Fortress Investment accuses Hearst estate owner of fraud

The latest “shenanigan” by the owner of the famed Hearst estate in Beverly Hills was to pocket a $150,000 emergency disaster loan from the Small Business Administration, even after a bankruptcy court judge ordered him not to.

That’s according to a court filing this week from Fortress Investment Group, the chief creditor of the $67 million debt that Leonard Ross — owner through an LLC — has on the property. Ross has been trying to sell the 40,000-square-foot mansion for $125 million in order to escape the debt and exit bankruptcy.

The home is still on the market and in his own court filing last week, Ross requested federal bankruptcy Judge Vincent Zurzolo allow his LLC to keep the $150,000. His request was made after Ross deposited the money into an account June 15.

Attorneys for Fortress noted that in their motion on Tuesday, and said the judge had also already denied Ross’ request at a June 3 court hearing. (In another curious turn, Zurzulo set a July 21 hearing to rule on Ross’ request.)

Ross “continues to be a poor fiduciary, seeking repeatedly to mislead the creditors of this estate, this court — and now the federal government — in his effort to endlessly delay the satisfaction of his legitimate obligations,” according to the Fortress motion.

The firm’s filing indicates it is ready to seize the famed mansion at 1011 N. Beverly Drive — also known as the Beverly House — and sees the SBA loan issue as another headache.

“The record is replete with apparent fraud and self-dealing that impinge upon the orderly and appropriate administration of the estate,” according to the Fortress filing.

Messages left with Ross and his attorney Robert Yaspan were not returned.

Ross purchased the property in 1976, and he has variously used it as leverage amid legal and financial conflicts including filing for personal bankruptcy in 2010. Ross’ TBH 19 LLC — which presumably stands for “The Beverly House” — filed for bankruptcy last year, and then listed the home in February.

During the pandemic, Ross applied for the federal government’s Economic Injury disaster Loan through TBH 19. The funds are meant to provide help to small businesses and independent contractors hurt by the virus.

Program funds have largely gone to help agricultural businesses. But Ross argued his LLC has a business of leasing the mansion — once home to William Randolph Hearst — for parties and film shoots. Though he did note that the primary tenant is “me and my family,” according to Ross’ court filing last week.

But according to Fortress’s motion, Ross “Defrauded the government to obtain the SBA Loan and is already in default of its terms.”

Fortress alleged Ross provided different financial figures to the SBA than what he had given the bankruptcy court regarding the property’s rental income. The motion also said Ross’ SBA loan application does not mention that Fortress and other creditors, which include the estate of USC trustee Glorya Kaufman, have collateral on the loan.

“It’s unclear whether the debtor misled the SBA in its loan application, or misled its creditors and this court,” according to the Fortress filing. “Either way, somebody is being defrauded.”

The judge had set a soft deadline of May for Ross to sell the estate, or relinquish it. But the pandemic disrupted both court proceedings and the residential sales market, and the judge has not set a new timeline.