Case 2:10-cv-01057-CW Document 2
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MARCUS R. MUMFORD (Utah Bar No. 12737) Attorney for Plaintiffs
299 South Main, Ste. 1300 Salt Lake City, UT 84111 (801) 938-4630
[email protected]
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH,
CENTRAL DIVISION * * * * * * * * * * * * * * * * * * * * * * * * *
* *
Jon Van de Grift, an individual, Sharon Van de Grift, an
individual, The Jon Howard Van de Grift and Sharon Ann Dudek Van de
Grift Family Trust, a trust, Texas Lubbock Square VDG, LLC, a
Delaware limited liability company, Oklahoma Sunnyview Apartments
VDG, LLC, a Delaware limited liability company, Roger Mauer, an
individual, Cynthia Mauer, an individual, Tim Lewis, an individual,
Sylvia Haskvitz, an individual, Haskvitz Sunnyview, LLC, an Arizona
limited liability company, Lewis Sunnyview LLC, an Arizona limited
liability company, Marlene Walshin, an individual, Matthew Walshin,
an individual, The Marlene J. Walshin Trust, a trust, Rancho Lane,
LLC, a Nevada limited liability company, MW Lubbock, LLC, a Nevada
limited liability company, and MRW Lubbock, LLC, a Nevada limited
liability company, Plaintiffs, v. Richard Higgins, Brandon Higgins,
Allan Christensen, Madison Real Estate Group, LLC, Lehman Brothers
Bank, FSB, a/k/a Aurora Bank
CASE NO.
COMPLAINT
JURY DEMANDED
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FSB, Lehman Brothers Bancorp, Inc., Christopher * Joseph, Kerry
Armstrong, LaSalle Bank, Bank of * America Corporation, Trans
Lending Corporation, * Jack Wiederecht, Kirk R. Slemmer, Linda
Lewis, * Rye Capital Services, LLC, Mark H. Mauldin, John * Mingle,
Matthew Galaburri, Land America * Assessment Corporation, Kim
Varzik, CB Richard * Ellis, Stroock & Stroock & Lavan, LLP,
Robin * Eubanks, Crowe & Dunlevy PC, Lynch, Chappell * Alsup
PC, Josh Hamm, Capitol Abstract & Title * Company, Buffalo Land
Abstract Company, * Western Abstract & Title Company, Service
Title * Company, Tony Lenomon, Julius Blatt, Bob Brandt * Mary
Gardner, Jackie Hatton, Julie Noble, Hayden * Littlefield, Stephen
DuPlantis, and John Does * 1-160, * * Defendants. * *
Plaintiffs hereby complain against the Defendants and allege as
follows: STATEMENT OF THE CASE 1. This case arises from a Ponzi
scheme orchestrated and implemented by
Defendants to defraud Plaintiffs out of over $27.47 million, in
the course of real estate purchases and/or financings on six
apartment properties. The fraud alleged herein was perpetrated,
aided, abetted, encouraged and/or acquiesced in by Defendants at
Plaintiffs expense. Defendants played various roles in the
transactions that defrauded Plaintiffs, but each Defendant knew,
should have known, purposefully ignored and/or failed to disclose
several red flags and information indicating the underlying
fraudulent scheme, all while in the possession of Plaintiffs
confidential information that had been collected, transmitted and
shared among the Defendants
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in furtherance of the underlying scheme. Plaintiffs seek as
remedies damages, punitive damages, and equitable and declaratory
relief. PARTIES AND JURISDICTION 2. Plaintiffs Jon Van de Grift and
Sharon Van de Grift are husband and wife and
residents of the state of California. 3. Plaintiffs Texas
Lubbock Square VDG, LLC, and Oklahoma Sunnyview
Apartments VDG, LLC, are Delaware limited liability companies.
The Jon Howard Van de Grift and Sharon Ann Dudek Van de Grift
Family Trust is a California Trust. 4. Plaintiffs Roger Mauer and
Cynthia Mauer are husband and wife and residents of
the state of Nevada. 5. 6. Plaintiffs Tim Lewis and Sylvia
Haskvitz are residents of the state of Arizona. Plaintiffs Haskvitz
Sunnyview, LLC, and Lewis Sunnyview LLC are Arizona
limited liability companies. 7. Plaintiffs Marlene Walshin and
Matthew Walshin are residents of the state of
North Carolina. 8. Plaintiffs Rancho Lane, LLC, MW Lubbock, LLC,
and MRW Lubbock, LLC, are
Nevada limited liability companies. The Marlene J. Walshin Trust
is a California Trust. 9. Defendant Lehman Brothers Bank, FSB
(Lehman Brothers) is a national bank
with its principal place of business in New York City, New York,
that does or has done business in Salt Lake County, Utah.
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10.
Since the time of Lehman Brothers actions giving rise to this
complaint, Lehman
Brothers was dissolved and/or changed its name to Aurora Bank
FSB, which is headquartered in Wilmington, Delaware, and is a
subsidiary of Defendant Lehman Brothers Bancorp, Inc. 11. Portions
of Lehman Brothers assets and liabilities and going business
concerns
have since been sold or placed into receivership to entities to
be discovered and named herein as John Does 1-20. References to
Lehman Brothers and Lehman therefore include Aurora Bank FSB,
Lehman Brothers Bancorp, Inc., John Does 1-20 and any and all other
successor entities to Lehman Brothers. 12. Defendants Christopher
Joseph, Kerry Armstrong, and John Does 21-30
(collectively, the Lehman Employees) are individuals of unknown
residency who are or were employees or independent contractors or
agents of Lehman Brothers and are conducting or have conducted
business in Salt Lake County, Utah. (Lehman Brothers and Lehman
Employees shall be referred to collectively herein as Lehman.) 13.
Defendant LaSalle Bank (LaSalle) is a national bank with its
principal place of
business in Chicago, Illinois, that does or has done business in
Salt Lake County, Utah. 14. dissolved. 15. Upon information and
belief, LaSalles assets and liabilities were acquired by Since the
time of LaSalles actions giving rise to this complaint, LaSalle
was
Bank of America Corporation. Bank of America Corporation (Bank
of America) is a national bank with its principal place of business
in Charlotte, North Carolina, which does or has done business in
Salt Lake County, Utah. References to LaSalle therefore include
Bank of America, and John Does 141-50, who would be any and all
other successor entities to LaSalle.
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16.
John Does 31-40 are individuals of unknown residency and are
employees or
independent contractors or agents of LaSalle and/or Bank of
America (collectively LaSalle Employees) and are conducting or have
conducted business in Salt Lake County, Utah. 17. Defendant Trans
Lending Corporation (Trans Lending) is a Colorado
corporation, which does or has done business in Salt Lake
County, Utah. 18. Defendant Jack Wiederecht is an individual of
unknown residency who was or is
Trans Lendings president (Wiederecht) and does or has done
business in Salt Lake County, Utah. 19. Defendant Kirk R. Slemmer
is an individual of unknown residency who was or is
an agent for Trans Lending (Slemmer) and does or has done
business in Salt Lake County, Utah. 20. Defendant Linda Lewis is an
individual of unknown residency who was or is an
employee and/or agent for Trans Lending (Lewis) and does or has
done business in Salt Lake County, Utah. 21. John Does 41-50 are
individuals of unknown residency who are employees,
independent contractors or agents of Trans Lending and are
conducting or have conducted business in Salt Lake County, Utah
(Wiederecht, Slemmer, Lewis and John Does 41-50 shall be referred
to collectively herein as the Trans Lending Employees). 22.
Defendant Rye Capital Services, LLC (Rye Capital) is a limited
liability
company with its principal place of business in New York City,
New York, which is or has done business in Salt Lake County,
Utah.
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23.
Defendants Mark H. Mauldin (Mauldin), John Mingle (Mingle),
Matthew
Galaburri (Galaburri) and John Does 51-60 (collectively, the Rye
Capital Employees) are individuals of unknown residency who are or
were employees, independent contractors or agents of Rye Capital
and who are conducting or have conducted business in Salt Lake
County, Utah. 24. Defendant Land America Assessment Corporation is
a corporate organization of
unknown residency, which does or has done business in Salt Lake
County, Utah (Land America). 25. Defendant Kim Varzik Odom and John
Does 61-70 (collectively, Land America
Employees) are individuals of unknown residency who are or were
employees, agents, or independent contractors of Land America and
who are conducting or have conducted business in Salt Lake County,
Utah. 26. Defendant CB Richard Ellis is a corporation providing
real estate appraisal
services (Richard Ellis), which is or has done business in Salt
Lake County, Utah. 27. Tony Lenomon, Julius Blatt, Hayden
Littlefield, and Stephen DuPlantis and John
Does 71-80 are individuals of unknown residency who are or were
employees, agents or independent contractors of Richard Ellis and
are conducting or have conducted business in Salt Lake County, Utah
(the Richard Ellis Employees). 28. Defendant Stroock & Stroock
& Lavan, LLP (Stroock & Stroock) is a
professional corporation with its principal place of business in
New York City, New York which is or has done business in Salt Lake
County, Utah. 29. Defendant Robin Eubanks and John Does 81-90
(collectively, Stroock & Strook
Employees) are individuals of unknown residency who are or were
attorneys, agents and/or
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employees at Stroock & Stroock and are conducting or have
conducted legal services in Salt Lake County, Utah. 30. Crowe &
Dunlevy is a professional corporation with its principal place
of
business in Oklahoma (Crowe & Dunlevy), which is or has done
business in Salt Lake County, Utah. 31. Jennifer Berry and John
Does 91-100 (the Crowe & Dunlevy Employees) are
individuals of unknown residency who are or were attorneys,
agents and/or employees of Crowe & Dunlevy who are conducting
or have conducted legal services in Salt Lake County, Utah. 32.
Defendant Lynch, Chappell Alsup PC (Lynch) is a professional
corporation
with its principal place of business in New York City, New York,
which is or has done business in Salt Lake County, Utah. 33.
Defendant Josh Ham and John Does 101-110 (collectively, Lynch
Employees)
are individuals of unknown residency who are or were attorneys,
agents and/or employees of Lynch and are conducting or have
conducted legal services in Salt Lake County, Utah. 34. Defendant
Capitol Abstract & Title Company is a title insurance company
with its
principal place of business in Oklahoma, which is or has done
business in Salt Lake County, Utah (Capitol Abstract). 35. Jackie
Hatton, Julie Noble, and John Does 111-120 are individuals of
unknown
residency who are or were employees, agents or independent
contractors of Capitol Abstract and are conducting or have
conducted business in Salt Lake County, Utah (the Capitol Abstract
Employees).
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36.
Defendant Buffalo Land Abstract Company is a title insurance
company and
successor entity to Lawyers Title of Oklahoma City with its
principal place of business in Oklahoma City, Oklahoma, which is or
has done business in Salt Lake County, Utah (Buffalo Land). 37.
Mary Gardner and John Does 121-130 are individuals of unknown
residency who
are or were employees or independent contractors of Buffalo Land
and/or its predecessor entity Lawyer Title of Oklahoma City, and
are conducting or have conducted business in Salt Lake County, Utah
(the Buffalo Land Employees). 38. Defendant Western Abstract &
Title Company is a title insurance company,
which is or has done business in Salt Lake County, Utah (Western
Title). 39. Bob Brandt and John Does 131-140 are individuals of
unknown residency who
are or were employees, agents, or independent contractors of
Western Title and are conducting or have conducted business in Salt
Lake County, Utah (the Western Title Employees). 40. Defendant
Service Title Company is a title insurance company, which is or
has
done business in Salt Lake County, Utah (Service Title). 41.
John Does 151-160 are individuals of unknown residency who are or
were
employees, agents, or independent contractors of Service Title
and are conducting or have conducted business in Salt Lake County,
Utah (the Service Title Employees). 42. Upon information and
belief, Defendants Richard Higgins, Brandon Higgins and
Allan Christensen are Utah residents, and principals of
Defendant Madison Real Estate Group, LLC, a Wyoming limited
liability company with its principal place of business in Midvale,
Utah (collectively the Madison Group or Madison).
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43.
Madison Real Estate Group, LLC,and its related entities were the
subject of an
enforcement action brought by the Securities and Exchange
Commission (SEC) in this Court, titled SEC v. Madison Real Estate
Group, et al., 2:08-cv-00243 (Waddoups, J.), which Complaint is
incorporated herein by reference, and a receivership action in this
Court, titled McConkie v. Rice Properties, et al., 2:09-cv-00275
(Waddoups, J.), which Complaint is also incorporated herein by
reference, wherein it was alleged and determined that the Madison
Group was a Ponzi scheme. 44. 45. This court has jurisdiction over
this matter pursuant to 28 U.S.C. 1332 & 1367. Venue is proper
in this Court pursuant to 28 U.S.C. 1391. GENERAL ALLEGATIONS 46.
At all times stated herein, Defendants were in possession of
Plaintiffs
confidential information that had been collected by the Madison
Group and other Defendants and transmitted and shared among
Defendants in furtherance of the underlying Ponzi scheme that
benefited Defendants at Plaintiffs expense. 47. At all times stated
herein, Defendants were in possession of information about the
Madison Group that raised or should have raised red flags to
indicate the real estate transactions involving Plaintiffs were
made in furtherance of the underlying Ponzi scheme that benefited
Defendants at Plaintiffs expense. 48. As Defendants knew or should
have known, and as was ultimately revealed, the
Madison Group was operated as a Ponzi scheme. The Madison Group
sustained its operation through new investor funds, defrauding
investors and persons with whom it transacted business, commingling
assets and fees from the purchase of new properties, including fees
it then
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distributed to the other Defendants, avoiding its legal
obligations, entering into obligations without the intent to
fulfill them, and operating without sufficient legitimate
underlying business enterprise to support its obligations. Madisons
principals, Richard Higgins (Higgins), Brandon Higgins (Brandon)
and Allan Christensen (Christensen) (collectively, the Madison
Principals), bought and sold more than twenty C-grade apartment
complexes as part of the scheme, which benefited the Defendants.
The Madison Group further orchestrated commercial loans to
facilitate the purchase of the properties by investors, which
loans, parties, and events surrounding them are the subject of this
Complaint as more fully described below. In all matters, the
Madison Group worked with the other Defendants, or at least with
the Defendants knowledge, purposeful ignorance and/or acquiescence
to perpetrate and execute the underlying fraudulent scheme. 49. In
general, the scheme worked as follows: (1) the Madison Group
purchased the
properties from related parties with the participation of some
or all of the Defendants, typically at or above market value; (2)
the Madison Group then immediately and often simultaneously resold
the various properties for substantially more than it had them
under contract for to groups of investors most often organized into
limited partnerships with a Madison entity acting as the general
partner, the difference in purchase price not having been disclosed
to the investors (the Double Closings); (3) the Madison Group used
investor funds, loan proceeds obtained and/or secured by investors,
and rents to repay loans on other properties, typically promising,
inter alia, to pay investors one percent (1%) per month return and
to maintain the properties; (4) but instead of paying the investors
with operating profits from the properties, the Madison Group
allowed the properties to fall into disrepair, neglected to pay
mortgages, and incurred hundreds of
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thousands of dollars in debt to vendors who provided goods and
services to the properties; and in all this, (5) the Madison Group
comingled rental revenue or funds received from subsequent
investors to pay the 1% promised returns to early investors, to pay
expenses, or to supplement the purchase of other apartments, and
(6) when the scheme was finally exposed, stopped paying on its
obligations and left investors with huge losses and liabilities,
and insufficient assets and value to cover those losses and
liabilities. 50. The transactions at issue and scheme were such
that the Securities and Exchange
Commission has asserted that the involved financial
institutions, who subsequently attempted to lift the stay on the
underlying properties after they were taken into receivership,
[were] not, however, holders in due course as there were [o]bvious
red flags [that] indicated that Madison and its principals lacked
the financial resources to purchase these buildings, that Madison
was raising money from third parties and that Madison was
purchasing the buildings and then immediately selling [them] to
investors at an inflated price. See Memorandum In Opposition To
Certain Noteholders Motions To Lift Stay And For Other Relief,
filed Feb. 27, 2009, in SEC v. Madison Real Estate Group, et al.,
2:08-cv-00243-CW (D. Utah). That document incorporated herein by
reference, and notes many illegal practices by some of the
Defendants in the transactions at issue. It does not discuss or
excuse the other Defendants named in this action. 51. In
furtherance of the underlying scheme, Defendants set up the
transactions to
hide the involvement and/or motivations of the Madison Group,
protect the Madison Group, and benefit themselves and the Madison
Group at Plaintiffs expense.
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52.
In furtherance of the underlying scheme, Defendants knew, should
have known,
purposefully ignored and/or failed to disclose several red flags
and information indicating the underlying fraud (hereinafter red
flags), including but not limited to the following: a. Higgins had
previously been convicted of securities fraud for his participation
in a prime bank Ponzi scheme, and participation in the transactions
at issue constituted a violation of the terms of his parole; b. The
principals of the Madison Group did not have the experience in real
estate transactions that they claimed to have to the other
Defendants and Plaintiffs, had questionable financial backgrounds,
and credit reports supplied to Defendants but not disclosed to
Plaintiffs listed the Madison Group principals as fraud risks; c.
The information used and presented by the Madison Group in
executing transactions was frequently fraudulent or incorrect,
including but not limited to the principals social security
numbers, tax information, financial information, etc.; d. That the
Madison Group set up accounts at various financial institutions for
each property it managed but frequently, and whenever necessary,
commingled those accounts and paid expenses for one property from
the account of another; e. There were conflicts of interest in the
transactions, including conflicts that involved the exchange of
money among Defendants, that were not disclosed and for which
waiver was not sought or obtained that adversely affected
Plaintiffs interests;
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f. The Madison Group had such poor credit that Defendants would
not have extended the credit necessary to complete the transactions
at issue without the involvement of third parties and without those
third parties taking on more than their share of risk and exposure;
g. The Madison Group and its principals had been sued for related
conduct and transactions; h. Defendants and the Madison Group
failed to perform a reasonable due diligence on the transactions,
including but not limited to variances from Defendants established
policies and procedures; i. The true reasons concerning why the
structure and set up on the transactions frequently changed at the
last moment before closing to place Plaintiffs in a position of
greater risk and exposure than had been previously arranged and
agreed, to the benefit of the Madison Group and the other
Defendants, was to replace the Madison Group as obligors with
Plaintiffs who were more creditworthy persons and entities; j.
Defendants had observed the Madison Group enter into a series of
questionable transactions of dubious merit, and involving
unsophisticated third parties who bore undue risk in the
transactions, yet failed to disclose the same because they
benefited from the Madison Groups pattern of conduct; k. The
structuring of the transactions, with the Double Closings, and the
failure to disclose the same to Plaintiffs, meant that the
properties were being financed well in excess of their real values,
all benefiting Defendants at Plaintiffs expense;
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l. The true financial condition of the properties, including the
lack of adequate rent, cash flow and adequate cash reserves, were
concealed from Plaintiffs to mask the fact that the properties
could not support the loan obligations being placed on them and
that Plaintiffs were being asked to take on more risk and exposure
than the properties could support; m. The appraisals ordered on the
properties, but not disclosed to Plaintiffs, were at times not
conducted pursuant to the applicable professional standards, and
those appraisals moreover revealed that the Madison Group was
highly involved in providing key information to the appraisers,
which was not verified by the appraisers, and there was key
information omitted from the appraisal reports that would have
contradicted the conclusions of said appraisals; n. The fraudulent
and negligent handling of insurance and insurance coverage on the
subject properties; o. The parties hired to execute portions of the
transactions were unqualified to fill the role they were hired to
fill. 53. In all this, Defendants participated, aided, abetted,
encouraged and/or improperly
acquiesced in the underlying fraudulent scheme and benefited at
Plaintiffs expense. 54. Defendants should have made further
disclosures to Plaintiffs concerning the
underlying transaction to reveal the true risk and truth
concerning the transactions and the Madison Group. 55. Defendants
knew, should have known, that the loans set up on the properties
with
the Madison Group were going to fail.
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56.
On March 28, 2008, the Securities and Exchange Commission (SEC)
filed a
complaint against the Madison Group, Higgins, Brandon and
Christensen asserting securities fraud and engagement in a Ponzi
scheme. 57. Unknown to Plaintiffs at all times relevant to this
transaction, Higgins had
previously been convicted of securities fraud and was in
violation of the terms of his parole by associating himself with
the Madison Group. 58. The properties purchased by the Madison
Group, or entities affiliated with the
Madison Group, and that are at issue in this Complaint are the
Sunnyview Apartments, Lubbock Square Apartments, Overlake
Apartments, Oakridge Village Apartments, Aspen Village Apartments,
and Town Plaza Apartments. Plaintiffs investigation is continuing.
SUNNYVIEW 59. In approximately late 2006, Madison, as buyer,
entered into a purchase agreement
with an entity closely affiliated with Madison, as seller, for
purchase of the property commonly known as the Sunnyview Apartments
(the Sunnyview Property). The existence of this agreement was known
to Defendants but not disclosed to Plaintiffs. Thus, Madison, and
by extension of their relationship, other Defendants, had an
undisclosed interest in the Sunnyview Property and in the
subsequent sale of the Sunnyview Property to Plaintiffs. 60. In
October 2006, Madison formed a partnership with itself as general
partner and
Plaintiffs Roger Mauer and Cynthia Mauer as limited partners
named Oklahoma Sunnyview, LP, an Oklahoma limited partnership (the
Sunnyview Partnership). 61. In January 2007, the Sunnyview
Partnership, Sunnyview Apartments VDG, LLC,
Lewis Sunnyview, LLC, and Haskvitz Sunnyview, LLC, among other
entities, entered into a
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Tenants in Common Agreement (Sunnyview TIC) whereby each of the
forenamed entities agreed to hold a percentage interest, as tenants
in common, in the Sunnyview Property (collectively, the Sunnyview
Investors). 62. The Jon Howard and Sharon Ann Dudek-Van de Grift
Family Trust was also an
interested party in the Sunnyview Property and shall be included
herein as part of the Sunnyview Investors. 63. In early 2007,
Defendants conspired to obligate the Sunnyview Investors on the
Sunnyview Property at an inflated price and without disclosing
any of the aforementioned red flags to the Sunnyview Investors. And
in February 2007, Lehman loaned to the Sunnyview Investors the
amount of $5,920,000 (the Sunnyview Loan) for purposes of
purchasing the Sunnyview Property. Rye Capital assisted Lehman as
underwriter in its review and setting of the terms of the Sunnyview
Loan. 64. Lehman and Lehman Employees received substantial funds
from the close of the
Sunnyview Loan such as closing costs and fees. 65. Unknown to
Plaintiff at all times relevant to this transaction, the reality is
that it
was a Double Closing: that Madison and/or one or more of the
Madison Principals purchased the Sunnyview Property at one price
using the funds provided by the Sunnyview Investors, and sold the
Sunnyview Property back to the Sunnyview Investors for an amount
substantially more than the price the Madison Principals had
originally contracted for. With the knowledge and involvement of
some or all of the Defendants, Madison and/or one or more of the
Madison Principals kept the difference between the original
purchase price and the amount of the Sunnyview Loan amount for
themselves.
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66.
The Sunnyview Investors provided the down payment necessary to
purchase the
Sunnyview Property with the Sunnyview Loan. 67. The terms of the
Sunnyview Loan were such that each of the Sunnyview Investors
were jointly and severally liable for repayment of the Sunnyview
Loan. 68. Some or all of the other Defendants participated with the
Madison Group in the
transactions involving the Sunnyview Property and benefited from
the transaction at Plaintiffs expense. 69. Lehman and Lehman
Employees were in possession of Plaintiffs confidential
information and, they and their representatives, in that
capacity, made representations to the Sunnyview Investors
concerning the advisability of the Sunnyvew Loan and structure the
Sunnyview Investors had to put in place to obtain the Sunnyview
Loan, including that the Sunnyview Investors had to form LLCs to
obtain the loan. 70. Defendants orchestrated and structured the
Double Closing associated with the
Sunnyview Loan, which was not disclosed to the Sunnyview
Investors. 71. Madison and Lehman obtained the services of Trans
Lending as mortgage broker
for the financing of the various apartment complex transactions.
72. Trans Lending and Trans Lending Employees received a commission
from
Madison and Lehman for brokering several loans involving Madison
and Lehman, including the Sunnyview Loan. 73. Trans Lending and
Trans Lending Employees collected various documents from
Madison using checklists provided by Lehman for the Sunnyview
Loan such as financial statements, credit reports and tax returns,
operating histories for the Sunnyview Property, tenant
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in common agreements and information on the Sunnyview
Partnership and provided the information to Lehman. This
information raised or should have raised numerous red flags about
Madison, the Sunnyview transaction and the viability of the
Sunnyside Loan. 74. Unknown to Plaintiff at all times relevant to
this transaction, Trans Lending,
including without limitation Wiederecht, Slemmer, and Lewis and
Trans Lending Employees, knew about the Double Closings and other
red flags concerning the transaction but did not disclose them to
Plaintiffs. 75. Unknown to Plaintiff at all times relevant to this
transaction, Trans Lending and
Trans Lending Employees provided credit reports of the Madison
Principals that contained high risk fraud alerts to Lehman,
information that was not disclosed to Plaintiffs. 76. Trans Lending
and Trans Lending Employees provided inconsistent and
inaccurate information regarding the Principals financial
condition, including the overstatement of assets and faulty tax
returns to Lehman. 77. Trans Lending and Trans Lending Employees
provided Lehman with the credit
information and other underwriting documents necessary for the
Sunnyview Loan, including the questionable creditworthiness of the
Madison Principals, to Lehman. 78. Trans Lending received
substantial commission and other funds for its mortgage
broker services in connection with the Sunnyview Loan. 79.
Lehman and Lehman Employees knew or should have known of the
Double
Closing associated with the Sunnyview Loan and that the Double
Closing was not disclosed to Plaintiffs.
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80.
Lehman and Lehman Employees knew or should have known that Trans
Lending
provided incorrect information concerning Madison, the Sunnyview
Principals, and the condition and income generation of the
Sunnyview Property. 81. Lehman and Lehman Employees made
representations to the Sunnyview
Investors that the Sunnyview Loan was based on correct
information. 82. On January 9, 2007 Land America released a
Property Condition Report for the
Sunnyview Apartments. 83. 84. Land America Employees prepared
the condition report. Land America and Land America Employees
failed to perform necessary
inspection of the Sunnyview Property and adequately assess the
condition of the Sunnyview Property. 85. Land America and Land
America Employees failed to follow both state and
national guidelines required of appraisers in issuing its
condition report. 86. The condition report provided by Land America
reported a substantially better
condition than the actual condition of the Sunnyview Property.
87. The condition report provided by Land America was used by Rye
Capital and
Lehman in making their decision to make the Sunnyview Loan. 88.
In January 2007, CB Richard Ellis delivered a Complete Appraisal
Self Contained
Report, which was an appraisal of the Sunnyview Property. 89.
Richard Ellis Employees oversaw the performance and issuance of the
appraisal.
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90.
Richard Ellis and Richard Ellis Employees failed to perform
necessary inspection
of the Sunnyview Property and adequately assess the value of the
Sunnyview Property, such as verifying rent rolls and the condition
of the Sunnyview Property. 91. Richard Ellis and Richard Ellis
Employees failed to follow both state and national
guidelines required of appraisers in issuing its appraisal. 92.
The appraisal provided by Richard Ellis reported a substantially
higher value than
the actual value of the Sunnyview Property 93. The appraisal
provided by Richard Ellis was prepared for Lehman. Lehman, the
Madison Group and Richard Ellis worked together in basing the
appraisal of the Sunnyview Property on false and misleading
information. 94. The appraisal provided by Richard Ellis was used
by Rye Capital and Lehman in
making its decision to make the Sunnyview Loan. 95. Lehman knew
or should have known that the condition report provided by Land
America and the appraisal provided by Richard Ellis of the
Sunnyview Property were based on either incorrect information or
misrepresentations, that the appraisers did not meet guidelines,
and that the appraisals did not represent the true income
generation of the Sunnyview Property. 96. The underwriting firm of
Rye Capital Investors provided Lehman Brothers with
underwriting services for the Sunnyview Loan. Rye Capital
Employees were the underwriters responsible for underwriting the
Sunnyview Loan. 97. Rye Capital and Rye Capital Employees did not
follow state or national
underwriting guidelines in connection with the Sunnyview
Loan.
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98.
Rye Capital and Rye Capital Employees relied on the information
provided to it
by Trans Lending without further investigation. 99. Lehman
Brothers knew or should have known that Rye Capital either did
not
adequately underwrite the Sunnyview Loan or that Rye Capital
relied on inaccurate information. 100. Stroock & Stroock
represented Lehman in connection with the Sunnyview Loan.
Stroock & Stroock Employees were responsible for the
representation of Lehman Brothers in connection with the Sunnyview
Loan. 101. Stroock & Stroock and Stroock & Stroock
Employees knew or should have
known of the Double Closing associated with the Sunnyview Loan.
102. Stroock & Stroock and Stroock & Stroock Employees knew
or should have
known of the credit unworthiness of the Madison Group and the
Sunnyview Investors. 103. Stroock & Stroock and the Stroock
& Stroock Employees knew or should have
known that Madison was a Ponzi scheme and that Higgins was on
parole for securities fraud. 104. The law firm of Crowe &
Dunlevy and the Crowe & Dunlevy Employees acted as
counsel to Madison. 105. Crowe & Dunlevy should have known
Madison operated as a Ponzi scheme and
that Higgins was in violation of his parole by involving himself
with Madison. 106. Crowe & Dunlevy and the Crowe & Dunlevy
Employees knew or should have
known of the Double Closing and assisted the parties in the
Double Closing. 107. Capital Abstract and the Capital Abstract
Employees acted as closing agents for
the Sunnyview Loan.
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108.
Capital Abstract and the Capital Abstract Employees as closing
agents for the
Sunnyview Loan knew or should have known of the Double Closing,
the credit unworthiness of Madison, and Higgins prior conviction.
109. Defendants concealed their bad acts and the events
contributing to the claims
involving the Sunnyview Property until at least February 2009.
LUBBOCK SQUARE 110. In approximately fall 2006, Madison, as buyer,
entered into a purchase agreement
with an entity closely affiliated with Madison, as seller, for
purchase of real property in Lubbock, Texas commonly known as the
Lubbock Square Apartments (Lubbock Property). The existence of this
agreement was known to Defendants but not disclosed to Plaintiffs.
Thus, Madison, and by extension of their relationship, other
Defendants, had an undisclosed interest in the Lubbock Property and
in the subsequent sale of the Lubbock Property to Plaintiffs. 111.
Madison then formed Lubbock Square Texas, LP, a Texas limited
liability
company, naming itself as general partner and Tim Lewis and
Sylvia Haskvitz among others, as limited partners (the Lubbock
Square Partnership). 112. The purpose of forming the Lubbock Square
Partnership was to purchase the
Lubbock Property with funds obtained from a Lehman Brothers.
113. In November 2006, the Lubbock Square Partnership entered into
a tenancy in
common agreement with Texas Lubbock Square VDG, LLC, MW Lubbock,
LLC and MRW Lubbock, LLC (collectively, the Lubbock Square
Investors).
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114.
The Jon Howard and Sharon Ann Dudek-Van de Grift Family Trust
was also an
interested party in the Lubbock Property and shall be included
herein as part of the Lubbock Investors. 115. In late 2006,
Defendants conspired to obligate the Lubbock Square Investors
on
the Lubbock Property at an inflated price and without disclosing
any of the aforementioned red flags to the Lubbock Square
Investors. And in November 2006, Lehman loaned to the Lubbock
Square Investors $4,550,000 (the Lubbock Square Loan) for purposes
of purchasing the Lubbock Square Property. Rye Capital assisted
Lehman as underwriter in its review and setting of the terms of the
Lubbock Square Loan. 116. Lehman and the Lehman Employees received
substantial funds from the close of
the Lubbock Square Loan such as closing costs and fees. 117.
Unknown to Plaintiff at all times relevant to this transaction, the
reality is that it
was a Double Closing: that Madison and/or one or more of the
Madison Principals purchased the Lubbock Property at one price
using the funds provided by the Lubbock Square Investors, and sold
the Lubbock Property back to the Lubbock Square Investors for an
amount substantially more than the price the Madison Principals had
originally contracted for. With the knowledge and involvement of
some or all of the Defendants, Madison and/or one or more of the
Madison Principals kept the difference between the original
purchase price and the amount of the Lubbock Square Loan amount for
themselves. 118. The Lubbock Square Investors provided the down
payment necessary to purchase
the Lubbock Square Property with the Lubbock Square Loan.
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119.
The terms of the Lubbock Square Loan were such that each of the
Lubbock
Square Investors were jointly and severally liable for repayment
of the Lubbock Square Loan. 120. Some or all of the other
Defendants participated with the Madison Group in the
transactions involving the Lubbock Property and benefited from
the transaction at Plaintiffs expense. 121. Lehman and Lehman
Employees were in possession of Plaintiffs confidential
information and, they and their representatives, in that
capacity, made representations to the Lubbock Square Investors
concerning the advisability of the Lubbock Square Loan and
structure the Lubbock Square Investors had to put in place to
obtain the Lubbock Square Loan, including that the Lubbock Square
Investors had to form LLCs to obtain the loan. 122. Defendants
orchestrated and structured the Double Closing associated with
the
Lubbock Square Loan, which was not disclosed to the Lubbock
Square Investors. 123. Madison and Lehman employed the services of
Trans Lending as mortgage
broker for the financing of the various apartment complex
transactions. 124. Trans Lending and Trans Lending Employees
received a commission from
Madison and Lehman for brokering several loans involving Madison
and Lehman, including the Lubbock Square Loan. 125. Trans Lending
and the Trans Lending Employees collected various documents
from Madison using checklists provided by the Lehman for the
Lubbock Square Loan such as financial statements, credit reports
and tax returns, operating histories for the Lubbock Square
Property, tenant in common agreements and information on the
Lubbock Square Partnership and provided the information to Lehman.
This information raised or should have raised numerous
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red flags about Madison, the Lubbock Square transaction and the
viability of the Lubbock Square Loan. 126. Unknown to Plaintiff at
all times relevant to this transaction, Trans Lending,
including without limitation Wiederecht, Slemmer, and Lewis and
Trans Lending Employees, knew about the Double Closings and other
red flags concerning the transaction but did not disclose them to
Plaintiffs. 127. Unknown to Plaintiff at all times relevant to this
transaction, Trans Lending and
Trans Lending Employees provided credit reports of the Madison
Principals that contained high risk fraud alerts to Lehman,
information that was not disclosed to Plaintiffs. 128. Trans
Lending and Trans Lending Employees provided inconsistent and
inaccurate information regarding the Principals financial
condition, including the overstatement of assets and faulty tax
returns to Lehman. 129. Trans Lending received substantial
commission and other funds for its mortgage
broker services in connection with the Lubbock Square Loan. 130.
Lehman and Lehman Employees knew or should have known of the
Double
Closing associated with the Lubbock Square Loan and that the
Double Closing was not disclosed to Plaintiffs. 131. Lehman and
Lehman Employees knew or should have known that Trans Lending
provided incorrect information concerning Madison, the Madison
Principals, and the condition and income generation of the Lubbock
Property. 132. Lehman and Lehman Employees made representations to
the Lubbock Square
Investors that the Lubbock Square Loan was based on correct
information.
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133.
In or around November 2006, Land America Assessment Corporation
prepared a
Property Condition Report for the Lubbock Property. 134. 135.
Land America Employees prepared the condition report. Land America
and Land America Employees failed to perform necessary
inspection of the Lubbock Square Property and to adequately
assess the condition of the Lubbock Square Property. 136. Land
America and Land America Employees failed to follow both state
and
national guidelines required of appraisers in issuing its
condition report. 137. The condition report provided by Land
America reported a substantially better
condition than the actual condition of the Lubbock Square
Property. 138. The condition report provided by Land America was
used by Rye Capital and
Lehman in making its decision to make the Lubbock Square Loan.
139. In or around November 2006, CB Richard Ellis delivered to
Lehman Bank a Self
Contained Appraisal Report, which was an appraisal of the
Lubbock Square Property. 140. Report. 141. Richard Ellis and
Richard Ellis Employees oversaw the performance and issuance In
January 2007, Richard Ellis delivered a Complete Appraisal Self
Contained
of the appraisal. 142. Richard Ellis and Richard Ellis Employees
failed to perform necessary inspection
of the Lubbock Square Property and adequately assess the value
of the Lubbock Square Property, such as verifying rent rolls and
the condition of the Lubbock Square Property.
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143.
Richard Ellis and Richard Ellis Employees failed to follow both
state and national
guidelines required of appraisers in issuing its appraisal. 144.
The appraisal provided by Richard Ellis reported a substantially
higher value than
the actual value of the Lubbock Square Property. 145. The
appraisal provided by Richard Ellis was prepared for Lehman.
Lehman, the
Madison Group and Richard Ellis worked together in basing the
appraisal of the Lubbock Property on false and misleading
information. 146. Lehman knew or should have known that the
condition report and the appraisal of
the Lubbock Square Property were based on either incorrect
information or misrepresentations, that the appraisers did not meet
guidelines, and that the appraisals did not represent the true
income generation of the Lubbock Square Property. 147. The
underwriting firm of Rye Capital Investors provided Lehman Brothers
with
underwriting services for the Lubbock Square Loan. Rye Capital
Employees were the underwriters responsible for underwriting the
Lubbock Square Loan. 148. Rye Capital and Rye Capital Employees did
not follow state or national
underwriting guidelines in connection with the Lubbock Square
Loan. 149. Rye Capital and the Rye Capital Employees relied on the
information provided to
it by Trans Lending and Lehman without further investigation.
150. The condition report provided by Land America and the
appraisal provided by
Richard Ellis were used by Rye Capital and Lehman in making its
decision to make the Lubbock Square Loan.
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151.
Rye Capital and Rye Capital Employees did not follow state or
national
underwriting guidelines in connection with the Lubbock Square
Loan. 152. Lehman knew or should have known that Rye Capital either
did not adequately
underwrite the Lubbock Square Loan or that Rye Capital relied on
inaccurate information. 153. Unknown to Plaintiff at all times
relevant to this transaction, Stroock & Stroock
represented Lehman in connection with the Lubbock Square Loan.
154. Unknown to Plaintiff at all times relevant to this
transaction, Stroock & Stroock
and Stroock & Stroock Employees helped orchestrate the
Double Closing associated with the Lubbock Square Loan. 155.
Stroock & Stroock and Stroock & Stroock Employees knew or
should have
known of the Double Closing associated with the Lubbock Square
Loan, the inadequacy of the services provided by Rye Capital, and
the inaccurate information provided by Trans Lending. 156. On
information and belief, Stroock & Stroock and the Stroock &
Stroock
Employees knew or should have known that Madison was a Ponzi
scheme and that Higgins was on parole for securities fraud. 157.
Lynch, Ham and Lynch, Chapell & Alsup Employees represented
Madison in
connection with the Lubbock Square Loan. 158. Lynch, Ham and
Lynch, Chappell & Alsup Employees should have know
Madison operated as a Ponzi scheme and that Higgins was in
violation of his parole by involving himself with Madison.
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159.
Lynch, Ham and Lynch, Chappell & Alsup Employees knew or
should have
known of the Double Closing associated with the Lubbock Square
Loan and aided in orchestrating the Double Closing. 160. Western
Title and Western Title Employees, acted as closing agents for
the
Lubbock Square Loan and the purchase of the Lubbock Square
Property by Madison and the Lubbock Square Investors. 161. Western
Title and Western Title Employees knew about, and facilitated
the
Double Closing. 162. Defendants concealed their bad acts and the
events contributing to the claims
involving the Lubbock Property until at least February 2009.
OVERLAKE 163. In approximately fall 2006, Madison, as buyer,
entered into a purchase agreement
with an entity closely affiliated with Madison, as seller, for
purchase of the property commonly known as the Overlake Apartments
(the Overlake Property). The existence of this agreement was known
to Defendants but not disclosed to Plaintiffs. Thus, Madison, and
by extension of their relationship, other Defendants, had an
undisclosed interest in the Overlake Property and in the subsequent
sale of the Overlake Property to Plaintiffs. 164. In May 2007,
Madison entered into Oklahoma Overlake LP, an Oklahoma limited
partnership with itself as general partner and Roger and Cynthia
Mauer as limited partners (the Overlake Partnership). 165. The
purpose of forming the Overlake Partnership was to purchase the
Overlake
Property with funds obtained from a commercial lender.
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166.
The Madison Principals, Overlake Partnership, and others entered
into a limited
partnership agreement whereby each of the entities held an
interest in the Overlake Property (collectively, the Overlake
Investors). 167. In March 2007, Defendants conspired to obligate
the Overlake Investors on the
Overlake Property at an inflated price and without disclosing
any of the aforementioned red flags to the Overlake Investors. And
in February 2007, Lehman loaned to the Overlake Investors the
amount of $7,000,000.00 (the Overlake Loan) for purposes of
purchasing the Overlake Property. Rye Capital assisted Lehman as
underwriter in its review and setting of the terms of the Overlake
Loan. 168. The Overlake Investors provided the down payment
necessary to purchase the
Overlake Property with the Overlake Loan. 169. Unknown to
Plaintiff at all times relevant to this transaction, the reality is
that it
was a Double Closing: that Madison and/or one or more of the
Madison Principals purchased the Overlake Property at one price
using the funds provided by Overlake Investors, and sold the
Overlake Property back to the Overlake Investors for an amount
substantially more than the price the Madison Principals had
originally contracted for. With the knowledge and involvement of
some or all of the Defendants, Madison and/or one or more of the
Madison Principals kept the difference between the original
purchase price and the amount of the Lubbock Square Loan amount for
themselves. 170. The terms of the Overlake Loan were such that the
Overlake Investors were
jointly and severally, and individually liable for repayment of
the Overlake Loan
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171.
Some or all of the other Defendants participated with the
Madison Group in the
transactions involving the Overlake Property and benefited from
the transaction at Plaintiffs expense. 172. Lehman and Lehman
Employees were in possession of Plaintiffs confidential
information and, they and their representatives, in that
capacity, made representations to the Overlake Investors concerning
the advisability of the Overlake Loan and structure the Overlake
Investors had to put in place to obtain the Overlake Loan. 173.
Defendants orchestrated and structured the Double Closing
associated with the
Overlake Loan, which was not disclosed to the Overlake
Investors. 174. Madison and Lehman obtained the services of Trans
Lending as mortgage broker
for the financing of the various apartment complex transactions.
175. Trans Lending and Trans Lending Employees received a
commission from
Madison and Lehman for brokering several loans involving Madison
and Lehman, including the Overlake Loan. 176. Trans Lending and
Trans Lending Employees collected various documents from
Madison using checklists provided by Lehman for the Overlake
Loan such as financial statements, credit reports and tax returns,
operating histories for the Overlake Property, tenant in common
agreements and information on the Overlake Partnership and provided
the information to Lehman. This information raised or should have
raised numerous red flags about Madison, the Overlake transaction
and the viability of the Overlake Loan. 177. Unknown to Plaintiff
at all times relevant to this transaction, Trans Lending,
including without limitation Wiederecht, Slemmer, and Lewis and
Trans Lending Employees,
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knew about the Double Closings and other red flags concerning
the transaction but did not disclose them to Plaintiffs. 178.
Unknown to Plaintiff at all times relevant to this transaction,
Trans Lending and
Trans Lending Employees provided credit reports of the Madison
Principals that contained high risk fraud alerts to Lehman,
information that was not disclosed to Plaintiffs. 179. Trans
Lending and Trans Lending Employees provided inconsistent and
inaccurate information regarding the Principals financial
condition, including the overstatement of assets and faulty tax
returns to Lehman. 180. Trans Lending and Trans Lending Employees
provided Lehman with the credit
information and other underwriting documents necessary for the
Overlake Loan, including the questionable creditworthiness of the
Madison Principals, to Lehman. 181. Trans Lending received
substantial commission and other funds for its mortgage
broker services in connection with the Overlake Loan. 182.
Lehman and Lehman Employees knew or should have known of the
Double
Closing associated with the Overlake Loan and that the Double
Closing was not disclosed to Plaintiffs. 183. Lehman and Lehman
Employees knew or should have known that Trans Lending
provided incorrect information concerning Madison, the Overlake
Principals, and the condition and income generation of the Overlake
Property. 184. Lehman and Lehman Employees made representations to
the Overlake Investors
that the Overlake Loan was based on correct information. 185.
Land America released a Property Condition Report for the Overlake
Apartments.
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186. 187.
Land America Employees prepared the condition report. Land
America and Land America Employees failed to perform necessary
inspection of the Overlake Property and adequately assess the
condition of the Overlake Property. 188. Land America and Land
America Employees failed to follow both state and
national guidelines required of appraisers in issuing its
condition report. 189. The condition report provided by Land
America reported a substantially better
condition than the actual condition of the Overlake Property.
190. The condition report provided by Land America was used by Rye
Capital and
Lehman in making their decision to make the Overlake Loan. 191.
Richard Ellis delivered a Complete Appraisal Self Contained Report,
which was
an appraisal of the Overlake Property. 192. 193. Richard Ellis
Employees oversaw the performance and issuance of the appraisal.
Richard Ellis and Richard Ellis Employees failed to perform
necessary inspection
of the Overlake Property and adequately assess the value of the
Overlake Property, such as verifying rent rolls and the condition
of the Overlake Property. 194. Richard Ellis and Richard Ellis
Employees failed to follow both state and national
guidelines required of appraisers in issuing its appraisal. 195.
The appraisal provided by Richard Ellis reported a substantially
higher value than
the actual value of the Overlake Property
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196.
The appraisal provided by Richard Ellis was prepared for Lehman.
Lehman, the
Madison Group and Richard Ellis worked together in basing the
appraisal of the Overlake Property on false and misleading
information. 197. The appraisal provided by Richard Ellis was used
by Rye Capital and Lehman in
making its decision to make the Overlake Loan. 198. Lehman knew
or should have known that the condition report provided by Land
America and the appraisal provided by Richard Ellis of the
Overlake Property were based on either incorrect information or
misrepresentations, that the appraisers did not meet guidelines,
and that the appraisals did not represent the true income
generation of the Overlake Property. 199. The underwriting firm of
Rye Capital Investors provided Lehman Brothers with
underwriting services for the Overlake Loan. Rye Capital
Employees were the underwriters responsible for underwriting the
Overlake Loan. 200. Rye Capital and Rye Capital Employees did not
follow state or national
underwriting guidelines in connection with the Overlake Loan.
201. Rye Capital and Rye Capital Employees relied on the
information provided to it
by Trans Lending without further investigation. 202. Lehman
Brothers knew or should have known that Rye Capital either did
not
adequately underwrite the Overlake Loan or that Rye Capital
relied on inaccurate information. 203. Stroock & Stroock
represented Lehman in connection with the Overlake Loan.
Stroock & Stroock Employees were responsible for the
representation of Lehman Brothers in connection with the Overlake
Loan.
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204.
Stroock & Stroock and Stroock & Stroock Employees knew
or should have
known of the Double Closing associated with the Overlake Loan.
205. Stroock & Stroock and Stroock & Stroock Employees knew
or should have
known of the credit unworthiness of the Madison Group and the
Overlake Investors. 206. Stroock & Stroock and the Stroock
& Stroock Employees knew or should have
known that Madison was a Ponzi scheme and that Higgins was on
parole for securities fraud. 207. The law firm of Crowe &
Dunlevy and the Crowe & Dunlevy Employees acted as
counsel to Madison. 208. Crowe & Dunlevy should have known
Madison operated as a Ponzi scheme and
that Higgins was in violation of his parole by involving himself
with Madison. 209. Crowe & Dunlevy and the Crowe & Dunlevy
Employees knew or should have
known of the Double Closing and assisted the parties in the
Double Closing. 210. Capitol Abstract and the Capitol Abstract
Employees acted as closing agents for
the Overlake Loan. 211. Capitol Abstract and the Capitol
Abstract Employees as closing agents for the
Overlake Loan knew or should have known of the Double Closing,
the credit unworthiness of Madison, and Higgins prior conviction.
212. Defendants concealed their bad acts and the events
contributing to the claims
involving the Overlake Property until at least February 2009.
OAKRIDGE 213. In late 2006 or early 2007, Madison, as buyer,
entered into a purchase agreement
with an entity closely affiliated with Madison, as seller, for
purchase of the property commonly
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known as the Oakridge Apartments (the Oakridge Property). The
existence of this agreement was known to Defendants but not
disclosed to Plaintiffs. Thus, Madison, and by extension of their
relationship, other Defendants, had an undisclosed interest in the
Oakridge Property and in the subsequent sale of the Oakridge
Property to Plaintiffs. 214. Madison then formed Oklahoma Oakridge
Village LP (the Oakridge
Partnership), naming itself as general partner and, entered into
a tenancy in common agreement with Marlene Walshin, the Marlene J.
Walshin Trust dated April 27th 1990, Matthew Walshin, andRoger
Mauer and Cynthia Mauer were limited partners (the Oakridge
Investors). 215. In early 2007, Defendants conspired to obligate
the Oakridge Investors on the
Oakridge Property at an inflated price and without disclosing
any of the aforementioned red flags to the Oakridge Investors. And
in March 2007, Trans Lending and/or LaSalle loaned to the Oakridge
Investors the amount of $3,900,000.00 (the Oakridge Loan) for
purposes of purchasing the Oakridge Property. Rye Capital assisted
Trans Lending and LaSalle as underwriter in its review and setting
of the terms of the Oakridge Loan. 216. Trans Lending, Trans
Lending Employees, LaSalle and LaSalle Employees
received substantial funds from the close of the Oakridge Loan
such as closing costs and fees. 217. Unknown to Plaintiff at all
times relevant to this transaction, the reality is that it
was a Double Closing: that Madison and/or one or more of the
Madison Principals purchased the Oakridge Property at one price
using the funds provided by the Oakridge Investors, and sold the
Oakridge Property back to the Oakridge Investors for an amount
substantially more than the price the Madison Principals had
originally contracted for. With the knowledge and involvement of
some or all of the Defendants, Madison and/or one or more of the
Madison Principals kept the
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difference between the original purchase price and the amount of
the Oakridge Loan amount for themselves. 218. The Oakridge
Investors provided the down payment necessary to purchase the
Oakridge Property with the Oakridge Loan. 219. The terms of the
Oakridge Loan were such that each of the Oakridge Investors
were jointly and severally liable for repayment of the Oakridge
Loan. 220. Some or all of the other Defendants participated with
the Madison Group in the
transactions involving the Oakridge Property and benefited from
the transaction at Plaintiffs expense. 221. Defendants were in
possession of Plaintiffs confidential information and, they
and their representatives, in that capacity, made
representations to the Oakridge Investors concerning the
advisability of the Oakridge Loan and structure the Oakridge
Investors had to put in place to obtain the Oakridge Loan. 222.
Defendants orchestrated and structured the Double Closing
associated with the
Oakridge Loan, which was not disclosed to the Oakridge
Investors. 223. Madison and LaSalle obtained the services of Trans
Lending as mortgage broker
for the financing of the various apartment complex transactions.
224. Trans Lending and Trans Lending Employees received a
commission from
Madison and LaSalle for brokering several loans involving
Madison and LaSalle, including the Oakridge Loan. 225. Trans
Lending and Trans Lending Employees collected various documents
from
Madison using checklists provided by LaSalle for the Oakridge
Loan such as financial
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statements, credit reports and tax returns, operating histories
for the Oakridge Property, tenant in common agreements and
information on the Oakridge Partnership and provided the
information to LaSalle. This information raised or should have
raised numerous red flags about Madison, the Oakridge transaction
and the viability of the Oakridge Loan. 226. Unknown to Plaintiff
at all times relevant to this transaction, Trans Lending,
including without limitation Wiederecht, Slemmer, and Lewis and
Trans Lending Employees, knew about the Double Closings and other
red flags concerning the transaction but did not disclose them to
Plaintiffs. 227. Unknown to Plaintiff at all times relevant to this
transaction, Trans Lending and
Trans Lending Employees provided credit reports of the Madison
Principals that contained high risk fraud alerts to LaSalle,
information that was not disclosed to Plaintiffs. 228. Trans
Lending and Trans Lending Employees provided inconsistent and
inaccurate information regarding the Principals financial
condition, including the overstatement of assets and faulty tax
returns to LaSalle. 229. Trans Lending and Trans Lending Employees
provided LaSalle with the credit
information and other underwriting documents necessary for the
Oakridge Loan, including the credit unworthiness of the Madison
Principals, to LaSalle. 230. Trans Lending received substantial
commission and other funds for its mortgage
broker services in connection with the Oakridge Loan. 231.
LaSalle and LaSalle Employees knew or should have known of the
Double
Closing associated with the Oakridge Loan and that the Double
Closing was not disclosed to Plaintiffs.
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232.
LaSalle and LaSalle knew or should have known that Trans Lending
provided
incorrect information concerning Madison, the Madison
Principals, and the condition and income generation of the Oakridge
Property. 233. LaSalle and LaSalle Employees made representations
to the Oakridge Investors
that the Oakridge Loan was based on correct information. Rye
Capital provided underwriting services for LaSalle in connection
with the Oakridge Loan 234. On information and belief, Rye Capital
and the Rye Capital Employees relied on
the information provided to it by Trans Lending and LaSalle
without further investigation. 235. The law firm of Crowe &
Dunlevy and the Crowe & Dunlevy Employees acted as
counsel to Madison, Trans Lending, and/or LaSalle in the
Oakridge Loan. 236. Crowe & Dunlevy should have known Madison
operated as a Ponzi scheme and
that Higgins was in violation of his parole by involving himself
with Madison. 237. Crowe & Dunlevy and the Crowe & Dunlevy
Employees knew or should have
known of the Double Closing and made appropriate disclosures to
the parties in the Double Closing. 238. Upon information and
belief, Buffalo Land Abstract and Buffalo Land Abstract
Employees were the settlement agents for the Oakridge Loan and
the sale of the Oakridge Property. 239. Buffalo Land Abstract and
Buffalo Land Abstract Employees, as closing agents
for the Oakridge Loan, knew or should have known of the Double
Closing, the credit unworthiness of Madison, and Higgins prior
conviction.
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240.
Defendants concealed their bad acts and the events contributing
to the claims
involving the Oakridge Property until at least February 2009.
ASPEN VILLAGE 241. In 2006 or 2007, Madison, as buyer, entered into
a purchase agreement with an
entity closely affiliated with Madison, as seller, for purchase
of the real estate in Lubbock County, Texas, commonly known as the
Aspen Village Apartments (the Aspen Village Property). The
existence of this agreement was known to Defendants but not
disclosed to Plaintiffs. Thus, Madison, and by extension of their
relationship, other Defendants, had an undisclosed interest in the
Aspen Village Property and in the subsequent sale of the Aspen
Village Property to Plaintiffs. 242. Madison then formed a limited
partnership named Lubbock Aspen Village, LP,
naming itself as a general partner and entities owned or
controlled by Marlene Walshin and Matthew Walshin as tenants in
common. 243. Lubbock Aspen Village, LP then entered into a Tenants
in Common Agreement
with, among other Parties, Rancho Lane LLC, wherein the above
named parties agreed to hold the Aspen Village Property as tenants
in common (collectively, the Aspen Village Investors). 244. In fall
2007, Defendants conspired to obligate the Aspen Village Investors
on the
Aspen Village Property at an inflated price and without
disclosing any of the aforementioned red flags to the Aspen Village
Investors. And in November 2007, LaSalle loaned to the Aspen
Village Investors the amount of $2,520,020.00 (the Aspen Village
Loan) for purposes of purchasing the Aspen Village Property. Trans
Lending assisted LaSalle as underwriter in its review and setting
of the terms of the Aspen Village Loan.
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245.
LaSalle Employees received substantial funds from the close of
the Aspen Village
Loan such as closing costs and fees. 246. Unknown to Plaintiff
at all times relevant to this transaction, the reality is that
it
was a Double Closing: that Madison and/or one or more of the
Madison Principals purchased the Aspen Village Property at one
price using the funds provided by the Aspen Village Investors, and
sold the Aspen Village Property back to the Aspen Village Investors
for an amount substantially more than the price the Madison
Principals had originally contracted for. With the knowledge and
involvement of some or all of the Defendants, Madison and/or one or
more of the Madison Principals kept the difference between the
original purchase price and the amount of the Aspen Village Loan
amount for themselves. 247. The Aspen Village Investors provided
the down payment necessary to purchase
the Aspen Village Property with the Aspen Village Loan. 248. The
terms of the Aspen Village Loan were such that each of the Aspen
Village
Investors were jointly and severally liable for repayment of the
Aspen Village Loan. 249. Some or all of the other Defendants
participated with the Madison Group in the
transactions involving the Aspen Village Property and benefited
from the transaction at Plaintiffs expense. 250. LaSalle and
LaSalle Employees were in possession of Plaintiffs confidential
information and, they and their representatives, in that
capacity, made representations to the Aspen Village Investors
concerning the advisability of the Aspen Village Loan and structure
the Aspen Village Investors had to put in place to obtain the Aspen
Village Loan.
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251.
Defendants orchestrated and structured the Double Closing
associated with the
Aspen Village Loan, which was not disclosed to the Aspen Village
Investors. 252. Madison and LaSalle obtained the services of Trans
Lending as mortgage broker
for the financing of the various apartment complex transactions.
253. Trans Lending and Trans Lending Employees received a
commission from
Madison and LaSalle for brokering several loans involving
Madison and LaSalle, including the Aspen Village Loan. 254. Trans
Lending and Trans Lending Employees collected various documents
from
Madison using checklists provided by LaSalle for the Aspen
Village Loan such as financial statements, credit reports and tax
returns, operating histories for the Aspen Village Property, tenant
in common agreements and information on the Aspen Village
Partnership and provided the information to Lehman. This
information raised or should have raised numerous red flags about
Madison, the Aspen Village transaction and the viability of the
Aspen Village Loan. 255. Unknown to Plaintiff at all times relevant
to this transaction, Trans Lending,
including without limitation Wiederecht, Slemmer, and Lewis and
Trans Lending Employees, knew about the Double Closings and other
red flags concerning the transaction but did not disclose them to
Plaintiffs. 256. Unknown to Plaintiff at all times relevant to this
transaction, Trans Lending and
Trans Lending Employees provided credit reports of the Madison
Principals that contained high risk fraud alerts to LaSalle,
information that was not disclosed to Plaintiffs.
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257.
Trans Lending and Trans Lending Employees provided inconsistent
and
inaccurate information regarding the Principals financial
condition, including the overstatement of assets and faulty tax
returns to LaSalle. 258. Trans Lending and Trans Lending Employees
provided LaSalle with the credit
information and other underwriting documents necessary for the
Aspen Village Loan, including the questionable creditworthiness of
the Madison Principals, to LaSalle. 259. Trans Lending received
substantial commission and other funds for its mortgage
broker services in connection with the Aspen Village Loan. 260.
LaSalle and LaSalle Employees knew or should have known of the
Double
Closing associated with the Aspen Village Loan and that the
Double Closing was not disclosed to Plaintiffs. 261. LaSalle and
LaSalle Employees knew or should have known that Trans Lending
provided incorrect information concerning Madison, the Aspen
Village Principals, and the condition and income generation of the
Aspen Village Property. 262. LaSalle and LaSalle Employees made
representations to the Aspen Village
Investors that the Aspen Village Loan was based on correct
information. 263. Richard Ellis delivered a Complete Appraisal Self
Contained Report, which was
an appraisal of the Aspen Village Property. 264. 265. Richard
Ellis Employees oversaw the performance and issuance of the
appraisal. Richard Ellis and Richard Ellis Employees failed to
perform necessary inspection
of the Aspen Village Property and adequately assess the value of
the Aspen Village Property, such as verifying rent rolls and the
condition of the Aspen Village Property.
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266.
Richard Ellis and Richard Ellis Employees failed to follow both
state and national
guidelines required of appraisers in issuing its appraisal. 267.
The appraisal provided by Richard Ellis reported a substantially
higher value than
the actual value of the Aspen Village Property 268. The
appraisal provided by Richard Ellis was prepared for LaSalle.
LaSalle, the
Madison Group and Richard Ellis worked together in basing the
appraisal of the Aspen Village Property on false and misleading
information. 269. The appraisal provided by Richard Ellis was used
by Rye Capital and LaSalle in
making its decision to make the Aspen Village Loan. 270. LaSalle
knew or should have known that the condition report provided by
Land
America and the appraisal provided by Richard Ellis of the Aspen
Village Property were based on either incorrect information or
misrepresentations, that the appraisers did not meet guidelines,
and that the appraisals did not represent the true income
generation of the Aspen Village Property. 271. Trans Lending
provided LaSalle with underwriting services for the Aspen
Village
Loan. Trans Lending Employees were the underwriters responsible
for underwriting the Aspen Village Loan. 272. Trans Lending and
Trans Lending Employees did not follow state or national
underwriting guidelines in connection with the Aspen Village
Loan. 273. Trans Lending and Trans Lending Employees relied on the
information provided
to it by Trans Lending without further investigation.
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274.
LaSalle knew or should have known that Trans Lending either did
not adequately
underwrite the Aspen Village Loan or that Rye Capital and/or
Trans Lending relied on inaccurate information. 275. The law firm
of Crowe & Dunlevy and the Crowe & Dunlevy Employees acted
as
counsel to Madison, Trans Lending, and/or LaSalle in the Aspen
Village Loan. 276. Crowe & Dunlevy should have known Madison
operated as a Ponzi scheme and
that Higgins was in violation of his parole by involving himself
with Madison. 277. Crowe & Dunlevy and the Crowe & Dunlevy
Employees knew or should have
known of the Double Closing and made appropriate disclosures to
the parties in the Double Closing. 278. Upon information and
belief, Service Title and Service Title Employees were the
settlement agents for the Aspen Village Loan and the sale of the
Aspen Village Property. 279. Service Title and Service Title
Employees, as closing agents for the Aspen
Village Loan, knew or should have known of the Double Closing,
the credit unworthiness of Madison, and Higgins prior conviction.
280. Defendants concealed their bad acts and the events
contributing to the claims
involving the Aspen Village Property until at least February
2009. TOWN PLAZA 281. Madison and/or the Madison Group Principals,
as buyer, entered into a purchase
agreement with an entity closely affiliated with Madison, as
seller, for purchase of the real estate in Lubbock County, Texas,
commonly known as the Town Plaza Apartments (the Town Plaza
Property). The existence of this agreement was known to Defendants
but not disclosed to
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Plaintiffs. Thus, Madison, and by extension of their
relationship, other Defendants, had an undisclosed interest in the
Town Plaza Property and in the subsequent sale of the Town Plaza
Property to Plaintiffs. 282. Madison formed Town Plaza Lubbock
Limited Partnership (the Town Plaza
Partnership), of which Madison or a related entity was general
partner and Roger Mauer and Cynthia Mauer, among other parties,
were limited partners (the Town Plaza Investors). 283. The purpose
of the Town Plaza Partnership was to purchase the Town Plaza
Property with funds loaned to it by a commercial lender. 284.
Defendants conspired to obligate the Town Plaza Investors on the
Town Plaza
Property at an inflated price and without disclosing any of the
aforementioned red flags to the Town Plaza Investors. LaSalle
loaned to the Town Plaza Investors the amount of $3,580,000.00 (the
Town Plaza Loan) for purposes of purchasing the Town Plaza
Property. 285. LaSalle Employees received substantial funds from
the close of the Town Plaza
Loan such as closing costs and fees. 286. The Town Plaza
Investors provided the down payment necessary to purchase the
Town Plaza Property with the Town Plaza Loan. 287. The terms of
the Town Plaza Loan were such that each of the Town Plaza
Investors were jointly and severally and individually liable for
repayment of the Town Plaza Loan. 288. Some or all of the other
Defendants participated with the Madison Group in the
transactions involving the Town Plaza Property and benefited
from the transaction at Plaintiffs expense.
46
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289.
LaSalle and LaSalle Employees were in possession of Plaintiffs
confidential
information and, they and their representatives, in that
capacity, made representations to the Town Plaza Investors
concerning the advisability of the Town Plaza Loan and structure
the Town Plaza Investors had to put in place to obtain the Town
Plaza Loan. 290. Madison and LaSalle obtained the services of Trans
Lending as mortgage broker
for the purchase, sale and financing of the various apartment
complexes. 291. Trans Lending and Trans Lending Employees received
a commission from
Madison and LaSalle for brokering several loans involving
Madison and LaSalle, including the Town Plaza Loan. 292. Trans
Lending and Trans Lending Employees collected various documents
from
Madison using checklists provided by LaSalle for the Town Plaza
Loan such as financial statements, credit reports and tax returns,
operating histories for the Town Plaza Property, tenant in common
agreements and information on the Town Plaza Partnership and
provided the information to Lehman. This information raised or
should have raised numerous red flags about Madison, the Town Plaza
transaction and the viability of the Town Plaza Loan. 293. Unknown
to Plaintiff at all times relevant to this transaction, Trans
Lending,
including without limitation Wiederecht, Slemmer, and Lewis and
Trans Lending Employees, knew about the red flags concerning the
transaction but did not disclose them to Plaintiffs. 294. Unknown
to Plaintiff at all times relevant to this transaction, Trans
Lending and
Trans Lending Employees provided credit reports of the Madison
Principals that contained high risk fraud alerts to LaSalle,
information that was not disclosed to Plaintiffs.
47
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295.
Trans Lending and Trans Lending Employees provided inconsistent
and
inaccurate information regarding the Principals financial
condition, including the overstatement of assets and faulty tax
returns to LaSalle. 296. Trans Lending and Trans Lending Employees
provided LaSalle with the credit
information and other underwriting documents necessary for the
Town Plaza Loan, including the questionable creditworthiness of the
Madison Principals, to LaSalle. 297. Trans Lending received
substantial commission and other funds for its mortgage
broker services in connection with the Town Plaza Loan. 298.
LaSalle and LaSalle Employees knew or should have known of the red
flags
associated with the Town Plaza Loan and that those red flags
were not disclosed to Plaintiffs. 299. LaSalle and LaSalle
Employees knew or should have known that Trans Lending
provided incorrect information concerning Madison, the Town
Plaza Principals, and the condition and income generation of the
Town Plaza Property. 300. LaSalle and LaSalle Employees made
representations to the Town Plaza Investors
that the Town Plaza Loan was based on correct information. 301.
Defendants concealed their bad acts and the events contributing to
the claims
involving the Town Plaza Property until at least February 2009.
302. As a result of the actions as set forth in the preceding
paragraphs, Defendants
have benefitted at Plaintiffs expense and Plaintiffs have been
harmed in an amount to be determined at trial.
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CAUSES OF ACTION FIRST CLAIM FOR RELIEF GROSS NEGLIGENCE
(Against All Defendants) 303. The allegations set forth in the
preceding paragraphs are incorporated and restated
herein by reference. 304. Defendants had a duty of care to
Plaintiffs by, among other things, being in
possession of Plaintiffs confidential information which was
collected by the Madison Group and transmitted and shared among
Defendants in furtherance of their scheme, benefiting from
transactions entered into with or involving Plaintiffs, and as
reasonable and prudent market participants. 305. Defendants
recklessly breached their duty of care by, inter alia:
a. participating in the transactions described above that raised
or should have raised red flags to indicate the transactions were
made in furtherance of the underlying Ponzi scheme that benefited
Defendants at Plaintiffs expense; b. making representations or
omitting material facts in information provided to Plaintiffs that
Defendants knew or should have known false and/or misleading, or
made with reckless disregard for the truth; c. participating,
aiding, abetting, encouraging or acquiescing in the transactions
set forth above that were made in furtherance of the underlying
Ponzi scheme that benefited Defendants at Plaintiffs expense, and
notwithstanding the conflicts of interest and red flags set forth
above;
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d. setting up the transactions described above to hide the
involvement and/or motivations of the Madison Group, protect the
Madison Group, and/or benefit themselves and the Madison Group at
Plaintiffs expense; e. failing to verify information concerning the
transactions described above; f. failing to diligently investigate
the transactions described above; and g. failing to disclose to
Plaintiffs red flags that they knew or should have known concerning
the transactions described above. 306. detriment. 307. Plaintiffs
suffered damages as a result of Defendants reckless disregard of
its Plaintiffs relied on Defendants in the transactions described
above to their
duty of care in an amount to be established at trial. 308.
Defendants actions involved a reckless disregard for the harm
Plaintiffs suffered
such that punitive damages should also be awarded to Plaintiffs.
SECOND CLAIM FOR RELIEF NEGLIGENCE (Against All Defendants) 309.
The allegations set forth in the preceding paragraphs are
incorporated and restated
herein by reference. 310. Defendants had a duty of care to
Plaintiffs by, among other things, being in
possession of Plaintiffs confidential information which was
collected by the Madison Group and transmitted and shared among
Defendants in furtherance of their scheme, benefiting from
transactions entered into with or involving Plaintiffs, and as
reasonable market participants. 311. Defendants breached their duty
of care by, inter alia:
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a. participating in the transactions described above that raised
or should have raised red flags to indicate the transactions were
made in furtherance of the underlying Ponzi scheme that benefited
Defendants at Plaintiffs expense; b. making representations or
omitting material facts in information provided to Plaintiffs that
Defendants knew or should have known false and/or misleading, or
made with reckless disregard for the truth; c. participating,
aiding, abetting, encouraging or acquiescing in the transactions
set forth above that were made in furtherance of the underlying
Ponzi scheme that benefited Defendants at Plaintiffs expense, and
notwithstanding the conflicts of interest and red flags set forth
above; d. setting up the transactions described above to hide the
involvement and/or motivations of the Madison Group, protect the
Madison Group, and/or benefit themselves and the Madison Group at
Plaintiffs expense; e. failing to verify information concerning the
transactions described above; f. failing to diligently investigate
the transactions described above; and g. failing to disclose to
Plaintiffs red flags that they knew or should have known concerning
the transactions described above. 312. detriment. 313. Plaintiffs
suffered damages as a result of Defendants breach of its duty of
care in Plaintiffs relied on Defendants in the transactions
described above to their
an amount to be established at trial.
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THIRD CLAIM FOR RELIEF FRAUD (Against All Defendants) 314. The
allegations set forth in the preceding paragraphs are incorporated
and restated
herein by reference. 315. In the transactions described above,
Defendants made representations to
Plaintiffs, including but not limited to, representations that
the transactions were advisable, based on accurate information,
including financial information, based on accurate and proper
underwriting information and principles, based on accurate and
properly conducted appraisals, that the proceeds of loans were
intended only for the purchase of the properties described above,
and that the transactions had to be structured in the manner
provided. These representations were intentionally false and
misleading, or made with reckless disregard for the truth, as
Defendants knew or should have known that the Madison Group was
operating as a Ponzi scheme, that the transactions were conducted
as Double Closings wherein money was diverted at closing to the
Madison Group as opposed to solely for the purchase of the
properties at issue, that Higgins was on parole for securities
violations and the transactions violated the terms of his parole,
and were aware of red flags concerning the transactions. 316.
Defendants further committed material omissions of facts in the
information
shared and transmitted to Plaintiffs in the transactions
described above, including but not limited to the failure to
disclose red flags concerning the transactions, and said omissions
were made with the intent to defraud Plaintiffs or with reckless
disregard for the truth. 317. These misrepresentations and
omissions were made by Defendants for the
purpose of defrauding Plaintiffs and inducing them to enter into
the transactions set forth above.
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318.
Plaintiffs relied on Defendants to their detriment, and
Defendants knew that
Plaintiffs would rely on them to their detriment. 319.
Defendants knew or should have known that they stood to benefit,
and did in fact
benefit, significantly from the transactions, in the form of,
inter alia, costs, fees, interest coming to them as a result of the
transactions. 320. 321. Plaintiffs have been damaged in a manner
and amount to be established at trial. Defendants actions involved
malice, an intent to defraud, and/or a deliberate
disregard for the harm Plaintiffs suffered such that punitive
damages should also be awarded to Plaintiffs in an amount to be
established at trial. FOURTH CLAIM FOR RELIEF AIDING AND ABETTING
FRAUD (Against All Defendants) 322. The allegations set forth in
the preceding paragraphs are incorporated and restated
herein by reference. 323. In the transactions described above,
Defendants aided and abetted the Ponzi
scheme operated by the Madison Group by making representations
to Plaintiffs, including but not limited to, representations that
the transactions were