A Mint Hill broker committed fraud and must pay three California firefighters $2 million for misleading them when he asked for investments, a bankruptcy court judge ruled.
Three firefighters filed a claim in April 2012 in federal bankruptcy court against Tony Brown Jr., a broker with Realty World Genesis in Mint Hill, and his wife. They said Brown falsely represented his plans to build a subdivision in east Charlotte when asking for a $450,000 investment.
In his opinion released Tuesday Judge J. Craig Whitley said “Brown’s actions constitute actual fraud as he made several material misrepresentations to the Plaintiffs” in email correspondences.
Brown said he was “disappointed” with the decision.
“Obviously, I am disappointed in the Judge’s decision and feel that some of the pertinent facts were not given consideration,” said Brown in an email. “I maintain that there was absolutely no fraudulent intent, either willful or negligent, and will fight this through the appeal process.”
Rich Dean, acting deputy chief of the Palo Alto (Calif.) Fire Department, said in court he and two of his colleagues entered into several transactions in which the firefighters lent money to Brown’s real estate clients.
In April 2008, Brown approached Dean and his colleagues about investing about $500,000 in a personal project to develop a residential neighborhood in east Charlotte, according to court documents.
The 3.77-acre property was supposed to be on Albemarle Road and would have had 13 lots, Brown told the firefighters in a 2008 email.
He wrote that the subdivision would feature homes selling for $150,000 to $170,000, with lots selling for about $35,000 each.
Brown estimated the revenue would be $750,000, for a total profit of $260,000, he said in an email to the firefighters.
Brown also offered his realty office in Charlotte as collateral for the loan. Brown wrote in an email to the firefighters that the property was valued at between $775,000 and $800,000, although he acknowledged he still owed $135,000 on it, according to court documents.
“Unbeknownst to the Plaintiffs, the office building was actually encumbered by at least three prior deeds of trust and the cumulative balance owed on the mortgages greatly exceeded $135,000,” court documents said.
Dean, Palo Alto firefighter Norm Park and Palo Alto Fire Capt. Mark Shah loaned $150,000 each to Brown, stipulating that Brown pay monthly interest payments, court documents say.
But within five months, Brown’s payments to the firefighters had slowed, court documents said.
When Dean asked Brown about the payments in a phone call, Brown told him that the improvements to the property were costing much more than he expected, which was his excuse for stopping monthly payments, court documents said.
So the three firefighters flew to Charlotte in 2010 to meet with Brown and tour the property but “it was immediately obvious that little, if any, work had been done in terms of the improvements Brown stated had been made with the Plaintiffs’ money,” court documents said.
Dean said Brown told the firefighters that the downturn in the real estate market had made it difficult to develop the property.
“Brown even admitted that much, if not all, of the money of the Plaintiffs loaned had been used for purposes other than the subdivision, such as payroll expenses for his business,” court documents said.
According to public records, Brown and his wife filed for Chapter 7 bankruptcy in August 2011. He claimed $1,361,096 in liabilities, and the case was completed in December 2011.
In his opinion, Whitley said that Brown made several misrepresentations to the firefighters. First, he claimed to have received approval for a 13-lot subdivision when he had not obtained any.
He also misrepresented the amount of debt he still owed on his office building.
And although the loan did not specify what the money would be used for, Brown implied in his email to the firefighters that he would use the funds for the development of the property, Whitley wrote.
“Brown’s misrepresentations were reasonably calculated to deceive, were made with the intent to deceive and did in fact deceive the Plaintiffs,” Whitley wrote. “Due to Brown’s and the Plaintiffs’ prior successful business relationships, Brown knew that the Plaintiffs would trust and rely on his statements.”
Whitley ordered Brown to pay the three firefighters $667,350 each.
Dean said the ruling was bittersweet.
“We’re delighted in the sense that we feel vindicated but it also feels empty at the same time because odds of collecting any monetary award are almost slim to none,” he said. “But it was important to see it through because we felt so taken advantage of.”
Arriero: 704-358-5945; Twitter: @earriero
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