On Tuesday, June 17, a federal bankruptcy judge appointed trustee Todd Neilson to take over the sinking investment firm Cedar Funding Inc. from owner David Nilsen.

Neilson is a director at LECG, a global expert services firm, and a founding partner of Neilson Elggren LLP. “Mr. Neilson has been involved with some of the highest-profile litigation and bankruptcy matters in the nation,” his résumé says.

Neilson was a court-appointed expert for a Chapter 11 bankruptcy case involving the Roman Catholic Diocese of San Diego, and a financial consultant and crisis manager for former heavyweight fighter Mike Tyson when he filed for bankruptcy protection in 2003.

On June 13 in San Jose, Judge Marilyn Morgan said her decision to appoint a trustee was easy. Morgan listed the millions of dollars of prohibited insider loans and nearly $14 million in missing investor funds discovered by state investigators. “These are, at this point, accusations,” Morgan told the crowded courtroom. “Nonetheless this leads certainly to the loss of [investor] confidence. It’s very obvious to me that you need an independent trustee brought in.”

Charles Logan, Nilsen’s bankruptcy attorney, argued that Cedar Funding should be allowed to handpick its own manager, Scott McKinlay. “There is a need for someone to unravel the maze that has been done by the parties beforehand,” Logan said.

In a court declaration, Nilsen offered to transfer 40 properties to the bankruptcy estate without a legal fight if the court conceded. The properties are primarily across California, except for three in Arizona. The only home he asked to keep is on Seaside’s Lincoln Street where he and his wife, Angela, raised children and intend to retire.

Even with these assets on the table, Logan said investors were looking at a best-case scenario of 70 to 80 cents returned on the dollar; more realistically, 50 to 60 cents, not including interest. Logan estimated it would be two to three years before investors got their money. Cedar Funding has an estimated 1,500 mostly local investors and $160 million in outstanding loans.

Now that Neilson is appointed, he will likely determine the value of Cedar Funding’s properties and then decide how to proceed: The trustee could order a reorganization or a liquidation of assets. Many investors were reluctant to have a trustee in place because of the perceived cost.

Dave Korpi, a Pacific Grove investor, collected more than 250 petitions to have turnaround manager Second Angel Bancorp appointed instead. In an e-mail to investors, Korpi said creditors would get less than 30 to 40 cents on the dollar if a trustee was appointed, and no one would be able to communicate with the trustee.

In fact, a trustee would get paid 25 percent of the first $5,000; 10 percent up to $50,000; and no more than 3 percent of any payouts exceeding $1 million. Morgan said a manager, on the other hand, would get paid hourly. Given the high interest in the case, Morgan ordered the trustee to meet with investors monthly.

Still, investors are concerned that the trustee will rush to liquidate properties before the real estate market has a chance to rebound. Morgan said the trustee has fiduciary responsibility to do what is best for investors and she will have to approve his recommendations. “I can assure that I will look very carefully at this case and fulfill my responsibility to protect your interests,” Morgan told investors.