Fund used to bail out Portland eateries, suit says

Paul Brenneke, a Portland real estate developer, faces a $5 million lawsuit alleging that he and his Sortis Companies defrauded investors by diverting capital into risky self-dealing loans. The complaint, filed in Multnomah County Circuit Court on Oct. 2, accuses Brenneke of breaching contracts and making misrepresentations in quarterly reports. It claims these actions were part of an effort to bail out a collection of hospitality brands he controls.

The plaintiffs, Texas-based Stillwater Portfolio and individual investor Raymond Rodgers, argue that Brenneke marketed the Sortis Income Fund as a conservative, unleveraged real estate vehicle. The complaint states that the fund raised approximately $180 million from investors beginning in 2016 on the premise that it would issue loans secured by real estate collateral. Instead, the suit alleges, the fund used that capital to finance loans to companies in which Brenneke held an interest.

During the pandemic, Brenneke’s companies acquired well-known local brands, including Rudy’s Barbershops, Bamboo Sushi, Sizzle Pie, and Ava Gene’s. The lawsuit claims the Sortis Income Fund improperly diverted money to these entities in 2020. Specifically, it alleges the fund made loans to Rudy’s Barbershop and Sustainable Restaurant Group, the parent company for the sushi and pie brands. The complaint asserts these loans were not secured by real estate and were hidden from investors using generic descriptions.

The document quotes the complaint, which says the defendants concealed the fact that the fund was used as a source of funds for these risky business activities. It notes that the loans to Rudy’s and Sustainable Restaurant Group were not listed on the loan tape in the fund’s fourth quarter 2020 performance report. Subsequent reports listed the loans only by location, Portland, OR, without identifying the borrowers or distinguishing them from typical real estate loans.

Brenneke’s attorney, Paul Kisslinger, responded to the filing by calling the suit a meritless attempt by a small investor to pressure the company. Kisslinger wrote that Stillwater holds less than 2% of the fund and is trying to shift responsibility for its own conduct onto Sortis. He noted that the fund exercised standard investor-protection provisions to avoid forced asset sales during the 2023 and 2024 interest rate environment. Kisslinger also stated that Sortis will move to enforce a binding arbitration agreement and bring counterclaims against Stillwater.

The lawsuit alleges that the fund has not made payments to investors since the first quarter of 2024. Despite this, the complaint claims the fund continued to pay its managers 15% performance fees in cash. These fees were paid even on the nonperforming loans, which the suit describes as improper. The plaintiffs argue that the managers concealed the true nature of the loans because they contradicted the fund’s stated business plan and purpose.

According to the complaint, the loans grew significantly over time without investor notification. The suit claims the fund disclosed in November 2024 that the Sustainable Restaurant Group loan had ballooned to over $10.5 million and the Rudy’s loan to $6.3 million. The most recent quarterly report indicates these balances have since grown by more than $2 million each, totaling over $21 million. The investors are seeking a return of their capital, the replacement of the fund’s manager, and an injunction against the management defendants.

Brenneke, 62, was served with the lawsuit on Oct. 22. He is the founding partner of Sortis Capital and related companies. The new accusations add to previous financial troubles faced by Sortis-affiliated companies, which have dealt with lawsuits from landlords and contractors over unpaid bills. The current case marks a specific escalation, as it directly targets the internal handling of investor funds and the structure of the loans made to affiliated businesses.