PORTLAND — State regulators are investigating a Bend firm that recently filed for bankruptcy after its owners used millions of customer dollars to fund their own business ventures, allegedly without permission.

PORTLAND — State regulators are investigating a Bend firm that recently filed for bankruptcy after its owners used millions of customer dollars to fund their own business ventures, allegedly without permission.

Customers and business partners say they were misled about what the company was doing with their funds and have hired attorneys, while state regulators say they are looking into the matter.

Summit 1031 Exchange's owners said this week that they were short more than half of the $27.8 million in cash it owed to clients. The company said its problems are a result of loans it made during the real estate boom to Inland Capital Corp., a company owned by the same people who own and run Summit.

Inland Capital Corp. then lent the money to other individuals and companies.

"This is just horrible," said John Tennant, a Portland landowner whose family is owed $1 million. "We've hired an attorney, and we'll be filing a lawsuit."

Company officials were unavailable for comment last week. In a statement, the company said it "deeply regrets the distress and detriment that Summit customers are currently experiencing."

Summit specialized in 1031 tax-deferred exchanges, a type of real estate investment that allows investors to defer paying federal taxes on gains from property sales.

The largely unregulated exchanges are tax-deferred as long as sellers quickly reinvest their proceeds in similar properties.

So-called "accommodators" such as Summit hold proceeds from a sale for up to 180 days while the customer closes on a second purchase. The accommodators make money on fees and interest earned off the proceeds.

Summit's customers and business partners, however, say they believed their proceeds had been put into bank accounts, as is typical of accommodators.

"They didn't do that as you can see," Tennant said last week.

Danae "Nye" Miller of Bend said she turned to Summit looking to trade her 34-acre cattle farm near Bend for something larger. Summit now owes her $750,000.

"I don't know how in our lifetime we could ever recoup that money," she said.

News of what happened has surprised investors and business partners who said that Summit's principals had strong reputations in the field and community.

"They were very well regarded," said Dave Chambers, an accountant in Lake Oswego who ran Summit's local office. "These guys in Bend got really good at this. These guys got too successful."

But through 2006, according to Summit's Web site, Summit had been lending 1031 exchange funds to Inland Capital. After central Oregon's real estate market tanked, those borrowers defaulted. Inland Capital, in turn, now owes Summit $13.7 million, Summit said.

Summit said it has replaced management with Portland turnaround consultant Tyrell Vance and will try to sell land and other assets to repay customers and creditors.

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Information from: The Oregonian, http:www.oregonlive.com