Sunset For Sunwest and Sunrise?

March 2, 2009

March 2, 2009
Today, the SEC formally charged Oregon-based Sunwest Management with securities fraud and is seeking an emergency court order freezing its assets. In addition, the SEC complaint alleges that ex-CEO Jon Harder, Sunwest, Canyon Creek Development and various related entities violated the antifraud provisions of the federal securities laws, and seeks relief including disgorgement and civil monetary penalties. The complaint also seeks disgorgement from COO Darryl Fisher, General Counsel J. Wallace Gutzler and Chief Restructuring Officer Hamstreet Associates and its principal, Clyde Hamstreet.

The SEC has basically charged the entities with pooling funds from individual properties and paying investors from one pot of cash, without the investors' knowledge. Many of us have suspected this for a while, so the SEC charges do not come as a surprise. How this will impact the deteriorating situation at Sunwest, and the seniors housing industry as a whole, is anyone's guess, other than not good. But given the various alleged frauds and ponzi schemes that have been made public these past two months, our guess is that the SEC is in a bit of a foul mood and will be going for blood, and some jail time. 

Meanwhile, Sunrise Senior Living announced its fourth quarter earnings, or lack thereof, early this morning, and with all the talk of a potential bankruptcy filing and the auditor's "going concern" opinion, the shares plunged by 44% and almost hit the low of 27 cents a share from last year. They have $636 million of debt outstanding, and waiver upon waiver from the lenders may not be enough. Occupancy remains relatively strong, however, but there are just too many problems, and too many creditors and joint venture partners to appease, and someone is going to get stuck footing the bill. Shareholders already have, and while most everyone agrees that staying out of bankruotcy court will be the least costly way of solving the company's numerous problems, someone may eventually pull the trigger. This was truly a sad day for the seniors housing industry.


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