Major investors in Rep. Robert Pittenger’s former real estate company have agreed to forgo potential legal claims in a settlement that would end the Pittenger family’s role in the firm he founded more than three decades ago.
The settlement proposal is the latest twist in a months-long saga over the future of Pittenger Land Investments, which has been the subject of a federal investigation. The congressman has repeatedly denied any wrongdoing.
Attorneys representing the investors said they had concerns about how the company was run, including undisclosed loans, undocumented expenses, and mark-ups applied to land purchases, according to documents outlining the deal that were obtained by the Observer. The attorneys say the documents also suggest Robert Pittenger stayed involved in the company after he transferred ownership to his wife to meet House ethics rules.
Under the settlement, PLI would receive $6 million but give up a potentially more valuable investment stake in the properties it holds. New management would then take over administration of the company, according to the documents.
The agreement still needs approval from investors in all of PLI’s 52 land deals. They’re being asked to vote on the settlement by April 24.
In a letter to investors, Suzanne Pittenger, the congressman’s wife and president of the company, said she welcomes the deal, but believes PLI has “always acted in the best interest” of the company’s investors. The company provided a similar statement to the Observer.
Over the years, PLI identified raw tracts in potential growth areas and gathered investors to buy the properties, which were held by limited liability companies. The goal over time was to make a return by selling the properties to developers. The 52 LLCs are valued at between $275 million and $325 million, according to the settlement documents.
After he was elected to Congress in 2012, Robert Pittenger said he transferred the company to his wife to meet House ethics rules. The Charlotte Republican is currently running for re-election for his third term in the 9th Congressional District, which has been subject to a court-ordered redrawing.
Pittenger Land Investments gained attention in August after Rep. Pittenger acknowledged the company was the subject of a federal investigation.
The Observer has previously reported that federal investigators are looking into personal loans and contributions Pittenger made to his 2012 congressional campaign. The FBI and IRS are examining whether Pittenger improperly transferred the money from PLI.
FBI and IRS agents have interviewed two investors in recent weeks, sources have told the Observer, a sign that the investigation is ongoing.
Pittenger’s attorney, Ken Bell, has said he has not seen anything that “even suggests criminal activity” by his client and that he hopes authorities “act quickly and publicly to absolve” the congressman.
The agreement with investors would end the Pittenger family’s role in the company, and transfer management to a Charlotte real estate firm called South Street Partners. PLI proposed a deal with South Street last year, but investors voted down that transaction, saying it was unfavorable to them.
Proponents of the latest deal say it’s better because it transfers PLI’s ownership stake to the investors and South Street. Some of the $6 million that PLI would receive would be used to pay off debt, according to the documents.
The major investors that reached the proposed settlement, which was disclosed Friday to all PLI investors, are from two North Carolina families, according to the documents.
Michael Haley invested in 38 of the Pittenger LLCs and later transferred the interests, now valued at $9 million, into trusts for his children. Separately, Philip “Flip” Vineyard and other family members invested more than $7 million in 26 of the LLCs.
According to a memo outlining the settlement, the Haleys and Vineyards became “concerned about their investments and the administration of the (LLCs) as a result of a series of events,” including how long it was taking to sell the properties.
In August 2015, the families began requesting books and records from the company. They also hired attorneys from Womble Carlyle Sandridge & Rice, as well as Robinson Bradshaw & Hinson.
Attorneys for the Haleys and Vineyards summarized their findings in the settlement memo and in a letter that Womble attorney Jim Cooney sent to Suzanne Pittenger in December. Among their key points:
▪ The settlement agreement and the letter allege that marketing fees Pittenger charged the LLCs were unsubstantiated or excessive, and that PLI hasn’t produced documentation showing what the charges were for.
“This lack of supporting documentation is especially troubling in light of emails indicating that purported ‘marketing’ charges in 2012 were, in reality, arbitrary amounts that Mr. Pittenger directed PLI to charge the LLCs in response to a cash shortage, with the charges later obscured through application of a ‘marketing’ code,” the letter reads.
The letter contains a February 2012 email purportedly from Pittenger to PLI officials, directing them how much to charge the LLCs for marketing to cover cash needs “to equal $170k.”
The PLI official responds that some of the LLCs will have to pay more: “5k is not enough, will have to take 10k from some. OK?? Is this to be coded to Marketing?”
Pittenger’s response, according to the letter from Cooney: “Yes.”
▪ The letter accuses PLI of improperly taking loans from the land companies, including $902,000 in February 2013.
“The details surrounding these loans are extremely murky,” Cooney wrote. “For example, it is not clear how many of these loans PLI paid back, and the (Haley) trusts have been unable to locate any documentation setting forth the terms of the loans.”
▪ After an Observer report in August about mark-ups that the company applied to properties sold to the investors, the Haleys and Vineyards inspected public records detailing the land purchases, according to the settlement documents. The inspection of 18 deals found that PLI or associated companies applied mark-ups of 15 to 30 percent, the documents state.
PLI has said the mark-ups were standard practice and properly disclosed. But the letter from Cooney calls the disclosure language “woefully insufficient,” adding that the failure to provide adequate disclosure prevented investors from making an informed decision.
▪ The letter also says it is “unclear whether Mr. Pittenger actually transferred his PLI interests” to his wife before he took office, which he was required to do under House ethics rules. Pittenger has declined to release a House Ethics Committee letter that he says approved the transaction.
In addition, the letter cites emails that Cooney says indicate that Pittenger was still conducting PLI business after he went to Congress. The letter includes April 2013 emails purportedly from Pittenger that show him discussing marketing fees with PLI officials.
In a statement to the Observer on Friday, Bell, the Charlotte attorney representing Robert Pittenger, said: “It is indisputable that Congressman Pittenger sold his ownership interest to his wife. The sale was structured by attorneys and accounting professionals, and all documents of sale were drafted by attorneys.”
A Pittenger spokesman has previously said the congressman and his staff “routinely check and double-check with Ethics staff to ensure full compliance with all rules and regulations, and Ethics staff has never raised any concerns.”
Company denies allegations
The documents sent to investors Friday include a letter from Suzanne Pittenger backing the settlement agreement, but disputing any wrongdoing by the company.
“PLI believes that its actions were at all times in good faith and consistent with the Investment Summaries and Operating Agreements,” she wrote. She said all fees were properly disclosed to investors, and that all loans from the land companies to Pittenger were properly repaid or offset with appropriate services.
Of the marketing fees, Suzanne Pittenger said $3.5 million charged to the land companies totaled barely 1 percent of the total worth of the land holdings, estimated at up to $325 million.
“This 1 percent fee is far less than the standard real estate brokerage fee” of 2 percent to 6 percent, Suzanne Pittenger wrote. She said marketing efforts for the properties included meeting with 50 potentially interested buyers, including private equity groups and developers.
“The alleged claims concerning the marketing expenses are without merit,” Suzanne Pittenger wrote, adding: “PLI believes it has always acted in the best interests of its members.”
As for the mark-ups, she said PLI believes they were appropriately disclosed and were necessary for various expenses, including paying for capital raising, property research and market analysis.
If investors approve the settlement, which followed mediation sessions in January, they would be releasing the company and its employees of any legal claims, according to the documents. The Haleys and the Vineyards say they have already spent $1 million in fees examining the books, preparing litigation and negotiating with PLI. Litigating the case could cost as much as $2 million, the documents say.
The Haleys were not available for comment on Friday, but Adam Doerr, a Robinson Bradshaw & Hinson attorney representing the Vineyards, said the family intends to vote for the proposal because it provides “new management for the investments and potential upside for investors.”
“While everyone needs to decide for themselves,” he added, “we hope others will vote in favor of this practical and positive solution.”