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September 2, 2010 |
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| November 29, 2007 |
By: Billy Shields |
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he creditors committee in the bankruptcy of one of Florida’s biggest condominium converters claims one of its own committed fraud and broke the state usury law on $12 million in loans to Hialeah developer Juan Puig.
The committee also alleges British businessman Jonathan Brown sold his Coral Gables mansion to Puig for more than $11 million in 2005 but reported a sale price of only $7.3 million on his federal tax return.
The committee alleges all this was done with the help of Coral Gables attorney Fernando Aran.
Details of the committee’s allegations are contained in three bankruptcy cross-complaints and a bankruptcy claim objection filed in U.S. Bankruptcy Court in Miami. The complaints allege fraudulent transfers, unjust enrichment and various breaches of fiduciary duty by Brown and his companies.
Creditors are struggling to trace all of Puig’s assets and are asking U.S. Bankruptcy Judge Robert A. Mark for help deciphering the finances of a complex set of interlocking companies and the developer’s personal funds.
The committee is trying to find out what happened to the money by suing Brown, the law firm Aran Correa Guarch & Shapiro, two of its attorneys and companies allegedly controlled by Brown.
Called for comment, Brown stressed he is Puig’s largest unsecured creditor.
“I just find it offensive. We invested significant amounts of money in Puig Inc., and we believed in the honesty of Mr. Puig,” Brown said.
Brown, a British citizen, sold his home to Juan and Diana Puig in August 2005. Between then and February 2006, Henderson, Nev.-based Buckhead Capital loaned $12 million to four of Puig’s condo conversion projects at annual interest rates of 30 percent, the creditors committee claims. The committee maintains Brown controls Buckhead.
Brown said he was an investor rather than a lender in Puig’s projects and relied on Aran’s advice. Brown said Aran represented Puig in these transactions.
Aran declined to comment. He has not filed any responses to the complaints made by the creditors.
Miami attorney Michael Budwick of Meland Russin & Budwick, who represents the committee, also declined comment.
Hialeah-based Puig Inc. specialized in buying up apartment complexes to convert them into condos and reap large profits. Puig was a success story in the condo conversion boom until the housing downturn pushed it into Chapter 11 bankruptcy in May.
The company successfully converted and sold all the units in the 96-unit Valencia complex in Hialeah and most of the 45-unit Parkview complex and the 96-unit Laurels at Sherwood complex in West Palm Beach.
At one point, Puig’s assorted companies were closing about 100 condo units a month. But when sales slumped in 2006, the developer stopped meeting its debt obligations. More than 100 creditors are pressing claims totaling more than $110 million.
In the cross-complaints, unsecured creditors tied a complex series of transactions involving lawyers in Miami and the Caribbean island of Nevis into the Coral Gables house sale and even a charter airline that the creditors say owned no aircraft.
The committee alleges Aran and Aran Correa associate Sasha Cohen acted as counsel in what became known as the “Jet Deal.”
Puig placed $5 million from the house sale in Aran’s escrow account in exchange for future charter services rendered by Brown’s Cayman Islands-based airline Silverwing, but the creditors committee claims the charter operation was a sham.
“The Jet Deal involved the fictional chartering of aircraft time,” a complaint filed by Budwick said. But at that time, “Silverwing did not own or lease any aircraft.”
The complaint alleges Aran made payments from his firm’s escrow account to pay off Brown’s $4.5 million mortgage with Citimortgage and wired the remaining funds to Brown and a Nevis-based attorney named Stephen Jones.
Citing another Puig-Brown tie-in, the committee alleges Brown gave Puig four loans of $3 million each at 30 percent interest for conversion projects. But the committee wants Brown’s bankruptcy claims to be rejected, claiming the loans were made at illegally high rates.
Brown contends he is being pursued by creditors after filing his own lawsuit against Puig in June.
“We were essentially robbed. We got completely mugged by this company,” Brown said.
Jerry Markowitz of Markowitz Davis Ringel & Trusty in Miami, one of Puig’s attorneys, had no comment on the creditor allegations but said he was optimistic Puig’s case will be resolved in the next few months.
Puig offered in September to surrender four luxury homes and art and wine collections in a proposed settlement, but Mark denied the request without prejudice.
Creditors now crying foul are trying to separate valid bankrupty claims from allegedly fraudulent claims in a struggle to limit the number of slices in the pie.
Creditors are increasingly complaining that Puig’s finances amounted to a financial shell game, where one Puig company would take in money to pay off another company’s activities.
An objection filed Monday by Scape Investments highlights the claims dispute.
Scape alleges about $1.5 million in debt claims from various creditors can’t be justified. Scape contends creditor Michael Richards paid $1.1 million to the Tallahassee-based Whispering Pines project in the form of “a criminally and civilly usurious” loan that never reached Whispering Pines.
Greenberg Traurig shareholder Luis Salazar in Miami, who represents Richards, declined to comment for this article.
Scape Investments attorney James B. Miller, a Miami solo practitioner, contends Richards “never lent any money to Whispering Pines. The money never went there. He might have issued invoices in the name of Whispering Pines that actually correspond to other Puig companies.”
Criminal defense attorney Joel Hirschhorn of Hirschhorn & Bieber in Coral Gables has been retained by Puig, although no criminal charges have been filed against him. Hirschhorn said Puig’s accounting worked fine as long as the scale of business stayed small.
“It’s called running a mom-and-pop business,” he said. Puig’s company “grew way too fast. He didn’t pay the kind of attention that he should have.”
As long as Puig’s companies remained solvent under the same umbrella, creditors stayed quiet.
But since Puig’s company filed for bankruptcy protection, some investment groups like Scape have bought company assets in hopes of turning a profit down the road. Scape acquired Whispering Pines in August by paying $1.5 million in cash and assuming about $11 million worth of property taxes, loan obligations and other debts.
Creditors like Scape now want more details about how Puig managed his assets, properties and debts.
Some attorneys involved in the case consider Puig’s management simple carelessness. Others like Miller contend he was “playing hide-and-go-seek with the assets and the debt.
“That’s not how we operate companies in this country.”
Billy Shields can be reached at bshields@alm.com or at (305) 347-6649.
85 Arvida Parkway photo by Jill Kahn
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