Mon 07/25/2022 17:33 PM
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Relevant Document:
Amended Complaint

On July 15, bondholder representative Greenwich Investment Management filed an amended complaint against SGSL Fee Owner LLC, developer Panther Management Services LLC and Jeff Krinsky, who Greenwich alleges is the “alter ego” and controlling person of both SGSL and Panther. Greenwich alleges that SGSL, Panther and Krinsky fraudulently marketed the $35.8 million of municipal bonds issued by the Capital Trust Agency in April 2019 in connection with the construction of the Sawgrass Grand senior living project in Sunrise, Fla. The lawsuit was filed in the Circuit Court Miami-Dade County, Fla.

Greenwich’s amended complaint says that the project “was a scam from the start.” The defendants enriched themselves by making “numerous material misrepresentations and omissions” about the project, its financing and its progress, which induced Greenwich to buy the bonds, the complaint alleges. Greenwich first filed a complaint in April, three years after the bonds were issued, but the amended complaint is significantly longer and contains additional counts.

According to the amended complaint, the three defendants artificially inflated the purchase price of the property, “deceitfully shirked” their obligation to make a “true cash equity contribution,” which caused a funding deficiency, and “inadequately planned” the construction with a “woefully inadequate” design for the renovation of the facility thereby “dooming the Project from the beginning.”

Greenwich says that the three defendants “failed to comply with their contractual and legal obligations, leading to the collapse of the Project, defaults on the Bonds, and substantial damage to the Bondholders.” The amended complaint’s eight counts include violation of Florida’s securities and investor protection law, Florida’s deceptive and unfair trade practices act, Connecticut’s Uniform Securities Act, common law fraud, negligence and unjust enrichment, as well as breach of the development agreement against Panther and Krinsky and breach of the disclosure agreement against SGSL and Krinsky.

In April, Aurora Management Partners was appointed as receiver over SGSL’s property and SGSL filed a motion to dissolve or modify the order appointing the receiver, raising challenges based on the venue of the receivership proceeding, the appointment of a corporation as receiver and the scope of the powers authorized by the order, as reported. SGSL’s motion has since been denied by the circuit court (but the court “clarified” its prior order to provide that the receivership is only over the mortgaged property).

The “scam” started with the purchase of the property being renovated, according to Greenwich. The purchase price of the property was listed as $6 million in the limited public offering memorandum, which SGSL was supposed to fund with bond proceeds. But Greenwich alleges that a Krinsky-controlled entity was also the seller of the property and that he “inflated” the purchase price to a “pure fabrication” of $15.1 million in an insider transaction “unconstrained by the measures of reasonableness, objectivity, truth, and basic fairness that typically accompany an arm’s-length transaction.” The complaint alleges that Krinsky signed the closing statement for the property on behalf of both the buyer and the seller.

The offering memorandum represented that $26.6 million in bond proceeds would be allocated to the construction account of the project fund. But because the purchase price was ultimately $9.1 million more than represented, the construction account did not contain enough funds to finish the project, Greenwich says.

According to the amended complaint, SGSL has represented that the additional $9.1 million purchase price was a “construction cost” in subsequent disclosures. However, Greenwich characterizes this disclosure as a cover-up and says that the extra $9.1 million “had nothing to do with Construction and was part of the price paid by one of Krinsky’s alter egos paid to another of his alter egos.”

The OM also said that SGSL would make a $6 million cash equity contribution to help fund the project. But part of the equity contribution came from the bond proceeds themselves, rather than an outside investment platform, as Krinsky had separately represented, according to Greenwich. The amended complaint alleges that $3 million of the “inflated” land purchase proceeds, funded with bond proceeds, were “recycled” to cover part of the $6 million equity contribution.

Greenwich says that it “justifiably relied” on the OM’s representation that the project would have had available to it all the $35.8 million in bond proceeds to cover construction and other costs. But because an extra $9.1 million went to Krinsky in connection with the land purchase and a further $3 million was “recycled back into the Project to cover SGSL’s supposed equity contribution,” the project was underfunded, the amended complaint alleges.

Greenwich also alleges that both Krinksy and Panther failed to disclose their “severe lack of experience in converting existing buildings into functional healthcare facilities” in the OM. Panther, Greenwich alleges, is also controlled by Krinsky and as a developer engaged in self-dealing, receiving $250,000 immediately when the bond sale closed.

Despite construction delays and more than 100 change orders throughout 2019, 2020 and 2021, Greenwich says that Panther failed to disclose the project’s deficiencies to Greenwich, in “direct violation” of Panther’s obligations under the development agreement that was assigned to Greenwich.
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