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Breakwater Equity Partners Lead Investors in Complaint Related to Utah Ponzi Scheme
Investors Claim Fraud, Legal Malpractice, and Breach of Contract Against Wells Fargo, Holland & Hart, Stewart Title Company

HENDERSON, Nev.--(BUSINESS WIRE)--Breakwater Equity Partners announced today that a group of 28 tenant-in-common (TIC) investors who were victims of a Ponzi scheme filed a complaint in Nevada District Court for damages and jury demand against Wells Fargo, Stewart Title Company and Holland & Hart LLP. The complaint alleges several improprieties related to a commercial real estate transaction, including aiding and abetting fraud, legal malpractice and breach of contract. The investors are seeking a judgment of more than $16 million for the recovery of the investment, plus attorneys’ fees and lost profits. The legal action involves two properties located in Siena Office Park at 2850 W. Horizon Ridge Parkway, Building 5 and 861 Coronado Center Drive, Building 3 in Henderson, Nev., purchased by the Siena TIC investors in June 2007.

The complaint alleges the investors were victimized by a complex financial scheme through which real estate and banking entities conspired to solicit individuals to purchase tenant-in-common interests in the Siena property. The Siena TIC investors claim the transaction was flawed from the start and served little purpose other than to generate fees and other income for the entities involved in its creation.

According to the complaint, at the time of the purchase, the investors were unaware the properties were linked to a Ponzi scheme led by Utah businessman Val Southwick and VesCor Capital Corp. The Utah Attorney General was investigating the Ponzi scheme as the Siena transaction was going through the closing process. The Siena TIC investors claim neither the sponsor, Triple Net Properties, nor the lender, Wachovia (now Wells Fargo), disclosed the existence of the Ponzi scheme investigation to the investors. As a result of the investigation, $2.8 million of the investors’ money was seized. Recently, a U.S. District Court judge in Utah awarded the investors $2 million of the $2.8 million (Case No. 2:09-cv-00595).

The allegations against Wachovia (now Wells Fargo) include aiding and abetting fraud in the transaction. The complaint alleges the sponsor intentionally misrepresented or omitted material facts, and that the bank assisted the sponsor. The complaint also states the sponsor failed to notify the investors of the substantial risks associated with purchasing the properties from an entity involved in the VesCor Ponzi scheme.

The Siena property was sold by ROCSEV Capital LLC, an entity held by Southwick, a Utah businessman convicted of running the largest financial scheme in the state’s history. Southwick defrauded hundreds of investors for more than $100 million over a period of 17 years. In 2008, Southwick pleaded guilty to nine counts of securities fraud and is currently serving nine consecutive 1- to 15-year prison terms in Utah.

Breakwater CEO Phil Jemmett believes the deal’s sponsor, Triple Net Properties, and the lender, Wachovia (now Wells Fargo), knew the property was part of a Ponzi scheme and did not inform the investors. Jemmett also alleges Grubb & Ellis, the successor to Triple Net Properties, improperly claimed it was the party entitled to the Siena investors’ escrow funds, used the TIC investor funds to pay for its legal defense, and hired the law firm Holland & Hart to represent the investors without their approval.

“Holland & Hart represented the Siena TIC investors without their consent while also representing Grubb & Ellis,” Jemmett said. “We believe that Holland & Hart had a glaring conflict of interest. This unethical arrangement between Grubb & Ellis and Holland & Hart ultimately forced the Siena TIC investors into a settlement with a court-appointed receiver that cost them more than $850,000. This is on top of the hundreds of thousands of dollars that the investors paid to a law firm they never hired. Even worse, the investors had to hire separate legal counsel to battle the law firm that was purportedly representing them. The investors have suffered millions of dollars in damages.”

The complaint also alleges Stewart Title Company breached its contract with the investors by failing to release $300,000 in litigation funds designed to be used to reimburse the investors for legal fees and other costs associated with the acquisition of the Siena properties.

The investors hired Breakwater Equity Partners to restructure the debt on the property, retain and manage litigation counsel, assist in the recovery of the lost investment and other cash outlays, and oversee bankruptcy reorganization, if necessary.

“Sadly, this type of situation is becoming increasingly common,” said Bart Larsen of Kolesar and Leatham, the attorney representing the investors. “This is yet another example of large companies taking advantage of ordinary investors. The Siena TICs, many of whom invested their retirement funds or other savings in this scheme, cannot afford to lose their investment. We look forward to presenting all of the facts in court.”

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