San Antonio Business Journal                                             
February 1, 1988

SECTION: Vol 2; No 2; Sec 1; pg 1

LENGTH: 3834 words

HEADLINE: FBI Probes Loan on Prado Projects

BYLINE: Judi Critton

DATELINE: San Antonio; TX; US

 BODY:    In state court last month, local businessman Dan Prado lost a 
battle to prevent a thrift from cashing in his $ 192,776 letter of 
credit, a guarantee on one of his many local ventures.  But that likely 
is the least of his problems.

   * The local office of the Federal Bureau of Investigation has launched 
an inquiry into the troubled loan activities of Prado and his company, 
Professional Financial Services (PFS), sources close to the investigation 
said.  The firm brokers property, packages loans and provides property 
management for various local real estate ventures.

   The FBI declined to officially confirm or deny any investigation.

   * Former employees said they have been interviewed in recent weeks by 
Internal Revenue Service agents examining irregularities in PFS 
bookkeeping.

   A spokesperson for that agency declined to confirm or deny any such 
investigation.

   But the former employees said the questions concerned money that 
flowed freely between several accounts involved in ventures tied to 
Prado.

   "There was a lot of borrowing from Peter to pay Paul, but Dan always 
made sure PFS got its cut," one former employee explained.

   * Prado faces many millions of dollars in possible civil liability in 
more than 20 lawsuits pending in Bexar County, including an action by a 
lender on one of Prado's local apartment ventures seeking to make Prado 
accountable for the $ 6.8 million owed on the project.

   Prado, who denies any bad faith activities on his part, also faces a 
stack of contractor suits seeking to collect fees for work on some of his 
projects, and a $ 1 million damage suit alleging that he and his staff 
fraudulently took over a San Antonio family tortilla factory by taking 
advantage of the aging parents' inability to speak English.

   * Four real estate business ventures he has been involved with filed 
for bankruptcy in 1987.  Prado later pulled two of them from bankruptcy 
consideration before the necessary schedules and detailed financial

                                                                       
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information on the ventures was filed as required.  The bankruptcy code 
requires that information be filed in 15 days, yet months went by without 
the full reporting.

   Each of the bankruptcies was filed on the heels of lawsuits filed for 
payment on the projects or action by lenders to foreclose on the 
properties.

   In a recent interview, Prado said the bankruptcy action "has worked 
well as a negotiating tool, so far."

   * Those with suits pending against Prado are frustrated by a steady 
flow of lawyer changes resulting in a steady stream of continuances -- 
giving the new lawyer adequate time to prepare a new case.  At least two 
of the four lawyers that have withdrawn from Prado cases in the past year 
stated in court documents that they stepped down for non-payment.

   * Troubles in an arrangement Prado's firm PFS has with the San Antonio 
Housing Authority to pay rent for low-income residents living in an 
apartment complex managed by PFS have left lingering questions.

   Both sides now state that everything has been worked out concerning 
collections of payments for Section 8 residents in the Alta Vista 
Apartments. The hybrid program uses city, state and federal money to 
provide low-income housing in the local area through management of 
government-owned units and subsidy of private housing owners.

   But statements from Prado and the authority still conflict on how many 
qualifying residents live in the complex.

   In December, the authority halted payments to the complex after it 
received complaints that the management misrepresented the number of 
qualified tenants living there.  The complex collects $ 18,000 monthly 
under the Section 8 subsidized housing program, an authority spokesman 
said last week.

   Prado is the only remaining general partner of the partnership owning 
the 252-unit complex at 6800 Hutchins.  He placed the partnership under 
bankruptcy protection in November.

   In early January, Prado said the authority owed the complex $ 10,000.  
His estimate jumped to $ 27,000 by midmonth.

   In an interview several weeks ago, he blamed the dispute on a 
"disgruntled employee telling lies" to the housing authority, and stated 
that the complex was owed $ 27,000 by the program.

   For confirmation of the figure, he directed inquiries to Victor de la 
Cruz, director of the authority's leased housing program.

   When first contacted, de la Cruz denied knowlege of Alta Vista being 
in the program.  When pressed, he promised to check.

   After numerous calls last week, de la Cruz confirmed that 62 families 
are now certified to live in the complex for a monthly check of $ 18,000. 
Irregularities were found with "several" of the addresses reported by 
Alta Vista management, de la Cruz said.  But, the problems turned out to 
be

                                                                       
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administrative.

   "It was just some miscommunication on addresses.  Our inspectors just 
picked up some addresses that were not the same as they were showing," de 
la Cruz explained.

   "They (Alta Vista) were moving people around without telling us," he 
said, but could not quantify the number of addresses or total dollar 
amount involved.

   The contract coordinator, Diana Alanize, said she met with the 
apartment manager "at about 10 minutes before 5:00" one day and looked 
through "one or two folders" where there were problems "sometime last 
month."

   De la Cruz said the problem was quickly corrected after that meeting.  
The agency resumed paying Alta Vista Jan. 18.

   He declined to say if any back payments were involved, but said the $ 
27,000 figure Prado presented was too high.

   After an interview lasting several hours that the Business Journal 
conducted with Prado last month, he consented to respond to further 
questions if they were submitted in writing in advance.  A list of 
questions were hand delivered to his office Jan. 21, with the request 
that they be answered by early last week. Prado did not return phone 
calls last week seeking the answers or confirmation of whether they would 
be answered.

   Later this month, a bankruptcy judge in Austin will decide whether to 
allow the lender on the Alta Vista project to go ahead with the 
foreclosure it had threatened before Prado placed the property under 
bankruptcy protection in November.

   Arkansas-based Savers Federal also filed suit in state court to make 
Prado personally responsible for the $ 6.8 million loan to the Alta Vista 
Joint Venture.

   Prado said his partners on the project  David Saks,  Doyle Spruill and 
Roland Casteneda "left me holding the bag," but doesn't believe the 
thrift can hold him personally responsible.

   Saks, Spruill and Casteneda were known as real estate high rollers 
throughout the real estate boom years here.  Saks and Spruill's company, 
Omni, is under bankruptcy protection and mired under a mountain of 
lawsuits.  Court papers show Casteneda's whereabouts are unknown.

   Savers lost a motion in bankruptcy court last month to have all Alta 
Vista rents sent to them directly.

   Bankruptcy proceedings have raised questions about where the $ 50,000 
to $ 60,000 collected monthly from Alta Vista tenants has gone.

   In creditors' meeting testimony, Prado said that the collections were 
never enough to make the loan payment.

   PFS takes 4 percent of the total rents collected, averaging about $ 
2,000 per month and planned to continue the cut under the budget 
submitted to the

                                                                       
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bankruptcy court.

   Out of a separate fund, two on-site managers, leasing and maintenance 
employees and a "general overseer" also have collected salaries.

   Jose Montes, formerly the comptroller with PFS, is now the overseer of 
the complex, a role Prado said he sees as necessary and positive.

   Asked what services PFS, now having only three employees including 
Prado, provided the complex for that fee, Prado stressed marketing and 
"having the big picture."

   One of the lender's primary concerns was that taxes and insurance were 
not paid on the project in 1986 and 1987.  Savers paid both to keep the 
property from being lost.  Because of mounting interest, the amount owed 
on the project now exceeds the original loan.

   Prado stressed that it was not the responsibility of PFS to make sure 
the taxes and loans were paid.  Prado said he had an unwritten deal with 
the lender to pay the taxes.
 

   At the time of the bankruptcy, only $ 100 was listed in the operating 
account of the project.  The bankruptcy petition did not list security 
deposits owed tenants, although Prado has testified in court that the 
amount probably totaled about $ 9,000.

   The  Texas  Property Code allows landlords to intermingle security 
deposits and operating funds for apartments, but states that demands for 
deposit returns should be met before any other claims.

   If a deposit is unavailable for return, a tenant can sue for three 
times the amount of the deposit plus $ 100 and lawyers fees.

   Prado said the problem was caused by the relatively high tenant 
turnover rate at the complex that cost PFS $ 150 each time a tenant left.  
The deposit for each unit was $ 50.

   In early 1987, employees said, the apartment complex went through four 
managers in less than six months.

   Several employees have said they were fired by Prado.  Prado has 
insisted that the employees quit.

   Prado alleged that some of the employees had stolen from the complex 
and withheld the money from their checks.  Three of the employees sought 
relief from the  Texas  Board of Labor.

   A spokesman there said that PFS paid the employees after reaching a 
compromise on the amounts claimed.

   Prado said he simply paid the employees what he originally determined 
he owed them.

   One former Alta Vista manager, Jennifer Hightower, is listed in the 
complex's bankruptcy as being owed back wages.  She has filed suit in 
county court to

                                                                       
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collect the wages.

   Although she was the property manager, Prado and others at PFS 
"guarded the books like crazy," she said in a recent interview.  "They 
would never let me look at them."

   PFS, now placed in trust in Prado's mother's name, appears to be the 
springboard for the various joint ventures and other companies Prado has 
been involved with.

   In depositions he has repeatedly denied any link between PFS and other 
companies incorporated in his name that share the same office building 
and many roles on the various projects.

   On at least two projects, PFS brokered the property and packaged the 
loan, and Prado served as managing partner.  A related company, JND 
Development, planned a development and Prado's 21st Century Construction 
actually built the projects.

   At each step, each of the companies took commissions and fees, even if 
the lender wasn't being paid.

   Prado defended the strategy, saying that all big developers do it that 
way.

   Former employees recall that at its largest, the PFS companies had 
about 14 to 16 employees.

   From court records, it appears PFS has packaged at least nine joint 
ventures in which Prado serves as managing general partner.  The majority 
of his investors are physicians.

   "In the early '80s many doctors were looking for a tax write-off.  It 
was easy for Prado to convince them the write-off would actually become a 
big score in the end," a real estate source said.  "For awhile there it 
seemed like Dan could do no wrong in their eyes."

   Investors in the Southwest Diagnostic Clinic, a spinoff from the 
Southwest General partnership that later went on to include the now 
incomplete Villa de Oro Apartments, fired Prado as manager of the project 
over bookkeeping irregularities.  But the investors declined to comment 
on the situation.

   Prado said he was "thrown out because I couldn't make a cash call."

   Another doctor investor, Bakthavathsalam Athreya, filed suit against 
Prado in 1986, alleging that Prado conspired with an NBC- Bank  Brooks 
Field vice president to stick Athreya with a letter of credit 
guaranteeing the $ 4 million loan on another real estate venture, 
Toepperwein Joint Venture Project, that represented 20 percent of the 
obligation, when he was only a 10 percent partner. That suit is pending.

   Prado could not be reached for comment after that suit was discovered.


   The letters were cashed in by the lender last month.



                                                                       
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   In many ways, the Toepperwein situation is similar to that of Alta 
Vista -- problems with lenders, contractors and a quick bankruptcy.

   Prado insists the difficulties are the result of the slump in the 
local real estate market and the thrift crisis.

   Careful not to confirm that his lenders have been taken over by 
federal regulatory management, he said that "new management is forcing 
them to make decisions that are not good business sense."

   He said a real problem has been Houston-based Home Savings, which 
loaned Prado and his partners $ 4.8 million on the Toepperwein project.  
The venture built the Oak Grove Center retail office project at 12702 
Toepperwein Road on the northeast side of the city.

   The contractor and most of the subcontractors walked off the project 
for non-payment in October 1986, although PFS files obtained show that 
the partnership continued to draw fees listed as payments for contractors 
who deny they ever got any.

   In court testimony and records, Home Savings alleges that thrift vice 
president Sharon Moore discovered the project had already overextended 
the construction draw by two payments and started to take action on the 
delinquent property in early 1987.

   Another problem surfaced when Home Savings noted that the project did 
not have the required occupancy to continue funding the loan.  Prado's 
lawyer Joanne Eakle and Prado incorporated U.B. Investments to lease a 
large portion of the building for "executive office concepts."

   Eakle declined to return phone calls.  Her office adjoins that of PFS 
and shares a receptionist with Prado.  Her name appears on many of his 
legal documents and former employees said that "Dan checks most of his 
moves with Joanne."

   An internal memo in the Toepperwein project file, dated Feb. 9, 1987, 
from PFS subcontractor Linda Ugarte recounts a surprise visit from "two 
gentlemen" who later identified themselves as representing Home Savings.

   "There was a lot of activity and all the offices I said were leased 
had furniture in them" she stated, adding near the bottom of the memo 
that the men "seemed to believe everything I said."

   Home Savings has declined to comment.

   Prado said the people at Home Savings he had struck the original deal 
with were "long gone," and Moore was "uncooperative" in working with a 
difficult real estate market.

   A stopgap to the escalating problems with the lender and contractors 
was filed with a June 1987 Chapter 11 bankruptcy on the project.  The 
following month, Prado filed suit for himself and the other partners to 
prevent Home Savings from drawing on the five letters of credit totaling 
more than $ 771,000 as guarantees on the project.


                                                                       
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   Prado's personal letter drawn on NBC  Bank  was for $ 192,776.

   The suit was dismissed with a formal agreement signed Sept. 1, stating 
that Toepperwein would take the project out of bankruptcy, make monthly 
reports and keep insurance and taxes current.

   Home Savings alleges that taking the project out of bankruptcy was the 
only condition met.

   In early January, the Toepperwein partners again filed suit to prevent 
the cashing of the letters of credit and received a temporary restraining 
order.

   Prado said the partnership chose not to pay the taxes and insurance 
because Home Savings refused to provide a detailed accounting of how that 
money was being used.  He said Home Savings simply wanted to get its 
hands on the letters of credit.

   "If I was an S&L in trouble and I could get my hands on that money . . 
." he said.

   Although Prado filed the suit, another Toepperwein partner, Ramon 
Bosquez, appeared in court the following week for the hearing to decide 
whether the thrift could continue to be forbidden from drawing on the 
letters.

   Bosquez, a CPA, testified he had been hired only "two weeks before" as 
accountant for the project and therefore could not answer many of the 
technical questions asked.

   Bosquez, who has an accounting firm listed in an office adjacent to 
PFS, had been the president of JND Development, another firm involved 
throughout the development of Toepperwein.  Under the JND umbrella, 
Bosquez had extensive correspondence and phone conversations with the 
lender.

   Bosquez testified the draw would "destroy" the project and make it 
impossible for the partners to borrow any more money to complete it.

   Home Savings' lawyer, Steven Gross, said the lender was forced to pay 
the taxes on the project to prevent it from falling into the hands of the 
taxing authorities.

   State District Court Judge Carolyn Spears found no reason to prevent 
Home Savings from cashing in the letters.  Moore and Gross went directly 
to NBC  Bank  from the court to cash the letters.

   Both Bosquez and his lawyer, Yolanda Gonzales, declined to comment 
after the decision.

   Choosing his words carefully, Gross denied that the problems with 
Toepperwein management strictly concerned money.  Lawsuits and responses 
from Home Savings allege the project was fraught with mismanagement and 
accounting problems as well as non-payment.


   "I can say that some of the grounds for the default included 
non-financial grounds," Gross said.  The tax and insurance payments in 
question amounted to only a few thousand dollars monthly.                                                                        
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   Gross confirmed that Home Savings planned to go forward with 
foreclosure on the property.

   The possibility of foreclosure and loss of letter-of-credit money was 
bad news to contractors still owed money on the project.

   The main contractor, LaMaison Construction, owned by Prado's cousin, 
Frank Garza, walked off the job in 1986 when he gave up on getting 
payment on three jobs he worked on with Prado.  Garza has filed three 
suits alleging Prado owes him $ 375,000.

   Sources said it was a difficult and emotional decision for Garza to 
hire a lawyer and sue his cousin for the money.

   Prado admits he owes Garza some money, but the bulk of the problem has 
been faulty workmanship and Garza's refusal to provide itemized billing.

   He hasn't filed countersuits "because of family considerations," but 
since he has to look after the partnership interests, the suits will be 
"filed shortly," he said.

   Garza's lawyer, Lance Houghtling, said they have documents to prove 
the construction contracts were "turnkey" -- bid for a flat rate for the 
job with no receipts required.  The half-dozen subcontractors on the jobs 
stand firmly behind Garza.

   "Everything I do, I do to the level I'm satisfied with.  If I don't 
like it, I go in and do it again," Garza explained.

   He said the contract was put up for competitive bid by Bosquez and 
LaMaison's rate was the lowest.

   While Garza's struggle has been an emotional one, an Alta Vista 
contractor said Prado's refusal to respond to payment requests drove the 
contractor to extremes.

   Shawn Shaw, owner of Rain and Drain, stressed that in many years of 
business he had never even filed a lien until he did gutter work for 
Prado at the Alta Vista Apartments.

   "Prado basically gets his work done for free.  It's theft of 
services," Shaw said.

   Prado said that when Shaw presented his $ 5,475 bill for services, an 
alert Alta Vista employee wanted to "make sure the job matched the money" 
and noticed the gutters were several feet short of the job total that was 
contracted.

   Shaw said there has never been any question about the quantity or 
quality of the work raised to him.  He started making regular trips to 
PFS when the bill was overdue.  At the 45-day point, he was paid $ 1,475.


   When he threatened to go to a television reporter with his story, they 
gave him another $ 2,000 with a promise for the rest.



                                                                       
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   At about the 60-to-75 day overdue point, Shaw said, he called KMOL's 
Dan Garcia.  On camera, a PFS spokesman said they had never heard of Rain 
and Drain.

   "He kept stalling, hoping he'd get past lien rights," Shaw said.

   On a hot summer day, Shaw hand-lettered a sign that said "PFS owes me 
money" and picketed the building at 12002 Huebner.

   He was about to give up when a secretary came out and told him they 
had called the police to have him arrested; that made him hang around.

   Shaw said because he remained on the easement the policeman told him, 
"More power to you Hoss."

   Shaw finally went ahead and filed a lien on the $ 2,000 still owed.  
Like most contractors contacted, he said he has little hope of seeing it.


   "Times are tight.  I'm not the kind of businessman that will do 
anything for payment, but how a business like PFS can stay in business 
really makes me wonder," Shaw said.

   Contractors allege secretaries and phone messages aren't the only 
dodges Prado uses to avoid them.

   In November, plumbing contractor C.R. Blank filed suit for payment for 
his work on the PFS Building, built under the Honeycomb Joint Venture.

   On Dec. 28, Prado himself filed an answer to the $ 4,509 debt suit, 
stating it should be thrown out because the project was under bankruptcy 
protection.  He did not mention that he had petitioned the bankruptcy 
court to have the entire bankruptcy dismissed in early November.

   Prado stressed that he was "technically correct" because the judge 
didn't approve the motion until early January.

   "We can't say it's out until it's physically out.  The judge could 
have changed the deal," he said.

   On real estate bankruptcies, dismissal is routine when a deal has been 
worked with the lender.  Prado admits that an agreement was reached with 
the lender in November, but said he couldn't be sure the property would 
actually come out.

   Honeycomb, the building that houses the handsome offices, is out of 
bankruptcy protection now.  The address was recently in the news with an 
announcement that Daniel Prado, president of SW Consolidated Foods -- the 
operational name for the contested El Popo Tortilla Factory -- donated 
space in the building for a Northwest studio of the wellrespected local 
ballet troupe/school, Ballet Folklorico De San Antonio.

   The most recent bankruptcy filed involving Prado was filed by Bosquez 
Nov. 30 after Bosquez's former mentor, John Santikos, sued Prado, Bosquez 
and Dr. Raul Gaona to collect on a $ 3.7 million loan for 22 acres of raw 
South Side land.

   Neither Santikos nor Steve Golden of Santikos Investments could be 
reached for comment.

                                                                       
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   But sources called Bosquez Santikos' "former righthand man."

   An investor summary sheet circulated by Prado states that Bosquez was 
with Santikos as an executive vice president for seven years.

   At a creditors' meeting on Mission Oaks, Bosquez answered most 
creditors' questions by saying he believed his lawyer could provide the 
documents in question.

   Involved lawyers said that between problems with service, constantly 
changing legal counsel and delays in discovery, "it's a hell of a lot of 
work to sue Dan Prado."

   Prado still maintains that his problems are no different from anyone 
else in the real estate market today.

   "The definition of market is what a willing buyer will pay a willing 
seller. There are no buyers and no sellers in today's market.  That's 
what it all comes down to," he said.

GRAPHIC: Photo

SUBJECT: Real estate companies; Financial institutions; Bankruptcy; 
Litigation; Developers; Fraud; Southwest; Criminal investigations

NAME: Dan Prado

GEOGRAPHIC: Southwest Region; San Antonio; TX; US

COMPANY: Professional Financial Services; SIC: 6530


                                                                       
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