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.
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.
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.”
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.”
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.”