Investors Sue CA Ventures, Allege Execs Defrauded Them
A group of investors is suing CA Ventures and two of the company's top executives, alleging the execs misrepresented their intentions for spending investor dollars.
The investors, spearheaded by an LLC named TCP GP Fund I Aggregator, claim they're out most of the $14M they gave to CA Ventures entities in 2021 and 2022, according to The Real Deal.
The lawsuit, filed in Cook County this month, alleges CA Ventures CEO Tom Scott and Chief Investment Officer John Diedrich told investors they would use the money to back developments, but instead they used funds to repay maturing loans that the pair had made personal guarantees to pay off.
Now, some of the projects investors believed were in development have stalled, in part because CA Ventures didn't provide additional funding for them, the lawsuit says.
Scott told TRD the allegations are “outrageous.” Scott, Diedrich and CA Ventures plan to contest the allegations in court, their attorney David Rammelt told the outlet.
The investors claim in the suit that CA Ventures, Scott and Diedrich used their funds to restructure debts to Brigade Capital Management, making guarantees to the lender that left investors unknowingly in an undercapitalized position, according to TRD.
Brigade later found out that CA Ventures had diverted funds meant to pay down the loan for other purposes, violating its loan terms, the suit says. The New York-based lender then put its CA Ventures loan into default and demanded immediate payment. As of March, CA Ventures still hadn't paid the debt, TRD reported.
CA Ventures' attorney said the investors' suit was tantamount to making a mountain out of a molehill.
“It has been an extremely challenging environment for everyone, and like the other major players in this space, CA Ventures has not been immune from these apocalyptic market forces,” Rammelt told TRD.
“It is unfortunate when sophisticated investors, who should fully understand the risks associated with real estate speculation, ignore the realities of the marketplace and attempt to contort what is, at best, a garden variety breach of contract claim into alleged ‘fraud’ or something equally nefarious.”
CA Ventures faces a host of legal challenges alongside this most recent lawsuit.
The developer is staring down up to three foreclosure lawsuits on North Side multifamily properties after falling behind its debt repayment. In April, former executives got into a legal dispute over whom the company is obligated to pay first after exit agreements, which delayed a planned spinoff of CA Ventures' industrial arm. That deal was set to close earlier this year.
The company's list of additional legal and financial troubles since March 1 includes:
- California-based lender ACORE foreclosed on Anthology of Tanglewood, a 230-unit senior living facility in Houston, after CA Ventures defaulted on its $72.1M loan.
- An investor sued CA Ventures, alleging it is owed the more than $10.5M it put into a West Sacramento multifamily project because the company failed to come up with its agreed-upon portion of the funding for the development.
- A lawyer defending the firm in a $3M dispute with investors asked a judge to withdraw from the case because CA Ventures hadn't paid him for the work.
