Court-Appointed Adviser: 'Overwhelming Evidence' CRE Firm ICap Equity Was Running Ponzi Scheme
A Seattle-area real estate investor and manager that raised some $250M from individual investors has been accused of running a Ponzi scheme by a third-party restructuring company that is combing its books on the heels of a bankruptcy filing.
Bellevue, Washington-based firm iCap Equity and its related entities first stumbled when they halted 2022 monthly interest repayments and failed to fully repay investors, prompting investors to sue the company, The Seattle Times reported. In September, iCap filed for Chapter 11 bankruptcy and Paladin Management Group was tapped by the court to step in, court documents show.
Now, Paladin alleges that the since-shuttered iCap owes payments to thousands of parties and was running a Ponzi scheme, pointing to “overwhelming evidence.” It further alleges fundraising activities “were almost 10 times greater than revenues from real estate activities,” according to court documents reviewed by Bisnow.
Multiple parties have filed lawsuits accusing the firm, its founder and CEO Chris Christensen and related entities of fraud. A bankruptcy court will now determine if and how repayment would be distributed, including funds owed to the IRS and Snohomish County, Washington, authorities.
Investors’ attorneys and Paladin are seeking supplemental secured financing and a cooperation agreement to claim $250M on behalf of 1,800 individuals.
iCap owned at least 10 properties that failed to make sufficient returns to repay investments, court documents allege. Court filings also claim that from 2013 to 2022, iCap placed $103M in real estate projects but only made a total $1.4M net return.
The rate of low return over that time period “implies that [iCap] would not have been able to pay off the investors from the appreciation in its real estate investments, but had to use funds raised from others,” Jeffrey Kinrich, an accountant and consultant hired to review iCap’s internal records, wrote in filings last week.
“This is highly indicative of a Ponzi scheme,” Kinrich wrote.
The company reportedly disclosed in a May 2021 memo that its entities had been operating with negative cash flows since their inception after initially promising 10% returns, per court documents.
iCap specifically targeted Chinese and Chinese-American individuals, plaintiffs allege.
One such investor, Lilian Tan, relocated to the U.S. in 2015. From 2020 to 2021, she invested a total of $1M into iCap, money Tan said she planned to use to pay college tuition for her two children, according to the Times. That money hasn’t been returned, Tan told the outlet.
A lawsuit has also been filed against a limited liability company affiliated with Christensen’s brother, Jim, though his name has since been dropped from the suit. The iCap affiliate sold a six-story apartment building for $44M in July, two months before iCap filed for bankruptcy.
Investors put money into iCap through at least 16 independent broker-dealers, according to forms filed with the Financial Industry Regulatory Authority.
One broker-dealer is being directly sued by two investors. Somerset Securities Inc. has been sued by two investors in their 70s for breaching fiduciary duties, a separate suit document shows.
Christensen has fired back against allegations of running a Ponzi scheme.
“Mr. Christensen strongly disputes the allegation that iCap operated as a Ponzi scheme,” Christensen’s attorneys said in a statement to the Times. “Mr. Christensen will submit his evidence and argument to the Court at the appropriate time.”
