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New Ginn-LA Lawsuit Alleges Fraudulent Transfers - Also Names Lubert-Adler Investors Including Harvard, Princeton, and Yale

Tesoro and Quail West Bankruptcy Trustee sues to recover alleged fraudulent transfers of Credit Suisse loan proceeds to Lubert-Adler funds and Bobby Ginn.

By Toby Tobin
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Palm Coast, FL – May 11, 2010 – Drew Dillworth, Chapter 7 Trustee for the consolidated Ginn-LA Tesoro and Quail West bankruptcies filed a complaint yesterday alleging fraudulent transfers in the distribution of proceeds from a $675 million Credit Suisse loan. In addition to Bobby Ginn and Lubert-Adler entities, the lawsuit names as Defendants John Doe 1 – 50, later described as Lubert Adler Fund III & IV investors reported to include: the Maryland State Retirement and Pension System; the Ohio Police and Fire Pension Fund; the Pennsylvania State Employees; and Public School Employees' Retirement Systems; Harvard University; Yale University; Princeton University; Drexel University; the University of Michigan Endowment; and the John D. and Catherine T. Mac Arthur Foundation, among others.
Ginn blimp from GoToby.comThe lawsuit is the latest in a growing list against the beleaguered GINNdom of Bobby Ginn and his financial partner Lubert-Adler (Ginn-LA). More recent lawsuits have named defendants beyond the Ginn-LA entities; real estate sales companies, appraisers, title companies, loan originators and banks (Credit Suisse, Wachovia, SunTrust, and Fifth Third). But Dillworth's complaint is the first to encompass high-profile Lubert-Adler Fund investors. It's also the first to seek return of CS loan proceeds totaling over $325 million that were dispersed directly to Ginn/Lubert-Adler. And it's the first that cannot be blamed on "disgruntled investors."
The Dillworth complaint arises from Ginn-LA's June '08 default on a $675 million credit facility with Credit Suisse. That story was broken exclusively by GoToby.com. <story> Coinciding with the real estate market collapse, the default triggered the decline of the GINNdom. Parts of the empire have survived. The Hammock Beach Resort is even doing quite well. But Bobby Ginn is essentially out of the picture as Lubert-Adler has chosen new partners; most prominently Reynolds Plantation.
At the time of the default, the CS loan was secured by the assets of four Ginn projects. Through a complex Master Restructuring Agreement between Ginn-LA and Credit Suisse these assets were disposed of as follows:
  • Ginn sur Mer (on Grand Bahama) – Settled through foreclosure and a joint venture agreement <story>
  • Laurelmor (near Blowing Rock, NC) – Sold to Reynolds Plantation renamed Reynolds Blue Ridge <story>
  • Tesoro (Port St. Lucie, FL) – Chapter 7 bankruptcy – assets sold for $10.9 million <story>
  • Quail West (Naples, FL) – Chapter 7 bankruptcy – assets sold for $13.5 million <story>
Dillworth is the court appointed Chapter 7 Trustee for the consolidated Tesoro/Quail West bankruptcy.
Credit Suisse made huge loans to several developers of luxury communities and resorts. Ginn's was not the only one; just the largest. Lake Las Vegas, Yellowstone Club, Promontory, Turtle Bay, and Tamarack developers participated as well. <story>
  • Each Credit Suisse loan provided substantial distributions directly to the developers' equity partners from the loan proceeds. Ginn and Lubert-Adler entities reportedly received approximately $323 million of the $675 million loan.
  • Credit Suisse allegedly enticed the developer borrowers to overextend themselves by employing "Total Net Value," an asset appraisal methodology not approved in the U.S.
  • Credit Suisse allegedly collected exorbitant fees for originating and administering the loans. CS collected in excess of $15 million in fees plus closing costs from the Ginn-LA loan.
  • Credit Suisse did not lend its own money. CS consolidated funds from several private investors, avoiding the risk themselves.
  • Each developer to whom CS made this same type of loan defaulted.
Another lawsuit, Gibson v. Credit Suisse, alleges that through a "Loan to Own" scheme, Credit Suisse intentionally loaned money to developers based on fraudulently inflated appraisals (by Cushman & Wakefield appraisals), knowing that they would end in default, at which time CS would step in using proxy lenders to take over the projects for pennies on the dollar. <story>
Dillworths complaint is more narrowly drawn. It seeks to recover the funds it claims were fraudulently transferred to Ginn and Lubert-Adler from CS loan proceeds.
Excerpted from the Complaint:
From the $675 million loan, "Credit Suisse took substantial fees in excess of $15 million, and sold off most if not all of the credit to loan participants."
"Existing third party debt of approximately $158 million was replaced with new [CS] debt."
"Ginn and Lubert-Adler took out and paid themselves and their investors approximately $323 million, as return of capital contributions, interest, preferred return, and/or profit."
"Each of the Debtors and Other Project Entities issued a guaranty on the full amount of the loans, and granted liens on substantially all of its assets."
"In short, Ginn, the Lubert-Adler entities, and the Fund III & IV investors reaped substantial benefits, while the Debtors and Other Project Entities – and their creditors – bore the risk of loss."
"Ginn and Lubert-Adler records indicate that over $148 million of the $323 million of loan proceeds which they took out and paid themselves and their investors was credited to the Tesoro and Quail West Debtors."
"The Debtors' transfer of that $148 million, and of the guaranties and liens they issued in connection with the loan transaction, was made with actual intent to hinder, delay, or defraud present and future creditors."
"The Debtors did not receive fair consideration or reasonably equivalent value for the transfer of that $148 million, or the guaranties and liens they issued in connection with the loan transaction. Quite the contrary, if the Debtors were not already insolvent at the time of the transfers, they were rendered insolvent thereby, and were left much too thinly capitalized to survive."
Citing Ginn/Lubert-Adler's own records, this is how the $675 million was distributed:
  • Credit Suisse Loan Fee and Other Closing Costs - $23,446,764.94
  • Replacement of Existing Third-Party Debt - $158,291,252.86
  • Distributions to Ginn/Lubert-Adler Entities - $328,261,982.20
  • Total - $510,000,000.00
[Leaving only $165,000,000.00 out of $675.000.000 for working capital]
"Although Credit Suisse was the entity to whom the guarantees and liens were issued, the Defendants – who stood to receive the lion's share of the loan proceeds – were the entities for whose benefit the guaranties and liens were issued."
According to their own records, the Ginn/Lubert-Adler distribution was broken down as follows:
  • Ginn - $7,142,726.47
  • Lubert-Adler Debt/Accrued Interest - $104,010,550.47
  • Lubert-Adler Equity/Preferred Return - $183,690,802.75
  • Lubert-Adler Profit - $28,419,902.50
  • Subtotal – $323,263,982,19
Note that Lubert-Adler received the bulk of the distribution. But the $7+ million Ginn distribution and the $28+ million Lubert-Adler profit distribution fit the often-quoted 20:80 profit sharing formula of the Ginn-LA projects.
Underlying Loan Appraisals
Echoing the Gibson v Credit Suisse lawsuit, the Dillworth complaint alleges that the underlying loan appraisals were fraudulent because they did not comply with U.S. banking laws.
"Cushman & Wakefield appraisals defined the 'Total Net Value' of each Project as 'the sum of the market value of the bulk lots of the entire planned community, as if all of the bulk lots were complete…and available for sale to merchant builders, as of the date of the appraisal,' without deduction or discounting for pertinent risk factors or the time value of money." The result was an appraised value much higher than actual as-is fair market value.
"For example, whereas the St. Lucie County Property Appraiser assessed the value of all Tesoro real and tangible property in 2006 to be $74,910,626, Cushman & Wakefield's appraisal of the 'Total Net Value' of just the unsold Tesoro lots as of April 14, 2006 was $210,000,000."
In other words, the appraisals were based on Ginn sales projections which "had no basis in historical reality, and were vastly overstated."
"…although Ginn and Lubert-Adler missed their original projections for the Tesoro East 'launch' by a huge margin (they had projected 421 lot closings by January 1, 2006, but achieved fewer than 40, with the real estate market in Port St. Lucie worsening with every day), the projections supplied to Cushman & Wakefield for use in its appraisals nonetheless forecasted a total of 74 additional lot and condominium unit closings during the second half of 2006 alone, and 290 more by the end of 2008. In actuality, they achieved fewer than 40 additional lot closings, and 0 condominium unit closings, through the end of 2008."
It will be interesting to watch this lawsuit unfold. I wonder how long I can continue to picture the Ginn Blimp in a horizontal position. And how long will it be before the private investors get on the lawsuit bandwagon against Credit Suisse?

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reader comments
Reply to John
Posted by Toby
Nov 16, 2013, 3:23 pm
Thank you for your comments.

That would be the Lawrie v. Ginn lawsuit. Defendants include Suntrust, Wachovia, and Fifth Third banks. Also Ginn Companies, Ginn Development Company, Ginn Real Estate, Ginn Financial Services, ESI Living, and Lubert-Adler Partners.It is definitely still active.
Reply to Randy
Posted by Toby
Nov 16, 2013, 3:23 pm
There were some inconsistencies in the complaint. I was torn between correcting them or quoting them as written. I'd go with the $232 number.
Ginn-LA Lawsuit
Posted by bankslayer
May 18, 2010, 7:56 am
In reply to Ken, it seems it is you that are ill-informed, Firstly it is not Reynolds that are involved with the HOA, they were incapable so they passed it on to Aegis who are doing as well as anyone in the Circumstances. You agree that Lubert Adler are Partners with Reynolds in Laurelmor, that is justification in itself for a lawsuit against Reynolds-LA. First Ginn-LA buy Laurelmor and develop the infrastructure with Huge Bank Loans, then they fail badly, but in the process they take money from people using Fraudulently inflated Appraisals as they did in every Community, then they are allowed to buy the debt off the Banks in the name of Reynolds-LA for 10cents on the dollar, in the process screwing everyone who bought and the Banks to boot.
Then you say Reunion is not involved in any Court action, are you unable to read, Reunion is the Subject to at least 6 Lawsuits including a Class Action Lawsuit.
You also say everyone who now buys is happy, you must be a busy man interviewing these new buyers, do you mean just Reunion or every Ginn Community. I doubt that is true maybe they got a cheap deal, but they are still subject to high carry costs and the fear of Bankruptcy looms over every Ginn Community. It is a matter of time for Reunion and Bella Collina.
It's Amazing How Ill Informed Your Readers Are
Posted by Ken
May 17, 2010, 9:03 am
Toby -

While it's understandable that people are terribly upset that they have lost money following Bobby, it is truly unconscionable that you allow them to peddle falsehoods and innuendo on your website. Let me try and correct a few:

1) Ginn was removed from management at Reunion, Hammock Beach, Bella Collina and Cobblestone and Reynolds was brought in to manage them. Reynolds is not an equity investor in each of these. They have worked tirelessly to try to bring some semblance of order to chaotic situations. It is difficult to operate clubs, HOAs and resorts when i) few are paying their club dues, few are paying their HOA fees and resort travel is significantly down over the last few years. While your readers feel as if they have been hoodwinked into investing in Bobby's communities,Your readers have no idea how much it takes to cover these costs when property owners don't pay.
2) People who are buying property in these communities today truly love the experience. The folks who trash them because of their bad investments do themselves a tremendous disservice.
3) Reynolds invested in Laurelmor with their own money, not with LA's money. LA and Reynolds are partners, and they are funding costs equally. Reynolds is in charge of continuing the development of that property with their new plans.
4) Reunion has not gone through any court proceedings.
how
Posted by sam johnson
May 14, 2010, 12:45 pm
toby...great story...how in the world can any court allow reunion to go from ginn/adler in a buy at a distressed price to reynolds/adler,or reynolds at all...they have come to reunion and done the same illegal sales with furniture and free memberships being included in appraisals...this is the same crap that bobby did seven years ago...are or can the courtsbe that blindfolded looking ahead...i think bankslayer is correct in his assumption that reunion has to go chapter 7 soon...this place is being run into the ground by reynolds and if they stay when it happens it would be a major crime
RE: Bankslayer
Posted by John
May 14, 2010, 7:11 am
Bankslayer,
I don't know much about Reynolds except that they have stepped in to run a number of the communities as well as purchased Laurelmor at a steep discount with LA's money. You mention that they should be included in a new lawsuit, I'm just curious as to why? Have they involved themselves in some of the illegal activities that we all know Ginn participated in?

I don't necessarily disagree (especially since I don't know them) but just curious.
Ginn
Posted by PR
May 13, 2010, 4:19 pm
Do you feel Julison, Jones and others might be named in the suites as well,?
Ginn-LA Lawsuit
Posted by bankslayer
May 13, 2010, 3:30 pm
Great story Toby, this is really hotting up now, wait for another bigger lawsuit that encompasses all four Communities under the Credit Suisse Loan, Lubert Adler and Credit Suisse, I think we also need to throw in the new Ginn, Reynolds for their part and then we will have the ultimate Lawsuit. Lubert Adler must be squirming now and rightly so.
Lubert Adler need to disappear they will surely lose their Investors that have now been dragged into the Legal arena and like in the Madhoff case they will be made to pay back the gains they made from Fraudulent activities. The Books and the Films will be something to look forward to.
In answer to the question of Reunion, it is dying in a sea of debt and will have to go into Bankruptcy in my opinion to survive, Reynolds have been inept or it is their plan to buy it from the brink of Bankruptcy like they did in Laurelmor, they must not be allowed to have anything to do with Ginn Communities they are no better than Ginn and are under the Control of Lubert Adler. From what I have heard Reynolds are negotiating with the Banks to buy lots in the Conservatory, again if they do it will prove the Banks are once again in collusion with these Crooks, it must not be allowed to happen the Banks need to step aside and not deal with these people. They have been killed by them once, you would think they would stay well away.
Question
Posted by Frank
May 12, 2010, 1:53 pm
Hi Toby,

Great info as always !

You mention Hammock Beach doing well and take on how Reunion is holding up ?
RE: Toby
Posted by John
May 11, 2010, 6:56 pm
That is the one! Thanks for the update. I'm curious to see how that suit sits with the courts. I am one of the poor suckers that got caught in the Conservatory by one of the defendant SunBanks. I hope they get their butts nailed to the wall.
Thanks for the update!
Posted by Randy
May 11, 2010, 6:56 pm
Maybe its my math, but there seems to be a $5m difference between the $328m Ginn-LA distribution and the listed subtotals of $323m, any clue where that money went? It's only $5m out of $675m, but a miliion here and a million there and pretty soon were talking about some real money!
Great Work Toby
Posted by John
May 11, 2010, 4:01 pm
You never disappoint. This is very interesting and I can't wait to see how this unfolds.

Has anyone heard if the lawsuit that followed the big one out of Michigan even went anywhere? It was filed quite a while back and included a bunch of the lenders. I haven't heard if that ever got any more traction than the suit from Michigan which I believe was dismissed. Anyone know?

 
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Don "Toby" Tobin is a licensed real estate professional affiliated with Grand Living Realty. Toby is a member of the Flagler County Association of Realtors®, the Florida Association of Realtors, Enterprise Flagler, Flagler Home Builders Association, and the National Association of Realtors.

GoToby.com proivdes real estate news, commentary, and analysis for Palm Coast and Flagler Country Florida, as well as Realtor® referrals and consultation to buyers, sellers, and developers.