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backed by nothing more than Estes Co.'s promise to repay the
loan.
Furthermore, the expected rate of return (seven-eights of 1
percent above the prime rate charged by Wells Fargo) does not
appear to be commensurate with the high degree of risk to which
the loan exposed the plan. The note was unsecured. The loan was
extended to a single borrower which was involved in developing
real estate, a business dependent on economic factors not within
its control. Additionally, Estes Co. and Estes Homes built and
sold property in a relatively small geographic area, making them
more vulnerable to fluctuations in the real estate market.
Although Mr. Shedd had extensive experience in real estate
financing and marketing, he went against normal practice in real
estate financing by not securing the note and by lending a
substantial portion of the plan's assets to one borrower on
nothing more than a promise to repay. In essence, Mr. Shedd was
gambling that the Tucson and Phoenix real estate markets would
remain healthy and that Estes Co. and Estes Homes would continue
to prosper. We believe that a prudent investor under similar
circumstances would not have extended a loan to Estes Co. under
similar terms.
Additionally, we believe that the loan does not comply with
section 8.3 of the plan agreement which, among other things,
requires the trustee to diversify investments so as to minimize
the risk of large losses. We are not persuaded that it was
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