Marshall, LandCo facing landslide of legal problems

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Work continues on the building at 27 S. Tejon St., which is planned to be the new home U.S. Olympic Committee.

Work continues on the building at 27 S. Tejon St., which is planned to be the new home U.S. Olympic Committee.

Foreclosure proceedings against 110 acres of land in northern El Paso County managed by the developer chosen by the city to oversee the U.S. Olympic Committee headquarters/Olympic Training Center project appear to be just the tip of the legal iceberg bearing down on Ray Marshall and LandCo.

While Marshall’s attorneys, Greenberg Traurig, claimed that he has no personal liability for the loan made to Mount Vernon Estates LLC for the property, and that the foreclosure is the fault of other investors who failed to respond to capital calls, publicly available court documents filed within the last 18 months in Colorado Springs and Denver paint a different picture of the developer and his many limited liability corporations.
Sworn affidavits from individuals who invested substantial amounts of money in a variety of ventures conceived and managed by Marshall and LandCo contain many disturbing allegations.

Marshall is accused of transferring money from multiple LLCs, each created for specific investment purposes, and converting the funds to different uses, without the knowledge or approval of other investors or partners in the deals.

Court records and filings show that this alleged pattern of misappropriating money began well before the city and the USOC entered into their partnership with LandCo, which agreed to rebuild 27 S. Tejon St. for use as the USOC headquarters and provide $16 million for OTC upgrades, including athlete housing, among other things.

Neither Marshall nor his attorneys immediately returned calls from CSBJ this morning seeking comment.

Mason Investments
During 2007, Mason Investments, a company controlled by Colorado Springs investor Jack W. Mason, filed suit against Marshall and LandCo.

Mason demanded that Marshall and LandCo provide him with a detailed analysis of the “capital accounts and advances/borrowings which North County Land LLC disbursed to unrelated entities (owned or controlled by Marshall/LandCo).”

By agreement between the parties to the suit, the firm of Saltzman Hama Nelson Massaro LLP was hired by LandCo and conducted such an analysis.

On Oct. 31, 2007, Saltzmann submitted its analysis. It found that “outstanding unrelated advances/borrowings” by LandCo/Marshall in the amount of $1,665,067 had been removed from the accounts of North County Land.

The finding formed the basis for a settlement, whose terms included a “reconciliation of distributions, allocations, and expenses” no later than Dec. 19, 2007. Mason subsequently agreed to several extensions, the last expiring on April 30, 2008.

In a letter dated May 23, 2008, Mason wrote:
“The reason the settlement agreement required the reconciliation is quite obvious – I needed independent verification of how funds were received and disbursed by you on behalf of North County. The partial financial information I received indicated you committed serious fiduciary breaches and misused your position of trust by activities such as taking preferential distributions and using North County funds for securities trading leveraged through margin borrowing.”

The “partial financial information” that Mason referred to is unavailable for public inspection because it was sealed by the District Court as a stipulation of the original settlement agreement.

If there were such a margin trading account controlled by Marshall, it is not known where the account was located, who controlled it or how the profits, if any, of such trading were allocated.

Mason has filed a new complaint calling for the appointment of a receiver. Since then, most of the related court filings have been sealed.

More allegations
Colorado Springs investor Ward Berlin filed suit against LandCo, Marshall and related entities July 10, 2008, alleging misappropriation, self-dealing and securities fraud.

Berlin, a self-described “unsophisticated real estate investor,” claims that he was induced to invest in LLC’s controlled by Marshall and LandCo by the promise of substantial returns.

A one-page pro forma, dated Oct. 1, 2006, promises returns on investments for four projects ranging from 533.06 percent to 240 percent, for an average expected return of 314.02 percent. These returns, unsupported by any documentation other than the speculations contained in the pro forma, did not arouse Berlin’s suspicions.

Convinced that they were legitimate business propositions, Berlin invested a total of $1,222,700 in four LandCo/Marshall entities between December 2006 and March 2007.

Dissatisfied with the sketchy progress reports that he was receiving from Marshall, Berlin asked to sit in on meetings involving the projects. Marshall consented, and suggested that Berlin join LandCo as a “marketing consultant” during October 2007.

Berlin states in his affidavit that his role was to “rebrand” LandCo and be “the front man” for the USOC proposal.

Soon thereafter, Berlin said he became convinced that he was the victim of a scam, an elaborate shell game whereby profitable deals were simply moved to other LandCo/Marshall entities.

He quit LandCo. and said that he had never received any compensation for his work, other than vague promises of future returns. Berlin filed suit, demanding the return of his investments and a detailed accounting.

When Marshall and LandCo refused, he joined Mason in requesting that the court appoint a receiver to take control of LandCo and its related LLCs.

In a sworn affidavit filed in District Court on Aug. 21, 2008, Berlin detailed his concerns:
“By early 2008, Marshall (asked me) for an additional investment of $1.5 million (to be made) directly in LandCo. By that time, I was deeply concerned with how LandCo was being financed and operated. It was my impression that virtually all available funds from loans and investors in LandCo’s various projects were being used to pay general LandCo corporate expenses. … Marshall used the investment LLCs’ funds to pursue the USOC deal for LandCo’s benefit, to the detriment of each of the various investment LLC’s.”

The affidavit describes in detail one such deal that, he claims, fraudulently deprived him of a return on his investment.

“On March 31, 2008, without Berlin’s knowledge or consent, Marshall caused 8th and 24th LLC to convey its only asset, land and buildings at 8th Street and Highway 24, to another entity Marshall had formed for a purported purchase price of $2.85 million, the price 8th and 24th LLC had paid for the property over a year earlier. As part of this transaction, Marshall caused deeds of trust securing over $1 million in promissory notes payable to another of the investment LLC’s in which (Berlin) holds a 25 percent interest, to be released without any consideration. Shortly after this transfer, Marshall obtained a $5.5 million loan from 1st Bank of Colorado for the property involved. …This transaction converted perhaps millions in equity from 8th and 24th LLC, in which (Berlin) had a 28 percent interest, to Marshall’s new entity, in which Berlin had no interest.”

Far from making any money on the deal, Berlin said that he found himself stuck with an interest in an unsecured and “probably uncollectible” promissory note for more than a million dollars, and a possible bill from the Internal Revenue Service for “relief of indebtedness.”

More trouble
But the lawsuits aren’t the only problems that could diminish Marshall’s ability to perform as promised on his part of the USOC deal.

On Oct. 14, 2008, the Internal Revenue Service filed a federal tax lien for $1,161,063.89 against Marshall and his wife, Robin, encumbering their residence at 2104 Stratton Forest Heights.

Two months earlier, on Aug. 8, Marshall executed a “bargain and sale deed,” transferring his interest in both the residence and a nearby lot to his wife for “the consideration of one dollar in hand paid.”

The deeds were recorded just two weeks prior to the Sept. 29 hearing on Berlin’s request for the appointment of a receiver and to combine his case with Mason’s.

According to the El Paso County Treasurer’s Office, the lot is in tax sale for nonpament of 2006 taxes payable in 2007 and 2008 taxes payable in 2009.

The land foreclosure
The North County/Mount Vernon Estates foreclosure was filed on Feb. 12, 2009.

A week after the filing, a hearing on the Mason case (North County Land LLC et al. v. Mason Investments III LLC et al) was stayed by District Court Judge Ronald Crowder.

No details are available, other than a court summary filed Feb 23.

“Plaintiff Marshall motion for stay due to criminal allegations by Defendant Mason to DA – Granted. But for only 30 days. The FTR record of this proceeding ordered sealed pending further order of the court.”

Council mum
No member of City Council contacted by the Business Journal would comment on the record about the legal problems Marshall and LandCo are facing.

Promised confidentiality, one admitted to being aware of at least one lawsuit, and of the existence of an IRS lien. But, the council member said, Marshall had assured City Council that neither the lawsuit nor the lien were related to, or would affect in any way, his ability to perform his end of the USOC deal.

Told that the IRS lien was in excess of $1 million, the council member said only: “He must have a pretty fancy house.”

14 Responses to Marshall, LandCo facing landslide of legal problems

  1. A fancy house indeed. So do you still think the USOC project will be completed.

    Heidi
    March 24, 2009 at 10:02 am

  2. An ABSOLUTE indictment illustrative of the TOTAL incompetence of City Council & ALL the people behind the USOC downtown deal. The Mayor should step down since he was the primary “Cheerleader” and an investigation should take place regarding the financial machinations.

    One party rule really does not work!

    RJF
    March 24, 2009 at 10:26 am

  3. I think the City of Colorado Springs needs to be more careful on who they do business with. The city can’t afford to be apart of the scandal.

    Hyrum
    March 24, 2009 at 10:31 am

  4. It may be up to Council, and community leaders in the development business, to restructure the deal. It is, especially now, crucial to our community.

    John Hazlehurst
    March 24, 2009 at 10:34 am

  5. After reading this article on LandCo, and how it affects the city of Colorado Springs, I’m horrified at the ineptitude of the City management team, what is this, but, blind trust. At the expense of Colorado Springs losing face in the Nations eyes.
    Time to get some tar and feathers..

    Allen Bohannon
    March 24, 2009 at 11:34 am

  6. The sex appeal of having those Olympic RIngs on a business card was just too much for our city council.

    No wonder Jerry Heimlichmanuever has quit claiming the Olympic deal in his campaign materials.

    Lets vote for Dave Gardner: he may have ideas that remind rational folks of the loony toons in Boulder, but his disgust is not misplaced…..

    Tell me again why MayorLionel wants the business community to donate money to this project?

    This makes the ‘press release’ greemail attempt, directed at the city by US Boxing, look like a birthday card.

    Mr. Hazelhurst would like the council to do something. Hey, you can forget that…..its re-election time, and even the most inept beuarcrat knows you don’t admit a mistake or attract attention to lousy decisions while you’re putting up yard signs. But he’s right about getting the business community involved….and let’s not forget the folks at El Pomar…….put everybody in a room and hammer out a plan…..council will go along with it, since it’ll save their reputations. You might even get Jerry Heimlicher to buy refreshments…..he could use his campaign funds……

    After all this, we should trust council with 1A money? Ya, …..right……….

    John Whitten
    March 24, 2009 at 11:56 am

  7. John, Don’t bring 1a into this discussion. 1A JOBS NOW will be adminstered to CIty Council by a selected commission of really smart people.

    Lon Matejczyk
    March 24, 2009 at 1:26 pm

  8. I have to agree the due diligance of the City re: Landco was poor at best. They were vetted on appearances and not substance . This is a mess for sure because a project that should really help our Downtown and jumpstart a renewal is is giving a bad name to development in general and pobably will set back other much need Public /Private Partnerships.

    Eddie
    March 24, 2009 at 4:43 pm

  9. I agree that this business deal was not handled very well; but remember that the USOC had put the pressure on the City and community to come up with the plan and the money to keep them around. LandCo appeared (at least on what I recall) to be the only one to step up to the podium (pun intended) and offer the financial assistance. Did LandCo acutally believe they could overcome its other financial dealings and actually contribute to the USOC as promised – probably; did they know the market was going to tank as bad as it has – more than likely; was it a poorly crafted business deal by all – absolutely!

    I for one believe the USOC should step up, or at least their corporate sponsors, and provide its fair share in completing these projects. I can’t fathom that the City will really ever see a return on this investment; it’s not like the City was investing in a new downtown ballpark for the Sky Sox!

    I also don’t want to believe that the Council or the committee formed to oversee 1A will do this poorly of a job in allocating money business recruitment. I for one believe this City needs 1A to compete or else we’re going to the Pueblo’s of Colorado slowly pass us by!

    Insider
    March 25, 2009 at 2:41 pm

  10. The deal should have originally gone to Cooper Tower and Ray O’Sullivan.

    If so we may not be in this mess right now.

    SURLY
    March 25, 2009 at 2:50 pm

  11. Thanks to John for finally making sense of this house of cards. How can an attorney say it doesn’t effect his (Ray Marshall) ability to perform for the USOC and he will follow through on his committments when he is in foreclosure, quietly quit-claiming properties, and running his own little Ponzi scheme. He obviously had the support of Rivera and Mike Anderson with little or no written verification of assets.

    The global economic crisis has no influence here. Thats something to hide behind instead of people didn’t do their homework. How did anyone in positions of power and decision ever think this would work? Let the cards fall, but we need to save the USOC for our city.

    I’m still voting yes on 1a, because it is NOT managed by council.

    Candice
    March 25, 2009 at 3:17 pm

  12. I agree with John Whitten, this is a sham. Landco and Ray Marshall, Mayor Lionel & City Council
    should all be ran out of town. For God’s sake Lionel is a VP of Investments at a worldwide investment firm and you would think of anyone, he would read between the lines before signing the city up for this catastrophe. That goes for Heimlicher also….another finance guru.

    Now chiming in on 1A…….Lon and the other believers that this is the fix all and will not be managed by city council are sadly mistaken. Just like the LART fund, Issue 1A appoints a committee who then makes “recommendations” to city council. These are just “recommendations” not “requirements”, so when council goes behind close doors what you see is not what you get.

    Good Luck 1A followers and hopefully Ray Marshall ends up sharing a bunk bed with Bernie Madoff!!

    CPK
    March 26, 2009 at 4:13 pm

  13. Surly, … surely you jest ! O’Sullivan is in a jam himself and has lost the property. The Tower was never more than press releases anyway.

    Eddie
    March 27, 2009 at 6:53 am

  14. Watching this deal unravel is kind of like watching a spectacular car crash where nobody gets hurt: really sad but highly entertaining……

    Many lessons contained therein: we get what we pay for on council; developers will do anything when backed in a corner; the business community has been quiet too long; and nobody around city hall seems to know what a conflict of interest looks like, among many other issues…..

    It’s been reported that a Special Meeting of council will be held on Monday, 3/30. It was also reported as being a closed session. I don’t think it can be closed if tax payer money is at stake and, in any case, if council wants to rebuild any credability in this deal, they better invite the public, or at least the press.

    Council should not forget that one of the definitions of ethics is: “what somebody does when they think no one is looking…”

    The unfortunate reality is that Landco. (and O’Sullivan, and a couple of other high profile developer types…) may be just a bounced check away from bankruptcy. That would not be good for anybody around this town.

    Maybe it’s time for a change in the city charter, establishing a paid mayor and city council, where performance is more of any issue. Can’t be any worse than what we have now and, who knows, it might attract competant buisness people to serve…..

    John Whitten
    March 27, 2009 at 9:10 am