Robert Shumake

FROM THE DETROIT FREE PRESS NEWSPAPER; 12/31/2009:
URL: http://www.freep.com/article/20091231/NEWS05/912310435/?imw=Y
Robert Shumake's résumé looked impressive when he convinced Detroit's two public pension boards in 2006 to invest millions in his companies.
Had pension trustees checked, they would have found inaccuracies in that résumé:
-- He said he was licensed as a mortgage banker and real estate broker. But his bank license lapsed years earlier, and his brokerage license had been placed on probation after state regulators cited irregularities at his real estate company.
-- He said he was on the state Board of Real Estate Brokers & Salespersons, which regulates the industry. He was not.
-- He said he was educated at a financial institute founded by a Florida entrepreneur. The institute does not exist.
Shumake conceded his résumé could have been clearer, but he said he never attempted to misrepresent his background.
"It is accurate that I at one time had the licenses, and that is part of my executive education," Shumake said in a statement last week. "There has never, however, been any attempt to mislead the boards."
Lax vetting of businesses that make investment pitches to Detroit's pension boards has been a stubborn issue for trustees, who oversee $5 billion in assets on behalf of city workers and retirees.
The funds, for example, lost $90 million after a key investment adviser failed to note red flags with people who convinced the boards to invest in business deals.
Former police and fire trustee George Orzech, who left in June, said if people who appear before the board misrepresent their background, "there should be a penalty for lying. That's public money."
In a 2006 presentation to Detroit's two public pension boards, Shumake touted his real estate broker's license as part of his pitch to secure millions in pension money.
Turns out, his license had been suspended since 2002, when Michigan regulators said he failed to account for customers' money and his company's trust account had a deficit of more than $14,000.
It was another example of Shumake's résumé not matching his credentials when he made the sales pitch.
The résumé listed membership on the state Board of Real Estate Brokers & Salespersons, though he had not been on the board since 2002. He left after it voted to put his broker's license on probation for trust account violations and failing to give buyers and sellers complete closing statements.
The résumé claimed he was educated at the Larry Pino Institute of Finance. A spokesman for Pino, a Florida entrepreneur, said, "There is not now nor has there ever been a Larry Pino Institute of Finance."
Shumake also said he was a licensed mortgage banker. But that license, issued in Florida, lapsed in 2001.
Still, Shumake persuaded the pension funds to invest more than $70 million in two real estate deals with his companies, even as he was being sued by Fifth Third Bank for his alleged role in what the bank called a $10-million mortgage fraud scheme. The scheme is now the subject of a federal criminal probe. So far, two men have pleaded guilty and agreed to cooperate.
Shumake has not been charged and, through his lawyer, James Thomas of Detroit, denied any wrongdoing.
Legal, money woes
Meanwhile, a report by Courtland Partners Ltd. of Cleveland, an adviser to the Detroit pension board for police and firefighters, found that returns on Shumake's investments were modest, with 0.5% returns by the end of 2008, the most recent report obtained by the Free Press shows.
An expert in measuring real estate performance said it is too early to say whether Shumake's deals will produce the kinds of returns he promised for the pension funds.
This much, however, is clear: Shumake has legal and money woes of his own.
To settle the Fifth Third lawsuit, Shumake agreed to pay $750,000 in April 2008, but court records show he didn't make the full payment. The bank now has a $1-million judgment lien filed against him.
John Chamberlin, a University of Michigan professor of public policy, said the pensions should be troubled by Shumake's failure to pay. A typical board, he said, "would get pretty exercised about this."
Shumake, who declined an interview, said in a statement last week that he considered the lapsed licenses on his résumé "part of my executive education."
He said he "can understand that some might not make the distinction from past experience and current licensing, and in hindsight, it would have been good for me to make that clear. There has never, however, been any attempt to ... misrepresent my background."
A spokeswoman for Shumake did not address Shumake's claim of being trained at the Pino Institute, but said he did participate in a "cash flow specialist training program" with Pino.
Despite the country's financial turmoil in recent years, Shumake claimed in an e-mail last week that his pension investments are solvent, well-managed and have returned 6% to 9.25% and more than $5.5 million to the boards.
Neither Shumake nor his spokeswoman, Darci McConnell, responded to repeated requests for documents to support the claimed returns. McConnell later said that the returns cited by Shumake were projections.
Jeffrey Pegg, chairman of the pension board for police and firefighters, declined to comment on the discrepancies on Shumake's résumé or on the bank lawsuit, saying, "I don't know if it's true. ... I'd like to see the facts. Until I see that, I will not give my opinion."
Other officials on Detroit's two public pensions did not return calls and e-mails.
Questionable credentials
The city pension boards invested $27 million with Shumake in 2006, which his company used to acquire five office buildings in Auburn Hills and in three other states. The pensions invested another $44 million in 2007, which a Shumake company used to buy five General Motors parts warehouses that it now leases back to the automaker.
Doug Poutasse, executive director of the National Council of Real Estate Investment Fiduciaries, an industry association of investment managers and pension funds, said it is too early to tell whether Shumake's investments will pay off.
The key, he said, is whether Shumake can keep his tenants.
In 2006, Shumake, chief executive of Inheritance Capital Group of Southfield, appeared before Detroit's two pension funds to pitch a real estate investment.
His résumé, attached to a presentation booklet, said he was a licensed real estate broker and mortgage banker.
But Jason Moon, a spokesman for the state Office of Financial and Insurance Regulation, said Shumake never had a mortgage broker or lender license with the agency. And his real estate broker's license has been suspended since 2002.
State regulators examined another Shumake company, First Equity Realty, after a former employee complained in 2001 that trust account records were not kept properly. Regulators filed an administrative complaint against Shumake and First Equity in January 2002, saying they had found trust account and record-keeping violations.
The state Board of Real Estate Brokers and Salespersons put Shumake's license on probation (it was later suspended) in 2002, fined him $2,000 and required more oversight of his books. He left the board that summer, he says to join an Indiana bank board. Shumake said state auditors who investigated the complaint were unable to do a thorough review because a "renegade employee" stole files. He said he did not pay the fine because he no longer needed the license.
Separately from his pitches to the pension boards, Shumake also has touted other questionable credentials.
A college dropout, he calls himself a doctor on his Web site and in promotional materials, even though the academic title stems from an honorary doctorate from Detroit's Lewis College of Business, which has since lost its accreditation.
Despite the blemishes on his résumé, in April 2006, the general pension board approved a $12-million investment with Inheritance Capital. That June, police and fire trustees approved a $15-million deal.
By then, Shumake had been sued by Fifth Third Bank for what the bank called his role in an alleged fraud scheme. In October 2006, after accounts of the suit appeared in the Detroit News, an executive with Shumake's company told trustees the allegations of fraud were untrue.
Shumake later told a board lawyer: "I am confident that I have done nothing wrong."
Reviewing options:
Around that same time, Shumake pitched a new proposal to the pension funds: invest $44 million with an Inheritance Capital fund that was to acquire five parts warehouses from General Motors and lease them back to the automaker.
Detroit's two pensions each agreed to fund half of the $44-million deal.
A real estate adviser to the police and fire trustees laid out eight options on the day of the vote, reflecting different fees and returns. The scenarios ranged from a deal with fees to Shumake's company of $2.45 million and returns to the board of 10.48%, to fees of $6.95 million and returns of 9.2%. Trustees chose the latter option.
Peter Henning, a Wayne State University law professor, said, "There's no apparent logic to that as an investment decision by a board with a fiduciary obligation to get the best return for the lowest cost. That's fiduciary duty 101 -- you always try to get the most reasonable return at the lowest cost. There's no other way around it."
Three trustees representing city firefighters were so upset that the Detroit Fire Fighters Association sought outside legal advice. Lawyers at Sachs Waldman of Detroit said they found no "overt violation" of the board's fiduciary duties in choosing the low-return-high-fees option. But the firm's report, obtained by the Free Press, noted that "background checks of the principals" at Shumake's company "should have been performed."
Shumake said in a statement his management fees are a bargain by industry standards.
His companies received fees on the police and fire fund's share of the investments of about $1.5 million through Dec. 31, 2008, according to the Courtland Partners report.
Poutasse, the real estate performance expert, said real estate investment management fees can vary significantly and are a function of "how much work has to be done, the complexity of the investments," and other factors. In Shumake's case, he said, the fees on the GM deal "are not high."
Shumake is not the first person doing business with Detroit's pensions who was not fully vetted by their advisers. The Free Press reported earlier this year that the pension plans invested in companies that Adrian Anderson and his firm, North Point Advisors of Oakland, Calif., recommended despite documented histories of failing to pay bills, lawsuits accusing them of cheating investors, and unsubstantiated claims of sizable wealth or revenue.
Investigating the allegations:
The Fifth Third fraud claims continue to be investigated by federal prosecutors. And the two people who pleaded guilty have agreed to cooperate.
Fifth Third contends in the suit that two employees conspired with real estate appraisers, title insurance agencies and developers to make inflated, multimillion-dollar mortgages on properties in Birmingham and Bloomfield Hills. The bank says the schemers obtained inflated appraisals and recruited so-called straw buyers.
After the real estate changed hands, the lawsuit alleges, the parties pocketed a share of the mortgage.
The suit describes Shumake as one of nine so-called facilitating parties and contends he or his companies received nearly $1.8 million from the proceeds of three mortgages.
Shumake settled with Fifth Third in April, paid $200,000 immediately, and agreed in a consent judgment entered in Oakland County Circuit Court to pay another $550,000 by Aug. 1, which he didn't pay, court records show.
The bank sought to garnish any state tax refunds Shumake was to receive and got a subpoena to require Shumake to appear in court this month for a creditor's exam. He was told to bring financial records, including information about property, investments, jewelry, art, antiques and paintings. That hearing has been postponed.
Contact JENNIFER DIXON: 313-223-4410 or jbdixon@freepress.com

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