An uncertain future
Neuman awaits bankruptcy trustee's decision
Second of two parts
By Greg Stiles
Mail Tribune (Medford, OR)
http://www.mailtribune.com/news/012802n1.htm

In the 14 years since Doug Neuman moved to Southern Oregon, he has gone from being just another California transplant to an influential builder, closely linked with development and restoration.

Among his projects are: Ashland Village and Lithia Park Village, Mountain Park Estates, Pheasant Meadows in Jacksonville and Lake of the Woods Resort.

Above all, Neuman is known for his restoration of Ashland's landmark Mark Antony Hotel, which he purchased in 1998 and reopened in December 2000 as the Ashland Springs Hotel.

But in recent months, much has changed for Neuman. His chief financial backer, Reed Slatkin, has been the target of legal inquiries and a laundry list of lawsuits as 800 investors seek to regain more than $255 million of the $593 million he took in from 1986 to 2001.

As a result of what investigators call the largest Ponzi scheme in U.S. history, Neuman's reputation has been tarnished, his finances threatened and his future put in the hands of a U.S. Bankruptcy Court in Santa Barbara, Calif.

The 48-year-old Neuman exudes energy and confidence. But when he considers Slatkin, his long-time associate and friend, his eyes cloud and it's almost as if he's gazing into another world.

"Reed was a friend of mine and this has been brutal Ñ the whole thing's been terrible," said Neuman. "For me, it was like finding out your wife has been a top Russian spy. All those times she's been passing on secrets, you thought she was talking to her mom."

The discovery turned Neuman's business world on its ear, putting almost all the value of 20 Southern Oregon properties, including the hotel and the resort, into the hands of a bankruptcy trustee. Neuman hopes to keep control of the properties by purchasing them back from the trustee, but the events have left him shaken and wondering how it all came to this.

"The last couple of years I only saw Reed a couple of times," Neuman said. "He seemed preoccupied, and he was good at telling me this or that. My kids had an account with him. I had a lot of my personal money with him. Like everybody else, I've got a claim against him."

Pair met in 1975

Neuman was born in New York, raised in the San Francisco Bay area and moved to Los Angeles after a brief stint at San Jose State University. In 1975, he met Slatkin when the young Church of Scientology members were taking courses at the Dianetics Center in Los Angeles. They shared a passion for tennis and became friends on and off the tennis court.

Neuman and Slatkin, now 53, began studying investing techniques under Scientologist Robert F. Duggan in 1981. Before long, Neuman, Slatkin, Duggan and their families all lived in Santa Barbara.

During a 15-year period, Neuman said, he invested somewhere in the vicinity of $1 million in the investment club Slatkin operated. Based on the statements from Slatkin, he thought it was a lucrative investment.

"I paid taxes all these years, based on these gains, and I can only amend three years back. That's brutal."

In August 1987, Neuman moved to Southern Oregon with his wife, Becky, and two young children.

"I had visited and I really loved the area and thought there were some terrific real estate opportunities up here," said Neuman, whose son was entering first grade and daughter had just been born.

There was also a lot more opportunity for his D. Neuman Development company.

"I wanted to get more involved in real estate," he said. "I could get involved in a whole subdivision here, where I could barely get involved in one lot in Santa Barbara."

But he kept in contact with Slatkin.

"We'd play tennis once in a while," Neuman recalled. "He was busy, I was busy. When I told him I was going to move, he was supportive of that. He said, 'That sounds good; there are some good opportunities up there.' "

The transition wasn't difficult financially for Neuman.

"I started small," he said. "I built some custom homes then I did condominiums over by the (Ashland) hospital."

Neuman still trusted

Along the way Neuman developed a substantial relationship with Valley of the Rogue Bank (now part of Roseburg-based Umpqua Bank) Ñ one that has weathered the fallout of Slatkin's bankruptcy.

"All that's happened doesn't shake my confidence in Doug Neuman," Umpqua Bank president Bill Hayden said. "He's never missed a beat on any of this stuff and continues to make this work. Doug was always the mainstay. He was the local guy we could hang our hats on. Reed brought additional stuff to the party. Fortunately, we don't see that kind of stuff happen often."

From 1987 to 1991, Slatkin made a couple of trips to Ashland. On one of the trips, Neuman told Slatkin about a piece of property on Strawberry Lane adjoining one he had traded for a condominium. Slatkin liked it and bought a 6-acre parcel on a ridge above downtown Ashland for $185,500 in May of 1991. It's the only property bearing Slatkin's name on the Jackson County tax rolls.

"We stayed in touch," Neuman said, "and Reed said, 'You know Doug, you've done a good job up there. If I can help get involved in some real estate things, I'd like to be an investor in your company. I'll put up most of the money and you do all the work and we'll share the company; we'll just have a small company.'"

On April 15, 1994, Mountain Park Development, LLC, was registered with the secretary of state's office in Salem. In a limited liability company, investors are held liable only for the amount of capital they have invested in a business. Slatkin was Neuman's lone partner and contributed approximately 95 percent of the venture's capital. Slatkin's 1999 Schedule K-1 statement for Mountain Park showed he had $9,404,928 invested at the end of that year.

In short order, the partners purchased land near Ashland Community Hospital in a sealed bid auction, Mountain Park Estates, a subdivision in Talent; and Pheasant Meadows Ñ an upscale project in Jacksonville. He built some upscale custom homes and then began Ashland Village.

Developer Chris Galpin, perhaps best known as owner of the Eagle Point Golf Course, worked with Neuman on the Pheasant Meadows subdivision and a smaller project off B Street in Ashland. He theorizes that Neuman's trusting nature worked against him in Slatkin's case.

"Doug is as straight of a shooter as you're going to find," Galpin said "If you're honest, you have a tendency to believe people and to trust people.

"The guy (Slatkin) looked like Class A-1, but a lot of people thought that of Enron, too."

It was also in 1994 that Slatkin invested heavily in a new venture Ñ Los-Angeles-based Earthlink, an Internet service provider that blossomed exponentially and eventually gave Slatkin widespread notoriety.

Financial fiction

Meanwhile, Neuman's own quarterly statements from Slatkin showed annual gains of 18 to 20 percent. The statements proved to be financial fiction.

"I believed there was no risk involved," Neuman said. "I left the money in. I took little bits out, here and there. But why would you take it out when you were doing so good?"

Mountain Park Development added to its holdings, including a 12-acre parcel on North Phoenix Road near the corner of Hillcrest Road in 1995. Neuman last year sold about half of the acquisition to the city of Medford as it prepares to realign North Phoenix Road with Foothill Road.

By 1997, Slatkin's Earthlink investment had turned to gold and he repeated his earlier interest in investing in Southern Oregon

"He said, 'Doug, like I said before, if there are some good projects I want to be involved,' " Neuman recalled.

Neuman had one in mind Ñ Ashland's tallest building, built in 1925 and opened in 1927.

Despite its dominant presence, the Mark Antony Hotel had suffered through more ownership changes and bankruptcy proceedings than perhaps any other property in the region over the decades. As another round of bankruptcy auctions dragged on in the late 1990s, Neuman paid special attention.

Although some locals held the theory that "The Mark" was subject to the curse of being built on Indian burial grounds, Neuman's take was more pragmatic.

"The problem has been the curse of the under-financed," Neuman said. "Buying that hotel is nothing compared to the money needed to fix it up. Guys would buy it and add a little paint. How does that help when the building has steam heat? It would be 120 degrees on the lower floors and freezing on top.

"I kept looking at it and I just felt that this was a real important project. It wasn't just about the money, it was about saving part of the community Ñ trying to restore something. I just had a vision for this place and I felt that I could do it. I had a fear that they were going to turn this into maybe a low-end retirement home. It just didn't seem appropriate for right in the middle of town."

Money was no object

At that point, Slatkin was at the apex of his financial career and money was no object. Neuman phoned Slatkin, who had seen the hotel in previous visits to Ashland.

"I talked to Reed and said, 'Are you willing to help me in this project?' and he said he would."

On July 13, 1998, Neuman's $1.6 million cash offer for the nine-story hotel was accepted by U.S. Bankruptcy Court Judge Albert Radcliffe after a previous auction winner had failed to make ends meet.

Although another bidder had offered $1.7 million for the hotel in a subsequent auction, the arrangement wasn't deemed suitable. When Neuman stepped forward and handed the judge a cashier's check for $1.5 million to go with a previous $100,000 deposit, the deal was done.

What raised eyebrows in ensuing years as well as during the bankruptcy investigation in Santa Barbara was not the auction price, but the amount of money poured into the 70-room hotel during a two-year refurbishment.

The Slatkin trustee's Dec. 17, 2001, report showed that remodeling cost an average of $140,000 per room.

"Based on the professional input of hotel specialists engaged by the Trustee, the value of the Hotel may not even exceed its existing $3,855,000 debt, let alone its $9.8 million cost. Thus, (Slatkin's) Estate will lose approximately $6 million due to Slatkin's lack of investment foresight."

Neuman disputes the $9.8 million figure, saying it was more like $11 million Ñ including a loan with Umpqua Bank.

"That's their best guess and maybe we put in more after they went through," he said. "When I say $11 million, I'm including furniture, fixtures and equipment. Their accountants may have read things differently, but they have all of my books."

Neuman said he had anticipated spending about two-thirds of what the project eventually cost.

"We took profits I had made from subdivisions and other things and put it into here," he said last week as he sat on the mezzanine overlooking the lobby. "First of all, I didn't know I was going to spend $11 million. I thought it was going to be more like seven; but that's how it goes. We didn't just want to do things halfway; it was do it right or don't do it at all."

The silent partner

And they could do it right, because Slatkin seemed to have almost limitless resources. Despite his financial presence in the project, he was very much a silent partner.

That silence raised a lot of questions in the Rogue Valley about how Neuman could afford the hotel cost. A tale circulated that Becky Neuman was an heiress of the Coleman Co., the camping gear manufacturer founded in Wichita, Kan. Although she was born in Wichita, her father, Ralph "Bill" Rounds, made his name in timber, operating Rounds & Porter lumber company, co-founding Colorado's Breckenridge ski area and serving on the Louisiana Pacific board. Rounds lived in Ashland the last 10 years of his life and died in 1997.

The source was unknown to most, but the money flowed freely. Concurrent with the hotel project, Neuman acquired the Lake of the Woods Resort on Sept. 11, 1998. He paid $429,513 Ñ $300,000 less than the asking price when it was placed on the market three years earlier.

"It was rundown ... it had become a scary place," Neuman said of the resort on Highway 140 at the crest of the Cascades. "They really needed to sell it, and I just said 'OK.' ... I got excited about the fact we had the resort and the hotel in Ashland. I thought we could really make a difference in this valley."

Amid the renovation flurry, Slatkin's schemes were coming under scrutiny, beginning with a Securities and Exchange Commission investigation in 1999.

Neuman said he had no idea of Slatkin's troubles.

"It was absolutely the last thing on my mind," Neuman said. "On the contrary, Reed had apparently had tremendous success in Earthlink and he was willing to invest in this and that's clearly why I did it. If we had to make money and had to make a living on this thing, then this is not what I would've chosen."

The money dries up

Slatkin was on increasingly shaky ground, but wasn't letting Neuman in on his dirty little secret. Still Neuman could tell things weren't quite right.

"During the construction of the hotel, he had promised that money is available and he'll be sending money," Neuman said. "Well, the money didn't come. I asked him what happened and he said it was a problem he was having with another business partner and his money was tied up because of some stock issues. There were some different stories and it just went on and on. I went out and decided to get financing and I sold some projects and that is how I was able to complete the hotel."

When Slatkin was forced into bankruptcy last spring, everything came into focus. But Neuman's shock hasn't faded.

"I knew he was under a lot of pressure because he had a lot of things going," Neuman said. "Now that I see what he was really doing, it's just staggering. I thought he had a limited amount of investors. I was so surprised by this. Reed's favorite hobby was gardening, and his kids were so important to him. He's the last kind of person you'd think would purposely Ñ over all these years Ñ be swindling people. ...

"Fortunately, he was just an investor in my company and it wasn't some other position."

"The bottom line is that Doug got duped like a lot of other people in reading (Slatkin)," Galpin said. "Obviously, this person was pretty smooth; he convinced a lot of people he was credible.

"I felt sorry for Doug; he has a very good reputation in the development community and as a businessman and then all the sudden, he's linked with this man that's tarnished his name. It's unfortunate."

Disastrous as his association with Slatkin proved, Neuman stands to come out of it in strong shape by buying the 20 properties shared with his former partner at bankruptcy prices.

"Clearly at this point, I'm on a different path with what happened to my partner," Neuman said. "I have a new partner Ñ the trustee. Mr. Slatkin has been replaced and (the trustee) doesn't want to be my partner. His intention is to get money back to the creditors and my intention is to keep my company going."

Neuman's lawyers have exchanged drafts of an agreement with the trustee and reached a tentative agreement to buy the estate's interests in Mountain Park Development, the hotel, the resort, Topridge Oregon and Strawberry Lane property for $5.25 million Ñ about 45 percent of what Slatkin spent on the properties in Oregon. If someone outbids him, Neuman would retain control as the managing partner.

"He's offered a fair price and it gets the process started," said Richard Wynne, a Los Angeles attorney representing Slatkin's former investors. "He's got the most incentive of anybody to buy the property because he's got so much time and energy into those projects."

Neuman points out that unlike many of Slatkin's investors, he didn't have his eggs in one basket. He's half-owner of Ashland Racquet and Fitness Center with Steve Sax and a partner in Clearwater, Fla.-based Matrix Lodging, which is launching Matrix eSuite hotels aimed at business travelers around the country. And the bankruptcy purchase would put him in total control of the Oregon properties.

"The real bright spot in all this is that we have an agreement worked out and in the next 60 days or less, I will have purchased Slatkin's interest in my company. It's just a survival instinct. I've just decided I'm going to do what I can to protect the things I've worked so hard for Ñ the hotel and Lake of the Woods. ... Things are just going on."

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Sidebar: Neuman has been involved in several lawsuits in Oregon

Doug Neuman's tenure in Oregon hasn't been without controversy from quarters other than Reed Slatkin. He has been involved in several Jackson County lawsuits:

Last year, his insurance company paid $25,599.70 after a Jackson County jury agreed with plaintiffs Tim and Joanne Rutter that Mountain Park Development had been negligent in correcting conditions on Marklyn Drive that allowed mud to damage their home on Granite Street during heavy rainfall that led to the 1997 New Year's Day flood.

In 2000, Neuman sued Tom Sander for libel, asking for $450,000 in damages, resulting from statements in an e-mail. On Nov. 30, the case was dismissed when the parties settled out of court. Sander had previously sued Neuman over a business deal gone sour, but had lost the case.

In 1997, Parthenon Construction & Design Inc. of Ashland sued Neuman for breach of contract, asking for $440,000 in damages when Mountain Park Development failed to pay for work performed between July 1994 and October 1996. A Circuit Court judge and the Oregon Court of Appeals sided with Neuman because Parthenon had twice allowed its liability insurance to lapse and its registration with the state Construction Contractors Board was terminated. In 1997, the Legislature revised the law to allow for lapses in registration and to account for work done during such lapses.

Neuman also has been plaintiff or defendant in several minor lawsuits, mostly settled out of court, involving such things as un-reimbursed work by a renter and a squabble over a property line.