Investors Sue Paul Brenneke and Sortis Over Alleged Misuse of Fund Assets

A new lawsuit accuses Portland developer Paul Brenneke of using investor money to prop up struggling restaurant and barbershop chains.

The complaint was filed on Oct. 2 in Multnomah County Circuit Court by Texas-based Stillwater Portfolio and an individual investor, Raymond Rodgers. The suit seeks $5 million in damages and claims that Brenneke and his companies breached contracts with investors.

The plaintiffs allege that the Sortis Income Fund raised approximately $180 million from 2016 onward. Investors were told the fund would purchase loans secured by real estate, a traditionally stable asset class. Instead, the lawsuit argues, Brenneke diverted those funds to finance risky loans to other companies he owned.

During the pandemic, Brenneke’s companies acquired several local brands, including Rudy’s Barbershops and Sustainable Restaurant Group. Sustainable Restaurant Group is the parent company of Bamboo Sushi, Sizzle Pie, and Ava Gene’s. The complaint states that the fund’s managers used the money as a source of cash for these hospitality businesses.

The lawsuit describes the Sortis Income Fund as a conservative, unleveraged real estate vehicle. However, the plaintiffs contend that Brenneke treated the fund as a personal banking resource. They claim the loans to Rudy’s and Sustainable Restaurant Group were not secured by real estate, contrary to the fund’s stated business plan.

According to the complaint, the fund’s quarterly reports obscured the nature of these loans. The initial reports did not list the borrowers by name. Later reports identified the loans only by location, listing them as assets in Portland, Oregon. The plaintiffs argue that this generic labeling hid the fact that the loans were speculative and unsecured.

The lawsuit alleges that the fund extended and increased the size of these loans over several years. By November 2024, the balance for Sustainable Restaurant Group had grown to more than $10.5 million, while the balance for Rudy’s reached $6.3 million. The most recent quarterly report indicates that these loans have since grown by more than $2 million each, totaling over $21 million.

The plaintiffs claim that the fund stopped making redemption payments and profit distributions to investors starting in the first quarter of 2024. Despite halting payments to investors, the lawsuit alleges that the fund continued to pay managers 15% performance fees in cash. These fees were calculated based on the growing balances of the nonperforming loans.

Brenneke was served with the lawsuit on Oct. 22. His attorney, Paul Kisslinger, responded in writing to questions about the case. Kisslinger called the suit a meritless attempt by a small investor to interfere with Sortis operations. He noted that Stillwater holds less than 2% of the fund and argued that the plaintiffs ignored a contractual agreement to use binding arbitration.

Kisslinger stated that Sortis disputes all allegations and plans to file counterclaims against Stillwater. He said the fund exercised standard investor protections to avoid forced asset sales during high interest rates. Brenneke, 62, is the founding partner of Sortis Capital and related entities. He exercised direct or indirect control over the Sortis companies during the relevant period.

The new legal action adds to existing financial pressures on Brenneke’s companies. Previous lawsuits from landlords and contractors have alleged unpaid bills. The current suit seeks the return of capital, the replacement of the fund’s manager, and an injunction against further violations of Oregon law.