A U.S. District Court judge in Utah recently awarded $2 million to a group of 28 tenant-in-common investors who were victims of the largest Ponzi scheme to ever occur in the state.
According to Breakwater Equity Partners, a San Diego-based firm that specializes in commercial loan workout strategies, the $2 million settlement is related to two properties located in Henderson, Nev. purchased by the Siena TIC investors in June 2007.
At the time of the purchase, the investors did not know the properties were tied to a Ponzi scheme led by Utah businessman Val Southwick and VesCor Capital Group, Breakwater said. The transaction closed as the Ponzi scheme was being investigated by the Utah Attorney General.
Breakwater said the Siena property was sold by ROCSEV Capital LLC, an entity held by Southwick. Over a period of 17 years, Southwick defrauded hundreds of investors for more than $100 million.
Neither Triple Net Portfolios as the sponsor or Wells Fargo as the lender disclosed the existence of the Ponzi scheme investigation to the investors, Breakwater said . As a result, $2.8 million of the Siena TIC Investors' money was seized.
The investors retained Breakwater Equity Partners to restructure the debt on the property, retain and manage litigation counsel, and settle the dispute with the court-appointed receiver.
"This is a classic case of greed and unscrupulous dealings designed to take advantage of unsuspecting small investors," said Phil Jemmett, CEO of Breakwater Equity Partners. "Breakwater will continue to stand with these individuals as they fight to protect their life savings."
According to investigations, Southwick's company VesCor Capital Corp. was a Ponzi scheme in which money from newer investors was paid to more mature ones to make it appear the business was prospering.
In 2008, Southwick pleaded guilty to nine counts of securities fraud and is currently serving nine consecutive one- to 15-year prison terms in Utah.
Besides the recovery of $2 million granted by the judge, the investors also filed a complaint for damages and jury demand against Wells Fargo, Stewart Title Company and Holland & Hart LLP for several improprieties, including fraud, legal malpractice and breach of contract. Jemmett believes the sponsor and the bank were aware of the Ponzi scheme but kept it a secret. Additionally, Jemmett alleges that Grubb & Ellis, the successor to Triple Net Properties, improperly claimed it was the party entitled to the Siena investors' escrow funds and hired the law firm Holland & Hart to represent the investors with their approval.
The investors are seeking a judgment of more than $16 million for the recovery of the investment, plus attorneys' fees and lost profits.
"After years of fighting, we are delighted to recoup part of the money owed to us," said Harry Jongsma, a Siena TIC investor. "Breakwater Equity Partners was instrumental in obtaining this recovery. We are organized and prepared for the even more intense legal battle ahead."
