Investors sue over $21 million in hidden loans to Portland restaurants

A new lawsuit claims that investors in a Portland-based real estate fund are owed more than $21 million in capital that was diverted into risky loans for local hospitality brands. The complaint, filed on Oct. 2 in Multnomah County Circuit Court, alleges that Paul Brenneke and his companies used the Sortis Income Fund as a source of financing for businesses such as Bamboo Sushi and Rudy’s Barbershops.

The fund marketed itself as a conservative investment vehicle backed by real estate collateral. Plaintiffs Stillwater Portfolio and individual investor Raymond Rodgers argue that the reality diverged sharply from that promise. They contend that the fund made self-dealing loans to affiliated companies without proper security or disclosure.

According to the complaint, the fund began raising about $180 million from investors in 2016. The offering documents stated that the money would be used for loans secured by real estate. The lawsuit claims that in 2020, managers diverted funds to the Sustainable Restaurant Group and Rudy’s Barbershop. These loans were not listed on the loan tape in the fourth quarter 2020 performance report, leading plaintiffs to believe the nature of the investments was concealed.

The lawsuit states that the loans grew substantially over the following years. By November 2024, the fund disclosed that the balance owed by the Sustainable Restaurant Group had reached over $10.5 million, while the balance for Rudy’s stood at $6.3 million. The most recent quarterly report shows these figures have increased by more than $2 million each, bringing the combined total to over $21 million. Plaintiffs argue these amounts were not secured by real estate and lacked independent value assessments.

The complaint alleges that the fund stopped making redemption payments to investors in the first quarter of 2024. Despite halting these payouts, the fund continued to pay its managers 15% performance fees in cash. The plaintiffs claim these fees were paid even on the nonperforming loans. Paul Brenneke, 62, served as the controlling figure behind the Sortis entities named in the suit.

Brenneke was served with the lawsuit on Oct. 22. His attorney, Paul Kisslinger, responded to written questions from the media. Kisslinger described the suit as a meritless attempt by Stillwater, a Texas-based manager holding less than 2% of the fund, to interfere with business operations. He noted that the fund exercised standard investor-protection provisions to avoid forced asset sales during the 2023 and 2024 interest rate environment.

Kisslinger stated that Stillwater agreed to resolve disputes through binding arbitration but filed in court instead. The defense plans to move to enforce that agreement and bring counterclaims for misconduct and violations of Oregon law. The attorney said the sortis entities dispute the allegations in full and are confident the record will prove the claims invalid.

The new suit adds to a series of legal challenges faced by Brenneke’s companies. In 2024, Sortis LLC sued its former chief financial officer for breach of contract, a case that settled earlier this year. Previously, landlords and contractors have also filed lawsuits alleging unpaid bills against entities affiliated with the investment vehicles. This case represents a direct challenge from the investors who provided the capital for the fund's operations.

The plaintiffs seek a return of their capital, the replacement of the fund's manager, and an injunction preventing further breaches of Oregon law. They are also requesting interest and costs to be determined at trial. The case is currently active in Multnomah County Circuit Court.