The FBI appears to have launched an investigation into a Bellevue-based real estate investment firm, the first indication that the company\u2019s former executives could face criminal charges connected to allegations they ran a Ponzi scheme. <\/p>\n
For at least the last decade, iCap raised money from investors in Washington state and elsewhere, promising to invest in Seattle-area real estate projects. But last spring, investors grew concerned as the company stopped making monthly interest payments. By the fall, iCap filed for bankruptcy and a third-party restructuring firm, Paladin, took over. <\/p>\n
Paladin said last month it believed iCap was a Ponzi scheme<\/a>, using investor funds to repay other investors while doing little of the real estate redevelopment it promised. According to bankruptcy filings, the company owes 1,800 investors and other entities a total of $250 million.<\/p>\n As part of the bankruptcy case, attorneys for former CEO Chris Christensen wrote in court filings last week that the U.S. Securities and Exchange Commission and FBI \u201crecently opened a criminal investigation into iCap.\u201d\u00a0<\/p>\n \u201cIt is too soon to know whether the investigation will lead to any indictments or who the targets are,\u201d Christensen\u2019s attorneys wrote, urging the court to hold off on determining whether the company was a Ponzi scheme \u201cuntil the parties have a clearer understanding of the criminal investigation.\u201d<\/p>\n Christensen has denied that the operation was a Ponzi scheme.<\/p>\n The restructuring company last month urged a bankruptcy judge to find that iCap operated a Ponzi scheme, alleging that most of iCap\u2019s income came from investors, not from real estate projects, and that iCap used most of its cash to make payments to investors, not for real estate projects. A Ponzi finding could allow the company to tap into more financing to fund the ongoing bankruptcy, according to court filings.<\/p>\n The dispute appears to have attracted the attention of federal regulators in recent months. <\/p>\n The SEC notified Christensen in February it was investigating iCap, and the \u201cfederal government confirmed its investigation of the same\u201d this month, Christensen\u2019s attorneys wrote. <\/p>\n Both agencies declined to comment. It\u2019s unclear how the investigations are related. The SEC does not conduct criminal investigations.<\/p>\n While investigations are in their \u201cnascent stages,\u201d Christensen and others have received subpoenas from the SEC and the Washington State Department of Financial Institutions, the attorneys wrote.<\/p>\n Christensen\u2019s attorneys did not respond to a request for comment Monday, but have denied in court filings that he operated a Ponzi scheme.\u00a0<\/p>\n Attorneys representing iCap investors, who are still waiting to find out if they will ever recoup their investments, welcomed a federal probe. Investors \u201cshould feel encouraged knowing that federal investigations are underway,\u201d John Bender, an attorney representing the committee of investors in the bankruptcy proceedings, said in a statement. \u201cWe will support federal investigators however we can.\u201d\u00a0<\/p>\n Do you have information or tips about real estate projects in Western Washington? Get in touch with reporter Heidi Groover at\u00a0hgroover@seattletimes.com<\/a>\u00a0or\u00a0206-464-8273<\/a>.<\/p>\n<\/div>\n Christensen, the former CEO, \u201cvehemently disputes\u201d the Ponzi scheme allegations, his attorneys wrote.<\/p>\n ICap \u201cbought, developed and sold or otherwise exited out of approximately 60-70 real estate projects in Vancouver, Seattle, Tacoma, Bellevue and Renton, generating hundreds of millions of dollars in proceeds,\u201d they wrote this month. That work included securing permits and paying for construction work, \u201ca large business operation that completed a large number of complicated real property projects.\u201d<\/p>\n That activity \u201cstands in stark contrast to the typical Ponzi scheme,\u201d they argued, adding later, \u201cEven an unprofitable business is not synonymous with a Ponzi scheme.\u201d<\/p>\n Christensen also disputed the conclusion from a consultant Paladin hired that iCap was a Ponzi scheme, claiming the consultant lacked expertise in real estate and based his findings on incomplete records.<\/p>\n Christensen, the restructuring company and other parties in the bankruptcy continue to argue about whether iCap operated a Ponzi scheme and whether a bankruptcy judge should decide on that question any time soon.<\/p>\n Christensen\u2019s attorneys contend the criminal investigation could interfere with Christensen\u2019s Fifth Amendment right against self-incrimination and that the government could use the bankruptcy process to get \u201cpremature access\u201d to evidence relevant to the criminal case.\u00a0<\/p>\n Bankruptcy Judge Whitman Holt appeared sympathetic to that argument during a recent hearing, saying he found \u201cthis dynamic very troubling\u201d and was \u201cconcerned about rushing forward in a way that steps on other people\u2019s toes or creates problems.\u201d\u00a0<\/p>\n Investor attorney Jay Kornfeld noted that a year has passed since iCap stopped making interest payments to investors. \u201cFor investors and individuals [who] have lost in many cases their life savings, that is a long time, and we would urge the court to keep this process going,\u201d he said.<\/p>\n The next hearing in the case is set for Wednesday.\u00a0<\/p>\n<\/p><\/div>\nTALK TO US <\/h2>\n