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Originally published March 10, 2010 at 6:08 PM | Page modified March 10, 2010 at 7:55 PM

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Trustee in Mastro bankruptcy goes after four new targets

A new lawsuit alleges four business associates of bankrupt real-estate magnate Michael R. Mastro negotiated "sham transactions" before Mastro entered bankruptcy that were designed to keep assets from his creditors.

Seattle Times business reporter

Four business associates of bankrupt real-estate magnate Michael R. Mastro negotiated "sham transactions" before Mastro entered bankruptcy that were designed to keep assets from his creditors, a new lawsuit alleges.

The suit against the four was filed late Tuesday by James Rigby, the court-appointed trustee charged with representing the interest of Mastro's creditors.

It seeks to undo a deal, executed weeks before Mastro entered bankruptcy last summer, in which he transferred IOUs with a face value of more than $31 million to a business partner, John Mastandrea.

The IOUs were for two real-estate loans Mastro made in 2007 to Centurion Financial, a Bellevue firm owned by Thomas Hazelrigg III and Scott Switzer, and a third 2006 loan Hazelrigg personally guaranteed.

Spencer Hall, one of Rigby's attorneys, said the trustee expects to win judgments for a "significant amount" against Hazelrigg, Switzer and Mastandrea, three of the four defendants named in the lawsuit.

How much might Mastro's creditors actually collect? "We don't know the extent of the defendants' assets," Hall said.

Mastro has testified the IOUs were worthless at the time he transferred them to Mastandrea.

Mastro, a prolific real-estate developer and lender for 40 years, was forced last summer into what probably is Western Washington's largest bankruptcy ever by three of his lenders. Creditors have filed claims totaling more than $570 million, with at least $206 million of that not secured by real estate or other collateral.

The new lawsuit, filed in bankruptcy court in Seattle, also seeks to foreclose on Switzer's Kirkland home, which according to county records has an assessed value of $1.9 million.

Switzer put the house up as collateral for one of Mastro's loans to Centurion, the suit says, but Mastro transferred his interest in the property last May to a company controlled by another business associate, Ken Sato, without receiving anything in return.

Sato is the fourth defendant named in the lawsuit. He, in turn, moved last summer to give his interest in the house back to Switzer without receiving anything in return, the suit says.

Sato, Switzer, Hazelrigg and Mastandrea could not be reached for comment Wednesday. The Secretary of State's corporation records indicate Centurion Financial was dissolved in January.

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Mastro's agreement with Mastandrea specified that Mastandrea not try to collect from Hazelrigg. Mastro has testified that the proviso was prompted by "30 years of friendship."

Mastro already faces other lawsuits alleging he engineered a series of transactions aimed at putting several valuable assets out of reach of most of his creditors. He maintains the transactions were legitimate.

The U.S. Attorney's Office also is investigating Mastro, one of his attorneys has said.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

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