Cook County Record

Sunday, December 8, 2019

Lawsuit: Lenders, commercial real estate players ran racket to bilk 'unsophisticated' investors of assets

By Dan Churney | Feb 7, 2017

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A group of plaintiffs have filed a $25 million racketeering suit in Cook County Circuit Court, alleging that for more than 10 years, several major players on the commercial real estate and financing scene have swindled hundreds of victims out of millions of dollars through loans based on inflated appraisals of hotels and motels across the Midwest. 

The eight-count suit, which was filed Jan. 30, alleges fraud, the aiding and abetting of fraud, unjust enrichment, racketeering and conspiracy. The plaintiffs cite violations of federal and state laws for some of the counts. 

Defendants named in the action include: Lehman Brothers Bank and affiliates; Capital Crossing Servicing Co. and Capital Crossing Holdings; Phoenix Asset Optimization and Phoenix Asset Management; Advanced Appraisal and affiliates, of suburban Itasca; the Chicago law firms of Wolin & Rosen and SmithAmundsen; and State Bank of Texas. 

The suit also names four men individually as defendants: Chandrakant Patel, of Texas, chairman of the State Bank of Texas; Hiren Patel, of Illinois, former chairman of National Republic Bank; Edward Fitzgerald, of Florida, former president of National Republic Bank; and appraiser William Daddono, of Illinois. 

Plaintiffs are: Delaware Motel Associates; Independence Management Associates; C. Patel Co.; Turkey Foot Lake Road Land Holdings; Champakbhai N. Patel; and Jashvanti C. Patel. They are represented by Chicago lawyer Paul Caghan. 

Plaintiffs alleged the financial companies paid “excessive compensation” to Daddono and his staff at Advanced Appraisal, to make “grossly inflated” appraisals of hotels and motels. With the appraisals in hand, they then allegedly extended “toxic, corrupt and inflated” loans to “high net-worth individuals who were unsophisticated in the ownership of commercial properties and had assets that could be surrendered or seized,” plaintiffs said.   

As a result of these allegedly nefarious loans, defendants were able to seize hotels and other properties that failed as a result of the loans, then sell the properties at “extortionate prices.” Defendants’ activities allegedly reached into Illinois, Wisconsin, Indiana, Ohio and Michigan. 

This alleged scheme was purportedly hatched by National Republic Bank around January 2001. The bank failed in 2014, but the other lenders were allegedly aware of the fraud for several years before, according to the suit. In fact, these companies “waited in the wings” for National Republic to fail, and after it went under, the lawsuit alleged they acquired the loans and continued the operation where National Republic left off.

The law firms listed in the suit allegedly took part by preparing documents and pursuing litigation that furthered the interests of the alleged scam, as well as by allegedly transmitting the false appraisals to plaintiffs and other borrowers.   

Plaintiffs said they became aware of the alleged scheme in December 2016, when information emerged from a criminal investigation by the U.S. Treasury Department, the Federal Deposit Insurance Corporation and the Federal Reserve System. 

The plaintiffs are demanding at least $25 million, plus other damages. 

A status hearing is set for March 27. The case is assigned to Cook County Associate Judge James E. Snyder.

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Paul Caghan