Dustin Hoffman Scores Victory Over Manafort’s Son-in-Law in LA Real Estate Scheme Gone South

Wooden Gavel

In a legal proceeding that has it all – Hollywood royalty, the son-in-law of an embattled political consultant connected with the Trump administration, and a skyrocketing market for luxury homes in Los Angeles – legendary actor Dustin Hoffman and his son Jacob Hoffman have scored a legal victory in their quest to recover $3 million they invested in a real estate scheme with Jeffrey Yohai, the son-in-law of Paul Manafort, former campaign chairman for President Trump. Specifically, the Hoffmans persuaded a Santa Ana federal bankruptcy court to convert a bankruptcy proceeding by a Yohai-controlled entity that oversaw the investment scheme in a single property in the Hollywood Hills from a Chapter 11 reorganization to a Chapter 7 proceeding, meaning the Hoffmans may be able to recoup some of their investment through a court-ordered liquidation.

The Hoffmans’ Blue Jay Way Investment

The dispute between the Hoffmans and Yohai centers on a property in the Birds Street Neighborhood of the Hollywood Hills – an exclusive area home to Hollywood A-listers such as Leonardo Dicaprio and Jodie Foster – in which the Hoffmans had invested $3 million through an entity called DJ Blue Jay Way, apparently named for Blue Jay Way, the street on which the property is located. Yohai had purchased the Blue Jay Way property in 2015 for $7.5 million after receiving the Hoffman’s investment, and the plan had been to build a new luxury home on the property and resell it for approximately $30 million.

The Blue Jay Way property was one of four investments made by Yohai-controlled properties, which also included a Bel Air property in which Yohai’s father-in-law Paul Manafort had apparently invested $4.7 million. These investment schemes took a turn for the worse, however, in late 2016 when the Yohai-controlled companies that oversaw the real estate investments filed for Chapter 11 bankruptcy protection. The Blue Jay Way property had specifically gone into default after payments on the mortgage used to purchase the property were not made. In court filings, the Hoffmans accused Yohai of mismanaging their money.

A Challenging Road to Recoupment

The import of the Hoffmans’ success in converting the bankruptcy proceeding from a Chapter 11 to Chapter 7 proceeding is that, while a Chapter 11 proceeding allows a debtor pursuing bankruptcy protection to reorganize his debts by negotiating for smaller payments and an extended repayment schedule, a Chapter 7 proceeding forces the debtor to sell essentially everything and repay all parties based on the amount received in liquidation.

But what remains unclear is what, if any, assets would be available to equity investors such as the Hoffmans in such a liquidation. In a Chapter 7 proceeding, all creditors must be paid off in full before equity investors can recoup their investment. According to the LA Times, several lenders had extended millions of dollars in loans to Yohai to purchase his properties, and one of the lenders alone is seeking $21 million in damages from Yohai’s entity.

Making matters even more complicated, the New York Times has reported that both the FBI and New York State Attorney General’s office are currently investigating real estate deals involving Yohai – who has only been working in real estate since 2011 – and his father Manafort for potentially illegal behavior.

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