The biggest local story of 2009 was unquestionably the USOC deal.
Here’s a recap of the stories that chronicled the unraveling, collapse and revival of the agreements between the U.S. Olympic Committee, LandCo Equity Partners and the City of Colorado Springs.
On March 6th, a story appeared that asking why the city had yet to market the certificates of participation to pay for the USOC headquarters building.
The city had delayed issuing the securities because of market conditions, according to Budget and Finance Director Terri Velasquez.
“The market has had difficulties, although it’s a little closer (to normal conditions) than it has been,” she said. “But right now, investors are concentrating on treasuries and similar securities.”
But the city’s bond underwriters said that market conditions were then favorable saleable for a sale.
Dan O’Connell of RBC Dain Rauscher Wealth Management, the city’s lead underwriter for the proposed issue, said that market conditions had improved substantially since early January.
“It’s not a great market, but at this time, the COPs are marketable within the parameters of the (council) resolution,” he said. “The market was frozen during December, and so much supply was built up that it wasn’t a good market to sell in. The city made a good decision to wait.”
The story noted that it was not clear why the city has delayed issuing the COPs and taking advantage of what might be a temporary window of opportunity.
Neither LandCo, the developer partnering with USOC and the city on the project, nor Assistant City Manager Mike Anderson, who spearheaded the project, returned calls from the Business Journal.
Asked whether the delay in issuing the COPs might threaten the deal, Velasquez said only that, “We’re all dedicated to seeing the project through.”
She confirmed, however, that the city was in discussions with LandCo regarding the payments.
“We’re trying to work out something that’s fair,” she said. “The agreement called for us to sell the COPs at a certain time.”
But an individual with direct knowledge about the ongoing negotiations between the three entities, who asked not to be identified, told CSBJ that the city will not issue the COPs until, “they’re certain that all of the parties to the deal can meet their obligations.”
City officials fear, he said, that the ongoing credit crisis might make it impossible for LandCo to perform as specified.
Vice Mayor Larry Small said that the project might be delayed, but expressed confidence that things would come together.
“I expect that by April at the latest we’ll have those COPs issued, and everyone will be in a position to meet their obligations,” he said.
Small parried questions about LandCo, saying only that “there’s an agreement out there, and I expect that all of the three parties will perform according to the terms of the agreement.”
But another individual who was acquainted with the deal’s progress, and also asked not to be identified, was less sanguine about its prospects.
“Look, LandCo can’t come up with the money for the athlete housing and the internal improvements at the OTC, and that’s the key to the deal for the USOC,” he said. “So, the USOC won’t sign the lease for the building, and the city’s not about to issue the COPs and be stuck with an empty building and $27 million in debt. So, that’s where things are.
“LandCo has made a mess of this. But I don’t think that the city is looking for a new developer. The original deal was based on very optimistic projections, and I don’t think anyone else in the (development) community would want to take it over. It was always just a pipe dream.”
On March 24th, CSBJ revealed in an exclusive story that the city’s partner in the deal, LandCo, was threatened by a “legal iceberg” bearing down upon the company and its officers, including developers Ray Marshall and Jim Brodie.
“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.”
The lengthy story, based upon public court documents, detailed the various lawsuits in which Marshall, Brodie, and LandCo were embroiled.
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.
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.
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 nonpayment of 2006 taxes payable in 2007 and 2008 taxes payable in 2009.
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’s 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 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.
“The El Paso County District Attorney’s office is investigating certain transactions allegedly made by Ray Marshall and/or entities under his control.
Marshall and his company LandCo are the primary developers of the three-way project involving the city and the U.S. Olympic Committee to build a downtown headquarters for the USOC, among other things.
The investigation was triggered by information given to the DA in connection with a lawsuit filed by Colorado Springs investor Jack W. Mason against Marshall and other entities.
When Deputy District Attorney Linda Dix was contacted by CSBJ, she referred questions about the investigation to Deputy District Attorney Robyn Cafasso, who heads the Economic Crimes Unit. Cafasso confirmed that a criminal investigation is in progress that involves Marshall’s activities in connection with an account established at financial services firm UBS.
The records of the UBS account, into which North County Land funds were allegedly deposited by Marshall without the knowledge or consent of other investors, were subpoenaed by attorneys acting for Mason and his company.
Acting upon a request from Marshall’s attorneys, the court sealed the records.
In a court filing dated Feb. 20, 2009, District Judge Ronald Crowder granted a motion by Marshall to stay a scheduled hearing regarding Mason’s request that a receiver be appointed to take charge of certain of the entities controlled by Marshall, in which Mason was a minority investor. The order reads: “Marshall motion for stay due to criminal allegations by Mason to DA — Granted.”
Marshall’s lawyers argued that, facing a possible criminal investigation, Marshall could not testify under oath.
Cafasso was asked whether any other individuals have been or will be interviewed in connection with the case.
“We have a lot of folks that we need to talk to,” she said.
Asked specifically whether Mayor Lionel Rivera, an investment officer at UBS, would be interviewed, Cafasso said, “He very likely could be — there’s a long list of people that we need to contact. We know that there’s a lot out there, and we want to move as efficiently and as expeditiously as possible.”
The deal collapsed of its own weight. The erstwhile partners sued each other, giving scores of attorneys in Colorado Springs and Denver the opportunity to bill thousands of hours. In a particularly memorable filing, LandCo attorney Steve Long accused the USOC and the city of Colorado Springs of “unsportsmanlike conduct,” and asked the court to throw the yellow flag.
Mayor Lionel Rivera, who had steadfastly refused to confirm or deny allegations that he had a “financial relationship” with Ray Marshall, was formally accused of violating the city’s code of ethics by Central Bancorp CEO Ron Johnson.
In a dramatic public hearing, Marshall’s attorney revealed that Rivera, who had long contended that the terms of his employment with UBS forbade him to identify or comment upon the bank’s clients, had served as Marshall’s account executive at UBS prior to the original creation of the USOC deal.
The ethics committee, in a decision that led to a few raised eyebrows, subsequently cleared the mayor of any conflict of interest.
During November, the various combatants settled their differences. The deal’s financial burden shifted from a LandCo/City partnership to the city, and included relatively small contributions from the state, the El Pomar Foundation, and yet-to-be identified private investors. The city issued $32 million in certificates of participation to fund the deal, secured by de facto mortgages on the Police Operations Center and Fire Station #8.
Angry voters, who had never been asked to weigh in on any aspects of the controversial deal, may have signaled their displeasure with the city during the November election. The taxpayers overwhelmingly rejected a proposed property tax increase and overwhelmingly approved a Douglas Bruce-authored measure that terminated the Stormwater Enterprise.
In a melancholy coda to the deal, Ray Marshall and Jim Brodie were indicted by a grand jury on the weekend of Thanksgiving. They were both charged with 33 counts of theft, fraud, securities fraud, and violations of Colorado Organized Crime Control Act.
Meanwhile, G.E. Johnson began interior finish work on the much-disputed building at 27 South Tejon, readying it for the projected spring move-in of the USOC.
The building’s design wasn’t met with universal enthusiasm, and the building itself seemed to show a certain disdain for the neighborhood, when basketball-sized chunks of ice slid off its roof during a November snowstorm, denting a couple of parked cars and closing downtown streets for hours.
The problem has since been solved and the original architect of the USOC deal, retiring assistant city manager Mike Anderson, held his farewell party in the building.
No word about whether Marshall, Brodie or ousted USOC boss Stephanie Streeter were there.