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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowThe largest outside investor in Indianapolis-based real estate firm Lauth Group Inc. has accused company principals of fraud, conspiracy and racketeering in a lawsuit filed this week in U.S. District Court.
The suit, filed by a subsidiary of Chicago-based Inland American Real Estate Trust, points to “a disturbing pattern of fraudulent misrepresentations” by Robert L. Lauth Jr., Michael S. Curless, Gregory Gurnik, Lawrence Palmer and Thomas Peck that enticed Inland to invest up to $250 million in 2007.
Inland says Lauth’s deception led to “hundreds of millions” of dollars in losses.
The company accuses the Lauth executives of diverting more than $18 million of the Inland investment for unauthorized purposes and of secretly rewriting contracts to let themselves off the hook for personal guarantees of $310 million on dozens of now-struggling real estate projects.
Lauth and Gurnik, the firm’s top two executives, had guaranteed loans of more than $120 million each.
The personal guarantees were a big factor in Inland’s decision to invest – since the company believed the Lauth owners’ personal stakes would add incentive to ensure success of the projects. But Lauth changed the terms three weeks after accepting the funds, the suit alleges.
“If Inland had known defendants’ plans to gut the value of the collateral by surreptitiously indemnifying themselves, Inland would not have provided any funds,” the suit says.
In a statement, Lauth said the company has taken “appropriate steps” to protect creditors.
“Inland’s persistence in challenging our ethics is not only outrageous, it is counterproductive to our efforts to protect and strengthen the business,” he wrote.
Inland also is challenging Lauth’s April Chapter 11 bankruptcy filing for a handful of its subsidiaries. The Chicago firm claims a default put it in control of the subsidiaries and about 50 Lauth-developed properties. A hearing in that case is scheduled for this week.
Another lender, San Francisco-based Wells Fargo Bank, also has sued Lauth principals over attempts to move around assets and leave creditors holding the bag after the company’s failure.
That suit, filed in June, says the executives transferred millions of dollars in cash and properties to their wives and family trusts in an attempt to shield the assets from lenders. The bank says the moves by Lauth principals amount to “felony fraud.”
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