SEC accuses retail centers’ owner of fraud

The founder of an Arizona real estate company with scores of retail centers across the country—including seven Indianapolis-area properties with nearly 500,000 square feet of retail space among them—is facing federal allegations that he committed a $35 million fraud.

Late last month in a federal court in Arizona, the U.S. Securities and Exchange Commission filed a civil lawsuit against Jonathan Moynahan Larmore and ArciTerra Cos. LLC, the Arizona real estate company Larmore founded in 2005 and led as its CEO until just a few months ago.

The SEC lawsuit is one of numerous pending legal cases involving Larmore and/or ArciTerra, including multiple lawsuits filed in Marion and Hamilton counties.

Larmore, 50, is an Indiana University graduate and grew up in Fort Wayne.

The SEC’s complaint accuses Larmore, ArciTerra Cos. LLC and several other entities of misappropriating more than $35 million from funds ArciTerra managed. Larmore used much of that money to fund “his lavish lifestyle of private jets, yachts, and expensive residences,” the SEC’s complaint alleges. Larmore owns homes in Arizona, Indiana and Florida, the suit says.

“It’s just an over-the-top lifestyle that it appears Jonathan Larmore was trying to fund from monies that he shouldn’t have been getting into,” said Carmel securities attorney Mark Maddox, who is representing plaintiffs in a separate Illinois lawsuit filed against Larmore, ArciTerra Cos. and multiple other entities and individuals.

As one example of that alleged over-the-top lifestyle, Maddox said Larmore once hosted a six-figure party to celebrate his dog Spike’s birthday.

The lawsuit Maddox is involved with, which is pending in federal court for the Southern District of Illinois, was filed by individuals who say the money they invested in a Belleville, Illinois, shopping center was instead diverted to Larmore and his family, leaving the shopping center to fall into disrepair.

“He’s basically treating the shopping centers as his own personal piggy bank,” Maddox said.

According to ArciTerra’s website, the company’s holdings include more than 60 properties, most of them multitenant retail centers, in 23 states. The company’s real estate portfolio has 15 Indiana properties, including five in Indianapolis and one each in Noblesville and Plainfield.

Larmore’s legal defense team in the SEC case is Dickinson Wright PLLC, a Detroit-based law firm with offices around the United States and in Canada. Attorney Jacob Frenkel, who chairs the firm’s government investigations and securities enforcement practice, told IBJ via email that civil lawsuits are “simply statements of allegations. Now that this matter is in court, the opportunity presents for every issue to be decided by an independent party—the judge.”

Frenkel also wrote that “we intend to contest the allegations vigorously throughout this likely multi-year legal process.”

Larmore did not return texts, emails or phone messages from IBJ seeking comment.

A tangle of litigation

Court filings from various Indiana disputes include:

◗ shopping center tenants who say they paid for property maintenance that was not performed and vendors who say they performed maintenance duties for which they were not paid;

◗ a law firm suing for unpaid legal bills;

◗ lenders seeking to foreclose on particular properties; and

◗ wrangling in both the state cases and the SEC case about the appointment of a receiver or receivers who would oversee ArciTerra’s properties in Indiana and elsewhere—and could sell them to new owners.

In a court filing associated with the SEC case, Indianapolis attorney Martha Lehman of the firm Amundsen Davis LLC is identified as receiver for ArciTerra’s Indianapolis-area properties. In the Dec. 11 filing, Lehman said she has already received an offer to purchase one of the properties, though she did not identify which one.

The SEC is asking the court to appoint a receiver for the ArciTerra properties, but in her Dec. 11 filing Lehman asks the court to keep her as receiver of the Indiana properties for the sake of continuity. The court has not yet ruled on Lehman’s request.

Lehman did not respond to multiple phone messages and emails from IBJ.

“I really think that the ArciTerra empire is going to be liquidated over the next year or two, and that includes the Indiana properties,” Maddox said.

The SEC’s lawsuit paints a picture of excessive and improper spending of company assets, and of a state of turmoil at ArciTerra.

Larmore and ArciTerra Cos. are both named as defendants in the SEC case, along with several other related entities: ArciTerra Note Advisors II LLC, ArciTerra Note Advisors III LLC, ArciTerra Strategic Retail Advisors LLC and Cole Capital Funds LLC. Several other entities and individuals, including Larmore’s mother and wife, are named as relief defendants, meaning they are not accused of wrongdoing but are alleged to have received ill-gotten gains from the defendants’ actions.

In its lawsuit, the SEC alleges that Larmore and ArciTerra Cos. raised $45 million from about 1,045 investors for two funds called ArciTerra Note Fund II LLC and ArciTerra Note Fund III LLC. The SEC also alleges that Larmore diverted money from these funds into a different fund, ArciTerra Strategic Retail Advisors LLC, or ASR Advisor for short.

(It’s common practice for commercial property owners to set up separate limited-liability corporations, or LLCs, for each property they own.)

Larmore improperly used the ASR Advisor fund “as his multi-million-dollar slush fund” for both personal use and cash needs of his business, the SEC alleges, leaving the ASR Advisor fund with less than $500 in its bank account as of Oct. 4.

The SEC also alleges that Larmore abruptly fired all of ArciTerra’s Phoenix employees in April and closed the company’s office there. Then, the SEC says, Larmore sent to a large group of people an email with the subject line, “The Perfect Storm Sale.”

“In the email, Larmore stated that he wished to sell off all the assets in ArciTerra’s portfolio, as well as everything he personally owned, including his family’s homes, cars, boats, artwork and jewelry, in 75 days,” and that he wanted to “shed the baggage of my past and start fresh” and was amid dividing assets with his wife who had filed for divorce, the SEC suit says.

Larmore hired a consultant in July to liquidate ArciTerra’s assets, and in September he resigned from his leadership role at ArciTerra, the SEC alleges. “Larmore’s abandonment of ArciTerra, his actions to liquidate assets, and his failure to put in place an investment advisor or fiduciary to the Funds are violations of his fiduciary duties,” the SEC says in its complaint.

And as the legal cases unfold, ArciTerra’s central Indiana tenants are caught in the middle of a confusing and frustrating situation.

A tenant at one of the company’s Castleton properties told IBJ the utility company cut off electricity to the shopping center a few months ago. The tenant said poor record-keeping on ArciTerra’s part led to a large unpaid electrical bill for the shopping center, despite the fact that tenants were responsible for paying for their own electrical use. “It impeded business, for sure,” the tenant said.

The tenant also spoke of roofing problems that caused water to leak into tenant spaces, ruining some of the tenant’s merchandise.

The tenant spoke to IBJ on the condition that the tenant’s name not be used. “There’s no moral compass here, I found out quickly,” the tenant said of ArciTerra.

WeWork stock scheme

In its complaint, the SEC also accuses Larmore of perpetrating a stock-manipulation scheme intended to artificially inflate the price of WeWork Inc. stock just days before that company filed for Chapter 11 bankruptcy protection.

In this scheme, the SEC said, Larmore formed an entity called Cole Capital in early October, then on Nov. 1 and Nov. 2 purchased 72,846 call option contracts for WeWork stock. Most of the options expired at 4 p.m. Nov. 3, and the rest expired one week later, the lawsuit says.

The options contracts had strike prices ranging from $2 to $5, meaning Larmore “stood to make substantial gains” if WeWork’s stock price rose above the strike price of some or all of the options contracts before those contracts expired.

Then, on Nov. 3, Larmore issued a press release announcing that Cole Capital intended to purchase 51% of WeWork’s outstanding shares at a price of $9 per share. That price was far higher than WeWork’s trading price at the time—the company’s stock had closed at $1.11 per share on Nov. 2.

“We have consulted with God, legal, financial and other advisors to assist us with this transaction,” the press release said.

But the SEC’s suit alleges that Larmore and Cole Capital did not have the means to execute on the proposed share purchase. “Rather, Larmore’s apparent purpose in the scheme was simply to manipulate WeWork’s stock price, in an attempt to profit from the change in price by trading in WeWork options,” the suit said.

Larmore’s scheme failed, the SEC said, because he miscalculated how long it would take to get the press release posted, and his Nov. 3 call options expired about an hour before the press release was posted.

Neither did Larmore exercise his Nov. 10 call options, the SEC said, because WeWork’s stock never exceeded the strike price by the time those options expired.

WeWork filed for Chapter 11 bankruptcy protection on Nov. 6.•