When LandCo Equity Partners executives Ray Marshall and James Brodie were arrested last month in connection with real estate scams involving at least 15 investors, city officials breathed a sigh of relief that LandCo's U.S. Olympic Committee office building wasn't part of the 33-count indictment that alleged theft, securities fraud and racketeering.
In turn, news media emphasized to readers, viewers and listeners that the charges didn't involve the USOC deal, finalized in October, in which LandCo added four stories to a downtown building and then sold the top five floors of unfinished space to the city for $19 million.
But that might not be right.
It doesn't take much digging to find ties between the indictment and Marshall's handling of the USOC building at 27 S. Tejon St. Two entities that held an interest in the building in 2007, a year before LandCo sealed its first USOC deal with the city, are named in the indictment as vehicles that Marshall and Brodie used in their alleged criminal enterprise to defraud investors of money.
Whether that is important now, after the fact, is debatable. Councilman Scott Hente calls it "water over the dam."
But Councilman Tom Gallagher says it's further evidence that "there's nothing clean about this deal," a stigma that he says could stain the building, the city and the USOC for years. Gallagher says the ties between Marshall and Brodie and the USOC building also lay bare the city's failure to vet the people it was dealing with. Lastly, if investors in the entities Marshall and Brodie used in their activities file suit to recover money pumped into the USOC building, Gallagher hopes they don't target the whole building but focus on the two floors in which LandCo still holds an interest.
'News to us'
But let's back up and see what happened. LandCo bought an interest in the Tejon property in 2005, as did 27 South Tejon Partners, a company partly owned and managed by former Colorado Gold Kings hockey player Don Lester, who also owns part of a related company called Rubicon Alliance.
Two years later, 27 South Tejon Partners deeded an interest to Rubicon, which agreed to sell LandCo a greater share.
"LandCo wanted to own more of the building, and we were willing to own less of the building, so they purchased 35.25 percent from us to increase their interest from 45 percent to 80.25 percent," Lester says.
He says Rubicon was paid $250,000 in cash to sell the partial interest to Mount Vernon Estates Land Holdings LLC, an entity controlled by Marshall. The deed, recorded March 19, 2007, shows Mount Vernon Estates paid $903,500 for the transaction, of which $653,491 was financed with a loan, according to El Paso County Assessor records. There's no deed of trust on file to show who made the loan.
On the same day, March 19, 2007, Mount Vernon Estates transferred the 35.25 percent interest to North County Land LLC, another entity controlled by Marshall, which held it until it was transferred to LandCo 27 LLC in October 2007.
Asked why Mount Vernon Estates didn't transfer the land directly to LandCo 27, instead of routing it through North County Land, Lester says, "Good question."
Mount Vernon Estates and North County Land are named in the indictment as part of the alleged Marshall-Brodie scam. Both also pop up in a civil lawsuit filed by siblings Gary and Kathleen Walters against Marshall, Brodie, LandCo, Mount Vernon Estates and North County Land, alleging they bilked the Walterses out of $1 million through lies, manipulation and distortion to further a Ponzi scheme. Mount Vernon Estates was initially set up by the Walterses and Marshall but later was taken over by Marshall, who turned it into a vessel for money for a project on Bradley Road called Sorrento, the lawsuit says.
Their attorney, James Helfrich, says he's surprised to learn that Mount Vernon Estates was at one time an owner of the USOC building.
"This is news to all of us on our end, that Ray Marshall was using Mount Vernon Estates this way," Helfrich says. "We don't know why Ray Marshall was using this entity for an unrelated business activity [the USOC building]. It was not disclosed to [the Walterses]. They thought they were investing in a company devoted to developing Sorrento."
Helfrich says he wants to know Mount Vernon Estates' source of money to buy into the USOC building and what happened to that share. Those and other questions will be raised during the discovery process of the Walterses' lawsuit, he says, which Marshall's attorney, John Cook, wants to delay in light of the criminal case. Cook refuses to comment, saying he hasn't received his clients' permission.
More to be investigated
North County Land LLC also became an owner of the downtown building after it was formed in 2005 by Oban Mount Vernon Estates, controlled by Marshall, and Mason Investments III, controlled by Jack Mason.
Mason sued Marshall, LandCo and Oban Mount Vernon Estates in 2007, alleging Marshall comingled money from various projects. According to court documents, an accountant who reviewed only one North County Land account — at Mayor Lionel Rivera's employer, UBS Financial Services — found Marshall had diverted $1.66 million to other uses.
Ken Siegel, Mason's attorney, wasn't aware that North County Land had invested in the USOC building. Asked if it would be normal business practice for investors to know whether an entity they invested in had bought into a high-profile downtown building, Siegel says, "Why don't you ask Mr. Marshall that question?"
One theory of how a developer can divert money goes like this: Obtain money from investors for a project. Go to a bank for a loan on the strength of that invested cash. Apply the first-mortgage loan money to the project, and divert the invested money to something else.
Councilman Darryl Glenn voted against the USOC deal, and says the whole idea of the city paying $31.5 million to keep the USOC headquarters here for 30 years "didn't sit well" with him.
"You need to have absolutely clean hands in going into debt for the community on something like this," he says. "My gut tells me there's a lot of information out there that needs to be investigated."
In October, the city paid $19 million to close the Tejon building deal by paying off loans, taxes, closing costs and construction liens. LandCo 27 ended up owning 19 percent of the ground floor and basement, with 27 South Tejon Partners II (which is managed by Rubicon) owning 81 percent. 27 South Tejon Partners II became majority owner because of how ownership was structured: LandCo's share was designed to dwindle the longer development dragged on, Lester says.
Although millions are still owed on the bottom two floors, Lester is optimistic, saying there's interest from "high-quality local tenants" as well as "national rated tenants."
Marshall and Brodie, meanwhile, are free on $50,000 bond to enjoy the holidays in their Broadmoor-area homes. Fourth Judicial District Judge Barney Iuppa is wading through 3,000 pages of grand jury transcripts to determine if the evidence supports the charges. They'll be back in court Jan. 22.
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