COLUMBUS, Ga. (CN) - A class action claims a bank and a developer defrauded buyers who invested more than $50 million in a private mountain subdivision that was never built. Investors say the National Bank of South Carolina and developer Keith Vinson rerouted the money pledged for the Seven Falls golf club community to boost the value of the bank stock and for personal trips for bank executives.
Several families and an investment LLC sued Synovus Financial Corp. dba National Bank of South Carolina and Keith Vinson, whose 20 defendant LLCs and two defendant corporations were created to develop Seven Falls, according to the complaint.
According to the 28-page complaint in Muscogee County Court, Synovus and Vinson used aggressive marketing campaigns from 2006 to 2008 to attract investors to Seven Falls, a community and golf club to be built in Henderson County, N.C.
The 1,600-acre subdivision undeveloped land "was represented to include hard surface roads, electric service, and telephone lines to each lot; an Arnold Palmer signature 18 hole golf course," and many other amenities, according to the complaint.
But the plaintiffs say that Synovus and Vinson did not build any roads, nor did they install electric service or other utilities or build the golf course or other amenities they had advertised.
"Millions of dollars has [sic] been wasted or misappropriated," and "the Seven Falls Development is at a virtual standstill," according to the complaint.
"Plaintiffs cannot even drive a vehicle to their property, much less apply for construction permits to build a home."
And, the class claims, the value of the lots at Seven Falls is grossly below the value advertised.
The class claims that the bank and Vinson's companies developed an elaborate marketing plan, which succeeded in attracting more than $50 million in residential lot sales.
In May 2007, the bank and Vinson hosted an event at the Biltmore Estate in Buncombe County, N.C., for the initial lot owners. The event featured free food, beverages and entertainment, "which included live music, ice carvings, and an appearance by golf legend Arnold Palmer, who flew into the party by helicopter," according to the complaint.
After this reassuring extravaganza, the bank and Vinson continued to promote Seven Falls as an investor's and homeowner's paradise, the plaintiffs say. In June 2007, they hosted the Grand Opening of Seven Falls, followed by a private concert for Seven Falls lot owners, featuring The Blues Brothers.
The Grand Opening of the Arnold Palmer Golf Academy at Seven Falls in June 2008 promoted sales of exclusive villas in the Seven Falls subdivision. That event featured an appearance by Arnold Palmer followed by a private concert featuring Kenny G.
Palmer is not a party to this complaint.
Vinson also produced a series of DVDs for the lot owners. "These DVDs conveyed the message that no expense would be spared in the development of Seven Falls," the class claims, adding, "these extravagant marketing tactics were used by NBSC and the developer to persuade consumers into believing Seven Falls was fully funded by NBSC and financially stable."
While aggressively advertising Seven Falls, Vinson promoted NBSC as the preferred lender for the development, the class claims. It claims that the bank loaned the developer more than $90 million and shared ownership of bank accounts with Vinson's companies.
The class claims the defendants created "a misperception of the value of the lots at Seven Falls by falsely representing to plaintiffs that the purchase price of a lot at Seven Falls was significantly below market value and that plaintiffs would have instant equity in their lots upon closing."
They claim the bank solicited and accepted grossly inflated appraisals, which valued the lots as though the development of the subdivision were complete.
They claim that to induce investors to buy lots, NBSC used aggressive lending practices and failed to comply with its own regulations.
The bank offered lending packages that required no down payment for a lot or a golf membership; sometimes promised to cover 100% of the interest on the lot for the first two years and offered cash to buyers at closing, according to the complaint.
"Bank officials employed by NBSC were encouraged by NBSC to issue loans to purchasers of lots at Seven Falls" the complaint states. "Some of these employees were rewarded for such efforts by receiving all expenses paid trips to the Caribbean." After the sale of each lot, NBSC funded a "deposit account" to cover interest payments for two years in the name of each investor; the bank reported the interest payments as income to increase the price of Synovus stock, according to the complaint.
In October 2008, NBSC applied for government benefits under the Troubled Asset Relief Program, the class claims. To qualify for TARP funds, NBSC canceled $63 million of the funds pledged to Seven Falls and prematurely declared a loss on the development - all while NBSC and the developer were seeking new buyers for the Seven Falls lots, according to the complaint.
The class claims NBSC received $960 million from the federal government, none of which was applied toward the Seven Falls development.
Despite its promises, rather than investing in Seven Falls, the "developer has used plaintiffs' money for his own personal gain and for the entertainment of NBSC executives," the complaint states.
The class claims that in February 2008 the developer took NSBC officers on a ski trip to Beaver Creek, Colo., on a private Gulfstream jet. The developer then flew the bank officers to Phoenix to watch Super Bowl XLII, and paid for their rooms, according to the complaint.
"Developer purchased this Gulfstream jet approximately 26 days after NBSC transferred Developer twenty million dollars intended for the development of Seven Falls", the class claims.
The plaintiffs claims NBSC failed to oversee the construction project at Seven Falls or to monitor its progress before approving new draws requested by the developer. The bank officers approved every construction draw because they wanted to continue to enjoy the benefits provided by the developer, according to the complaint.
To top it off, the class claims, NBSC initiated legal action against several investors, including some of the plaintiffs. The class claims the bank foreclosed on lots at Seven Falls, and reported negative information about the plaintiffs to credit reporting agencies.
The class seeks an injunction to stay foreclosure proceedings and to prevent NBSC from reporting negative information to credit agencies. They also seek punitive damages for fraudulent misrepresentation, conspiracy, negligent misrepresentation, breach of contract, deceptive trade, slander of credit, breach of fiduciary duty, and other charges.
The class is represented by Ryan Langley with Hodge & Langley of Spartanburg, S.C.
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