation of

19 its Ponzi scheme. Eugene was a close business community, and ifthe Berjac Enterprise ever

20 failed to timely pay an interest payment when due or ever failed to promptly pay an investor

21 demand for full or partial payment of the amount owed on a Berjac Note, word would have

22 spread rapidly and the confidence of the community so necessary to the concealment of the

23 Berjac Ponzi scheme would have been lost. Umpqua knew this, as did Pacific and Century.

24 Until the filing of its bankruptcy petition on August 31, 2012, the Berjac Enterprise touted the



1 fact that since the inception of its Note program, Berjac had honored every request for interest

2 payments or redemption, and had never defaulted on an investor obligation.

3 45.

4 Funds received from investors, insurance loan repayments, and from other, undisclosed

5 investments made by the Berjac Enterprise were commingled between the two Berjac partnership

6 accounts. When investors requested some or all of their money back, they were paid from the

7 funds most quickly available in either of the two Berjac partnership bank accounts regardless of

8 which partnership had received or used the investor funds. If the cash available in the accounts

9 was insufficient to pay back investors who requested their money, funds were obtained from the

10 Bank lines of credit withou~ regard to which of the entities had actually received the investor

11 funds. As soon as new investor funds were obtained, the Berjac Enterprise paid down these

12 credit lines so that the lines were available to use in the future, again without regard to which of

13 the Berjac entities received the investor funds. Although some funds may have corne from other

14 sources, the dominant source of funds used to make payments to the Banks against the credit

15 lines was incoming investor funds.

16 46.

17 At the time of Berjac's bankruptcy filing, the total of the insurance premium finance

18 loans outstanding was approximately $1.3 million. The total of funds owed to investors, who

19 were told that their investments would be used primarily, if not exclusively, to fund the Berjac

20 Enterprise's insurance premium financing business, was in excess of$43 million.

21 47.

22 In 2011, the Berjac Enterprise's records showed that it paid to or for the benefit ofHFLP

23 more than $4,700,000 to repay amounts that HFLP borrowed against lines of credit obtained to

24 perpetuate the Berjac Ponzi Scheme. In 2012, through August 31,2012, when the Berjac


ESLER, STEPHENS & BUCKLEY, LLP Attorneys at Law 888 S.W. Fifth Avenue. Suite 700 Portland, Oregon 97204-2021 Telephone: (503) 223-1510 Facsimile: (503) 294-3995

1 Enterprise filed its bankruptcy petition, the Berjac Enterprise paid to or for the benefit of HFLP

2 more than $1,400,000 to repay amounts that HFLP borrowed against lines of credit obtained to

3 perpetuate the Berjac Ponzi Scheme. Similar transfers to or for the benefit ofHFLP by the

4 Berj ac Enterprise were made in prior years, in amounts not yet determined. HFLP had no other

5 business activity except for borrowing and advancing money to the Berjac Enterprise. The

6 dominant source of the funds to make such advances was funds received by the Berjac Enterprise

7 from investors.

8 48.

9 With the material aid and participation of the Banks, the Berjac Enterprise sold Berjac

10 Securities to plaintiffs and members of the class by means of at least one of the following

11 misleading statements, which statements were misleading because of the omission to state a

12 material fact necessary in order to make the statements made, in light of the circumstances under

13 which they were made, not misleading:

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(a) Berjac of Oregon and Berjac of Portland are engaged in the insurance premium

finance business. This statement was misleading because the following material facts

were omitted: (1) The insurance premium financing business was a relatively small and

shrinking part ofthe Berjac Enterprise's business. (2) The insurance premium financing

business was operating at an overall loss or very small profit. (3) Several large insurance

premium financing receivables were in substantial default. (4) The Berjac Enterprise's

principal business was investing in speculative real estate ventures. (5) The Berjac

Enterprise was operating the Berjac Ponzi Scheme.

(b) Berjac of Oregon and Berjac of Portland are licensed by the Oregon Insurance

Commissioner. This statement was misleading because the following material facts were

omitted: (1) The insurance premium financing business was a relatively small, shrinking


ESLER, STEPHENS & BUCKLEY, LLP Attorneys at Law 888 S.w. Fifth Avenue, Suite 700 Portland, Oregon 97204-2021 Telephone: (503) 223-15\0 Facsimile: (503) 294-3995

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part of the Berjac Enterprise's business. (2) The insurance premium financing business

was operating at an overall loss. (3) Several large insurance premium financing

receivables were in substantial default. (4) The Berjac Enterprise's principal business

was investing in speculative real estate ventures. (5) The Berjac Enterprise was

operating the Berjac Ponzi Scheme. This statement was also misleading because it

created the false impression that the Berjac Enterprise's entire business was regulated like

the insurance business is and that Berjac of Oregon and Berjac and Berjac of Portland

had successfully completed a qualification process and testing similar to what doctors,

lawyers, engineers, certified public accountants, broker-dealers, and registered

representatives have to complete to obtain a liceJ.?se when, in fact, the licensing of Berjac

of Oregon and Berjac of Portland did not involve a similar qualification process or

testing. Furthermore, the licensing covered only a small and relatively inconsequential

part ofthe Berjac Enterprise's business.

(c) Berjac of Oregon and Berjac of Portland have advanced funds to persons

acquiring casualty insurance for the payment of premiums. This statement was

misleading because the following material facts were omitted: (1) The insurance

premium financing business was a relatively small, shrinking part ofthe Berjac

Enterprise's business. (2) The insurance premium financing business was operating at an

overall loss. (3) Several large insurance premium financing receivables were in

substantial default. (4) The Berjac Enterprise's principal business was investing in

speculative real estate ventures. (5) The Berjac Enterprise was operating the Berjac

Ponzi Scheme.

(d) Advances to insureds by Berjac of Oregon and Berjac of Portland are short term,

averaging about seven months. This statement was misleading because the following



1 material facts were omitted: (1) The insurance premium financing business was a

2 relatively small, shrinking part ofthe Berjac Enterprise's business. (2) The insurance

3 premium financing business was operating at an overall loss. (3) Several large insurance

4 premium financing receivables were in substantial default. (4) The Berjac Enterprise's

5 principal business was investing in speculative real estate ventures. (5) The Berjac

6 Enterprise was operating the Berjac Ponzi Scheme. This and other statements about the

7 nature of the insurance premium financing business also created the false impression that

8 the Berjac Enterprise's business was liquid and could be responsive to changes in the

9 economy. This misleading statement was particularly significant and effective because

10 the defendant Banks gave the Berjac Enterprise the ability to act like its capital was

11 available to repay investors on demand.

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(e) Repayment provisions set forth in the finance agreement permit Berjac of Oregon

and Berjac of Portland to recover from the insured or the insurance agent on their

guarantees. This statement was misleading because the following material facts were


part ofthe Berjac Enterprise's business. (2) The insurance premium financing business




operating the Berjac Ponzi Scheme. This and other statements about the nature ofthe

insurance premium financing business also created the false impression that the Berjac

Enterprise's business was liquid and could be responsive to changes in the economy.

This misleading statement was particularly significant and effective because the Banks

gave the Berjac Enterprise the ability to act like its capital was available to repay



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investors on demand. Like the statement in subparagraph (d), this statement appeared

true in large part because the Banks gave the Berjac Enterprise the ability to act like its

capital was available to repay investors on demand.

(f) Security for Berjac of Oregon and Berjac of Portland is basically provided by the

power of attorney given by the insured permitting Berjac of Oregon or Berjac of Portland

to recover unearned premiums from the insurance company issuing the policy. This

statement was misleading because the following material facts were omitted: (1) The

insurance premium financing business was a relatively small, shrinking part of the Berjac


overall loss. (3) Several large insurance premium financing receivables ~ere in



Ponzi Scheme. This statement also gave the false impression that the insurance premium

financing loans made by Berjac of Oregon and Berjac of Portland with investor money

were absolutely secured. Like the statement in subparagraph (d), this statement appeared

true in large part because the Banks' lines of credit gave the Berjac Enterprise the ability

to act like its capital was available to repay investors on demand.

(g) Interest rates to investors vary, generally between 5% and 7%, compounded

quarterly. This statement was misleading because the following material facts were


part of the Berjac Enterprise's business. (2) The insurance premium financing business





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operating the Berjac Ponzi Scheme. (6) Higher returns were paid to Holcomb Family

members.

(h) It is anticipated that the entire net proceeds to be received by Berjac of Oregon

and Berjac of Portland from the sale ofthe notes will be used in its normal business

activities in financing casualty insurance premiums. This statement was misleading

because the following material facts were omitted: (1) The insurance premium financing

business was a relatively small, shrinking part of the Berjac Enterprise's business. (2)

The insurance premium financing business was operating at an overall loss. (3) Several

large insurance premium financing receivables were in substantial default. (4) The

Berjac Enterprise's principal business was investing in speculative real estate ventures ..

(5) The Berjac Enterprise was operating the Berjac Ponzi Scheme. (6) Investor funds in

fact were generally used to pay down the Bank loans, to pay interest to the Banks and

other investors, to pay withdrawal demands of other investors, and to invest in

speculative real estate ventures.

(i) Berjac finances its business from capital investments by its partners, bank lines of

credit, and sale of short-term notes. This statement was misleading because the following

material facts were omitted: (1) The insurance premium financing business was a

relatively small, shrinking part of the Berjac Enterprise's business. (2) The insurance

premium financing business was operating at an overall loss. (3) Several large insurance

premium financing receivables were in substantial default. (4) The Berjac Enterprise's

principal business was investing in speculative real estate ventures. (5) The Berjac

Enterprise was operating the Berjac Ponzi Scheme. This statement is also misleading

because it gave the false impression that capital investments by its partners, bank lines of

credit, and sale of short-term notes were sufficient for the Berjac Enterprise's business to


ESLER, STEPHENS & BUCKLEY, LLP Attorneys at Law 888 S.W. Fifth Avenue, Suite 700 Portland, Oregon 97204-2021 Telephone: (503) 223·1510 Facsimile: (503) 294·3995

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be operated successfully and profitably. In fact, were it not for the artificial values placed

on assets in the financial statements prepared by the accounting defendants, the

statements would have showed that Berjac of Oregon and Berjac of Portland were

insolvent, the partners had negative capital accounts, and the Berjac Enterprise's business

was operating at a loss.

Interest rates and service charges for the financing of insurance premiums are

regulated by statutes. This statement was misleading because the following material facts

were omitted: (1) The insurance premium financing business was a relatively small,

shrinking part of the Berjac Enterprise's business. (2) The insurance premium financing

business was operating at an overall loss. (3) Several large insurance premium financing



operating the Berjac Ponzi Scheme. This statement was also misleading because it gave

the false impression that the returns to investors were regulated and created the same

false impressions as the other statements about the insurance premium financing industry

made in subparagraph (b), above.

(k) Berjac of Oregon and Berjac of Portland investments provide a high return and

maximum security. This statement was misleading because the following material facts

were omitted: (1) The insurance premium financing business was a relatively small,

shrinking part ofthe Berjac Enterprise's business. (2) The insurance premium financing

business was operating at an overall loss. (3) Several large insurance premium financing



operating the Berjac Ponzi Scheme.



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(1) Berjac of Oregon and Berjac of Portland are excellent vehicles for short-term

liquid investments not allocated to longer term real estate or equity issues. This

statement is misleading because the following material facts were omitted: (1) The

insurance premium financing 'business was a relatively small, shrinking part of the Berjac





Ponzi Scheme. This and other statements about the nature of the insurance premium

financing business created the false impression that the BeIj ac Enterprise's business was

liquid and could be responsive to changes in the economy. This misleading statement

was particularly significant and effective because the Banks' lines of credit gave the

Berjac Enterprise the ability to act like its capital was available to repay investors on

demand.

(m) All deposits are under the direct control of Berjac of Oregon and Berjac of

Portland, and their reinvestment of earnings reduces trust fund administration. This

statement is misleading because the following material facts were omitted: (1) The

insurance premium financing business was a relatively small, shrinking part of the Berjac





Ponzi Scheme. This and other statements about the nature of the insurance premium

financing business created the false impression that the Berjac Enterprise's business was


ESLER, STEPHENS & BUCKLEY, LLP Attorneys at Law 888 s.w. Fifth Avenue, Suite 700 Portland, Oregon 97204-2021 Telephone: (503) 223-1510 Facsimile: (503) 294-3995

1 liquid and could be responsive to changes in the economy. This misleading statement

2 was particularly significant and effective because the Banks' lines of credit gave the

3 Berjac Enterprise the ability to act like its capital was available to repay investors on

4 demand.

5 (n) Berjac of Oregon and Berjac of Portland require no more than three to five

6 percent of the insurance premiums being financed in an area in order to operate

7 profitably. This statement was misleading because the following material facts were

8 omitted: (1) The insurance premium financing business was a relatively small, shrinking

9 part of the Berjac Enterprise's business. (2) The insurance premium financing business

10 was operating at an overall loss. (3) Several large insurance premium financing

11 receivables were in substantial default. (4) The Berjac Enterprise's principal business

12 was investing in speculative real estate ventures. (5) The Berjac Enterprise was

13 operating the Berjac Ponzi Scheme.

14 49.

15 The foregoing statements made by the Berjac Enterprise were misleading for reasons

16 alleged above and because the following material facts were omitted:

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(a) Insurance premium financing was not the only business ofBerjac of Oregon and

Berjac of Portland. It was not even their principal business. By 2012, the total insurance

premium financing business conducted by the Berjac Enterprise was approximately

$1,300,000, which was less than the amount of insurance premium financing business it

engaged in in 1976. At the same time, the Berjac Enterprise had direct and indirect lines

of credit at one or more banks that were more than adequate to handle the entire

insurance premium financing business, which lines of credit bore interest rates lower than

the interest the Berjac Enterprise promised to pay purchasers of Berjac Notes. This



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meant that investor money was not needed for the insurance premium financing business.

(b) By 2008, the Berjac Enterprise could not and did not operate its insurance

premium finance business profitably and that business was not growing. The insurance

premium financing business was a front used to hide the fact that the Berjac Enterprise

was really operating a Ponzi scheme.

(c) Most, if not all, of the Berjac Enterprise's actual business activities were centered

on (i) real estate investments, and (ii) unsecured loans to developers and others. This was

a highly risky business unsuitable for many, if not all, ofthe investors the Berjac

Enterprise targeted, and in any event was not the level of risk that the investors thought

they were exposing themselves to.

(d) The Berj ac Enterprise's partners, Gary and Michael, and their families were paid

salaries and other benefits from the Berjac Enterprise that were disproportionate to the

services they rendered. In addition, the Holcomb family members lived in or used real

estate that was financed by the Berjac Enterprise. The Berjac Enterprise partners and

family members were paid between 10% and 12% interest on any "loans" or "advances"

they made to the Berjac Enterprise and on "capital accounts" maintained on the books of

the Berjac Enterprise. The "capital" was fictitious and was created by adjusting the value

of assets on the Berjac Enterprise's books. Investors were not told that Holcomb family

members were being paid much higher interest rates. In fact, the Berjac Enterprise could

not afford these rates of interest.

(f) Less than 5% ofthe Berjac Enterprise's actual business activities based on dollars

invested was devoted to the insurance premium finance business.

(g) From 2007-08, the bulk of the real estate investments made by the Berjac

Enterprise and the loans it made to developers and others in the real estate business were



1 not performing and were substantially uncollectible, and the Berjac Enterprise was only

2 able to survive by collecting new investor money and using it to repay the lines of credit,

3 to pay old investors' interest, and to return capital to investors. Without new investor

4 funds, the Berjac Enterprise would have been unable to continue the appearance of

5 solvency.

6 (h) The Berjac Enterprise's business operations depended on a network of investors

7 in the Eugene, Oregon, business community. Many of the Berjac Enterprise's investors

8 were members of the Eugene Executive Association. The Berjac Enterprise made

9 presentations and otherwise engaged in a general solicitation among the business

10 community. Because the investor group was so tightly interconnected, the Berjac

11 Enterprise had to have readily available lines of credit.

12 (i) The Berjac Enterprise was conducting a Ponzi scheme, it had used, and intended

13 to use in the future lines of credit from banks to perpetuate the Berjac Ponzi Scheme, and

14 it was concealing those facts from all investors-past, current, and future.

15 Proceeds from the sale of Berjac Securities were used to pay principal and interest

16 to prior purchasers ofBerjac Securities.

17 50.

18 Plaintiffs and the class members did not know that the foregoing omitted material facts

19 were omitted.

20 51.

21 The sales of the Berjac Securities were unlawful because they were not registered after

22 1995.

23 52.

24 Pursuant to ORS 59.115(1), (2), and (3), upon tender ofthe Berjac Securities, plaintiffs



1. and the class members are entitled to recover from defendants, jointly and severally, the

2 consideration each plaintiff and class member paid for the Berjac Securities, together with

3 interest thereon at the rate of 9% per annum from the dates the consideration was paid, less any

4 amounts received on the Berjac Securities.

5 53.

6 Pursuant to ORS 59.115(10), this Court should award plaintiffs their reasonable attorney

7 fees incurred in this case.

8 54.

9 Each plaintiff and each member ofthe class did not discover, and in the exercise of

~ 0 reasonable care, could not have discovered, the facts on which liability is based until less than

11 two years before this complaint was filed.

12 SECOND CLAIM

13 (Oregon Securities Law - ORS 59.135 and .137 v. All Defendants)

14 55.

15 Plaintiffs reallege paragraphs 1 through 50 and 54.

16 The Berjac Securities Business

17 56.

18 By reason of the foregoing, the Berjac Enterprise, Fred, Michael, Gary, HFLP, and HFT

19 conducted a securities business ("the Berjac securities business"). The Berjac securities business

20 sold securities that consisted of the Berjac Securities.

21 The Berjac Securities Business was conducted

22 57.

23 The Berjac Enterprise, Fred, Michael, and Gary violated ORS 59.135(2) when they made

24 the misleading statements to plaintiffs and the class members alleged above in paragraphs 48 and



1 49 in connection with the conduct ofthe Berjac securities business.

2 58.

3 The Berjac Enterprise, Fred, Michael, and Gary violated ORS 59.135(1) when they

4 employed a device, scheme, and artifice to defraud in connection with the conduct of the Berjac

5 securities business, and they violated ORS 59.135(3) when they engaged in acts, practices, and a

6 course of business that operated or would have operated as a fraud or deceit upon plaintiffs and

7 the class members in connection with the conduct ofthe Berjac securities business.

8 59.

9 Fred, HFLP, HFT, Jones & Roth, Century, Pacific, and Umpqua materially aided the

10 persons 'Yho violated ORS 59.135(1), (2), and (3) in the same ways that they participated in or

11 materially aided the sales ofthe Berjac Securities.

12 60.

13 By reason ofthe foregoing, Fred directly or indirectly controlled persons who violated

14 ORS 59.135(1), (2), and (3).

15 61.

16 Pursuant to ORS 59.137(1) and (2), plaintiffs and the class members are entitled to

17 recover from defendants Fred, HFLP, HFT, Jones & Roth, Pacific, and Umpqua, jointly and

18 severally, their actual damages in the amounts owed on the Berjac Securities they purchased as

19 of August 3 I, 2012, together with interest thereon at the rate of 9% per annum or the rate

20 provided in the Berjac Securities purchased, whichever is greater, from August 31, 2012.

21 62.

22 Pursuant to ORS 59.137(4), this Court should award plaintiffs their reasonable attorney

23 fees incurred in this case.

24



1

2 THIRD CLAIM

3 (Aiding Breach of Tort Duties v. All Defendants Except Jones & Roth)

4 63.

5 Plaintiffs reallege paragraphs 1 through 50, and 52 through 57.

6 64.

7 By reason of the foregoing, and because, in connection with selling Berjac Securities to

8 plaintiffs and the class members, Berjac provided investment advisory services and depositary

9 services to plaintiffs and the class members, and undertook to exercise judgment on behalf of

10 plaintiffs and the class JPembers with respect to safe-keeping, use, and investment of funds

11 deposited with Berjac, there was a "special relationship" between Berjac, Fred, Michael, and

12 Gary, on the one hand, and plaintiffs and the class members, on the other, and Berjac, Fred,

13 Michael, and Gary owed duties of undivided loyalty, utmost good faith, fair dealing, honesty,

14 full disclosure, and reasonable care to plaintiffs and the class members. The Berjac Enterprise

15 was the custodian of investor funds and owed duties of care with respect to those funds.

16 65.

17 The Berjac Enterprise,.Fred, Michael, and Gary breached their duties of undivided

18 loyalty, utmost good faith, fair dealing, honesty, full disclosure, and reasonable care to plaintiffs

19 and the class members and their duties of care over the funds invested by plaintiffs and the class

20 members by, among other things, (a) placing their own financial interests above the interests of

21 plaintiffs and the class members; (b) paying themselves 10% and 12% interests on bogus capital

22 account balances; (c) using the funds that plaintiffs and the class members deposited to

23 perpetuate and conceal the Berjac Ponzi Scheme; (d) using the funds that plaintiffs and the class

24 members deposited to pay salaries, housing, and other benefits to members of the Holcomb



1 Family that were out of proportion to the value of any services provided to Berjac; (e) using the

2 funds that plaintiffs and the class members deposited for speculative investments in real estate

3 development instead of for insurance premium financing; (e) selling the Berjac Securities by

4 means ofthe misleading statements alleged above; (f) failing to disclose fully and honestly what

5 Berjac's business was and how Berjac intended to use the funds that plaintiffs and the class

6 members deposited with Berjac; and (g) by engaging in the conduct alleged above.

7 66.

8 HFLP, HFT, Fred, Century, Pacific, and Umpqua knew that Berjac owed duties of

9 undivided loyalty, utmost good faith, fair dealing, honesty, full disclosure, and reasonable care to

10 plaintiffs and the class members who had invested money in the Berjac Enterprise.

11 67.

12 While it was providing substantial aid to Berjac and participating in the proceeds of sales

13 ofBerjac Securities, Umpqua knew (a) that the investors were in an extremely risky position

14 because ofBerjac's speculative real estate investments, (b) that Berjac was using new investor

15 funds to pay the Banks and prior investors, (c) that Berjac was operating a Ponzi scheme, (d) that

16 to keep the Berjac Ponzi Scheme concealed from past and future investors, that Berjac had to

17 have the ability (i) to pay interest promised to investors on time, and (ii) to pay any investor's

18 demand for partial or full repayment promptly, and (e) that Umpqua's loans and direct and

19 indirect lines of credit provided that ability to Berjac until mid-2009. When there was an

20 investor run on Berjac in 2008, Umpqua allowed Berjac to borrow in excess of the credit

21 available on Berjac's line of credit. When Berjac would have failed in early 2009, Umpqua

22 extended its lines of credit past their due dates to permit Berjac to raise investor money and

23 obtain other lines of credit.

24 68.



1 When Century and Pacific provided credit facilities to the Holcomb Family for the

2 benefit of Berjac, each knew (a) that the investors were in an extremely risky position because of

3 Berjac's speculative real estate investments, (b) that Berjac was using new investor funds to pay

4 the Banks and prior investors, (c) that Berjac was operating a Ponzi scheme, (d) that to keep the

5 Berjac Ponzi Scheme concealed from past and future investors, Berjac had to have the ability (i)

6 to pay interest promised to investors on time, and (ii) to pay any investor's demand for partial or

7 full repayment promptly, and (d) that Century's and Pacific loans and direct and indirect lines of

8 credit provided that ability to Berjac up until August 31, 2012.

9 69.

10 At all times material, HFLP, HFT, and Fred ~ew (a) that the investors were in an

11 extremely risky position because of Berjac's speculative real estate investments, (b) that Berjac

12 was using new investor funds to pay the Banks and prior investors, (c) that Berj ac was operating

13 a Ponzi scheme, (d) that to keep the Berjac Ponzi Scheme concealed from past and future

14 investors, that Berjac had to have the ability (i) to pay interest promised to investors on time, and

15 (ii) to pay any investor's demand f~r partial or full repayment promptly, and (e) that Umpqua's,

16 Century's, and Pacific loans to HFLP, HFT, and Fred, the proceeds of which were loaned to

17 Berj ac, provided that ability to Berj ac up until August 31, 2012.

18 70.

19 HFLP, HFT, Fred, Umpqua, and Pacific are jointly and severally liable to plaintiffs and

20 the class members because of one or more of the following:

21 (a) HFLP, HFT, Fred, Umpqua, Century, and Pacific acted in concert with, or

22 pursuant to a common design with, Berjac to breach fiduciary and common law duties that

23 Berjac owed to plaintiffs and the class members; or

24 (b)

Page 38 0[40

HFLP, HFT, Fred, Umpqua, and Pacific knew that Berjac's conduct breached the



1 fiduciary duties that Berjac owed to plaintiffs and the class members, and gave substantial

2 assistance to Berjac to breach the fiduciary duties and common law duties they owed plaintiffs

3 and the class members.

4 71.

5 Plaintiffs and the class members are entitled to recover from HFLP, HFT, Fred, Umpqua,

6 and Pacific, jointly and severally, the amounts owed on the Berjac Securities they purchased as

7 of August 31, 2012, together with interest thereon at the rate of 9% per annum or the rate

8 provided in the Berjac Securities purchased, whichever is greater, from August 31,2012.

9 WHEREFORE, PLAINTIFFS DEMAND the following relief:

10 1. A determination that this action may be maintained ~s a class action pursuant to

11 ORCP 32;

12 2. Upon tender ofthe Berjac Securities, ajudgment in favor of plaintiffs and the

13 class members and against defendants, jointly and severally, in the amount of the consideration

14 each plaintiff and class member paid for the Berjac Securities, together with interest thereon at

15 the rate of 9% per annum from the dates the consideration was paid, less any amounts received

16 on the Berjac Securities;

17 3. A judgment in favor of plaintiffs and the class members, and against defendants,

18 jointly and severally, in the amounts owed on the Berjac Securities that plaintiffs and the class

19 members purchased as of August 31, 2012, together with interest thereon at the rate of 9% per

20 annum or the rate provided in the Berjac Securities purchased, whichever is greater, from August

21 31,2012;

22 4. A judgment in favor of plaintiffs and the class members, and against defendants,

23 jointly and severally, in the amount of plaintiffs' reasonable attorney fees, costs, and

24



1 disbursements; and

2

3

4

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6

7

8

9

10

11

12

13

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15

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19

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5. Such further relief as this Court may deem appropriate.

DATED this 23rd day of August, 2013.

ESLER, STEPHENS & BUCKLEY, LLP

[email protected]

HAGLUND KELLEY LLP

. ~ ~i. . Michael E. Haglund, ~o~ [email protected] Michael K. Kelley, OSB No. 853782 mkelley@,hk-law.com

Of Attorneys for Plaintiffs

k: \maureen \berj ac\comp laint 8-23 -13. docx



Investor Name Account Balance as of 08/3112012

Charlene Sue Cox, Trustee $ 443,204.00 Charlene S. Cox Rev. Trust dtd 10-15-97

Hutchinson, Timothy, Leslie, and Nicholas $ 684,262.00

Hutchinson, Leslie B. or Nicholas $ 74,064.00

Hutchinson, Tim and Nicholas $ 16,948.00

Hutchinson, Rose E. $ 210,603.41

Rex, George Burton and Melissa Rae $ 450,000.00

Shelton, Robert W. and Edith $ 1,672,259.20

Shelton, Robert W. and Edith $ 817.44

Shelton, Amy; $ 144,537.72 Edith Shelton, Custodian

Wi1dish Standard Paving Co. $ 515,759.00

TOTAL: $ 4,212,454.77

Exhibit A to Class Action Complaint

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